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Even if none of the parties raises a claim of illegality in the course of arbitral proceedings, the tribunal might still be obliged to look into the issue sua sponte in light of its obligation to apply mandatory provisions of the law applicable to the dispute. For the arbitrators, criminal law is a mandatory rule of law. Under this scenario, tribunal’s obligation to investigate will be relevant in light of several considerations: jurisdiction, arbitrability, and enforceability of the final arbitral award.
Under Article V of the New York Convention, the award may be refused recognition if the recognition or enforcement of the award would be contrary to the public policy of the enforcing state. This is the ground for non-enforcement under which non-application of overriding mandatory provisions of the governing law would fall. Also, failure to apply mandatory provisions of national law may trigger additional consequences for the tribunal outside of the four corners of the arbitral proceedings themselves. Under some national laws, e.g., tribunal’s failure to apply mandatory criminal law provisions and to address the alleged wrongdoing committed by one of the parties will make arbitrators complicit in the crime.
However, sua sponte investigation and application of criminal law provisions creates a number of potential problems the tribunal will have to deal with, both jurisdictional and procedural.
The first and most important issue to arise in this regard is whether such actions of the tribunal are ultra petita. The tribunal derives its power to adjudicate the dispute from the parties’ consent and, thus, is limited by such as well. The problem of ultra petita does not seem to arise if the potential illegality affects the jurisdiction of the tribunal or the arbitrability of the dispute, as the tribunal is always empowered to rule on its own jurisdiction.
The situation becomes more attenuated, however, if the potential illegality goes to the merits of the dispute only, without affecting the legality of the arbitral proceedings themselves.
In this latter respect, there is no uniform answer provided by the arbitral community. On the one hand, there are scholars who argue that, under such circumstances, the arbitrators have neither rights nor duties to investigate, such investigation being within exclusive province of state authorities. On the other hand, failure to investigate might lead to the failure by the tribunal to apply the law the tribunal is bound to apply as mandatory.
In this respect, the approach that seems to be most reasonable to us is that the tribunal has the power to act sua sponte as long as issue of illegality, even if not directly framed as arbitrability/jurisdiction issue, is determinative of the legal claims at issue. This means that the issue must be determinative of the claims “regardless of the parties’ actions in the legal proceedings” (as, e.g., when contract is void ab initio).
Another equal treatment and/or due process consideration that might come into play in case of a sua sponte investigation by the tribunal is whether such investigation should be seen as impermissible aid to one of the parties in the proceedings. There are some concerns voiced by academics that such investigation unduly benefits the party that will win in case allegation of corruption is proven. This is especially true if the said party only finds out about the alleged criminal behavior due to the tribunal’s activity.
In our opinion, however, this shall not pose the problem of equal treatment. Despite the initial appeal of the fully adversarial model of arbitral proceedings, the tribunals shall act first and foremost in compliance with their duties to render an enforceable award that is owed to both parties equally. If the discharge of such duty requires the tribunal to look into the issue of illegality to be able to apply the mandatory provisions of national criminal law, then this is what the tribunal should do. In doing so, the tribunal will equally benefit both parties whose primary interest is to have their dispute resolved effectively and conclusively.
One of the ways to justify the sua sponte investigation by the tribunal, especially in civil law jurisdictions or, alternatively, before the civil law trained arbitrators, is application of the principle iura novit curia or “the court knows the law”. This principle allows the tribunal to apply the law independently of how the parties have pleaded it (or, in our case, independently of whether the parties have pleaded it at all in the first place).
In our opinion, though, there is some concern in application of this principle by the tribunal in rendering the award. Namely, to know the law the arbitrators have to actually know the law (with all the apologies for a tautology). While the presumption that the court knows the law is justifiable in state courts where the judges are qualified in the jurisdiction, this presumption is much more difficult to uphold in arbitration. Where the arbitrators are often not even qualified in the relevant jurisdiction (or maybe not even lawyers in the first place), how can they be said to “know the law”? One potential way out of this may be for the tribunal to appoint their own experts on the issues of foreign law.
