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Who should know the law: the arbitrators or the parties?
Who should know the law: the arbitrators or the parties?
3 October 2016
Series
Blogs
3 October 2016
What could be done at an early stage in the proceedings to apply the principle of iura novit curia in a way that would be acceptable to both common law and civil law practitioners and prevent or limit challenges to the arbitral award?
Much has been written about iura novit curia principle in international arbitration. There are three main areas of debate.
The first one relates to the different approaches of the civil and common law jurisdictions as to the respective role and duties of the decision-making body and the parties, in particular, whether the decision maker has a right or even a duty to investigate and apply the law ex officio.
The second is whether the applicable law is a matter of law to be determined by the decision maker or rather a fact to be proven by the parties.
Finally, the discussion concerns a forum where arbitrators and parties from different legal cultures, often foreign to the applicable substantive law need to coexist. These discussions usually arise when a court decision is rendered concerning an arbitral award. However The post-award stage seems somewhat late to raise such fundamental issues. What, therefore, can be done earlier in the proceedings in order to prevent the reoccurring concerns of iura novit arbiter?
Aside from Article 34(1) and (2)(g) of the English Arbitration Act 1996 there is virtually no express regulation as to the application of iura novit curia in national arbitration law. This principle has not gained the status of a universally applicable norm. Tendency may be noted that the jurisdictions which implement the principle in domestic litigation are more willing to recognise it in international arbitration.
Similarly, most arbitration rules do not regulate the issue of who carries the burden of determining the content, interpretation and application of the law. There are, however some exceptions.
Unsurprisingly, the 2014 LCIA Rules in Article 22.1(iii) contain a regulation corresponding to those of the English Arbitration Act. Another example is present in Arbitration Rules of the Court of Arbitration at the Polish Chamber of Commerce (PCC Rules), which came into force on 1 January 2015. Pursuant to §6 item 2 of the PCC Rules “An award may not be based on legal grounds different from those relied on by either of the parties, unless the Arbitral Tribunal notifies the parties in advance and gives them an opportunity to be heard concerning such legal grounds.”
This provision encompasses a general prohibition of rendering an award based on legal grounds other than those identified “by either party”. However, what should the arbitrators do if the parties do not state legal grounds or if the legal grounds identified by the parties are incorrect or incomplete?
If it were not for the express regulation of §6 item 2 of the PCC Rules there could be two ways to answer this question: the arbitral tribunal could either establish the content of the substantive law and apply it ex officio or assume the role of an umpire and decide the case as pleaded by the parties. The PCC Rules in §6 item 2 provide for a unique and much-desired compromise when compared with these two far from ideal solutions in the context of international arbitration.
It provides that as a rule the parties are to submit complete legal arguments, including supporting these with research materials, court rulings and academic studies, and usually independent expert reports. In addition, the arbitral tribunal has the authority to request further details about the applicable substantive law and to decide for itself as to the content of the law. Importantly, this regulation is designed to avoid surprising the parties with a decision on legal grounds, while not limiting the tribunal’s power to inquire into the content of the applicable law within the limits of the parties’ submissions on legal grounds.
Giving the limited regulation of this issue, at a practical level the question of who should know the law should be addressed as early as possible in any arbitration proceedings where this is relevant. Preferably, such issues should already be covered in the first procedural hearing. For example, James Carter has suggested the following wording to be included in the first procedural order (terms of reference):
“The arbitral tribunal is to resolve all issues of fact and law that shall arise (…), as well as any additional issues of fact or law which the arbitral tribunal, in its own discretion, may deem necessary to decide upon for the purpose of rendering any arbitral award in the present arbitration.” [Carter, James H.; after Waincymer, J., International Arbitration and the Duty to Know the Law, Journal of International Arbitration, The Hague, London, New York 2011, Vol. 28, Issue 3, footnote No. 25, p. 209.]
The manner in which new legal issues should be handled in practical terms means the involvement of the parties. As a matter of good practice, the view that the arbitral tribunal should clarify that it may put questions to the parties on legal issues as well as research legal sources independently and apply its own knowledge as to the content of the applicable law, should be promoted.
Another practical observation would be to raise the legal issues as soon as possible. This should, however, be balanced on a case-by-case basis since the arbitrator should not become an advocate for one party, unfairly hinting the legal grounds that could advance that party’s case. The most challenging task before arbitrators is to find a balance between the fundamental principles of the right to be heard and the equality of the parties, with the ultimate aim of rendering a fair and enforceable award.
Ultimately, international arbitration is dependent on the trust and consent of its users – the parties. They are more likely to accept an award if they can follow the rationale and are not surprised by a justification on legal grounds that they have not raised. A much-needed compromise as to the iura novit curia principle, transposed for the purposes of international arbitration, is to provide confidence in the arbitral process and its outcomes.
This article was first published on Kluwer Arbitration Blog.