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Do Arbitrators Know the Law? Or Find It?

Here in common law America we do not have much direct and systematic discussion about when and under what conditions international arbitrators may or should conduct their own legal research to ascertain or clarify the applicable law that they should apply. We have a passing familiarity, from contacts with our civil law colleagues, with the civil law term iura novit curia (literal translation, “the judge knows the law”). But the reality is that some American international arbitrators consider the law to be what is found in bound volumes of submissions (briefs and authorities) presented by the parties, while others consider those submissions to be the point of departure for inquiry into the applicable law, especially when the law is our “own,” notably, the common law of a State of the United States. Some of the passivity of the former group is not necessarily borne of rigorous analysis of the issue, but rather of some combination of lassitude and resignation, percolating at the conclusion of a long career as an advocate, at a time when the arbitrator, now dis-affiliated from any law firm and spending more time in the quiet confines of a family residence, may find himself or herself not only without the skills needed to conduct legal research in an online database but without the most basic tool needed: a database subscription. (This is not a description that fits your commentator, or many of his peers, but the ranks of the disconnected are nevertheless substantial. Arbitrators who could not gain access to legal authorities in an online database, and so insist on having paper supplied to them, create significant copying, printing, copy-checking, and shipping costs for the parties – sometimes for sending “bankers box”-sized Express packages over a net distance of a few city blocks. This is something parties seem to accept, possibly with pursed lips and tight grimaces, rather than insist that their arbitrators conform to modern norms).

But we do have a legal issue in regard to arbitrator initiatives to conduct legal research, and it is one that to my knowledge has not often if at all been decided in the federal courts under the FAA: does an arbitrator perhaps exceed her powers by conducting such research, or in some circumstances deny a party a fair hearing by not inviting comments on the fruits of such research? The relevant FAA case law tells us in general terms that a party is denied a fair arbitral hearing when it has been deprived of the opportunity to present relevant evidence and arguments. (See, e.g., Rogers v. Ausdahl Financial Partners, Inc., 168 F. Supp. 3d 378, 389 (D. Mass. 2016), citing First Circuit authorities). When might there be denial of opportunity to present arguments, such as to justify vacatur of the award, if the parties were allowed to submit two or more rounds of briefs, but the arbitrators cited and discussed in their award some cases that were not cited by either side?

The circumstance of the arbitrator invoking legal authorities not presented by the parties is to be distinguished, in the first instance, from the arbitrator resolving the case by applying a legal or equitable remedy that neither party requested. The latter situation was famously examined by the Quebec Superior Court in Louis Dreyfus s.a.s. v. Holding Tusculum B.V. [2008 QCCS 5903, Dec. 8, 2008], where the Court annulled an ICC Award rendered by a Tribunal seated in Montréal on the basis that the Tribunal had exceeded its jurisdiction and denied a fair hearing (the civil law rule audi alteram partem, literal translation “let the other side be heard as well”) when  neither the legal theory adopted by the Tribunal nor the remedy applied had been presented by either party and the parties had not been invited by the Tribunal to comment on whether that theory and remedy should be invoked. The Dreyfus judgment however did not deal with the sua sponte identification of the dispositive theory and remedy by the Tribunal as misconduct separate from the Tribunal’s failure to give the parties notice and an opportunity to be heard. Indeed the judgment may fairly be read as focused on the latter, and does not hold or particularly clearly suggest that a Tribunal exceeds its jurisdiction if it interjects a legal theory and potential remedy — grounded in the applicable law — into the case, but does no upon proper notice to the parties and with adequate opportunity for the parties to be heard concerning the Tribunal’s premises.

For American arbitrators this question of sua sponte interjection is often considered under the rubric of impartiality of the Tribunal (and the appearance thereof throughout the proceedings). The open suggestion to the parties, in the middle of the case, that the case might be resolved on a theory that neither party has raised, threatens to foster the impression that at least the arbitrator making the suggestion, if not the full Tribunal, is predisposed toward the position of the party advantaged by the new theory thus advanced. And whereas this will be a large risk even if the arbitrator(s) making the suggestion have serious reservations about the novel solution, American arbitrators will be reluctant to advance such proposals. We sometimes display such reluctance by invoking the bromide that the Tribunal should receive the case as the parties present it, under the party autonomy principle, but probably the root concern is about the perception of prejudgment of the case.

Is that a concern that should impel arbitrators to refrain from any independent research into the applicable law? Suppose a party has made a general reference to an equitable principle that it says should be applied in its favor, but the argument is not embellished by case law or other authorities.

The Tribunal — clearly charged with deciding whether the application of that principle is justified under the substantive law it is required to apply — might call on the proponent of the theory to provide additional authority, or the Tribunal might do its own research, or do nothing. To resolve the issue for or against the proponent without any further inquiry into applicable authorities may seem to disregard the Tribunal’s duty to apply the applicable law. The fact that a party has failed to bring the applicable law to the Tribunal’s attention does not mean that no such law exists. To ask the party for further authority, on the other hand, risks the appearance of predisposition toward that party – favoring the party with a second chance to shore up its case. If the Tribunal does the research, and then shares at least the nature of its inquiry if not all the specifics with the parties in such a way that they have a fair opportunity to replicate the Tribunal’s research work and present their conclusions, perhaps the interwoven causes of fair process, perceived impartiality, and fidelity to the applicable law, are well-served.

