1.of rights only The Supreme Court’s assessment in Electrolux was limited to BFL’s secondary claim. The secondary claim was based on the argument that rights only, emanating from the warranty in the SPA, had been transferred to BFL, and with it the right to have warranty claims tried in arbitration. As mentioned, the general contract law principle concerning transfers of rights only is more lenient since rights are freely transferrable.s. 638
2.However, despite the more lenient contract law principle, the main rule on automatic transfer of arbitration agreements together with a right only contains an important caveat. Since Emja it has been argued that arbitration agreements bind the transferee (C) and the remaining party (A) — unless “special circumstances” apply. Thus, it has been said that Swedish law “adopts a middle position” on this point, and in the following the article will therefore elaborate on what that middle position entails for the remaining party (A). 4.1 Case law before Electrolux As described under sections 1 and 2 above, Emja remains the only Supreme Court decision on singular succession and arbitration agreements. To the author’s knowledge, the only other case-law available that touches on the subject is NJA 2000 s. 538 (Bulbank), where one of the issues in dispute before the District Court was the remaining party’s (A) duty to arbitrate with the transferee (C) of a right, and the published award Aplha S.p A. ./. Beta Co Ltd.s. 639
3.In Bulbank, as in Electrolux, it was the transferee (C) who initiated proceedings against the remaining party (A). The remaining party, Bulbank, argued that they were not bound vis-à-vis the transferee due to special circumstances — they opposed the transfer, and by arbitrating with the transferee Bulbank would incur greater expenses. According to the District Court, these general arguments did not amount to “special circumstances”, which would require an “extraordinary character”. The meaning of “extraordinary character” was not further defined however, and the issue was not included in the Supreme Court’s assessment.s. 639
4.In Aplha S.p A. ./. Beta Co Ltd. the remaining party’s (A) duty to arbitrate with the transferee (C) was also tried. Unfortunately, there was some confusion whether the arbitrator treated the question as a transfer of the whole contract or as a transfer of a right only. Although it has been argued that the arbitrator should have assumed jurisdiction based on Emja and Bulbank, it must be concluded that the case provides little guidance, due to the mentioned uncertainty and the fact that the case was never tried by the courts. 4.2 Binding effect does not necessarily have to be based on a strict application of contract law principles As has been pointed out, Emja was decided on a balancing of policy arguments rather than a strict application of contract law principles. This has been criticised as an inappropriate justification for binding effect since it violates the contractual foundation of arbitration. The critics argue that the binding effect of the arbitration agreement ought to be based on contract law.s. 639
5.Important arguments in favour of applying a more fundamentalist contract law approach are that conceptually arbitration is founded on contract and its consensual nature is a fundamental aspect, that international awards can only be enforced with the authority of the New York Convention if jurisdiction of the arbitrators was founded on contract and that it is necessary for commercial predictability, especially since Emja did not indicate the weighting between different policies.s. 640
6.The policy arguments from Emja also leave other uncertainties. It is difficult to know in advance what kind of policy arguments are relevant, and to what degree they need to be present, in order to override a non-binding conclusion reached by an application of contract and corporate law. This issue is reinforced by the lack of guidance given by the Supreme Court in Emja.s. 640
7.It has also been argued that one of the key aspects of the court’s argumentation in Emja, to avoid a limping binding effect that would give the remaining party the right to speculate on the type of procedure, was not achieved with the Supreme Court’s solution. This is because, in Heuman’s view, only the remaining party (A) is entitled to invoke the “special circumstances”, thus in practice creating an option for the remaining party. Although this is a reasonable view, it does not in fact undermine the Supreme Court’s solution in Emja to any extent since the “choosing” lies with the courts who must either accept or dismiss the remaining party’s request. As has been pointed out by Lindskog, that is arguably something quite different than a right for one party to freely speculate on the choice of procedure.s. 640
8.Reliance on formalistic arguments may also produce unjust results and any attempt to explain the binding effect solely with contract law tools will “inevitably lead to an untenable fiction”. On this view, the use of policy arguments is necessary in order to defuse the transferor’s opportunity to extricate himself from the arbitration agreement by transferring the right. As has been suggested, the problem is better approached with a view to strike a workable balance between the contractual foundations and business needs for flexibility.s. 641
