Journal of International Arbitration 23(1):95--]00,2006. © 2006 Kluwer Law International. Printed in The Netherlands.
The Finnish Supreme Court and the Liability Of
Arbitrators
Gustaf MoLL1 R*
I. INTRODUCTION
On January 31, 2005, the Finnish Supreme Court gave its judgment in a case con¬cerning arbitrators' liability.; An arbitral award had been set aside as the chairman of the arbitral tribunal could have been challenged on grounds of which the parties, at whose request the award was set aside, had not been aware before the award was rendered. The arbitrator was found liable to compensate these parties, who had been claimants in the arbitral proceedings, for the costs and expenses they had incurred because of the arbitral proceedings. This case, Ruolas v Pro, fessor J. Tepora, is apparently the first reported Finnish case concerning an arbitrator's liability.
There is no provision on arbitrators' liability in the Finnish Arbitration Act. 2 How¬ever, it seems that in practice, the question of an arbitrator's civil liability arises extremely rarely in Finland.
II. BACKGROUND
The arbitral proceedings concerned a dispute which arose out of a sale of shares in 1993. The sellers Unto, Sirkka and Jukka Ruola ("the Ruolas") were the claimants (and respondents to the counterclaim), and the purchaser Rakennustoimisto A. Puolimatka Oy ("Puolimatka") was the respondent (and counterclaimant). Puolimatka's owners, Kansallis-Ylityma Oy and Merita Pankki Oy ("the banks"), were intervening parties. The claimants, jointly, and the respondent each appointed one arbitrator, and those two arbitrators appointed Professor Tepora as chairman of the tribunal. The tribunal rendered its final award in 1995 dismissing all the Ruolas' claims, and ordering the Ruolas to pay compensation to Puolimatka and to compensate Puolimatka and the banks for their legal costs.
The Ruolas requested the competent state court to set aside the award. In support of their application, they alleged that after the award had been rendered they had become aware of circumstances which were grounds for challenging ProfessorTepora.The grounds

for challenge were that he had, both before and during the arbitral proceedings, provided legal opinions to Puolimatka, the banks, and companies belonging to the same group of companies, and thus had acted as their consultant.
In its judgment of October 10, 1997, the Helsinki Court of Appeal found that Pro¬fessor Tepora had been disqualified to act as an arbitrator in the case and therefore set aside. the award on the basis of section 41(1) of the Finnish Arbitration Act.3 The fact that the legal opinions given by Professor Tepora concerned issues totally unrelated to the case decided by the arbitral tribunal was considered irrelevant. Leave to appeal to the Finnish Supreme Court was not requested within sixty days and thus the judgment of the Court of Appeal became final.
III. CLAIM FOR DAMAGES AND JUDGMENT OF THE LOWER COURTS
The Ruolas then brought a direct claim for damages against Professor Tepora to recover the costs and expenses they had incurred in connection the arbitral proceedings,4 plus interest.
The District Court and the Helsinki Court of Appeal found that the question of whether Professor Tepora was disqualified to act as an arbitrator had been finally decided, with binding effect, by the October 10, 1997,judgment of the Helsinki Court of Appeal. Thus the matter of whether Professor Tepora was disqualified or not could not be raised in the proceedings concerning Professor Tepora's liability. The courts held that under section 9 of the Arbitration Act,5 Professor Tepora should have disclosed to the parties his activities as consultant for Puolimatka, the banks and the companies belonging to the same group, but found that there was no contractual relationship between the parties and Professor Tepora in. his capacity as chairman of the tribunal. Professor Tepora's alleged liability, therefore, could not be contractual; the legal basis for his possible liability could only be in tort.
The courts found that whether the Ruolas' claim was justified should be decided pursuant to the Tort Liability Act,6 Chapter 5, section 1, of this Act provides that com¬pensation for economic loss (other than compensation related to.personal injury or to damage to property) may be granted only where there are especially good and substantial reasons. The courts found, however, that Professor Tepora's conduct was only to be regarded as slightly negligent (culpa Levis) and that there were no particularly important reasons that would have made it possible to hold Professor Tepora liable in tort.
' "An arbitral award may be set aside by the court upon request of a party if (1) the arbitral tribunal has exceeded its authority." a EUR166,725.70.
"(1) An arbitrator shall be impartial and independent. (2) When a person is approached in connection with his possible appointment as an arbitrator he shall, unless he refuses to accept the appointment, immediately disclose any circumstances likely to give rise to justifiable doubts as to his impartiality and independence.. (3) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall without delay disclose any such cir¬cumstances of which the parties have not previously been informed"
6 412/1974. °IV. THE SUPREME COURT
The Supreme Court held that the fact that the award had been set aside had caused the Ruolas to incur additional costs and expenses, as new arbitral proceedings had become necessary. As to the allegation by the Ruolas that there was a contractual rela¬tionship between the other parties and ProfessorTepora in his capacity as chairman of the arbitral tribunal, the Court held that the relationship was comparable to a contractual relationship and that the question of liability should therefore be determined pursuant to the rules applicable to contractual liability, and not pursuant to the rules applicable to tort liability. However, the Court emphasized that in order to safeguard the independence of arbitrators and to prevent undue pressure from parties, an arbitrator could be found liable for damages only in exceptional circumstances.
The Court held that Professor Tepora should have disclosed to the Ruolas his activ¬ities as consultant for Puolimatka, the banks and the companies belonging to the same group of companies. The Court emphasized the importance of section 9 of the Arbitra¬tion Act, which provides that an arbitrator shall disclose any circumstances that are likely to give rise to justifiable doubts as to his impartiality and independence. The Court stated that this duty was not limited to circumstances that could be grounds for' challenge of ati arbitrator, and the threshold for the duty to disclose was low.