What support can be found for this position? (I daresay more than I present here, as this is a commentary not a journal article! But see the excerpt from the 2010 ILA Report cited at the end of the commentary). Consider that in an arbitration seated in the UK, the 1996 Arbitration Act provides in Section 34 that it is for the Tribunal to decide subject to any agreement of the parties “whether and to what extent the tribunal should itself take the initiative in ascertaining the facts and the law.” Of course an initial and critical factor in the exercise of this discretion is whether the arbitrator is educated in and an experienced practitioner at the Bar of a jurisdiction where the applicable law is in force. I may not hesitate to take research initiatives in New York and other US state and federal law. In regard to the law of Romania, or even the law of Canada or the UK, I might well defer to counsel from the relevant jurisdiction or the proffered party-appointed expert of the applicable law, often a leading academic or advocate in the relevant jurisdiction. No less formidable an authority as Professor Gabrielle Kaufman Kohler supports both this practical instinct to do one’s own research, and the practical/prudential constraints. (See G. Kaufman-Kohler, The Arbitrator and the Law: Does He/She Know It? Apply It? And a Few More Questions, Vol. 21(4) Arb. Int’l 631, 635 (2005)). For purposes of this commentary, we focus on the “easy” case — in which the Tribunal or at least the presiding arbitrator is applying their/her “own” law.

Without acceptance as a norm that arbitrators may conduct their own research in the applicable law, at least in this “easy” case, perhaps there is a certain hollowness to the promises made by arbitration centers that the stability and predictability of local commercial law should attract parties to select both the venue and its law. Is it not indeed the promise held out by such centers that the local commercial law will the best version of it, as understood by wise arbitrators standing as proxies for wise judges? Or is the promise merely that arbitrators will dutifully apply whatever distillation or representation of that law is produced by the participating counsel?

Iura Novit Curia is a civil law concept with no exact common law counterpart. So when one reads the hesitations of civil law-oriented commentators about arbitrator initiatives concerning the applicable law, the civilian jurist’s methods for legal research, compared to those of the common law Judge, must be taken into account. With disclaimers for my limited exposure to civil law, it may be said generally that civil law in the commercial field has two frequently occurring elements:(1) a detailed legislatively-enacted code of contract law in the relevant State, and (2) a considerable body of commentary from academic writers. For the civilian jurist or arbitrator, then, a prominent part of the exercise of “finding” the applicable legal principle is to determine which code provision best corresponds to the facts of the case. This entails that if the civil law arbitrator considers the application of code provisions other than those identified by the parties, she is arguably considering both an interpretation of the evidence and an applicable legal theory not advanced by either party. It is also the métier of the civilian jurist or arbitrator to shape her view of the law from the commentaries written by leading academic scholars (who in some nations may also be leading advocates). But there is no official hierarchy of such commentators, and no sovereign sanction of their positions except to the extent that as a position once stated only in the commentaries might eventually have become codified. Accordingly the civil law arbitrator who examines the commentaries of a scholar who has not been cited by either party may be doing so because of a personal preference for the opinions of that commentator or she may be seeking out a position that has been considered and rejected by both parties as a basis for the Tribunal’s resolution of the case. These elements of departure from the norm of party autonomy, in a civil law setting, do not seem to have direct parallels in common law systems — or at least in the systems with which I am most familiar, the federal and state judiciaries of the United States.

If the arbitrator’s charge is to resolve the case under New York law, because that is the applicable substantive law agreed in the contract, the parties’ choice of law would seem to include certain jurisprudential rules about the ascertainment of that law. First, where the law of a State (of the US) governs – and, mostly, contract law is State law — the definitive and controlling legal rule is one that has been pronounced and not overruled by the highest court of the State. In New York State, this is the New York Court of Appeals. Second, within the federal system, decisions of the Supreme Court of the United States are the supreme law of the land, prevailing over conflicting decisions of all subordinate federal courts, and decisions of the US Circuit Courts of Appeals prevail over, and effectively overrule, prior conflicting decisions of US District Courts within that Circuit on the same point of law. While the arbitrator has no geographic forum absent an agreement of the parties, and thus when considering US federal court authorities that apply State law such as New York law, she faces a very definite hierarchy: (1) none of the federal authorities cited is authoritative as to State law if it is conflict with a ruling on that point of law from the highest court of the State, (2) the federal authorities concerning state law are equally unauthoritative if the lower appellate courts of the State have uniformly pronounced on the same point of law,  (3) if there is lack of uniformity in the pronouncements of those intermediate appellate courts, the federal court authorities are persuasive but not controlling, and (4) however, a federal circuit appellate decision that rejects the pronouncement of State law by a district court within that circuit renders the district court precedent effectively null and void.

