It is with interest that we revert, in the context of the 33rd Annual Meeting of the Institute, to a topic we addressed four years ago;1 and we are surprised to realize that things have not actually changed, as arbitrators are often imprudent in their initiative, and the national courts very austere or unpredictable in their reaction. Thus, the topic continues to be attractive for commentaries and analyses.2

There is no doubt that the procedural rule obliging the parties to submit to the arbitral tribunal all legal documents on which they base their claims is well established internationally; parties are the ones who know their case, raise and prove the issues of law that they consider relevant to its outcome. Be this as it may, the power of arbitrators to ascertain in parallel the contents of the applicable law seems also internationally accepted, due regard being given to the application of the maxim jura novit curia by the national courts of certain civil law countries, to a provision of the Arbitration Act 1996 (Section 34(2)g) and to another one of the LCIA Rules (Art. 2.1(c)), but also to the recommendations of the ILA (Resolution 1/2008).

It is the exercise of this uncontested power of the arbitrators, or just the study of the contract and of the legal documents submitted by the parties, that may occasionally trigger their initiative to raise new issues of law. Such initiative should be considered as the exercise of a faculty rather than as compliance with an obligation, at least when it is about issues of pure law and not of mandatory rules or public policy rules. With regard to public policy rules or, especially, rules of transnational public policy, the existence of an arbitrators’ obligation may actually be upheld in certain cases, but this gives rise to specific considerations that exceed the scope of the present approach to the topic.

Several questions — of a legal, pragmatic, cultural, ethical nature — arise in connection with the exercise of this faculty. We will try to address some of these questions under two angles: (1) the initiative per se of the arbitrators to raise new issues of law and (2) the national courts’ reaction to the arbitrators’ initiative.

1. THE INITIATIVE PER SE OF THE ARBITRATORS TO RAISE NEW ISSUES OF LAW

This arbitrators’ initiative is viewed as a manifestation of their ‘freedom’ — a freedom that may sometimes ‘scare’ —3 inextricably linked to their jurisdictional mission in the meaning of the arbitrators’ duty to render a fair award, which obviously also corresponds to the expectations of the parties; an overriding duty, moreover, since the award shall not be controlled as to the merits. There is no need in our opinion to resort to the maxim jura novit curia — even if we retain only a lightened, realistic meaning of this maxim in international arbitration — with a view to justifying such initiative. It finds naturally its source in the jurisdictional mission of the arbitrators and as pertinently observed ‘in choosing an arbitrator, the litigants choose a judge capable of taking initiatives’.4

Certain circumstances may quasi-automatically prompt — if not impose — such initiative, as for instance a party’s default, an application for emergency measures ex parte, a manifest flaw in the legal documents submitted by the parties, or the weakness of a party’s representation. Other circumstances may conversely dissuade the arbitrators from taking such initiative, such as the advanced stage of the proceedings, the prospect of important consecutive delay and costs, or some evident professional legitimate interests that the parties seek to protect by not raising themselves an issue of law.

In any event, it is an initiative that should be taken in full consciousness of the concrete situation, of parties’ expectations and of the reasons for which it is taken; an initiative that should rest on the quest for the ‘best possible decision’5 for the parties and not be directed by intellectual or egoistic aspirations of the arbitrators. In other words, while exercising their jurisdictional mission, the arbitrators are not allowed to forget that they were assigned this mission by the parties and that the parties, though having confidence in them and their knowledge, are not in need of a legal essay but of a fair and efficient award, resolving their own dispute.

In addition, the arbitrators should give the parties the opportunity to discuss such new issues. This not only in order to comply with the fundamental principle that the parties must be heard in an adversarial procedure on all elements that serve as foundation for the arbitrators’ decision, but also by respect for the parties themselves and their counsel and, from a more pragmatic aspect, in order to control the pertinence of these new issues of law: indeed, the parties are in the position to explain the reasons for which such issues do not apply to the particular case or adduce further evidence in view of their clarification.

