On September 28, 2021, Young ITA’s inaugural conference, in its new region, Central and Eastern Europe (“CEE”), and the first #YoungITATalks event organized and moderated by myself as Young ITA Central and Eastern Europe Chair, took place under the title “Da mihi factum, dabo tibi ius – Fact Finding and Iura Novit Curia in Arbitration:  How Far Do Arbitrators’ Powers Reach?” in the Aula Magna of Eötvös Loránd University’s Faculty of Law in Budapest, Hungary.

As a prelude to the conference, I provided an overview of the activities and objectives of ITA and Young ITA, covering the perspectives for the new region, followed by the introduction of the topics, the concept of the event, and the speakers.

The overarching theme around which the debates revolved concerned arbitrators’ powers, in particular the question of how far arbitrators’ powers reach when establishing the facts of the case and when developing the legal reasons for the award.  The topics I selected are relevant both from an international perspective and locally:  they not only touch upon universal questions closely connected to the guiding—and often competing—principles of arbitration, but they are also of specific relevance in CEE jurisdictions, especially in view of recent developments in arbitral rule-drafting.  The speakers—counsel, arbitrators, and academics active in the region and beyond—were invited to argue in two rounds of one-on-one, Oxford-style debates (comprised of presentations by each speaker as well as rebuttals and sur-rebuttals) in favor of broad versus limited powers of arbitrators to establish the facts of the case and to find and apply the relevant law.  (Disclaimer:  accordingly, the speakers’ arguments presented during the debate and also summarised below do not necessarily correspond to their personal views on the topics.)  Before and after each round, the audience members were also requested to vote for one or the other proposition.

The first proposition was that arbitrators should have broad powers to establish facts and take evidence, even on their own accord.  Language to this effect has been included in several institutional sets of rules.  For example, pursuant to Article 25 of the ICC Rules 2021 entitled “Establishing the Facts of the Case,” the arbitral tribunal shall “establish the facts of the case by all appropriate means”1ICC Arbitration Rules (2021), art. 25(1).X1 may, after consulting the parties, “appoint one or more experts, define their terms of reference and receive their reports”2Id. at art. 25(3).X2 and “[a]t any time during the proceedings, […] summon any party to provide additional evidence.”3Id. at art. 25(4).X3  Another example of an express provision on broad fact-finding powers is Article 29 of the VIAC Rules 2021, which bears the same title and provides that “[i]f the arbitral tribunal considers it necessary, it may on its initiative collect evidence, question parties or witnesses, request the parties to submit evidence, and call experts.”4VIAC Arbitration Rules (2021), art. 29(1).X4

The Prague Rules,5Rules on the Efficient Conduct of Proceedings in International Arbitration (Prague Rules) (2018).X5 often mentioned as an alternative to the IBA Rules on the Taking of Evidence in International Arbitration, were also drafted by lawyers from mainly civil law countries.  In this spirit,6As stated in the Note from the Working Group at the beginning of the Prague Rules, the drafters considered that “[o]ne of the ways to increase the efficiency of arbitral proceedings is to encourage tribunals to take a more active role in managing the proceedings (as is traditionally done in many civil law countries)” and that the Prague Rules were intended to be used in cases where “the nature of the dispute or its amount justifies a more streamlined procedure actively driven by the tribunal.”  Id. at 2.X6 the Prague Rules provide “a framework and/or guidance for arbitral tribunals and parties on how to increase the efficiency of arbitration by encouraging a more active role for arbitral tribunals in managing proceedings.”7Id. at 3.X7  Accordingly, Article 3 of the Prague Rules provides that “[t]he arbitral tribunal is entitled and encouraged to take a proactive role in establishing the facts of the case which it considers relevant for the resolution of the dispute.”8“This, however, shall not release the parties from their burden of proof.”  Article 3(1) Prague Rules.  The measures that the tribunal may “in particular” take, after having heard the parties, are listed in a non-exhaustive manner in paragraph (2).  These include requesting the parties to submit relevant documentary evidence and make fact witnesses available for oral testimony, the appointment of one or more experts (also legal experts), or site inspections.X8