9.An attempt to solve issues addressed in Emja with strict contract law rules can exemplify the above. Possibly, the risk for the remaining party (A) to be forced to arbitrate with a financially weaker opponent (C) and bearing the risk of the cost for the procedure could be remedied through an application of 36 § of the Contracts Act. It could also be argued that a binding effect between the new parties (A-C) could come about through the actions of the parties since agreements can be entered orally or through implicit acquiescence. In addition, as in general contract law there is no written requirement for arbitration agreements under the SAA. However, an application of general contract law will not afford the remaining party sufficient protection against the extrication problem — there is nothing in general contract law that prevents the counterparty to transfer a right in order to escape the arbitration.s. 641
10.A strict application of contract law also results in a problematic contradiction. Contract law theories, and their indivisible focus on consent, require that implicit consent is clear and proven in full. Even the parties’ actions must be construed using established principles and practices of interpretation. Consequently, efforts to accommodate the strict contract law theories to changing needs and business realities has forced the theory of in favorem validitatis to creep into these arguments. However, in the context of binding nonsignatories, it has been resolutely stated that, since parties may just as well choose to settle disputes in courts, such principle of interpreting arbitration agreements ought not to be applied. If no presumption can be made regarding the intention to arbitrate, the alternative to the application of policy arguments when maintaining a strict application of contract law theories is to lower the threshold of consent. That is the opposite of what these theories aim to achieve. In addition, it is difficult to see why arbitration agreements would warrant a lower threshold of consent than prorogation agreements, or any other contract for that matter.s. 641
11.In contrast, a balancing of interests like that in Emja displays an example of how the balancing act between the consensual nature of arbitration and business realities can be handled. It is submitted that the policy arguments that the Supreme Court resorted to in Emja are not as controversial as they have been portrayed. Even if clad in different clothes, arguments like those proposed in Emja are found in international case law as well.s. 642
12.Despite the criticism levelled against it, the Emja decision stands for the proposition that policy arguments can be used to ascertain a binding effect between the new parties. It also stands for a pragmatic and practical approach to the doctrine of separability, in line with what was argued in section 0 above. In contrast to what Heuman suggests, it is submitted that the government’s position as expressed in the preparatory works also displays acquiescence to the use of policy arguments and an adherence to pragmatic and practical concerns. This is a reasonable view in a field of law that develops quickly and must be able to adapt to business needs. It also follows from the discussion above that resorting to policy arguments is necessary to prevent the extrication problem. In the view proposed here, doing so openly rather than through a convoluted and untenable application of contract law, is straightforward and mitigates the worries for lacking predictability. It is another matter that “special circumstances” still need to be further defined.s. 642
13.Unfortunately, Electrolux did not clarify how this should be dealt with. However, the Supreme Court’s construction of the transfer of the arbitration agreement “from an arbitration perspective”, although surprising, displays again an acceptance of pragmatic and practical concerns and reinforces the argument submitted above that Swedish arbitration law does accept policy arguments. In line with what has been argued above, it is therefore submitted that policy arguments should remain a possible justification for a binding effect of arbitration agreements after singular succession. 4.3 The Emja rule for remaining parties represents the state of the law despite its obiter dictum character In Emja it was the remaining party (A) who sought to rely on the arbitration agreement against the transferee (C).In addition to the case before them, the Supreme Court added in Emja that if the standing of the parties had been inverted, the remaining party would also be bound to arbitrate unless “special circumstances” apply.s. 642
14.It has been proposed that the rule concerning remaining parties is only an obiter dictum and as such has low precedent value.According to this view, the Emja rule for remaining parties is only decisive to the extent that it is justified by its arguments. The court’s main argument was that a limping binding effect would allow the remaining party to speculate on the type of procedure.s. 643
15.Lindskog is of the opinion that the limping binding effect is not in fact an imperative argument to bind the remaining party to the arbitration agreement. Instead, the fact that the new parties (A and C) have not actually entered a new arbitration agreement outweighs the arguments in favour of holding the remaining party (A) bound. Lindskog also points out that with regard to the contractual foundation of arbitration, and the fact that there is no arbitration agreement between the new parties, the dislike for a limping binding effect should more appropriately result in neither party being bound. However, since there are imperative arguments in favour of binding the transferee (C), Lindskog argues that a limping binding effect will have to be accepted.In addition, the court’s opening for “special circumstances” in Emja implies that a limping binding effect is not essential to avoid.s. 643
