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Arbitration bodies and the arbitrators who work for them have the same basic goal: to render efficient and enforceable decisions. But they can have quite different ways of doing it. Some require a “reasoned” award in which arbitrators elaborate on how they arrived at their decision. The results can be detailed, 60-to 70-page opinions similar to those of courts. An example is the International Chamber of Commerce. Others typically issue brief opinions or none at all, even in cases where hundreds of millions of dollars are at stake. The National Association of Securities Dealers (NASD), a regulatory body that manages consumer cases against the securities industry, generally follows this practice, though with exceptions. Still others, such as the American Arbitration Association, leave it up to the parties and modify rules depending on the subject matter and circumstances of a case. Since many arbitrators charge hundreds of dollars an hour, long “reasoned” awards tend to undermine one of the advantages of using arbitration over the judiciary system: lower costs. On the other hand, the laconic approach — a decision with no detailed explanation — can wrap the process in mystery, leaving parties to ponder why they lost what they thought was a winning case. COURT PRACTICES DIFFER One source of differences is the fact that arbitral panels cannot enforce awards on their own. That is left to courts around the world, which treat arbitration awards differently from one another. Courts of many nations enforce only reasoned awards. American courts enforce awards issued domestically without requiring explanations from arbitrators. All of these factors lead to a conundrum. Should parties ask for a reasoned award when they might seek enforcement in the United States and abroad? And should they forgo their desire to understand the arbitrators’ decision-making process to save money? All international awards involving parties from different nations need to be reasoned in order to be enforced, said Robert Smit, an arbitrator from Simpson Thacher & Bartlett. Countries that apply a civil law system, for instance, require reasoned awards prior to enforcement, said experts. International arbitration developed within a tradition of reasoned awards, said John Townsend, a partner at Hughes Hubbard & Reed sitting on the board of the American Arbitration Association. The rules employed by popular arbitral groups such as the International Chamber of Commerce and American Arbitration Association reflect these themes. The Chamber of Commerce’s rules require the award to “state the reasons upon which it is based.” Many chamber arbitrators issue long awards, although the length varies according to the complexity of the case and the individual arbitrators on the panel, said Barry Garfinkel, head of Skadden, Arps, Slate, Meagher & Flom’s international arbitration group. One thing that makes the International Chamber of Commerce process unique is that it developed the “ICC Court” to review and modify every decision issued by its arbitrators. The ICC court examines whether arbitrators ruled on every issue before them, said Lorraine Brennan, a director at the chamber. The ICC court does not act like an appellate court, said Townsend. It reviews awards before releasing them to the parties and will not accept appeals. The court searches for internal inconsistencies, added Smit, who sits on the chamber’s court. The court can recommend but does not require arbitrators to reconsider the merits of their opinion. Recommendations arise from disproportionate rulings or flawed application of the logic used to arrive at the award, he continued. The chamber’s approach serves other purposes as well. A reasoned award instills discipline in arbitrators, said John Fellas, an arbitration attorney Hughes Hubbard’s New York office. The process of writing out an opinion forces arbitrators to think through their opinions rather than relying on intuition, he said. The explanations offered in a reasoned award contribute to the integrity of the arbitral process. It is not that parties believe an arbitrator was bribed or acted fraudulently but they prefer a reason to satisfy their own doubts and curiosity, said Fellas. “If you really thought you won and you get a one-line decision saying you lost,” he said, “you may not believe in the process.” A reasoned ruling also limits the likelihood of splitting the award between the parties. Some companies dislike arbitrations because they tend to “split the baby,” said Smit, by arriving at an award that balances arguments from both sides rather than ruling convincingly for the party with the stronger case. By having to explain their thinking, he said, arbitrators are less likely to issue these types of awards. The American Arbitration Association’s international rules require a reasoned decision unless the parties request otherwise. Luis Martinez, a vice president at the association, said the association drafted the international rules keeping in mind the 122 signatory nations to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The convention obligates signatories to enforce arbitration awards issued in foreign nations. Its rules imply that national courts will not enforce unreasoned awards, he said. DOMESTIC ENFORCEMENT But the association’s rules for cases between American companies do not follow this approach. The reason ironically is — again — enforceability. Unlike the international tradition, said Townsend of Hughes Hubbard, arbitration in the United States followed a pragmatic approach intended to reduce judicial scrutiny. When Townsend began to participate in arbitrations 30 years ago, he said, senior arbitrators advised him “to keep awards short.” American courts overwhelmingly enforce arbitral decisions allowing for few exceptions, said experts. By having less material available for scrutiny, said Pearl Zuchlewski a partner at Goodman & Zuchlewski who regularly argues before the NASD, a court is less likely to overturn an award. As New York Supreme Court Justice Herman Cahn recently pointed out in a routine case enforcing an award granted by a NASD panel, a judge has little opportunity to second-guess an award when arbitrators do not explain their verdict. Despite the advantages of an unreasoned award, 50 percent of parties request a reasoned award, said Mr. Martinez of the American Arbitration Association. In order to balance the competing interests of enforceability in American courts against and the demand for reasoned awards, the association drafted flexible rules for domestic arbitrations allowing the parties to determine the type of award issued by the panel. The approach taken by the arbitration and mediation group JAMS involves a similar balancing test. Its arbitrators issue awards with brief explanations but ultimately leave it to the parties to determine how much analysis they want arbitrators to provide, said one of its arbitrators, Michael Young. But some disputes require thorough analysis. Sources cited case law requiring reasoned awards in cases involving statutory claims such as age discrimination. NASD panels, which issue unreasoned awards to achieve fast and inexpensive resolutions for small consumer cases, render reasoned awards for statutory claims, said Linda Fienberg, president of NASD dispute resolution. These opinions do not reach the level of court opinions but do provide a modicum of supportive explanations, she added.

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