Of particular relevance, in view of the venue of the conference, are the respective provisions in Article 40 of the 2018 edition of the Rules of Proceedings of the Arbitration Court attached to the Hungarian Chamber of Commerce and Industry (“HCCI Arbitration Rules” or “Budapest Arbitration Rules”).9Amended as of September 1, 2019.X9

The competing proposition—the gist of which comes down to party autonomy, the ultimate cornerstone of arbitration, which is essentially a private system of dispute resolution where the parties are supposed to be calling the shots to a great extent—was that arbitrators should “work with what they get,” i.e., that they are limited to the facts and evidence submitted by the parties and cannot go beyond.  In line with this approach, whenever the parties do not adduce enough evidence, the tribunal can—and should—decide questions of fact by relying on the burden of proof and by drawing adverse inferences.  Thereby not only the expeditiousness of the proceedings can be secured, but also the burden of proof—and any consequence of not discharging it—indeed, stays on the party to which the law allocates it.

A.              Sua Sponte, Broad Fact-Finding and Evidence-Taking Powers For Arbitrators!

The position in favor of broad, sua sponte fact-finding and evidence-taking powers of arbitrators was advocated by Professor Dr. István Varga (Eötvös Loránd University and PROVARIS Varga and Partners, Budapest), who relied on two main arguments:  (i) the parties’ expectation of the effective establishment of the objective facts of the case and (ii) the heightened judicial responsibility of arbitrators in arbitration compared to litigation before courts.

With respect to establishing the facts of the case, Professor Varga pointed out that there is tension between the different approaches of traditional procedural systems.  As he noted, on the one hand, common law tends to favor and promote the establishment of objectively true facts, which is reinforced by the introduction of procedural disclosure obligations (non-compliance with which is effectively sanctioned) and the pre-trial discovery of facts.  By contrast, continental legal tradition is rather characterized by the trial-phase establishment of facts and a tendency to turn to the substantive rules on the burden of proof in case facts are not established with sufficient certainty.

The heightened judicial responsibility of arbitrators follows from the fact that whereas litigation is a multi-tier dispute resolution mechanism (where  cases may not end in the first instance, with the second instance court then typically remanding the case back to the court of the first instance with the instruction to take evidence), in arbitration there is, by default, only one instance.

On these premises, Professor Varga argued that in international arbitration the ideal approach is to entrust arbitrators with broad fact-finding and evidence-taking powers; a “relativised inquisitorial principle” compensates for the lack of appeals and also bridges cross-cultural differences in terms of the taking of evidence.  This ultimately serves the integrity of arbitration in general, which is the most reliable substitute for civil litigation before state courts.

In Professor Varga’s view, the aforesaid arguments cannot be rebutted by time and cost considerations.  Professor Varga noted that the arbitrators’ powers to take evidence sua sponte was codified in Article 40 of the new Budapest Rules11Drafted by Professor Varga.X11 for these reasons and to allow the institution to compete with institutions that had taken a similar path.  Accordingly, the newly introduced provisions expressly foresee that “[i]n order to investigate the circumstances relevant for the decision on the dispute the arbitral tribunal may also order the taking of evidence even failing a motion from the parties to do so”12Budapest Arbitration Rules, art. 40(1).X12 and that “[t]he arbitral tribunal is not bound by the parties’ motions for the taking of evidence.”13Id. at art. 40(2).  The non-exhaustive list of measures includes document production orders, the taking of witness testimony, the inspection of an object or place and the appointment of experts (see paragraphs (3) and (6)).X13  Professor Varga added that parties are, of course, free to derogate from said rule.14Paragraphs (4) and (5) of Article 40 of the Budapest Rules even expressly note that the details of the taking of witness testimony and expert evidence shall be established during the case management conference and in the procedural order recording the outcome thereof.X14

Professor Varga finally noted that the approach one chooses as an arbitrator ultimately comes down to whether one wants to close the case or just the docket.  In this context, he suggested that the right approach should be the resolution of the dispute.