16.Other commentators maintain that the Emja decision is the state of the law also for remaining parties. Since the Supreme Court did not clarify these issues in Electrolux, it is submitted that much speaks in favour of regarding the Emja rule as the state of the law, despite its obiter dictum character.s. 643
17.The reason for the view argued here is that it is preferable to treat both parties equally and avoid the limping binding effect. Allowing one party the benefit of choosing seems unreasonable.In order to provide necessary business certainty and a rule that is in line with the expectations of both domestic and international parties, the starting point should be that both parties (A and C) remain bound by the agreement.This should apply despite the argument that the Emja rule contains an uncertain exception.In the view argued here, the “special circumstances” from Emja are no more uncertain than the diverse rules on transfer applicable in other jurisdictions and the unpredictability associated with fictitious applications of contract law justifications commonly used. What is more, the main rule for remaining parties is in fact quite certain and, considering Bulbank, the room for exceptions seems quite limited. In addition, all this criticism means is that the safety valve from Emja still requires further clarification, not that the solution as such is inappropriate. 4.4 The impact of NJA 2015 s. 1040 on the Emja rule and the standing of remaining parties The above conclusion that the Emja rule represents the state of the law for transfers of arbitration agreements must also be considered in relation to another recent development in Swedish contract law. Following the Supreme Court’s judgment in NJA 2015 s. 1040, it has been established that a remaining party (A) cannot generally rely on transfer restrictions contained in a contract against a third party (C), even if a wrongful transfer may give rise to damages between the original parties (A and B). This relates to the debated issue of what effect transfer restrictions included in the substantive contract have on the arbitration clause contained in the same contract.s. 643
18.The Emja rule for remaining parties is based on the assumption that, in general, the original party (A) prefers to stay bound by the arbitration agreement also against a new party. However, if that presumption is rebutted, for example because the original parties (A and B) find that the main rule from Emja is unduly burdensome, the fundamental arbitration principle of party autonomy demands that there is some contractual resort available to them. However, this requirement may collide with the Supreme Court’s statement in NJA 2015 s. 1040.s. 644
19.As opposed to what has been argued by most commentators both domestically and internationally, NJA 2015 s. 1040 seems to rule out the possibility that a transfer restriction contained in the substantive contract should exclude a binding effect of the arbitration agreement between the new parties (A and C). For arbitration purposes, the conclusion from NJA 2015 s. 1040 may be, although it seems overly formalistic, that transfer restrictions have to be inserted in the arbitration agreement itself to be effective against a transferee. If they are, it is submitted that restrictions contained in an arbitration agreement should be effective against a transferee (C) regardless of the Supreme Court’s statement in NJA 2015 s. 1040.s. 644
20.It would be unfortunate if the above is in fact how the impact of NJA 2015 s. 1040 on arbitration law is to be understood. Indirectly, it results in a strengthening of the doctrine of separability and increased theoretical formalism that is contrary to what was argued in section 0 above. Further, it deviates from the prevailing view internationally; it is formalistic to require the transfer restriction to be written in the actual arbitration agreement; it assumes that the parties have insight in the consequences of where in the contract a restriction is written; and it requires parties to understand that transfer restrictions have to be stipulated twice in the same contract, with different legal implications. It is doubtful whether such insight can be expected, or should be required.s. 645
21.The alternative however, to construe the Supreme Court’s judgment in NJA 2015 s. 1040 as ruling out effective transfer restrictions in arbitration agreements altogether, would be even worse. It would contravene one of the most fundamental principles of arbitration, party autonomy, and it would deviate even more from what can reasonably be expected by commercial parties in Sweden and abroad. 4.5 The meaning of “special circumstances” in the Emja rule Assuming that the rule pronounced in Emja remains the state of the law for original parties after singular succession of rights, it is necessary to determine the contents of “special circumstances”. Unfortunately, the Supreme Court did not provide much guidance in this regard in the Emja judgment, nor was it clarified in Electrolux.s. 645
