Thought leadership from our experts

Recent Developments in Commercial Arbitration in Finland

Arbitration has a long-standing tradition as a method for resolving commercial disputes in Finland. For example, the Arbitration Institute of the Finland Chamber of Commerce (FAI) was established already in 1911, which makes the FAI as one of the world's oldest arbitration institutes. The current Finnish Arbitration Act in force dates back to 1992 and, although it is not ad verbatim adoption of the UNCITRAL Model Law, it is considered to be in line with the Model Law.

In recent years Finland has, however, witnessed further growth in the popularity of arbitration as a favored dispute resolution method. This has also led to positive changes and developments in the field – both cultural and regulative.

New rules of the FAI

One factor contributing to the positive changes in the realm of commercial arbitration in Finland was the revision of the arbitration rules (FAI Rules) and rules for expedited arbitration (FAI Expedited Rules) of the Arbitration Institute Finland Chamber of Commerce, which entered into force on 1 June 2013.

The new FAI Rules were carefully drafted to conform to the best international practices. With new provisions, for example, on multi-party and multi-contract proceedings, interim measures of protection and emergency arbitration, the FAI Rules and FAI Expedited Rules are well-suited for all types of commercial disputes, from small-scale domestic cases to complex international disputes.

One of the main goals of the revision was to increase the expediency and cost-efficiency of arbitration. In order to achieve this, several new provisions were included in the revised Rules, obligating both the parties as well as the arbitrators to see that the dispute can be solved without unnecessary costs or delays.

Efficiency of the proceedings is safeguarded under the new FAI Rules. As per article 42 of the FAI Rules the final award must be issued within nine (9) months from the date on which the tribunal received the case file from FAI (unless extension is granted by the FAI). In 2014, the average length of the arbitrations managed by FAI was approximately 8 months, which is a short time on any comparison.

Although one must wait for a couple of years more to see if the new Rules will result in a permanent increase in the number of institutional arbitrations under the FAI Rules, the revision of the rules has been warmly welcomed by the users and has already resulted in a record year in 2014.

In connection with the new Rules, the Board of FAI was extended to include also prominent international members, thereby ensuring best possible expertise also in international cases.

New case law from national courts

Particularly in the past year or two, there has been a noticeable increase in the number of arbitration awards that are being challenged on one ground or another. Awards have been challenged e.g. on the grounds of alleged partiality of arbitrators, excess of power and invalidity of the arbitration agreement.

Although this particular trend can be seen as negative (threatening the finality of arbitral awards) the resulting new case law from the national courts can also be considered as contributing to the development of the Finnish arbitration regime. For decades, the praxis has been scarce, and the interpretation of the Arbitration Act has mainly rested on legal literature. For example, the question of impartiality of arbitrators includes some particularities in small jurisdictions like Finland where the arbitration practitioners are few but not so far apart. Guidance from the national courts in the form of case law helps to establish the boundaries, thus providing a positive input to the arbitration community.

So far, the decisions from the Finnish courts have been well in line with the best international practices, i.e. the courts have applied a restrictive approach, upholding the finality of the awards and there are no signs that this approach would be changing. Finland will surely remain an "arbitration –friendly" jurisdiction, with (hopefully) more case law to rely upon.

Increasing diversity

Generally, arbitration has been particularly popular in construction and transaction related commercial disputes. As a recent development we have seen increasing diversity in the subject matter of the disputes. Increased diversity is naturally welcomed by arbitration lawyers.

This diversity can also be seen well in the FAI statistics from 2014 (cases resolved under the FAI Rules and FAI Expedited Rules). The subject matters include, e.g., company acquisitions and sale of business 17%, shareholders' agreements 14%, franchising and cooperation agreements 8%, agency and distribution agreements 6%, delivery and supply agreements 6% as well as IT agreements 5%. Construction disputes (which have been traditionally seen as a common subject matter) were only at 3 %, making construction disputes equaling the amount of IPR/license agreement disputes.

Furthermore, we are seeing also more diversity in the nationality of the parties involved. In 2014, 22 % of the cases filed with the FAI were of international nature, i.e., involving at least one non-Finnish party. These included parties from the Nordic countries, Russia, Estonia, France, Germany, India, Poland, Switzerland, UK and USA.

In addition to the disputes arbitrated under the FAI Rules, ad hoc arbitrations are commonly used in Finland. Although no statistics exist, it is our perception that the same trend of increasing diversity is being evidenced outside institutional arbitrations as well.

New generation of arbitration lawyers

The positive atmosphere and new enthusiasm can also be seen in the young generation of arbitration lawyers.

Young Arbitration Club Finland ("YACF"), an association for young lawyers and other professionals interested in arbitration and alternative dispute resolution, was founded in 2012. YACF seeks to promote arbitration in Finland and to increase awareness of Finnish arbitration abroad by providing lawyers aged 40 and below an easy-going forum for exchanging views and networking. Today, only three years later, YACF already has a strong standing nationally and it is also increasing its international profile.

In an effort, for its part, to ensure that the pool of qualified arbitration practitioners will continue to increase in Finland, the FAI launched the Finnish Arbitration Academy in 2014. The Academy's 8 modules, each 4 hours, aim to provide especially younger practitioners with the necessary tools to effectively participate in arbitrations both as counsel and as arbitrators in accordance with current best practices and standards.

Looking to the future

All in all – the positive energy in the market does make the future look bright.

The new FAI Rules and the increase of case law from national courts has slowly led to the arbitration community debating on a potential amendment of the Finnish Arbitration Act. Although no official reform has been initiated so far, expectations are high that new winds will blow also towards the well-served Finnish Arbitration Act in the near future.