B.              Work With What You Got—Arbitrators are Limited to the Facts the Parties Submit!

The contrary proposition—the limitation to the facts and evidence submitted by the parties—was presented by Dr. Miklós Boronkay (Szecskay, Budapest), who structured his presentation into three parts.  First, he characterized how state courts deal with the issue, where the general rule is that courts are not allowed to take evidence ex officio.  The law recognizes litigant parties’ capacity to decide whether they bring a lawsuit, what materials they provide and what motions they make.  It would be too paternalistic an approach for the judge to help them out if they do not want to make a motion.

Against this background, Dr. Boronkay turned to the question of whether arbitration is indeed so special that a different approach is warranted.  He argued that the lack of appeal in arbitration does not suffice to justify giving extra powers to arbitrators.  Namely, an appeal essentially means an additional forum reviewing the case to see whether the first instance made a mistake.  In arbitration, the lack of appeal is the result of a trade-off because there are other means to ensure that mistakes are not being made that are not available in litigation, notably the possibility of choosing the arbitral institution and the arbitrators.  Setting aside proceedings can still be initiated in case of the most serious mistakes.  Arbitrators can reach the same quality of decisions as second instance judges, even absent an appeal mechanism and even without extra powers to take evidence ex officio.

Second, Dr. Boronkay highlighted three potential “downsides” of ex officio evidence-taking:  (i) thereby arbitrators help the party who has the burden of proof, which involves the risk of unequal treatment; (ii) it increases the costs and the timeframe of the arbitration, and (iii) it is impossible to know where the arbitrators should stop (e.g., asking for a full copy of a document submitted in a redacted form, asking for a document that has not been submitted at all, etc.), with the ensuing uncertainty opening up arbitrators to criticism.

Dr. Boronkay concluded by suggesting that any ex officio evidence-taking powers of arbitrators must be subject to the parties’ agreement—like decision-making ex aequo et bono—with the default rule being that arbitrators are limited to what the parties submit.

C.             Takeaways and Analysis

Before the debate, only one person in the audience was in favor of broad powers, and the rest of the participants were in favor of the limited approach.  After the debate, five participants voted in favor of sua sponte evidence-taking by the arbitrators.

As also confirmed by the ensuing discussion, the right approach will have to be chosen on a case-by-case basis given a myriad of factors:16Jeffrey Maurice Waincymer, Part II:  The Process of an Arbitration, Chapter 10:  Approaches to Evidence and Fact Finding, in Procedure and Evidence in International Arbitration 743, 743–745 (Kluwer Law International 2012).X16  It will necessarily depend on the result of a balancing exercise between competing policy considerations and expectations (well-foundedness and efficiency, arbitrator proactivity and party autonomy), intertwined with issues of impartiality, the approach(es) of the relevant legal tradition(s) and their possible interplay.  It will also naturally depend on the powers and tools arbitrators have pursuant to the applicable arbitration law, arbitration rules, any additional sets of rules, and soft law instruments (such as the Prague Rules) as well as the circumstances of the concrete case, in view of which additional procedural rules may also be adopted, ideally through agreement of the parties reached at the beginning of the proceedings, typically during the case management conference, also in line with the ILA Recommendations on Inherent and Implied Powers of International Arbitral Tribunals.17Annex to Resolution NO. 4/2006 International Commercial Arbitration, available at https://www.ila-hq.org/images/ILA/docs/No.4_Resolution_2016_InternationalCommercialArbitration.pdf.X17  Importantly, the provisions quoted at the outset provide arbitrators with the power to take evidence sua sponte, which they nonetheless do not necessarily have to use.18See, e.g., Phillipp Landolt, Arbitrators’ Initiatives to Obtain Factual and Legal Evidence, 28 Arb. Int’l, 173 (2012).X18 