22.As mentioned, the meaning of special circumstances has been considered at the court level once shortly after Emja was decided.In Bulbank the District Court found that the remaining party’s arguments were only of a general nature and did not amount to special circumstances. The court further noted that special circumstances need to be of an “extraordinary character”. This tells us that the scope of the exception has been construed to be quite narrow, but the statement has low precedent value and does not elaborate further on what circumstances might be of interest. 4.5.1 Special circumstances from the Emja judgment A couple of relevant circumstances can be inferred directly from the Supreme Court’s statements in Emja. The arguments presented in the court’s discussion against keeping the original party bound to arbitrate are generally accepted as examples of “special circumstances”. These include cases where the identity of the original parties affected the choice of dispute mechanism, and where the transferee (C) is in a dire financial position.s. 645
23.Admittedly, the circumstance relating to the financial standing of the transferee (C) leaves some issues open — at what point in time is the transferee’s financial position to be assessed? how grave must the financial position be? And bad finance compared to whom? At least regarding the latter two, it has been argued that the exception for special circumstances does not apply unless the transferee’s ability to pay is “clearly insufficient”. Regarding the last issue it makes sense to require the transferee’s (C) financial position to be worse than the transferor’s (B) standing. It would not be reasonable to apply the exception when the transferor was in equally bad shape as the transferee — the point of the exception is to relieve the remaining party from a material change in the duty incumbent upon him. Naturally, these two aspects must be applied together. Grave financial standing is difficult to define in abstracto, and even if C’s standing is worse than the transferor’s (B) it could still be sufficient to afford both parties’ (A and C) costs of the proceedings. As seen the questions must be answered in relation to each other and on a case-by-case basis. 4.5.2 Other possible special circumstances More difficult is the endeavour to find special circumstances not mentioned in Emja. Closely related to the notion of a special connection between the parties, is the case where the procedural arrangements of the agreement rule out a binding agreement with the transferee (C). Consider if the original parties are a Russian and a US company who agree to arbitrate in Stockholm, and the language of the arbitration is Swedish. If one party subsequently transfers the agreement to a Swedish company this could amount to a special circumstance that liberates the original party from its duty to arbitrate.s. 646
24.Further, it is possible that the assessment of “special circumstances” in a particular case could be affected by the wording of the arbitration agreement. Internationally, in both case law and doctrine, weight has been lent to the character of the arbitration clause and whether it is a general “catch-all” type agreement or a case-specific agreement.The more of an open “all disputes” kind of clause there is, the more reason to hold the parties bound to it. Under Swedish circumstances there is no evidence of this type of reasoning. However, the more general the arbitration agreement, the more difficult it would be to establish that the identity of the parties was a vital condition. Thus, it is submitted that the agreement’s wording can affect the assessment of special circumstances, at least indirectly.s. 647
25.It could also be argued that weight could be given to the perceived motives the parties had for choosing arbitration. The contents of the contract and types of disputes that were envisaged may have affected the choice of dispute mechanism. In Electrolux for example, arbitration may seem a natural choice for both parties because of its confidentiality. A warranty claim is a typical issue that could arise under a share purchase agreement, and neither party would benefit if it became public knowledge that Electrolux’s dry cleaning operations had caused contaminations. The contractual duties of the parties in Electrolux also imply that the environmental warranty was a sensitive issue, and much of the contractual regulation related to it was included for the benefit of Electrolux. In such circumstances it could be argued that it would be exorbitant if Electrolux could extricate themselves from the arbitration. Their main argument for choosing arbitration would not change because the identity of the counterparty did. This line of reasoning resembles the theory of “arbitral estoppel” mostly applied in common law jurisdictions, but there is no corresponding theory in Swedish arbitration law and it has to be considered uncertain to what extent Swedish courts and arbitrators would accept arguments of this kind. 4.5.3 Procedural Issues Lastly, a procedural issue related to the application of “special circumstances” deserves attention. It is not clear from Emja what is required of the remaining party (A) to show that special circumstances are at hand. Since the special circumstances are formulated and defined by reference to what the court envisaged are generally relevant interests and reasons for choosing arbitration, it could be argued that simply invoking them would be enough. However, in the interest of predictability and to prevent the main rule from eroding into an exception, more should be required from the remaining party. It has been argued that the arbitral tribunal may not be refused jurisdiction unless a “well debated and thoroughly analysed aspect of the case” amounts to a special circumstance. Since “special circumstances” are just a safety valve from the main rule, this is a sensible view. It is also supported by the construction of special circumstances in Bulbank.s. 647