2.2.3.2 Art. 6 ECHR and compulsory arbitration

Two Swedish citizens, Bramelid and Malmström, held shares in a Swedish company, named Aktiebolag Nordiska Kompaniet.3 More than 90% of the shares in Aktiebolag Nordiska Kompaniet were held by Ahlén och Holm Aktiebolag (hereafter referred to as "Ahléns"). The Swedish Companies Act of 1977 (Aktiebolagslagen) provided for squeeze-out proceedings. Any company holding more than 90% of the shares in another company (subsidiary) could initiate these proceedings in order to acquire the other outstanding shares in the subsidiary. The proceedings afforded the parent company to squeeze out the other shareholders in the subsidiary. In addition, the Aktiebolagslagen entitled the minority shareholder to an appraisal right in the same situation.

The Swedish statute determined that disputes related to the squeeze-out right or the indemnification payable for the loss of the shares had to be referred to three arbitrators. According to the Aktiebolagslagen, one arbitrator is to be appointed by the majority shareholder and one by the joint minority shareholders. Subsequently, these two arbitrators had to appoint a third arbitrator. In the situation that the minority shareholders do not agree on whom to appoint, a Swedish public body must designate an arbitrator defending the interests of the minority shareholders and the court had to appoint this arbitrator. The decision of the arbitrators could be challenged before the court in a limited number of situations.4

In January 1977, arbitrators were appointed in order to facilitate the squeeze-out of the minority shareholders. Whereas the minority shareholders failed to agree on an arbitrator, the court duly appointed the arbitrator of the minority shareholders. In November 1977, the arbitrators ruled that Ahléns was allowed to squeeze out all minority shareholders. Subsequently, in September 1978, the arbitrators determined the financial compensation to be provided. Shareholders Bramelid and Malmström were not satisfied with this compensation. They submitted an application to the European Commission of Human Rights, alleging that (inter alia)5Art. 6 ECHR had been violated. In their opinion, the arbitrators did not constitute a tribunal referred to in Art. 6 ECHR.

First of all, the European Commission of Human Rights held that the arbitration procedure directly affected the civil rights and obligations of the applicants, notably the ownership of the shares and the financial compensation:

"In its decision on the admissibility of the present applications (...) the Commission expressed the view that in this case the arbitration procedure had a direct bearing on the applicants' civil rights and obligations. It hereby confirms this opinion, noting in particular that the outcome of those proceedings was crucial in deciding the ownership of the NK shares held by the applicants, and the price for which they were compulsorily purchased by Ahléns."6

Hence, the parties were entitled to a hearing before a tribunal as referred to in Art. 6 ECHR. The Commission noted that the Aktiebolagslagen prescribed compulsory arbitration and distinguished this kind of arbitration from voluntary arbitration. The parties involved were not allowed to bring their case to court, except in a very limited set of situations. Effectively, they could only opt for this compulsory arbitration. The Commission posited that Art. 6 ECHR does not raise difficulties when arbitration is voluntary, but remarked that if only compulsory arbitration is available all the requirements specified in Art. 6 ECHR must be met in the arbitration proceedings.

Subsequently, the Commission focused on the requirement that a hearing must take place before an independent and impartial tribunal, pursuant to Art. 6 ECHR. Whether, in addition to independence of the executive,7 the arbitration board involves an independent tribunal depends on whether the tribunal is independent from the parties to the case. In the case concerned, the majority shareholder was competent to appoint an arbitrator. On the other hand, as there was no unanimous decision by the minority shareholders, their preferences with respect to an arbitrator were not taken into consideration. The Commission stated:

"Considering the position of the arbitrators in relation to the parties appointing them, the Commission notes a degree of imbalance in this case which the appointment of the third arbitrator did nothing to correct. The above considerations show the importance of pre-established courts to which are appointed judges who are totally unconnected with the case they are to heat (...) it considers that there must be a rigorous guarantee of equality between the parties in regard to the influence they exercise on the composition of the court. Examination of the facts reveals that such equality did not prevail in this case. Consequently, the independence and impartiality required by Article 6(1) was not fulfilled."8

Because a violation of Art. 6 ECHR was established, the Commission thought it unnecessary to answer the question of whether the Arbitration Board was established by law within the meaning of Art. 6 ECHR, nor did the Commission examine whether the arbitration constituted a für hearing. Nevertheless, the Commission did not refrain from remarking:

"that the applicants' hearing was not public within the meaning of Article 6(1)."9

Soon after, Sweden amended its legislation in order to comply with Article 6 ECHR. The case was not brought before the European Court of Human Rights. The unanimous decision of the Commission was approved by the Council of Ministers of the Member States, which gave the decision binding force.10