Brazilian law requires arbitrators to state the reasons for their respective decisions.(1) Failure to do so may result in annulment of the arbitral award.(2) Unsurprisingly, plaintiffs in annulment actions usually invoke 'lack of reasoning' as one of the grounds in their attempts to set aside arbitral awards.

Although this type of challenge has not gained traction in Brazilian case law, recent opinions rendered by the Sao Paulo appellate court shed some light on how much reasoning arbitrators are required to give in their awards. These precedents show that courts are unwilling to assess the adequacy of the motives given by arbitrators, which would otherwise represent an improper judicial interference with the merits of arbitration:

"It is not up to this court to make a value judgment as to whether the reasoning is 'good' or 'bad' or whether the verdict is 'good' or 'bad'; we are only required to verify whether grounds for annulment are present, which is not the case here."(3)

"Even though plaintiffs are not satisfied with the reasoning provided by the arbitrator, one cannot say that he failed to state the motives for his decision... The underlying arbitral award was properly reasoned, despite not living up to the plaintiffs' expectations."(4)

However, the opinions also suggest that judges do read arbitral awards, not so much to verify whether they were the best solution to the case at hand, but rather to check whether arbitrators have outlined the issues of fact and law that support their conclusions:

"The issue revolves around the 'grounds for the award'. The 'reasoning' will be integrated into the award and in it the arbitrator must analyze the arguments presented by the parties, choose a legal thesis and state whether the decision is based on law or equity. The arbitrator will assess the proceedings, weigh the evidence and state the reasons for his decision."(5)

In other words, the requirement to state reasons is satisfied as long as the arbitral award makes logical sense. Arbitrators are not required to draft long documents addressing every point made during the proceedings. The Sao Paulo appellate court pointed out that "concise reasoning is not to be mistaken with no reasoning at all"(6) as "arbitrators are excused from addressing every single legal argument presented by expert opinions procured by the claimant in the proceedings".(7)

The Sao Paulo courts have shown deference to arbitral awards when plaintiffs question the motives for arbitrators' decisions. While making sure that the award enables the reader to follow how the arbitrators went from point A to point B in their reasoning, judges exercise caution as to whether the path pursued was the appropriate one. This type of judicial restraint is yet another reminder why Brazil is considered a pro-arbitration jurisdiction.

For further information on this topic please contact Fernando Eduardo Serec or Antonio M Barbuto Neto at Tozzini Freire Advogados by telephone (+55 11 50 86 50 00), fax (+55 11 50 86 55 55) or email (fserec@tozzinifreire.com.br or abarbuto@tozzinifreire.com.br).

Endnotes

(1) Article 26 of the Arbitration Act lists as one of the requirements of an arbitral award "the grounds for the decision, with analysis of factual and legal issues, including, if it is the case, a statement of the decision in equity".

(2) Article 32 of the act sets forth the causes for annulment of the arbitral award, which includes "failure to comply with the requirements of Article 26".

(3) Appeal 0133123-71.2012.8.26.0100, First Reserved Chamber of Business Law, Reporter Judge Fortes Barbosa, November 7 2013.

(4) Appeal 0704251-28.2012.8.26.0704, First Reserved Chamber of Business Law, Reporter Judge Enio Zuliani, June 13 2013.

(5) Appeal 0704251-28.2012.8.26.0704, First Reserved Chamber of Business Law, Reporter Judge Enio Zuliani, June 13 2013.

(6) Appeal 0704251-28.2012.8.26.0704, First Reserved Chamber of Business Law, Reporter Judge Enio Zuliani, June 13 2013.

(7) Appeal 0154127-09.2008.8.26.0100, Eighth Chamber of Private Law, Reporter Judge Ribeiro da Silva, October 3 2012.