There is a great discussion about the risk for the arbitrators to give thus the impression that they favour one party. We think that such a risk is debatable. It seems quite improbable that an arbitrator may be considered as partial by inviting all parties to discuss a legal issue the arbitrator raised ex officio — an act that does not prejudge the final solution of the dispute — if such invitation is specific and punctual, while the arbitrator’s overall behaviour during the entire procedure does not give rise to any blame. To the extent known, there is no example in case law of refusing enforcement or setting aside an award for impartiality of an arbitrator based on such a reason.

2. THE NATIONAL COURTS' REACTION TO THE ARBITRATORS’ INITIATIVE

The general picture of case law shows that national courts may refuse enforcement or set aside the award on the ground mainly of violation of the parties’ right to be heard, sometimes combined with the ground of ultra petita. Indeed, raising ex officio new issues of law does not necessarily mean granting non-requested remedies. This may, however, happen. A characteristic example is found in Louis Dreyfus s.a.s. vs. Holding Tusculum b.v. of the Superior Court of Canada (Province of Québec) dated 8 December 2008:6 The Canadian Superior Court partly annulled the award because the arbitral tribunal, having denied both parties’ claims and requests for relief, had applied ex officio the doctrine of frustration to terminate the parties’ entire relationship, without giving them a real opportunity to be heard in this respect, and had fashioned an ad hoc remedy that neither party had requested; actually the parties had submitted for determination a contractual clause on ‘Valuation and Buyout Remedy’ provided for resolving situations of impasse and had never invoked the impossibility of performance. This attitude of the tribunal led in fact to an alteration ex officio of the very subject matter of the dispute (objet du litige).

While referring to the principle of audi alteram partem and sometimes to that of ne eat iudex ultra petita partium, national courts do not nevertheless weigh in the same way the arbitrators’ initiatives on which the parties did not have the opportunity to be heard.

Swiss and French case law are both eloquent on the subject.

Swiss case law has a liberal vision of the arbitrators’ duties but is unpredictable. The following passage of a decision of the Federal Tribunal dated 9 February 2009 is worth quoting because it is clear and comprehensive on the Swiss case law position; it is moreover often used as a reference in subsequent decisions.

“In Switzerland, the right to be heard concerns particularly factual findings. The parties’ right to be invited to express their position on legal issues is recognized only to a limited extent. Generally, according to the principle jura novit curia, state or arbitral tribunals are free to assess the legal relevance of factual findings and they may adjudicate based on different legal grounds from those submitted by the parties. Consequently, providing the arbitration agreement does not restrict the mission of the arbitral tribunal solely to the legal submissions made by the parties, these need not be heard specifically on the recognisable scope of legal provisions. Exceptionally, the parties must be invited to express their position if the court or the arbitral tribunal considers basing its decision on a provision or legal consideration, which has not been discussed during the proceedings and which the parties could not have suspected relevant (ATF 130 III 35 at 5 and references). Moreover, unpredictability is a matter of interpretation. Thus the Federal Tribunal is restrictive in the application of this rule and because regard must be given to the specific features of this type of proceedings, whilst preventing the argument of unpredictability from being used to obtain a material review of the award in the appeal.”7

With regard to the risk of a violation of the principle ne eat iudex ultra petita partium, the Federal Tribunal indicates that this principle is not violated if the arbitral tribunal attributes to a claim a different legal qualification from the one presented by the claimant. The arbitral tribunal is however bound by the very object and the amount requested in the written pleadings of a party, in particular when such party qualifies or limits its claims in those written pleadings.8 And the Federal Tribunal specifies further that the arbitral tribunal does not decide ultra petita if it does not finally award more than the total of the amount requested by the claimant.9

Swiss case law welcomes thus the arbitrators’ freedom to raise new issues of law or to attribute another legal qualification to the facts of the case. It only sets two limits to this freedom:

- to hear the parties if the application of the new issues of law may surprise them;

- not to award beyond the object and the amount of the written pleadings as a consequence of the requalification of the facts of the case.

