Sweden Buckles Under Russian Pressure on Arbitration

A few weeks ago we published a story on the controversial move by a Swedish judge, whose husband acts as a lawyer on behalf of the Russian Federation, who intervened with a telephone call to the court bailiff in an attempt to freeze the auction of a Russian-owned property which had been attached to an arbitration decision by a foreign investor.  It was in our view this was a deeply surprising development, especially in a country known for the quality of its legal system, that it was still possible for Russia’s brand of legal corruption to be exported to another country.

The latest developments in this case are even more dramatic.  Franz Sedelmayer, the German foreign investor who has spent the past decade attempting to recover damages suffered from the Russian government’s expropriation of his property and business through a series of international arbitration, has been directly in touch with us to share some of his communications relating to Sweden’s reluctance to enforce a politically inconvenient – but legally binding – decision from the Supreme Court to execute a sovereign asset belonging to the Russian Federation.

A few weeks ago, Mr. Sedelmayer learned that the auction of the former USSR Trade Mission, a large building in central Stockholm, had been placed on hold for unknown reason.  The office of the court bailiff, known as the Kronofogden, told Sedelmayer that the sale had been frozen because they had been instructed not to act by Judge Kerstin Calissendorff.  Judge Calissendorff is married to Axel Calissendorff, a senior partner at the Roschier law firm, who as it happens represents the Russian Federation in this case against Mr. Sedelmayer.  As an interesting side note, it seems that Axel Calissendorff is himself no stranger to controversy.  In the past, he was reprimanded by the Swedish Bar Association for not disclosing a potential conflict of interest when he was serving as an arbitrator, consequently the award he had ruled on was declared null and void by Swedish courts and KPMG is now chasing him for professional fees they want him to pay back for that misconduct.

In response to Mr. Sedelmayer’s complaints, Judge Calissendorff sent the following email response to him denying that she gave any instructions to the bailiff to freeze the execution of the asset:

Gesendet: Donnerstag, 05. April 2012 um 10:05 Uhr
Von: “Calissendorff Kerstin – HDO”
An: “sedelmayer”
Cc: “Thorsson Leif – HDO” , “Lundius Marianne – HDO”
Betreff: Your e-mail dated April 3rd 2012

Dear Mr Sedelmayer,

I was the rapporteur in the case The Russian Federation ./. Franz Sedelmayer. Justice Leif Thorsson was chairman.

When I some while ago received an e-mail from Kronofogdemyndigheten (the Enforcement Office) with a request to call since they had tried to reach me several times in order to get a comment on a specific paragraph in the judgment, I forwarded the e-mail to Justice Thorsson. We jointly decided that I should call the Enforcement Office informing that the Supreme Court can not and does not comment on its own judgments.

Accordingly I called the Enforcement Office and made it perfectly clear that the Supreme Court can neither comment, nor elaborate, on its decisions and that I could not give any advice in the matter. I thus have reason to doubt the accuracy of the statement of the execution officer you refer to.

Yours sincerely,
Kerstin Calissendorff
Justice of the Supreme Court

However, the claim by Judge Calissendorff that she did not give instructions to freeze the auction are directly contradicted by the Kronofogdemyndigheten.  In documents provided to this blog by Mr. Sedelmayer, there are clear notes taken by the bailiff’s execution office that record the instructions passed on by telephone from Judge Calissendorff ordering them not to proceed with the auction.  Contrary to the claim that the delay had something to do with the final legal decision – which is confirmed by the Supreme Court and exhausted of appeals – the only reason why the Kronofogden has not sold the property is because of this judge’s instructions.

There do appear to be larger issues at work in this case beyond a simple husband-wife team working to protect Russian property from the enforcement of arbitration decisions.  Apparently, the Russian Foreign Ministry has been applying a lot of pressure on Sweden not to fulfill the auction, including the astonishing threat from the Russians that they would expropriate the Swedish Embassy in Moscow!  As for the Swedish Foreign Ministry, they appear to be frightened by this threat, and have said that they will not intervene in the illegal blockage of this sale – remarking that they hope “relations do not deteriorate” and that they want Russia to understand that the arbitration decision isn’t politically motivated.  But what about Sweden’s obligation to uphold its own laws?

The outcome of this case should be watched very closely.  Sweden is a major arbitration center for investment in the countries of the former Soviet Union.  Without a reliable system that can be trusted, foreign investors can have little security in doing business in lawless environments like Russia, especially when a rule-of-law country like Sweden can be bullied into submission.  It is a shameful and embarrassing day for Stockholm, and one would hope they can come to their senses and realize that you can’t just go and ignore a Supreme Court decision because a criminal government tells you to do it.