Iura Novit Curia

The Latin maxim iura novit curia means that the court knows the law. Civil law systems have interpreted this maxim as the authority of the court to base its decisions on legal theories that have not been advanced by the parties. Common law systems generally reject the maxim, favoring a more limited role for court in the adversarial search for the truth.

Because arbitration differs from both civil law litigation and common law litigation, the application of iura novit curia in the arbitration context gives rise to unique problems. These problems arise because the parties’ choice of law does not resolve the question of the applicability of the principle in the arbitration context. The arbitrator is, therefore, left with the difficult question of whether or not and more importantly to what extent to apply the principle to a case at hand.

To highlight the difficulties confronting arbitrators in the application of iura novit curia, I wish to focus on the interplay of the principle with two particular aspects of arbitration: party autonomy, and uniformity in the application of choice of law. I chose these two aspects because they highlight effectively the conflicting considerations that arbitrators must balance in deciding to how to use their discretion in the application of iura novit curia in the arbitration context.

The Parties’ Choice of Law Is Not Dispositive

The issue of whether and to what extent iura novit curia should be applied in the arbitration context is not settled by the parties’ underlying choice of law. This is due to two main reasons.

First, national law rules of procedure are do not apply in the arbitration context. Indeed, most arbitral tribunals follow predetermined rules of procedure, which, if selected by the parties to the contract, trump national procedural rules. As the United States Supreme Court recently reaffirmed in Preston v. Ferrer, 552 U.S. 346 (2008), the procedural law of the jurisdiction selected in a choice of law provision will not displace the procedural rules incorporated in an arbitration clause.  Thus, to the extent that iura novit curia is a procedural rule, the parties’ choice of law does not settle the question of its applicability in the arbitration context.

For this reason, some arbitral institutions have attempted to set default rules on exactly this issue. Article 22(1)(c) of the London Court of International Arbitration, for example, states, “Unless the parties at anytime agree otherwise in writing … the Arbitral Tribunal shall have the power … of its own motion … to conduct such enquiries as may appear to the Arbitral Tribunal to be necessary or expedient, including whether and to what extent the Arbitral Tribunal should itself take the initiative in identifying the issues and ascertaining the relevant facts and the law(s) or rules of law applicable to the arbitration, the merits of the parties’ dispute and the Arbitration Agreement.”[i] Most arbitral tribunals, including the International Court of Arbitration (ICC), however, have not yet developed default rules regarding the applicability of the iura novit curia principle.

Second, arbitration has a different statutory mandate than litigation. The English Arbitration Act of 1966, for example, states that an arbitral tribunal “shall” decide a dispute “in accordance with the law chosen by the parties” or “such other considerations as are agreed by them or determined by the tribunal.”[ii] Thus, to the extent that iura novit curia is not a purely procedural rule, there is still a question as to how much the parties should be able to vary the mandate of arbitrators by contract.

Party Autonomy Counsels Against Use of Iura Novit Curia in Arbitration

Arbitration clauses have now become commonplace in commercial agreements. Indeed, they have become so prevalent that some have infamously called “midnight clauses,” because negotiators leave them until the end, and then, late at night or early in the morning, simply use boilerplate arbitration language.[iii] Although no empirical data has been compiled on the frequency of arbitration provisions in international commercial contracts, an often-cited estimate is that “ninety percent” of all international commercial contracts contain arbitration clauses.[iv]

An important point to remember, however, is that arbitration is formed and governed by the agreement of the parties. Without an agreement among the relevant commercial parties, no arbitral panel has jurisdiction over a dispute that may arise between those parties. It has thus been said that party autonomy is the “core concept” of arbitration.[v]

This is the first important aspect of arbitration that makes the application of iura novit curia difficult. If parties to an arbitration proceeding, the existence of which is based entirely on the exercise of autonomy by those parties, do not present a particular legal claim to the arbitral panel, why should the panel do so on its own accord?

In fact, much of the attractiveness of arbitration lies in the autonomy of the parties to exercise control over the choice of law and procedure to be applied in potential future disputes. It is entirely plausible that a proactive and robust use of iura novit curia in arbitral proceeding may deter some commercial parties from agreeing to submit future disputes to arbitration. Party autonomy, as a core concept of arbitration, thus counsels against a robust application of the principle of iura novit curia in arbitral proceedings.

Uniformity in Application of Choice of Law Counsels In Favor of Use of Iura Novit Curia in Arbitration

Another important aspect of arbitration, however, is uniformity in the application of the parties’ choice of law. This is especially important when the parties have chosen a body of law that aspires towards uniformity: for example, an international convention, such as the United Nations Convention on Contracts for the International Sale of Goods (“CISG”). Developed by the United Nations Commission on International Trade Law (UNCITRAL), the CISG is a treaty offering a uniform international sales law that has been ratified by 77 countries as of 2010. Article 7(1) of the CISG states that in interpreting the CISG, “regard is to be had to its international character and to the need to promote uniformity in its application and the observance of good faith in international trade.” Commentators have interpreted this requirement to mean that courts and arbitral tribunals must construe the provisions of the CISG in a uniform manner and not against the background of their own domestic law, as difficult as that may be.[vi] But what if, in an arbitral proceeding, neither party introduces a legal theory that is required for the Convention’s uniform application?