This case law persists notwithstanding strong criticism by legal authorities. It is however difficult from the standpoint of the arbitrators, who wish to render not only a fair but also an efficient award, to detect the criteria on the basis of which the predictability of an issue of law should be assessed. Should a non-invoked by the parties contractual clause or a fundamental provision of the applicable law that was chosen by the parties themselves be considered predictable? To put it otherwise, when an arbitrator raises ex officio an issue of law that derives directly/logically from the study of the contract and the applicable law, wouldn’t it be reasonable for the arbitrator to consider this issue as predictable for the parties, especially if the latter are represented by experienced counsel?

In any event, it is questionable — in international arbitration, at least — to render the fundamental right of the parties to be heard dependable upon the vague notion of surprise.

Turning now to the French Courts, they also welcome the arbitrators’ freedom to raise ex officio new issues of law or to attribute another legal qualification to the facts of the case, without however referring to the maxim jura novit curia. They require conversely, always — irrespective of any criterium of surprise for the parties — the rigorous respect of the principle audi alteram partem (principe de la contradiction) ‘in such a way that nothing from what served as a ground of the tribunal’s decision has escaped the debate of the parties’.10 While portraying a similar liberal vision of the arbitrators’ duties as the Federal Tribunal, the decisions of the French Courts are thus more predictable; they are however occasionally criticized as ‘particularly severe’11 or ‘as operating a kind of control of the merits’,12 given the rigid manner in which they require respect of the principle.

Certain decisions that refuse enforcement or annul the awards on this ground do not give rise to real comments. It is the case of the decision in Malicorp vs. République arabe d’Égypte13 in which the arbitral tribunal had applied some provisions on the legal concept of error in Egyptian law non-invoked by the parties and not submitted to discussion with them. It is also the case of the decision in Engel vs. Don Trade14 in which the arbitral tribunal had partly annulled the purchase contract by applying the rule of Wegfall der Geschäftgrundlage (imprévision) of Austrian law, sole possible legal basis of the annulment according to the tribunal, while the claimant was requesting the annulment of a part of the contract without invoking any provision of the applicable Austrian law to this effect.

Two other decisions may be mentioned as more specific: It is confirmed in Buildinvest vs. Guy Roy15 that the powers of amiable compositeur do not dispense the arbitrators from their obligation to give parties the opportunity to be heard on the new issues of law that they have raised ex officio. And, interestingly enough, the Cour de cassation overturned a decision of the Paris Court of Appeal in Egyptian General Petroleum Corporation vs. National Gas Company16 and annulled the award on the ground that the arbitral tribunal had considered inadmissible the jurisdictional objection of the Egyptian party on application of certain provisions of the applicable institutional rules (CRCICA) that were not invoked by the other party. (The award had been set aside in Egypt and enforced by the Paris Court of Appeal.)

The decision that gave rise to a series of commentaries and criticism17 is an annulment decision of the Paris Court of Appeal18 confirmed by the Cour de cassation19 in Commercial Caribbean Niquel vs. Overseas Mining Investments (CNN vs. OMI). The dispute had arisen from a contract pursuant to which the parties had decided to create a joint venture to exploit nickel deposits in Cuba. The arbitral tribunal, having decided that OMI was entitled to receive compensation from CNN for the termination of the contracts and other contractual breaches for which CNN was responsible, held that ‘OMI should be compensated for the loss of the chance to continue the project’ in place of the compensation of lost profit that was claimed and this because of the difficulty to evaluate the damage. The arbitral tribunal had explained that ‘… the potential financial profit that was lost cannot be assessed with certainty, but the lost chance to collect it can indisputably be valued’ and that ‘… the compensation model based on loss of chance involves an economic calculation method that is less certain, but the arbitral tribunal considers it appropriate to opt for a less restrictive and conservative approach than that put forward by OMI’.

For the Paris Court of Appeal and the Cour de cassation, substituting a (non-invoked) compensation based on the loss of the chance to see the project through for the compensation claimed by OMI based on lost profit ‘is not a mere method for evaluating the damage, but modifies the basis for compensation of OMI’. And by failing to invite the parties to make arguments on this issue, the arbitrators violated parties’ right to be heard.

