According to an arbitral award, Taewoong Inc. was ordered to pay compensation of approx. EUR 3 million to AH Industries A/S for breach of a number of terms under a distributor agreement between the parties. The Supreme Court was to decide whether the award was to be set aside as invalid.
Before the Supreme Court, Taewoong Inc. claimed that during the arbitration proceedings, Taewoong Inc. was prevented from presenting its views on decisive matters, which was contrary to fundamental principles on for instance contradiction. Further, Taewoong Inc. also claimed that contrary to section 28 (3) of the Arbitration Act, the tribunal had made an award based on an assessment of equity without the parties' consent. Finally, Taewoong Inc. claimed that the award was contrary to ordre public. The reason was that the award enforced the distributor agreement, which, according to Taewoong Inc., was contrary to EU competition law (article 101 of the Treaty) and therefore also contrary to ordre public.
Under section 37 (2) no. 1, paragraph b of the Danish Arbitration Act, an award may be set aside by the ordinary courts if the tribunal has considered the case in such a way that a party has been unable to present its case, including, according to the legislative history behind the rule, if fundamental principles on for instance contradiction have been set aside. Under section 37 (2) no. 1, paragraph d of the Arbitration Act, an award may also be set aside if the arbitration procedure was not in accordance with the agreement or the Act. Finally, an award may be set aside as being contrary to ordre public if very serious errors exist with the effect that the award is manifestly contrary to the legal system, cf. section 37 (2) no. 2, paragraph b of the Danish Arbitration Act.
The Supreme Court found that it had not been substantiated that the tribunal's construction of the distributor agreement was outside the framework of the pleas and submissions made by AH Industries A/S. The Supreme Court therefore ruled that Taewoong Inc. had not been unable to present its case, and that the tribunal had not set aside fundamental principles. Further, the Supreme Court found that it had also not been substantiated that the tribunal's estimate concerning damages amounting to approx. EUR 3 million was the result of an assessment of equity contrary to section 28 (3) of the Arbitration Act, according to which the tribunal had not set aside the agreement or the Arbitration Act's provisions on consideration of the case. On this basis, the Supreme Court ruled that the award could not be set aside under section 37 (2) no. 1, paragraphs b and d.
Finally, the Supreme Court also ruled that there were no grounds for establishing that the award was manifestly contrary to the legal system. The Supreme Court therefore ruled that conditions for setting aside the award as invalid under section 37 (2), no. 2, paragraph b had not been fulfilled.
This case is interesting as it shows that an arbitral award, even if contrary to EU competition law, is not necessarily considered manifestly contrary to the Danish legal system and that it can (therefore) be enforced.
Peter Gregersen, IDI agency & distribution country expert for Denmark