Consider the following simple example. Article 84(1) of the CISG states, “If the seller is bound to refund the price, he must also pay interest on it, from the date on which the price was paid.” Suppose a case is brought before an arbitral panel, such as the ICC. Neither party disputes the ICC’s jurisdiction or that the CISG governs the case at hand. The seller claims that, although he must refund the price, he does not owe any interest on it. The buyer claims that he is entitled to both a price refund and interest, though not from the day on which the price was paid, but from the earlier date of the underlying contract. Neither legal theory is consistent with the express letter of Article 84(1); in fact, both legal theories contradict the express terms of the Article. What is the arbitral panel to do in this situation?

One can make a strong argument that the arbitral panel is under a duty to follow the CISG’s unambiguous text¾the choice of law of the parties anyway¾and its states purpose, to provide a uniform law governing commercial contracts. This example is admittedly simple, but one can easily think of more complicated situations. For example, what if both parties’ theories are consistent with the CISG’s text, but contradict earlier holdings by national courts and arbitral tribunals dealing with the same substantive issue? If uniformity was the ultimate goal, as some commentators have suggested, then the arbitral panel should apply a robust version of the iura novit curia principle. This, however, substantially undermines the parties’ autonomy, essentially rendering their choice of law autonomy devoid of much meaning.

What Is an Arbitrator to Do?

The issues raised above highlight just some of the difficulties associated with the application of iura novit curia to the arbitration context. These theoretical issues are compounded by the practical difficulties inherent in international commercial arbitration. For example, ICC statistics record that, in 2009 alone, 91 different laws or systems were applied in 817 cases.[vii] Applying iura novit curia requires intimate knowledge of the body of law to be applied. Do we really expect the ICC arbitrators to research and become experts in 91 different bodies of law in order to effectively administer the principle in arbitration proceedings?

Arbitral panels face further problems caused by the conflicting views of national courts on this issue. In the 2008 case Wefren Austria GmbH v. Polar Electro Europe B.V., the Supreme Court of Finland denied the respondent’s claim that its right to be heard was violated by the tribunal’s award of compensation for the termination of the commercial agreement between the parties, an issue that was never argued. The Court upheld the tribunal’s application of iura novit curia and found that the tribunal was not bound by the legal positions raised by the parties.

But awards have been set aside by other courts in similar circumstances. In a 2007 case OAO Northern Shipping Company v. Remolcaderos de Marin SL, the High Court of England and Wales annulled a tribunal award because of the tribunal’s improper reliance on iura novit curia. In OAO, the counsel for buyers had proceeded on the assumption that a specific point was no longer in issue, and therefore did not need to be addressed. The tribunal, without inviting submissions on the issue, went on to use it as an “essential building block” for its conclusion. The Court found this to be “a serious irregularity” causing “substantial injustice” to the buyers, therefore setting aside the award.

For now, at least, there seems to be no convergence on the application of iura novit curia in the arbitration context. A further difficulty is that it may be costly or premature for the parties to address their issue in their arbitration agreements. As noted earlier, most arbitration clauses are boilerplate and parties may not prefer to expend additional time and cost negotiating over the application of iura novit curia. Moreover, the appropriate scope of the principle’s application may depend on the specific issues in dispute or the qualification of arbitrators, and their expertise in the choice of law of the parties.

Perhaps a better solution is for arbitral institutions to follow the lead of LCIA and address this issue in their default rules of procedure. This approach will, at least, create certainty of expectations for the parties at the outset. Parties may then choose whether or not to opt out of the default rule under the particular circumstances of their case and depending on their level of trust in the tribunal.

Until then, this old Latin maxim of law will continue to cause headaches for practitioners and arbitrators alike.

Ali Assareh

[i] See also the China International Economic and Trade Arbitration Commission (CIETAC) Arbitration Rules, Articles 29(3) and 27; the Singapore International Arbitration Centre (SIAC), Article 24(d).

[ii] English Arbitration Act of 1996, Article 46(1).

[iii] Don Peters, Can We Talk? Overcoming Barriers to Mediating Private Transborder Commercial Disputes in the Americas, 41 Vand. J. Transnat’l L. 1251, 1301 (2008) (discussing “midnight clauses”); see also Kathy A. Bryan & Helena Tavares Erickson, Business Arbitration Can and Should be Improved in the United States, 14 Disp. Resol. Mag. 20, 21 (2008) (“There are more arbitration horror stories resulting from poor drafting than from any other single aspect of the process.”).

[iv] See, e.g., Brandon Hasbrouck, If it Looks Like a Duck: Private International Arbitral Bodies are Adjudicatory Tribunals Under 28 U.S.C. § 1782(a), 67 Wash. & Lee L. Rev. 1659, 1660–61 (2010); Christopher R. Drahozal, Commercial Norms, Commercial Cods, and International Commercial Arbitration, 33 Vand. J. Transnat’l L. 79, 94 (2000).

[v] Okuma Kazutake, Arbitration and Party Autonomy, 38 Seinan L. Rev. 1, 2(2005).

[vi] Franco Ferrari, The CISG’s Interpretative Goals, Interpretative Method and General Principles in Courts

[vii] ICC Bulletin, Volume 21(1) 2010, at 12.