The principle that the tribunal shall raise the issue of law on its own in case application of overriding mandatory laws is at stake was finally recognized and put into writing by the International Law Association which concluded that:
“In disputes implicating rules of public policy or other rules from which the parties may not derogate, arbitrators may be justified in taking measures appropriate to determine the applicability and contents of such rules, including by making independent research, raising with the parties new issues (whether legal or factual), and giving appropriate instructions or ordering appropriate measures insofar as they consider this necessary to abide by those rules or to protect against challenges to the award.”
Another factor the tribunal shall consider is not only what is the permissible scope of the legal issues that the tribunal might raise of its own motion, but also to what extent the tribunal can act of its own initiative in gathering evidence to either confirm or disconfirm suspicions of illegality.
Among national laws that address the issue, the power of the tribunal to investigate facts sua sponte is granted by Swiss law, Hong Kong Arbitration Ordinance (unless otherwise agreed by the parties to the arbitration), and U.S. Federal Arbitration Act. UNCITRAL Model Law on International commercial arbitration, while not providing for sua sponte factual investigation expressly, establishes that the tribunal shall have road powers “any expert report or evidentiary document on which the arbitral tribunal may rely in making its decision shall be communicated to the parties” (which implies that the tribunal may rely on information not submitted to it by any of the parties). Similarly, the coextensive power of the arbitral tribunal is envisaged in some arbitral rules.
Aside from these conceptual hurdles, the tribunals, in conducting a sua sponte investigation, will necessarily face a number of practical difficulties that have to be kept in mind. These stem mostly from the lack of authority to compel either the parties or the third parties to do anything in aid of such investigation.
Quite possibly, if neither of the parties raises the issue of illegality, they might be unwilling, for one reason or another, to voluntarily provide the tribunal with the evidence requested, should the tribunal raise the issue sua sponte. Even if this is not the case, investigation of the alleged criminal conduct will more often than not require evidence from or testimony of the third parties. This is where the tribunal’s powers will cease to be sufficient to conduct the relevant investigation. At the same time, this does not render the tribunal completely powerless. Faced with such a situation, the tribunal can resort to aid from the state courts in the seat of arbitration in subpoenaing witnesses, procuring documents and/or physical evidence and etc.
The question posed in this respect is, for example, to what extent the tribunal shall undertake the independent questioning of the parties’ witnesses. Here, the leading guidelines on the issue are only marginally helpful. For instance, the IBA Rules on Taking Evidence provide for the right of the arbitral tribunal to ask questions in addition to those asked by the parties.
This does not, however, answer the question as to what the permissible scope of such questioning is. Can the tribunal go outside of the scope of direct examination of a witness justifying this by its sua sponte illegality investigation? Should the party’s decision to waive its right to cross-examination somehow preclude or limit the power of the tribunal to proceed with the similar line of questioning?
Another related question is the appointment of experts by the tribunal. Just like with the lay witness testimony, it is uncontested that the leading guidelines in international arbitration, such as the IBA Rules on Taking of Evidence, provide for the right of the tribunal to appoint its own experts as opposed to those appointed by the parties.
But also, just like with the lay witness testimony, this does not answer the question as to how the tribunal shall exercise its discretion in this regard. What shall the tribunal find to be satisfied that the appointment of an independent expert is needed to investigate the alleged criminal behavior? In case the expert is appointed, how should the tribunal decide on the scope of issues to be addressed by such an expert?
In a nutshell, the overarching question when it comes to the sua sponte investigation of illegality by the arbitral tribunal is how active is too active. In answering this question, the tribunal should be mindful of the consensual nature of its power to adjudicate the disputes and the limitations associated with it. In any event, the tribunal shall always consult the parties as to all the issues it looks into to ensure the due process rights of the parties are respected, and the resulting award is enforceable.
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