One of arbitration’s supposed virtues is that it’s fast and simple – streamlined, as many courts are fond of saying. As a consequence, arbitral awards generally do not need to be supported by any reasoning or rationale. Unless the parties have requested a specific form of award, an arbitrator may issue an award that does nothing more than announce a result – declare the winner and the loser. See Cat Chater LLC v. Schurtenberger,646 F.3d 836, 844 (11thCir. 2011).
Sometimes that’s just not good enough for parties, however. So, it’s becoming more and more common for them to contract around this default, requiring arbitrators to issue more detailed awards. (A number of international institutional rules of arbitration include requirements that arbitrators issue “reasoned” awards. Thus, parties who incorporate these rules by reference are implicitly opting for this reasoned award requirement. See, e.g., LCIA Arbitration Rules Art. 26.2 (“The Arbitral Tribunal shall make any award in writing and, unless all parties agree in writing otherwise, shall state the reasons upon which such award is based.”); ICC Arbitration Rules Art. 32(2) (“The award shall state the reasons upon which it is based.”); SIAC Arbitration Rule 32.4 (“The Award shall be in writing and shall state the reasons upon which it is based unless the parties have agreed that no reasons are to be given.”)
In a very rough sense, awards can fall into three broad categories: simple awards that are merely announcements of the conclusion of the arbitrators without any support; reasoned awards, which are something more than “a line or two of unexplained conclusions, but something less than full findings of fact and conclusions of law on each issue raised before the panel,”Leeward Const. Co., Ltd. v. Am. Univ. of Antigua-College of Medicine, 826 F.3d 634, 640 (2d Cir. 2016); and awards that set out full findings of fact and conclusions of law. (See also Liz’s brief discussion of Leeward here.)
The middle category can create problems, though. Just how much reasoning is enough reasoning? And what happens if an award isn’t sufficiently reasoned?
A recent decision, Smarter Tools, Inc. v. Chongquing Senci Import & Export Trade Co., Ltd., from the Southern District of New York, sheds some light on these questions. The basic dispute involved a dispute over the sale of generators. The seller claimed over $3 million was owed to it for deliveries, and the buyer counterclaimed for liability for fines it had to pay because the generators were not compliant with certain regulatory requirements and the seller failed to deliver a number of generators it promised to deliver. Additionally, the buyer sought damages for lost profits and damage to its goodwill.
It’s worth noting that this was an international sales transaction, and thus the arbitration was governed by the AAA’s The International Centre for Dispute Resolution (ICDR) rules. More importantly, the parties specifically required, in their arbitral agreement, that the arbitrator issue a “reasoned” award.
The final award was six pages long, most of which set out basic facts about the dispute and recognized a stipulation between the parties that the buyer owed $2.4 million, after credits, for delivered generators. With respect to buyer’s counterclaims, the arbitrator made a credibility determination about a key witness for the buyer and then simply concluded that the buyer’s claims against the seller were denied.
The court didn’t like this. It said that the award was not sufficiently reasoned because “it contain[ed] no rationale for rejecting [buyer’s] claims.” While the credibility determination was a partial rationale, it was not, in the court’s view, sufficient to address all of the buyer’s counterclaims. As a result, the court concluded that the arbitrator had exceeded his powers under FAA § 10.
This portion of the opinion is noteworthy because it suggests that a “reasoned” award requires at least some sort of explanation to support each and every necessary conclusion in the award. The court conceded that the arbitrator’s credibility finding was some reasoning, but it failed to account for each of the counterclaims.
Perhaps the more noteworthy part of the case, however, has to do with the remedy the court granted. Rather than vacating the award, the court “remanded” it to the arbitrator for “clarification.” The grounds for “remanded” an award are extremely limited under the FAA, but that didn’t seem to deter the court.
I think that this issue is well worth thinking about more, so look for an upcoming primer post to discuss the circumstances when the proper remedy for an unenforceable award is remand rather than vacatur.