There are peculiar risks to the arbitration if the arbitrator who must apply the contract law of a State of the United States relies only upon the cases identified by the parties. Have both parties perhaps overlooked a controlling statement of the law by the highest court of the State, leading the non-researching Tribunal to apply a version of the applicable law that does not correspond to reality but is only a law applicable to this arbitration, adapted from overruled judicial decisions? Have the parties neglected to cite a pending application for review by the Supreme Court of the United States, on the basis that a pronouncement of State law is pre-empted by federal law, such that the Tribunal might render an award based on State law that ceases to be valid law shortly after the award is issued? Have the parties relied mainly on federal court precedents from circuits that ordinarily do not deal in the law of the relevant State (for example, the Seventh Circuit, which embraces several midwestern States, but occasionally must decide issues of New York law) — decisions that further research might reveal to be completely at odds with the federal court decisions of the Circuit that decides questions of New York law every day and is mainly populated by judges who are experienced practitioners of that law and admitted to the Bar of the State (the Second Circuit)? Has one of the parties relied upon a State law precedent from an intermediate State appellate court that has in fact been directly reversed by the highest court of the State — without the opposing party having detected this omission?

Whereas in New York, as in many US States, appearance as an advocate in an arbitration is not considered to be the practice of law in New York State that may only be conducted by members of the Bar of the State, parties frequently appear in international arbitrations governed by New York substantive law with legal representation only by counsel from outside the United States, or by counsel admitted in States of the US other than New York.  Legal errors of the type described here occur for such reasons. They also occur, sadly, because overzealous advocates sometimes omit negative news, like appellate reversals of lower court cases that help their clients.

What are the reasonable expectations of the parties who have selected New York arbitrators to decide an international case under New York law? Does their agreement that New York law is the governing substantive law reasonably mean only “the representation of New York law emerging from the authorities presented to the Tribunal by the parties?” Or is it more reasonable to construe that choice-of-law clause to mean “New York law as it would be applied by a State or federal court, enforcing the same choice-of-law clause, if the parties had not agreed to arbitrate?”  If the latter, should it not be assumed by the parties that the arbitrators will do what judges (directly or through their law clerks) do, i.e. take reasonable initiatives to be assured that the parties have presented the appropriate authorities, and that those reasonable initiatives may be assumed to entail research on one of the recognized electronic databases (WestLaw, Lexis) that contain all published decisions of the federal and state trial and appellate courts and applications permitted verification as to whether an appeal has been taken, whether the authority has been reversed or overruled or questioned, etc.?

Perhaps this is a way of raising the question: Is it not the common law counterpart of the principle iura novit curia that, in common law systems, the judge is expected to find (rather than presumed to know) the law, and to do so within a recognized hierarchy of sources and according to well-understood and accepted research methods?

And, in international arbitrations where the arbitrators are required to apply common law such as the contract law of New York, is it more or less problematic, more or less a problem for the integrity and efficacy of the arbitration, if the arbitrators merely apply a version of that law emerging from the authorities presented by parties — treating it as a risk assumed by the parties that there could be a disparity between the law as it actually is and the law as the parties have presented it?

If it has not been clear up to now, I reiterate that the foregoing analysis pertains mainly when the applicable law is the law of a common law jurisdiction, and when at least the sole or presiding arbitrator, and more ideally all three arbitrators, is/are admitted to the Bar of the jurisdiction whose law applies. If these limiting conditions are not present, the endorsement made or implied here for legal research initiatives by arbitral tribunals would become more equivocal as the variance between this norm and the realities of the case grows larger.  Which is to say, for instance, that as Chair in a case governed by Argentine law, I would not propose to conduct research in that law even if this could be done in English, nor would I embrace the conducting of such research on behalf of the Tribunal by the Argentine arbitrator(s) appointed by one or both parties.

In conclusion, I offer the reader a benchmark for testing whether the views expressed here are radical, reactionary, mainstream, or somewhere in between. That benchmark is the general recommendation made on this subject made by a committee of the International Law Association in 2010:

 

“Arbitrators should primarily rely on the parties to articulate legal issues and to present the law, and disputed legal issues. They should give appropriate weight to information so obtained. Arbitrators must through the proceeding develop a sufficient understanding of the applicable law that they can fulfill their mandate to decide the dispute according to law. Arbitrators who attempt to develop legal issues in a strict application of iura novit curia approach risk taking the arbitration from the parties and appearing partial. Yet arbitrators who completely fail to seek clarification of legal issues in a strictly laissez faire approach risk not having sufficient guidance when they go to render an award, or risk making an award that is incorrect on the legal issue in question. Accordingly, arbitrators should inquire about the applicable law within the general parameters of the arbitration defined by the parties and, considering costs, time and relevance of issues, may conduct their own research, provided the parties are given an opportunity to be heard on material that goes meaningfully beyond the parties’ submissions.”

 

(International Law Association International Arbitration Committee’s Report and Recommendations on ‘Ascertaining the Contents of the Applicable Law in International Commercial Arbitration,” Vol. 26(2) Arb. Int’l 193, 217-218 (2010)).

 

 

 

 

 

 

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