From a pragmatic point of view, however, the attitude of the arbitrators, who apparently after due consideration of time parameters did not wish to reopen the proceedings when evaluating the damage, is understandable. Moreover, dealing with lost profit or loss of chance implies consideration of the same facts, and in both cases the underlying rules on contractual liability are the same. If the lost profit were retained as a basis of the evaluation of the damage, any compensation might be dismissed, which would be an unfair result once CNN’s liability had already been accepted. Finally (and this is not the least of the present reflections, having also in mind Swiss case law), the loss of chance is a percentage of the lost profit, and the amount of compensation awarded to OMI on the basis of the loss of chance was actually lesser than the one claimed.

From another point of view, it may though be said that the lost profit and the loss of chance are two different legal notions that bring into play different rules of evaluation of the damage and alter the subject matter of proof (objet de la preuve). According to a thorough commentary of the decision of the Paris Court of Appeal,20 a modification of the legal ground of the compensation had actually taken place, i.e. a modification of the legal category the subject matter of the dispute was linked to. To put it in different terms, a requalification of the subject matter of the dispute had taken place, which led to the raising ex officio by the arbitrators of a new issue of law that should necessarily be debated by the parties in an adversarial procedure.

Whatever the position one may follow with regard to this decision, the conclusion should rather be that from that decision onwards, French courts require respect of the parties’ right to be heard in all cases of an operation of requalification, whether it applies to the subject matter of the dispute or to the disputed facts.

Leaving aside the particularities of Swiss and French case law as well as some similar court decisions — less frequent and eloquent — of other civil law counties, reference is made to English case law which is followed by the case law of other common law countries. The English courts do also require that the parties be provided the opportunity to address all issues that may be relevant to the resolution of a dispute on application of the principle of fairness21 (section 33(1) of the Arbitration Act 1996); basing the award on points of law or questions of fact not submitted or argued by the parties constitutes ‘a procedural irregularity’. The English courts are however less severe in their requirement to respect the parties’ right to be heard, since they examine in addition, on application of Section 68 of the Arbitration Act 1996, whether such ‘irregularity’ caused ‘substantial injustice’ to the applicant; this unavoidably entails though an extensive examination of the award on the merits.

A characteristic example of the English courts’ position is a judgment of the High Court of Justice dated 11 February 2009.22 The claimant was seeking the remission of parts of an ICC award pursuant to section 68 of the Arbitration Act 1996. During the arbitration proceedings the claimant had sought to establish its loss purely by reference to clause 27.3 of the consortium agreement. Although the arbitral tribunal had found the respondent liable for the delays, it went on to find that, as a matter of construction, clause 27.3 did not cover the type of loss that the claimant sought to recover, and the claimant’s recovery was significantly reduced as a result.

The claimant contended before the High Court that the arbitral tribunal’s failure to indicate to the parties that it was considering a finding that clause 27.3 did not cover the loss claimed by the claimant, deprived the latter of an opportunity to make an alternative claim to the tribunal under a different clause or by way of damages. The High Court rejected the claimant’s contentions stating that the claimant’s missed opportunity to present an alternative claim as to loss was of its own responsibility. The High Court further acknowledged that, even if there had been a serious irregularity arising from the Tribunal’s failure to indicate to the parties that it was considering that the loss that the claimant sought did not fall under clause 27.3, that irregularity had not caused substantial injustice to the claimant. The High Court reached this conclusion because, after consideration of the award and of the dissenting opinion, it was satisfied that the unpleaded alternative basis of loss had been expressly considered and rejected by the majority.

Three passages of this judgment give in our opinion a clear picture of the different approach that common law courts may adopt if the question of raising — or not raising — ex officio new issues of law by the arbitrators happens to arise before them, keeping in mind that they traditionally treat law as factual evidence. Mr. Justice Coulson stated:

“33. […] It is not, I think, for the Arbitral Tribunal to hunt through the contract and find ways in which the claimant’s claim might be put, and then offer the claimant a further opportunity to make submissions on any provision thereby identified. In an adversarial system, it is for the claimant to identify the ways in which it puts its case.”

