Overview of the Series on Substantive Law in Arbitrations

How is the substantive law in an international arbitration proceeding established before an arbitral panel during an arbitration? By substantive law, we are of course referring to the body of laws that apply to the interpretation of the contract and the underlying activities (for instance, environmental or consumer protection laws).

In our previous blog post we discussed the UK Supreme Court's decision in Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb, [2020] UKSC 38 ["Enka"], which examined the issue of determining which system of law applied to the interpretation of an arbitration clause. However, once the parties know what law is to be applied, how is that law established and/or proven before the tribunal?

In this three-part series, we will explore the issues that arise once the parties are aware of which substantive law applies. These are nuanced issues to be considered in an international arbitration because the very nature of an international arbitration will bring together parties, counsel and arbitrators from around the globe, each of whom may have been educated and trained in a different legal tradition.

As was the case in the Enka decision, the substantive law and procedural law may be different, and the substantive law may be from a jurisdiction which neither counsel, nor the tribunal have formal training or experience with.

The application of foreign law arises from time to time in domestic litigation where a domestic court is asked to apply the law of a foreign jurisdiction. Where this occurs, conflicts of laws principles of that jurisdiction apply to guide the court in ascertaining the substance of the foreign law.

Unlike in domestic courts, in international arbitrations there is no unifying system of requirements or practice for establishing the contents of "foreign" law, as no law is truly foreign in an international arbitration. As with many aspects of arbitration procedure, arbitrators are typically vested with broad discretion to craft the procedure to fit the circumstance, and the procedure for establishing the contents of the applicable law is no exception. Thus, to the question posed above regarding how the contents of the law are established, the answer is: "however the tribunal decides it should be".

An almost necessary corollary to arbitrator discretion however, is a litigant's discomfort in an arbitral panel making up the rules as it goes, particularly when unmoored from any pre-established procedural cannon.1 Fortunately, arbitrators are not entirely unmoored however from any rules, procedures, or traditions.

This blog series will explore the considerations and background principles that can guide decision-making for arbitrators and litigants alike in addressing the issue of proof of substantive law.

  • This first post will explore how domestic courts approach the issue to frame alternative styles of dealing with the issue;
  • Part 2 will explore what legal and procedural constraints bound arbitrator discretion in crafting a procedure and making final determinations; and
  • Lastly, Part 3 will explore what elements counsel should consider in crafting a strategy to approach the presentation of their case, particularly in light of the broad discretion vested in arbitrators, and the considerations outlined in this series.

PART 1 - DIFFERENT APPROACHES TO PROOF OF SUBSTANTIVE LAW

As noted above, though it is a misnomer to consider any law "foreign" in the context of an international arbitration, the frameworks established by domestic courts to establish foreign laws will provide a backdrop for how lawyers and arbitrators tend to consider the issue. This is because most lawyers and arbitrators will have been introduced to the concept through the conflicts of laws principles of the jurisdiction they receive their formal legal training in. We can examine these frameworks not because they will be binding on an arbitration, but rather to get a better understanding of how different arbitrators might consider the issue given their particular background.

Generally, legal systems are divided into two conceptual categories: (i) those that treat foreign law as law which is to be argued by counsel, and (ii) those that treat foreign law as a fact which is to be proven.

Most (though not all) civil law jurisdictions do not treat foreign law as any different from domestic law in terms of how it is established. In these jurisdictions the principle of iura novit curia ("the court knows the law") is the prevailing norm. In these jurisdictions, the court is presumed to know the law, and to research and investigate those aspects that it does not on its own accord. In such a system, the parties are not expected to educate the court on the contents of the law (though it may be foreign), but can reference the relevant principles in their submissions.

This is in contrast with most common law jurisdictions where foreign law is treated as a fact that needs to be specifically pled and proven by the party relying on it. This is typically achieved through hiring an expert in the foreign law, and having that expert present opinion evidence on the content of the foreign law. In the absence of proof of the law, the court will presume that the foreign law is the same as the domestic substantive law on the point.

The difference in these approaches conceptually is whether the foreign law is treated as law to be argued (by counsel), or fact to be proven (through qualified expert witnesses). Both have their advantages and drawbacks. For instance, under the law-as-fact approach, obtaining an expert in the legal system to testify to the court about the contents of the law seeks to ensure that the court receives the input from a professional qualified in the legal system in an (at least notionally) objective and neutral manner.2 At least one drawback to this approach in the context of international arbitration, is that there is no domestic law to be applied as a backstop in the absence of evidence from the parties, without the arbitrator risking overruling the parties' choice of substantive law. The law-as-law approach however, suffers from the (perhaps mistaken) assumption that the court knows the intricacies of the applicable law, and where the parties do not advance the applicable legal framework (or at least, not as thoroughly as the tribunal may wish) if the tribunal takes its own initiative to research and apply the substantive law, issues of procedural fairness will arise, in that the parties may be deprived of the opportunity to make submissions on the issues pivotal to the determination of the case.3

Straddling the two positions stated above is the approach articulated in Rule 44.1 of the United States Federal Rules of Civil Procedure ("FRCP"):

A party who intends to raise an issue about a foreign country's law must give notice by a pleading or other writing. In determining foreign law, the court may consider any relevant material or source, including testimony, whether or not submitted by a party or admissible under the Federal Rules of Evidence. The court's determination must be treated as a ruling on a question of law.

The practice in international arbitrations tends to reflect the position set out in FRCP Rule 44.1, with the arbitrators being able to consider any source for the substance of the applicable law: whether presented by a party or not, and whether tendered in evidence or presented as argument. As noted above however, this wide ranging discretion creates a wide open landscape for both counsel and arbitrators, which needs to be skillfully navigated.

Be sure to check back for Part 2 of this series, which will explore considerations for what legal frameworks will impact an arbitral panel's exercise of this discretion when determining the substance of the foreign law applicable to the arbitration.

Footnotes

1. Professor William W. Park, Arbitration's Protean Nature: The Value of Rules and the Risks of Discretion (The 2002 Freshfields Lecture), 19 Arb. Int'l 279 (2003) at p.286: "[t]he dark side of all this discretion lies in the discomfort that a litigant may feel when arbitrators make up the rules as they go along, divorced from any precise procedural canons set in advance."

2. See for instance, Article 4 of the Chartered Institute of Arbitrators' Protocol for the Use of Party-Appointed Expert Witnesses in International Arbitration, which explicitly states the requirement of independence and impartiality of an expert witness and affirms their duty to the tribunal.

3. See for instance, Tall Ships Landing Devt. Inc. v. City of Brockville, 2019 ONSC 6597 where the Ontario Superior Court of Justice set aside 3 Awards on the basis of the arbitrator basing the decision on legal principles neither pled nor argued.

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