Arbitration is becoming increasingly complex, with prolonged procedures and a greater amount of written evidence, taking more time to handle and analyze. Technology has supported the process of sending and receiving evidence, especially documentary evidence, which has led to the widespread inclusion of more evidence than before, as inclusion costs are practically zero. The complication lies in the review and synthesis by arbitrators at the time of rendering the award.
However, the problem does not lie in the amount of information that the arbitrator must process to arrive at a conclusion that is consistent with the legal reality of the case, but in how to translate such information into the arbitration award. The general rule regarding the motivation of arbitration awards indicates that, unless the parties agree otherwise, the awards must establish the reasoning that led the tribunal to the conclusion reflected in the award.
This requirement regarding the need to motivate the award with the arbitrators’ reasoning is generally established by the regulations of administering institutions and in the national laws on arbitration of each country; however, practically all of them fail to establish the scope of this motivation.
The Supreme Court of the Nation has pronounced in Mexico regarding the standard of review of the due process principle in arbitration awards, stating that the standards of review and application of such principles cannot be equated with the state court and, where appropriate, must attend to the due opportunity that the parties had to present their case, but this decision does not cover to what extent the arbitrator must go in the relationship and analysis of the evidence offered by the parties and how this translates into the award.
There is also an international precedent in which the Higher Regional Court of Frankfurt is Main, Germany, recently analyzed these issues in a case brought before it to declare the applicability of a CCI award issued in Italy.
The case involves the shareholders of an Italian company, who sold their shares in the company to the defendant through a share purchase agreement concluded in 2008. Ten years later, the buyer initiated a CCI arbitration procedure against the sellers in which he requested that the share purchase agreement and the transfer of shares be declared invalid due to the fraudulent behavior of the sellers. The arbitral tribunal ruled that the buyer could identify what he claimed was a fraud as early as 2009, so it dismissed the buyer’s claims. The tribunal ordered the buyer to reimburse the sellers for their legal fees.
The buyer filed an application in Italy to set aside the arbitration award. The sellers requested the Higher Regional Court of Frankfurt to declare the applicability of the arbitration award with respect to the legal fees awarded to them. The buyer argued that the recognition and enforcement of the award would be a violation of public policy and, as such, a violation of Art. V (2) (b) of the New York Convention.
The buyer also argued in the process of setting aside the arbitration award that the evaluation of the evidence made by the arbitral tribunal was contradictory, unclear, and incomplete, and that a reasoning error known as a petitio principii was committed, which consists of presenting an argument that assumes as true what is being tried to prove. That is, it is assumed that which is being tried to prove, without providing additional evidence or valid arguments to support the claim. It is a logical fallacy that can be deceptive and does not provide a solid basis for argumentation.
However, the Higher Regional Court of Frankfurt ruled in favor of the sellers and declared the arbitration award enforceable. The court established that the requirements for a violation of public policy are extremely high and that recognition of a foreign arbitration award can only be denied if there is a serious defect that affects the foundations of state and economic life in Germany. The court also explained that the reasoning of an arbitration award only has to meet certain minimum requirements and that arbitral tribunals do not have to present the evaluation of evidence extensively.
Taking into consideration these precedents, both the analyses carried out by the Mexican Supreme Court and the one presented in Germany, it is expected that arbitrators will need to provide a sufficient level of reasoning and analysis to support their decisions, but the extent to which this is required may vary depending on the specific circumstances of each case. Ultimately, the obligation to provide reasons in an arbitral award is a fundamental principle of due process and is essential to ensure that the parties have a fair and impartial resolution of their disputes.
In summary, the obligation to provide reasons in an arbitral award is a crucial aspect of the arbitration process, and while there is no clear consensus on the extent to which arbitrators must provide reasoning, it is generally accepted that a sufficient level of analysis and justification must be provided to support the decision. As the use of technology and the complexity of disputes continue to increase, it will become even more important for arbitrators to carefully consider the evidence and provide a well-reasoned and balanced decision that meets the standards of due process.