“43. I have some sympathy with the claimant’s position on Point 1. It is always unsatisfactory for a party to lose a claim on a point which it had not realised was in issue and had not addressed. I remain of the view, as expressed in argument, that it may have been desirable - and certainly more in keeping with the consensual nature of arbitration - for the Tribunal, having reached its preliminary conclusion on clause 27, and realising that this was a point which had not been expressly argued, to have notified the parties of the point prior to the finalisation of their Award.”

“45. […] In those circumstances, whilst I do accept that the Tribunal could easily have acted in a different way, and that the defendant has ended up with a windfall which it cannot possibly have expected, I cannot say that there has been a serious irregularity or a substantial injustice of the kind and on the scale identified by Lord Steyn in Lesotho.23 […]”

CONCLUDING REMARKS

It appears that cultural differences are decisive as to both the exercise of the initiative by the arbitrators and the reaction to it of the national courts. It is not by chance that all representative examples of raising ex officio new issues of law by arbitrators that are encountered in practice are situated in a civil law context. We do believe for our part that this initiative does not depend on whether the arbitrators will follow an inquisitorial rather than adversarial system in conducting the proceedings, but on how the arbitrators will perceive their role of rendering substantial justice.

Be that as it may, it seems plausible to say that under all systems of law and irrespective of any reference — unnecessary — to the maxim jura novit curia, the faculty of the arbitrators to raise ex officio new issues of law is not denied, provided the subject matter of the dispute is not altered and the parties are heard on such new issues of law that are relevant to the resolution of their case. These are the two limits imposed on this arbitrators’ freedom by both their jurisdictional mission and the contractual component of arbitration. The arbitrators are, in our opinion, obliged to fully abide by these limits. It may finally be said that prudence requires further to invite the parties to express themselves even on a mere legal requalification of the facts already discussed by them, just in order to immunize the award against abusive appeals or judicial reviews of the merits.

1
Antonias Dimolitsa, ‘The equivocal power of the arbitrators to introduce ex officio new issues of law’, 27 ASA Bulletin 3/2009, at 426.

2
See further to the references included in the above article, Cécile Chainais, ‘L’arbitre, le droit et la contradiction: l’office du juge arbitral à la recherche de son point d’équilibre’, Revue de l’arbitrage 1/2010, p. 3; Teresa Giovannini, ‘International Arbitration and Jura Novit Curia — Towards Harmonization’, Liber Amicorum Bernardo Cremades, La Ley, 2010, p. 495; Richard Bamforth, Katerina Maidment, ‘Reasonable Opportunity to Present One’s Case — Recent English Case Law’, 28 ASA Bulletin 3/2010, p. 485; Julian D.M. Lew, ‘Iura Novit Curia and Due Process’, Liber Amicorum en l’honneur de Serge Lazareff, Éditions A. Pedone, 2011, p. 397; Phillip Landolt, ‘Arbitrators’ Initiative to Obtain Factual and Legal Evidence’, Arbitration International Vol. 28, No. 2, LCIA 2012, p. 173; Gisela Knuts, ‘Jura Novit Curia and the Right to Be Heard — An Analysis of Recent Case Law’, Arbitration International Vol. 28, No. 4, LCIA 2012, p. 669.

3
Pierre Mayer, ‘La liberté de l’arbitre’, Revue de l’arbitrage 2/2013, § 46: ‘La liberté de l’arbitre fait peur.’

4
Thomas Clay, L’arbitre, Dalloz 2001, § 811:‘… en choisissant un arbitre, les litigants choisissent un juge apte à prendre des initiatives.’