The second debate concerned arbitrators’ powers to develop the legal reasoning for the award.  Motivations for a “spill-over” may be diverse.  Maybe the arbitrators wish to make a perfect, complete award.  Perhaps neither side addresses a certain legal issue, or only succinctly, and the arbitrators—even inadvertently—pick up on that and elaborate it further.  The question to be answered by the speakers essentially was whether arbitrators can “take the parties’ legal arguments to the next level.”

A.              Iura Novit Arbiter:  Arbitrators Can—and Must(!)—Develop the Legal Reasoning (Themselves)!

The “broad powers” or “iura novit arbiter” approach, i.e., the proposition that arbitrators can—in fact must(!)—develop the legal reasoning of the award (further) themselves, was presented by Dr. Veronika Korom (Queritius and ESSEC Business School, Paris).

Dr. Korom began with the latin dictum in the very title of the conference, according to which a litigant has nothing to do but to show what the alleged fact is, and the judge must decide on the law.  She then noted that the application of iura novit curia, i.e., the ex officio finding of the correct law and the correct application of it by the judge, is of particular importance as iura novit arbiter in international arbitration, where a multitude of national laws have to be applied by arbitral tribunals.  (The latest ICC statistics showed that the newly registered 946 cases were subject to 127 different national laws).

Dr. Korom’s overarching proposition was that the arbitral tribunal must ensure that the award is legally correct, valid and enforceable and that in order to do so, the tribunal cannot limit itself to the legal arguments submitted by the parties but must ascertain and apply the law on its own motion.

She supported this argument with 11 points:  (i) arbitrators are ultimately judges and are entrusted with the task of rendering justice.  Once appointed by the parties, the arbitrator assumes the judge’s robe and derives the authority to do so from national law.  Justice can only be rendered if the law is correctly applied.  So that this will be possible, judges and arbitrators cannot be limited by the legal arguments put to them by the parties.  (ii) In line with the justice-rendering duty of arbitrators, a number of arbitration laws and arbitration rules explicitly recognize the arbitral tribunal’s power to implement and assess the right law.2See, e.g., English Arbitration Act, sec. 34(1) and (2)(g); LCIA Arbitration Rules (2022), art. 22.1(iii) and 22.3; Rules of the Court of Arbitration at the Polish Chamber of Commerce (“PCC Arbitration Rules”), art. 6(1).X2  (iii) National legislation typically provides for arbitrators’ duty to base the award on law,3See, e.g., UNCITRAL Model Law, art. 28; Hungarian Arbitration Act, art. 41; French CCP, art. 1478; Swiss Private International Law Act, art. 187; English Arbitration Act, sec. 46.X3 and (iv) the same principle, from which it follows that the arbitral tribunal can and must independently ascertain and apply the relevant law, is also reflected in a number of arbitration rules.4See, e.g., LCIA Arbitration Rules (2022), art 22.1(iii) and 22.3; ICC Arbitration Rules (2021), art. 21; PCC Arbitration Rules, art. 6(1); Budapest Arbitration Rules, art. 32.X4  (v) Arbitration laws and rules also place tools and case management powers at the disposal of arbitrators, enabling them to independently ascertain and apply the applicable law and thereby arrive at a valid and just decision (e.g., the appointment of experts, the introduction of legal arguments with an invitation to the parties to comment, etc.).

(vi) A defaulting party cannot sabotage an arbitration by not participating in it.  The tribunal can still rely on legal arguments favoring the non-participating party, which amounts to the indirect recognition of arbitrators’ powers to rely on law irrespective of the parties’ arguments.

