Two decisions by the FAI Board and arbitral tribunal allowing the arbitration to proceed regardless of a jurisdictional objection

The following is a brief account of two recent cases where the arbitral tribunal confirmed its jurisdiction to hear the merits of a dispute after the FAI Board had first made a prima facie jurisdictional decision to allow the arbitration to proceed pursuant to Article 14 of the FAI Rules.

Case 50/2013

In case 50/2013, the parties had concluded two different but related contracts: (i) an original Purchase Agreement and (ii) a subsequent agreement, which modified certain terms of the original agreement. There was no dispute resolution clause in the Purchase Agreement; only the subsequent agreement contained an FAI arbitration clause.

The claimant sought compensation from the respondent based on an alleged breach of a non-compete obligation set forth in the Purchase Agreement. The respondent raised a jurisdictional plea, claiming that the dispute fell outside the scope of the arbitration clause because (i) the arbitration clause covered only disputes relating to the subsequent agreement in which the clause was inserted, and (ii) the subsequent agreement did not impose any non-compete obligation upon the respondent.

The FAI Board allowed the arbitration to proceed pursuant to Article 14.1 of the FAI Rules, finding that there was prima facie evidence pointing to a possible existence of a binding arbitration agreement covering the dispute. The sole arbitrator subsequently appointed concurred with the Board’s prima facie determination. Faced with the respondent’s jurisdictional plea, the arbitrator issued a separate decision confirming jurisdiction based mainly on the following grounds: (i) the Purchase Agreement and the subsequent agreement constituted de facto a single economic transaction, and (ii) absent special reasons to the contrary, commercial contracting parties cannot ordinarily be presumed to have intended that disputes arising out of different contracts that are so closely related as to form one economic transaction should be resolved in different dispute resolution procedures (in this case, partly before a state court and partly in FAI arbitration).

Once the arbitrator had established that he had jurisdiction over the substance of the dispute, he proceeded to render an award on the merits.

Case 55/2013

In case 55/2013, a jurisdictional dispute arose between two Finnish companies in a situation where the arbitration clause invoked by the claimant was embedded in a draft agreement not signed by either party. The respondent contested FAI’s jurisdiction on the grounds that it had neither accepted the substantive terms of the draft agreement nor consented to the arbitration clause contained in it.

Based on the documentary evidence before it, the FAI Board was prima facie satisfied that an arbitration agreement binding on the parties and referring to the FAI Rules “may exist” within the meaning of Article 14.1. Therefore, the Board allowed the arbitration to proceed and constituted a three-member arbitral tribunal in accordance with the arbitration clause upon which the Request for Arbitration was based. Since the respondent maintained its jurisdictional objection before the arbitral tribunal, the latter proceeded to issue a separate decision on jurisdiction pursuant to Article 32.1 of the FAI Rules.

The arbitral tribunal first noted that “it is a well-established and fundamental principle of law that an arbitration agreement is a separate and independent agreement even when incorporated into a contract”, and that “the validity and enforceability of an arbitration agreement is not dependent on the validity and enforceability of the underlying contract meant to be covered by the arbitration agreement”. This so-called “doctrine of separability” is firmly established in the Finnish arbitration law and practice.

Second, the arbitral tribunal noted that in order for a valid and binding arbitration agreement to exist under Finnish law, the agreement must nonetheless fulfil the “written form” requirement set forth in Section 3 of the Finnish Arbitration Act (967/1992). According to said provision, the arbitration agreement is deemed to be in writing if it is contained, inter alia, (i) in a document signed by the parties, or (ii) in an exchange of letters between the parties, or (iii) in an exchange of “telegrams or telexes or other such documents produced in a corresponding manner”.

The arbitral tribunal then analyzed the evidence presented by the parties, and found that they had already before the preparation of the draft agreement exchanged emails where they had agreed to insert an FAI arbitration clause in the future agreement. Based on this finding, the tribunal concluded that there indeed existed a valid arbitration agreement binding on the respondent. In the words of the tribunal: ”In light of the evidence both the Claimant and the Respondent (…) have allegedly by ordinary mail and in any case by e-email (constituting ”in another corresponding manner” under Article 3 of the [Finnish Arbitration] Act) exchanged messages expressing their willingness to agree on an arbitration agreement of identical wording. Neither party has raised any objections. Based on this documentary evidence (…), and applying Article 3 of the Act, a valid and enforceable arbitration agreement has been formed between the parties.”

Finally, the arbitral tribunal mentioned that “it is, however, another issue whether or not the claims to be made and the relief sought in these proceedings are covered by the arbitration agreement so formed (‘scope of the arbitration agreement’). Such objections may be raised first once a Statement of Claim with sufficient specification and elaboration has been submitted in these proceedings. Once so submitted the Respondent may raise objections that any of the claims made are not within the scope of the arbitration agreement (…) This Procedural Order and Decision is without prejudice to any such objection or contention raised by the Respondent”.

As the parties ultimately settled the case amicably, there was no need for the arbitral tribunal to take a stance on any further jurisdictional questions or to issue an award on the merits.


Reported by Mika Savola

Chair, FAI Board

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