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Arbitration- Netherlands

Background

Pursuant to Article 1057(4)(e) of the Code of Civil Procedure, an arbitral award must contain the reasons for the decision. If no reasons are given, the award can be set aside by a state court under Article 1065(1)(d) of the code. On December 22 2006 the Supreme Court rendered yet another judgment on the issue in Kers v Rijpma,(1) following on from its earlier decisions in Benetton(2) and Nannini.(3)

 

In Benetton the court ruled that the setting aside of an arbitral award on the grounds that it does not contain the reasons for the decision is allowed only where no reasons are given, and not in cases where the reasons given are unsound. The court stated that state courts are not allowed to review the merits of an award when deciding whether to set it aside on such grounds. However, the decision did not clarify whether an arbitral award can be set aside where the reasons given for the award are manifestly unsound.

 

Four years later the court held in Nannini that its judgment in Benetton required further elaboration. The court stated that a situation in which an award contains reasons for the relevant decision, but where no convincing explanation for the decision can be found in those reasons, must be equated with a situation in which no reasons at all are given.

 

Despite the court's warning about the need to exercise restraint, the Nannini decision appeared to allow more scope for the judicial review of the merits of arbitral awards than the Benetton decision. Otherwise, how may a court decide that no convincing explanation can be found in the reasons given for an award? However, following the Kers v Rijpma decision, it seems that the door which was nudged open in Nannini has now been partly closed by the court.

 

Decision

The court first reiterated its earlier rulings in Benetton and Nannini. It then stated that state courts must exercise restraint when applying the criterion formulated in Nannini, in that they should intervene in arbitral decisions only in clear-cut cases. A court may set aside an award on the grounds set out in Article 1065(1)(d) only where no reasons at all are given or where the reasons given are so unsound that the award in question must be equated with an award for which no reasons at all are given.

 

Comment

The Nannini decision appeared to allow greater scrutiny of the merits of arbitral awards. However, it left many questions unanswered. Did the court really envisage a more thorough review of the merits of arbitral awards? What did it mean by 'convincing'? Is 'the absence of a convincing explanation' the same as 'manifestly unsound reasons'? No one knows where the boundary lies. There has been a significant increase in the number of proceedings seeking to set aside arbitral awards following Nannini, but it seems that the number of successful actions has not increased.(4)

 

The question is now whether the decision in Kers v Rijpma provides answers to the aforementioned questions. The court reiterated that restraint should be exercised and that state courts may intervene only in clear-cut cases. Proceedings to set aside an award may not be used as an 'appeal in disguise'. It remains difficult to find a general criterion determining when an award may be set aside on the grounds that no reasons are given.

 

International Law Office