5
Thomas Clay, op. cit. § 806.

6
http://www.newyorkconvention1958.org/doc_num.php?explnum_id=1709

7
Federal Tribunal, 9 February 2009,27 ASA Bulletin 3/2009, p. 498: ‘En Suisse, le droit d’être entendu se rapporte surtout à la constatation des faits. Le droit des parties d’être interpellées sur des questions juridiques n’est reconnu que de manière restreinte. En règle générale, selon l’adage jura novit curia, les tribunaux étatiques ou arbitraux apprécient librement la portée juridique des faits et ils peuvent statuer aussi sur la base de règles de droit autres que celles invoquées par les parties. En conséquence, pour autant que la convention d’arbitrage ne restreigne pas la mission du tribunal arbitral aux seuls moyens juridiques soulevés par les parties, celles-ci n’ont pas à être entendues de façon spécifique sur la portée à reconnaître aux règles de droit. À titre exceptionnel, il convient de les interpeller lorsque le juge ou le tribunal arbitral envisage de fonder sa décision sur une norme ou une considération juridique qui n’a pas été évoquée au cours de la procédure et dont les parties ne pouvaient pas supputer la pertinence (ATF 130 III 35 consid. 5 et les références). Au demeurant, savoir ce qui est imprévisible est une question d’appréciation. Aussi le Tribunal fédéral se montre-t-il restrictif dans l’application de ladite règle pour ce motif et parce qu’il convient d’avoir égard aux particularités de ce type de procédure en évitant que l’argument de la surprise ne soit utilisé en vue d’obtenir un examen matériel de la sentence par l’autorité de recours.’ Translation in English: http://www.swissarbitrationdecisions.com/annulment-of- an-award-by-the-federal-tribunal-because-of-the-use

8
Federal Tribunal, 15 February 2010,28 ASA Bulletin 2/2010, p. 282.

9
Federal Tribunal, 7 January 2011, Revue de l’arbitrage 4/2011, p. 1075.

10
S.A. Buildinvest et autres vs. M. Guy Roy, Paris Court of Appeal, 18 September 2012, Revue de l’arbitrage 4/2012, p. 867: ‘de telle sorte que rien de ce qui a servi à fonder la décision du tribunal n’ait échappé au débat contradictoire des parties.’

11
Christophe Seraglini, JCP ,2010.644.

12
Thomas Clay, Recueil Dalloz, Pan. 2011, p. 3032.

13
Cour cass., 1re Ch. civ .23 juin 2010, Revue de l’arbitrage 2/2011, p. 442.

14
Paris Court of Appeal, 3 December 2009, Revue de l’arbitrage 1/2010, p. 105.

15
op. cit. endnote 9.

16
Cour cass. 1re Ch. civ .26 juin 2013, Gazette du Palais, septembre 2013, nos 270-271.

17
See especially , William Park,‘ Arbitration in Autumn’, Journal of International Dispute Settlement 2011, Vol. 2, p. 293; Thomas Clay, Recueil Dalloz, Pan. 2011, op. cit. endnote 11.

18
Paris Court of Appeal, 25 Mar 2010, Revue de l’arbitrage 2/2011, p. 442, note Cécile Chainais.

19
Cour cass. 1re Ch. civ. 29 June 2011, Revue de l’arbitrage 3/2011, p. 678, note Cécile Chainais.

20
Cécile Chainais, Revue de l’arbitrage 2/2011, op. cit. endnote 18.

21
Before the Arbitration Act 1996, see the Vimeira [1984], 2 Lloyd’s Rep 66, in which Robert Goff LJ noted (at 75): ‘In truth, we are simply talking about fairness. It is not fair to decide a case against a party on an issue which has never been raised in the case without drawing the point to his attention so that he may have an opportunity of dealing with it, either by calling further evidence or by addressing arguments on the facts or the law to the tribunal.’ After the Arbitration Act 1996, in the same vein Mrs Justice Gloster in OAO Northern Shipping Company vs. Remolcadores De Marin SL [2007] EWHC 1821 (Comm). English precedents, to the extent known, deal however with the opportunity for the parties to present arguments on the essential ‘building blocks’ of the tribunal’s conclusions rather than with new issues of law raised ex officio by the tribunal; see, for instance, Weldon Plant Ltd. vs. The Commission for the New Towns [2001] 1 All ER (Comm) 264 and The Pamphilos [2002] 2 Lloyd’s Rep 681.

22
F LTD and M LTD [2009] EWHC 275 (TCC) discussed also by R. Bamforth, K. Maidment op. cit. endnote 2.

23
Lord Steyn said in the Lesotho Highlands vs. Impregilo SPA [2005] 3 WLR 129, that the requirement of ‘serious irregularity’ imposed a high threshold and the additional requirement of ‘substantial injustice’ was ‘designed to eliminate technical and unmeritorious challenges’.