On 9 March 2017, the Svea Court of Appeal issued a judgment confirming the Jura Novit Curia principle also applicable to arbitration. According to the Jura novit Curia principle, the parties do not have to find out the content of the law before the court, but the court takes the matter into account independently and automatically.
The parties have entered into a franchise agreement in 2008. An arbitration award has been issued in arbitration between the parties in 2015.
According to the claimant, the arbitrator exceeded his authority and committed a procedural defect
The claimant demanded that the arbitral award should be dismissed. The applicant claimant justified his demands on two grounds, relying on the Swedish Arbitration Act, according to which, if the arbitrator exceeds his jurisdiction, the arbitral award should be wholly or partially null and void. On the other hand, the arbitral award had to be declared wholly or partially irrelevant, if in the course of the arbitration proceedings there has been a procedural defect that was not due to the parties but had influence on the outcome of the arbitral.
According to the claimant, the arbitrator had exceeded his jurisdiction by basing his arbitral award analogously on provisions of the law which the defendant did not invoke. The mediator should have taken into account only the points raised by the defendant.
The arbitrator allegedly committed a procedural defect when failing to inform the parties that the law in question had affected his decision making. The mediator had to give the parties the opportunity to present their arguments and points of view. This was a procedural defect because the law was applied by extending its interpretation to a broader wording than usually without prior notice to the parties. Since it was difficult for the parties to anticipate the analogous application of the law, the parties had not been able to rely on the relevant facts of the case owing to the arbitrator’s procedural defect. The procedural error had affected the outcome of the case. The arguments for the annulment of the arbitral award were at hand.
The Court of Appeal stated – The Arbitrator had based his judgment on the law
The Court of Appeal dismissed the claimant’s demands for annulment of the arbitral award referring explicitly to the Jura Novit Curia principle. According to the Jura Novit Curia principle, the judge is not bound only by the legal arguments expressed by the parties. The arbitrator has the right to choose an appropriate law, depending on the legal facts the parties have submitted.
According to the Court of Appeal, an arbitrator cannot take into account other legal facts than those presented by the parties during the procedure. In other words, exceeding jurisdiction is if it establishes an arbitration award for a different legal fact than that which the parties have invoked. On the other hand, the arbitrator has an explicit duty to determine the circumstances and facts on the basis of which he decides the legal facts and law applicable to the case. On the other hand, a certain legal argument may be applied even if the parties have not explicitly invoked it, provided that the legal argument is based on the case-law.
Did the arbitrator exceed his authority?
The Court of Appeal was the opinion that the claimant had failed to prove that the arbitrator would have based the arbitration award on anything other than the matters invoked by the defendant. Thus, the arbitrator had not exceeded his authority.
Did the arbitrator commit a procedural defect?
Should the arbitrator have drawn the attention of the parties to the analogous application of the law? During the arbitration process, the parties were able to submit their views on how that agreement was applied and could argue the views of the counterparty.
The Court of Appeal stated that it was by no means exceptional to fill the gaps in an arbitration agreement with a law that was usually used in similar cases. The claimant could not have been surprised by the provision of the law applied by the arbitrator because of analogous interpretation. Notwithstanding the fact, that the defendant did not expressly invoke this certain fact during the arbitration proceedings. The arbitrator had not committed a procedural defect by failing to inform the parties of his intention to apply the arbitration law to the case analogously and exceeding the wording of the law.
Appealing to Supreme Court
The Court of Appeal ruled that a judgment cannot be appealed the Supreme Court because no precedent was at hand. In other words, there was no justification relevant to the case-law.
What to be noted?
The Jura Novit Curia principle was validated by judgment of the Court of Appeal to be applicable also in arbitration.
The rules of the arbitral institutes take a stand on the choice of the applicable legal guidelines
The Arbitration Rules of the Stockholm Chamber of Commerce (SCC) allow the parties to agree on the applicable law and other legal provisions. Unless the parties have agreed upon these, the arbitrator will decide what to apply. The Arbitration Rules of the Finnish Central Chamber of Commerce (FAI) are equivalent in this respect.
The solution of the Court of Appeal is based on Swedish law
The solution of the Court of Appeal is based on national law. This limits its applicability especially in jurisdiction of other countries.