Had Professor Tepora fulfilled his duty to disclose and the Ruolas not challenged him, the question of whether he was disqualified to act as an arbitrator would not have arisen. If the Ruolas had challenged him immediately after the disclosure, Professor Tepora could have withdrawn from office; if he had not done so, the challenge would have been decided by the arbitral tribunal. If the challenge had been successful, the co--arbitrators would have had to appoint a new chairman. If the challenge had not been successful, the Ruolasrcould have requested the competent district court to set aside the award on the ground that Professor Tepora was disqualified. Had the court held that he was disqualified and set aside the award, Professor Tepora wouldsti 1 not have been liable for the damages that arose from the setting aside of the award,. because a decision on the challenge of an arbitrator was one that the arbitral tribunal, under the Arbitration.Act and pursuant to the arbitration agreement, was competent to make.
The Court considered, however, that there was a predictable causal connection between Professor Tepora's failure to disclose and the damage caused to the Ruolas. The remaining issue was whether the damage was caused negligently.
The Court found that Professor Tepora had rendered his legal opinions both before and during the arbitral proceedings. The opinions provided before the proceedings had not only been given to Puolimatka, the banks and their subsidiaries, but also to others. Further, those opinions had not been rendered imniediately before the arbitral proceed¬ings, to which they were unrelated, so they could not as such give rise to justifiable doubts as to Professor Tepora's impartiality and independence.7 Tulenheimo-Takki, Lehtimaja, Krogerus, and Bygglin, JJ. however, Professor Tpora naa, during the arbitral proceedings, also provided the banks, which were the sole owners of Puolimatka, with four expert opinions for which he had charged EUR38,010.47. Professor Tepora should have foreseen how his consult¬ing work, for which he received substantial remuneration,.would appear in the eyes of the Ruolas. With his education ' and professional experience, Professor Tepora should have understood that providing the banks with legal opinions at considerable cost during arbitration proceedings was likely to give rise to justifiable doubts as to his impartiality and independence. The Court therefore found that Professor Tepora had not established that the fact that the award had been set aside, and the possible economic loss the setting aside may have caused, was not due to his negligence.
The Supreme Court revoked the judgments of the lower courts and remanded the case to the district court to decide on the amount of damages.
One of the judges justice Raulos, found in his concurring opinion that an arbitrator's liability for damage he may have caused is not a contractual liability but a liability in tort.
V. COMMENTS
This case gives rise to a number of important questions. Under what conditions may an arbitrator be liable for damages? is his liability contractual or is he liable in tort? What is the effect. of a judgment in subsequent court proceedings, by which an award has been finally set aside on the ground that an arbitrator was disqualified, on the arbitrator's liability? Can the arbitrator raise in the subsequent proceedings the question of whether there was in fact a ground for .challenge? If an award has been set aside on. the basis that an arbitrator was disqualified, can the arbitrator be liable for damages only if he has failed to disclose the ground for challenge before the award was rendered?
The Supreme Court was unanimously of the opinion that an arbitrator does not enjoy total immunity, but emphasized that an arbitrator's liability for damages could only arise in exceptional circumstances. The Supreme Court did not find the relationship between an arbitrator and the parties to be 'contractual. However, all four judges of the Court held the relationship between the parties and the arbitrators to be comparable to a contractual relationship and ruled that the compensation payable should be decided pursuant to the rules . which apply to contractual liability and not pursuant to the rules which apply to liability in tort. This does not mean — as one foreign commentator has suggested --- that the Supreme Court considered the "arbitrator-party relationship to be contractual" in a general sense. Thus, the judgment does not allow. any conclusion that the doctrine of Schiedsrichtervertrag (sometimes referred to as receptum arbitri) has been accepted by the Court.
The lower courts held that the question whether Professor Tepora was disqualified had been finally decided with binding effect by the above-mentioned judgment of October 10, 1997, as the award had been finally set aside in that judgment. Thus, that question could not be raised in the proceedings concerning Professor Tepora's liability. The Supreme Court did not address this question in its judgment; it was redundant because the Court held that the legal basis for Frotessor Tepora s hability was his ralrule to disclose and not the fact that there was a ground for challenge.Thus, the Supreme Court's judgment does not allow any conclusions to be :drawn on the effect that a judgment, by which an award has been set aside on the ground that an arbitrator was disqualified, has in subsequent proceedings concerning the arbitrator's, liability As Professor Tepora was not a party to the proceedings concerning the setting aside of the award, it seems clear that the judgment by which the award was set aside could not have prevented him from raising the defense that there was in fact no 'round. for challenge in the proceedings concerning his liability .However, this question was, as mentioned above, irrelevant, because the Court held Professor Tepora liable due to failure' to disclose and not because of the fact that he could have been challenged
The Supreme Court stated that if Professor Tepora had not failed to disclose the ground for challenge he would not have been liable to compensate the damage caused to the Ruolas, even: if the challenge had not been accepted by the arbitral tribunal and the award had then been set aside. Does this mean that an arbitrator cannot be liable, for damages when an award has been set aside on the ground that: he was disqualified, if he had disclosed the ground for challenge but the arbitral .tribunal had not sustained, the challenge? It seems open to doubt whether this dictum allows such a conclusion. In such (hopefully only theoretical) cases in which an arbitral tribunal has rejected a challenge so obviously justified that any honest and knowledgeable arbitrator would have accepted the challenge, it would at least not in a country where arbitrators do not enjoy total immunity — hardly be reasonable not to hold an arbitrator liable for damage caused by the fact that the award was set aside.