(vii) Arbitral tribunals have the duty—indirectly also enshrined in Article 34 of the Model Law—to render an award that will withstand challenge.  In this context, arbitrators’ duty to apply the law ex officio cannot be restricted to arbitrability and public policy rules.  (viii) In international practice, challenges against awards on the grounds that the tribunal relied on a legal argument not invoked by the parties have largely been unsuccessful in the most important seats (including Switzerland, Belgium, Sweden, England, and Hong Kong).  (ix) Similarly, the arbitral tribunal’s duty to independently apply the law can also be derived from its duty to render an enforceable award in view of Article V of the New York Convention.

(x) In arbitration, parties can appoint arbitrators, whereby one of the most important considerations is the arbitrators’ knowledge and expertise.  The advantage secured by the arbitrators’ knowledge and expertise in a given legal system would be lost absent iura novit arbiter.  (xi) Dr. Korom’s final point was that arbitrators must be allowed to apply and must apply the law ex officio so that arbitration will maintain its outstanding reputation as a mechanism for the settlement of cross-border disputes, especially in view of the fact that an award that is not fully correct or even incorrect at law cannot be corrected on the merits and could thus leave a bad “aftertaste” pushing parties to State courts the next time they have a dispute.

B.              Not So Fast—Arbitrators Cannot Go Beyond the Legal Arguments and Provisions Submitted by the Parties!

The competing position, i.e., that arbitrators are limited to what the parties submit in terms of legal provisions and legal arguments, was elaborated by Dr. Viktor György Radics (DLA Piper, Budapest).

Dr. Radics structured his presentation around five main points.  First, he pointed out that litigation and arbitration are of a basically different nature.  State courts are manifestations of the sovereign, and, by definition, sovereign power is not limited to party submissions.  The holder of sovereign powers must know the correct law, apply it correctly and render the correct decision.  In litigation, especially in smaller cases, not knowing the law is an effective burden to the access to justice.  In arbitration, however, this is not an issue.  Arbitration is a voluntary opt-out of the system of sovereign courts, with the parties’ most important related expectations being that they will be treated equally, that the arbitrators will not abuse their powers, and that the decision is not in breach of the public policy of the State.  In this regard, he pointed out that, from the perspective of enforcement and setting aside, the award does not have to be correct, it just cannot be against public policy.

Second, As to the idea of a correct decision, the main argument in favor of iura novit arbiter, Dr. Radics argued that it is not a mandatory obligation for arbitrators to apply the law correctly regardless of the parties’ submissions.  Even under the rules in which iura novit arbiter is mentioned, it is construed as an option (an “additional power” in the LCIA Rules and an opportunity under the PCC Rules as well), iura novit arbiter is therefore a discretionary power in the hands of arbitral tribunals.

Third, Dr. Radics then used the discretionary nature of iura novit arbiter as the main argument against it:  the discretionary exercise of iura novit arbiter can lead to impartiality.  At the same time, the requirement of equal treatment is codified in practically all arbitration laws.  As an example, he noted that in a case where only contractual damages claims were put forward—and the respondent defended itself only against contractual damages for years—the arbitral tribunal would treat said respondent unfairly and unequally by awarding non-contractual damages to the claimant.  Fourth, Dr. Radics then noted that where awards are set aside in a similar context, it is typically because the arbitral tribunal did not give the parties the opportunity to comment on decisive legal grounds.  He noted that this is a serious issue especially in view of the fact that arbitration is supposed to be a dispute resolution service for the parties.

Fifth, finally, Dr. Radics emphasised that all parties who conclude an arbitration agreement and initiate an arbitration are fully aware that they have to submit—and substantiate—their claim and that they will receive an award on the basis of their own arguments.  The arbitrators’ task is to decide over the parties’ dispute, without having the power to discretionally turn cases from one side to the other.  Even the parties winning only because of the exercise of iura novit curia/arbiter by the forum may feel offended if the forum comes up with legal arguments they have not managed to think of in years.

