Appeal Against an Arbitration Award?

Giovanni Ettore Nanni Partner in the Arbitration Practice Group of TozziniFreire Advogados [email protected]

Dissatisfaction with a decision against one’s own interests is inherent to the human being. Since our first steps, as toddlers, and then through adulthood, in personal or business matters, a certain discomfort invariably arises when the determination on an issue frustrates our expectations. The same feeling, or even more intense, overwhelms us in relation to disputes settled in court or through arbitration.

In contrast with court proceedings, parties to an arbitration do not have the right, in principle, to challenge the arbitration award. Therefore, the question arises as to whether some sort of appeal would be possible and convenient in arbitration cases.

Given the binding nature of arbitration clauses, once the parties select arbitration as a means of dispute resolution in their agreement, they will be prevented from submitting any controversies to state courts, and the final arbitral award will not be subject to review, except by way of a petition for annulment, in independent proceedings, and restricted to cases essentially related to violation of public order.

The arbitration award issued by a competent arbitration tribunal is final and binding. Therefore, parties cannot file any type of appeal before state courts, even if the decision is perceived to be wrong or unjust.

At least in Brazil, parties are also prevented from agreeing that the arbitration award will be reviewed by state courts, as this would be contrary to procedural rules and also violate regulations pertaining to the organization and powers of the judiciary branch.

In addition, the arbitration tribunal itself cannot reform its award after it has been rendered, except upon a request for correction due to material errors, lack of intelligibility as to the contents of the decision, contradiction or omission.

On the other hand, the law does not prevent the parties from establishing that a different arbitration panel will be empowered to review the arbitration award if a party appeals the original decision.

There is a significant debate over whether an appeal system would increase the costs of arbitration cases and also minimize one of the main advantages of arbitration by lengthening the duration of proceedings. After all, it is normally expected that the selection of arbitration will result in a fast decision, rendered by specialized arbitrators, and at a reasonable cost.

However, each case has its peculiarities, and the creation of an appeal system may not result in an unreasonable increase in the duration of proceedings. This is because the arbitration panel responsible for reviewing the original award will not duplicate the

www.tozzinifreire.com.br evidentiary stage, which is normally the most expensive and time consuming phase of proceedings. The panel will only analyze the arguments and evidence already produced, and then issue its decision either affirming or reforming the original award.

This means that, following installation of the arbitration panel, a final decision may be issued in a short period of time, as arbitrators have, in principle, far less cases to examine than judges sitting in state courts. Additionally, a specific timeframe may be established for a final decision once a party files an appeal.

Costs will not be necessarily prohibitive since the appeal stage will not demand, as a general rule, meetings involving parties, witnesses, experts, etc.

One cannot deny, of course, that an appeal system would result in additional costs. But the possibility of appealing the decision should be considered in light of the comfort it could bring to the parties. In other words, if the parties are willing to increase their costs in exchange for an appeal system, this is a decision they should be able to make.

Another factor to be considered is the complexity of legal and technical issues involving a given arbitration dispute, specially in large cases. In order to minimize the risks of unsatisfactory decisions, parties may be willing to bear the costs and additional time represented by an appeal system.

Furthermore, recent surveys indicate an increase in state court litigation involving large cases exactly because arbitration awards are not subject to appeal.

All of these aspects are more evident in arbitration cases relating to international agreements, which are commonly complex, have a long term of duration, and involve large sums of money.

In fact, the preference for arbitration in international transactions may also be unrelated to a possible fast decision with lower costs expected in arbitration cases, but rather to the desire to avoid litigation in “home” courts of the other party.

Having in mind that the possibility of appealing a decision is part of the litigation culture, the creation of a system for appealing arbitration awards could facilitate and consolidate the selection of arbitration as the preferred means of dispute resolution in corporate matters. It is clear, on the other hand, that such an option should be used in a rational way, in light of specific circumstances in each case.

If the parties decide to create an appeal system to challenge the arbitration award, many structures could be used, including, without limitation: (i) a system where parties are free to challenge any aspects of the decision; (ii) a system where parties can only challenge the decision as to matters of law, but not matters of fact; (iii) an appeal that can only be filed if the decision reaches a certain threshold amount; (iv) an appeal that can only be filed in case of non-unanimous decisions by the arbitration tribunal; (v) an appeal that can only challenge specific aspects of the dispute, normally deemed more complex in terms of legal and technical difficulty.

The drafting of an arbitration clause involving the possibility of appealing the arbitration award must receive special attention. After all, it would not be a standardized clause.

08798f294ae8e2afb457a2f0956eb195.doc 2 Many aspects relating to the implementation of the appeal system must be thought of, including scope, timeframe for filing the appeal, composition of the arbitration panel responsible for reviewing the original award, procedural issues etc. In addition, lawyers would have to determine whether any legal obstacles could prevent enforcement in different jurisdictions.

After all issues are considered and the parties resolve to establish an appeal system in arbitration cases, they may gain an efficient system capable of accommodating their expectations as to the uncertainties usually associated with commercial disputes.

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