C.             Takeaways and Analysis

Both before and after the debates, about half of the audience (of between 30 and 40 people) voted in favor of iura novit arbiter, whereas seven participants were in favor of the limited approach and a part of the audience was undecided.  In contrast to fact-finding, significantly more people were in favor of arbitrators’ powers to develop the legal reasoning of the award themselves.

In view of the improvised polls, iura novit arbiter seems to be more generally accepted than the ex officio investigation and establishment of facts, which is in line with the titular dictum “da mihi factum, dabo tibi ius”, i.e., “give me the facts and I will give you the law,” even though provisions entrusting arbitrators with the power of ascertaining the law sua sponte are scarce.6Exceptions are Section 34(2)(g) of the English Arbitration Act, sec. 34(2)(g) and  LCIA Rules (2022), arts. 22.1(iii) and 22.3.  See Mohamed S. Abdel Wahab, Ascertaining the Content of the Applicable Law in International Arbitration:  Converging Civil and Common Law Approaches, in Arbitration:  The International Journal of Arbitration, Mediation and Dispute Management 412, 414 & 421 (Michael O’Reilly, ed. 2017).X6  Possibly, the autonomous development of the legal reasoning by the arbitrators is considered a lesser intervention into party autonomy than proactive fact-finding.  Despite such scarcity, it has been argued that iura novit arbiter can be useful in preventing judicial errors that might be the result of the requirement of strict adherence to the parties’—maybe erroneous or incomplete—legal arguments.7See, e.g. id. at 420–422.X7  As in the case of fact-finding, competing expectations can be juxtaposed in the context of finding and correctly applying the law as well:  here the expectation of an award that rests on correct and complete legal foundations competes with the parties’ right to be heard on the arbitral tribunal’s legal evaluation.8Andrea Meier & Yolanda Mcgough, Do Lawyers Always Have to Have the Last Word?  Iura Novit Curia and the Right to Be Heard in International Arbitration:  An Analysis in View of Recent Swiss Case Law, 32 ASA Bull. 490, 491 (2014).X8  Of course, the right balance will, once again, have to be found in view of the circumstances of the concrete case.9See ILA Recommendations on Inherent and Implied Powers of International Arbitral Tribunals in Annex to Resolution NO. 4/2006 International Commercial Arbitration, available at https://www.ila-hq.org/images/ILA/docs/No.4_Resolution_2016_InternationalCommercialArbitration.pdf.X9

As pointed out in the foregoing, both topics—autonomous fact-finding and the application of the law by the arbitral tribunal—involve both practical issues and conflicting policy considerations and expectations handled differently in different legal traditions.  Without attempting to define a common denominator here, let alone a universal answer, it is suggested that the right approach is to be found by the arbitrators proceeding in the concrete case in view of all relevant considerations and the actual circumstances.  As it was also confirmed in the ensuing moderated discussion initiated with a question in this regard, case management techniques can play a very important role and often already “do the trick”:  whenever parties do not raise a certain issue (in sufficient detail)—be it one of fact or law—for example, putting questions to the parties, the identification of points that the arbitral tribunal is interested in (maybe through the circulation of a list of issues to be addressed in a particular phase of the arbitration) and/or the formulation of “invitations” to the parties to “consider” going into more details with respect to a particular point may already yield the necessary input from the parties, or, even if not, it still provides parties with the opportunity to do so, reducing the probability of the exposure of the arbitral award to challenge due to an overreach in any direction.

The conference in Budapest, Young ITA’s very first event in its new region Central and Eastern Europe, proved that the official extension of ITA’s activities over the CEE region is most welcome.  The active participation—also in the quite lengthy ensuing discussion—and positive responses afterward have shown that ITA’s activities and exchanges within and beyond the local and regional arbitration communities through similar arbitration events are “of absolute importance” in the development of the arbitration scene, which is looking forward to “many more great events with Young ITA CEE” in a rapidly growing region.