The International Journal of Public and Private Arbitration
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- Introduction
- Regional Overviews
- Country Overviews
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The European & Middle Eastern Arbitration Review 2008
Section 2: Country Overviews
Portugal
António Sampaio Caramelo, Filipe Vaz Pinto
Morais Leitão, Galvão Teles, Soares da Silva & Associados, RL
The importance of arbitration as an alternative mechanism of dispute resolution
in Portugal has increased considerably in the past few years and this tendency
can be expected to be maintained and even increase. This can be explained by
a growing awareness of the traditional and well-known reasons justifying recourse
to arbitration – it is less lengthy and more flexible, the parties being
able to choose the forum, the institutional rules, the panel of arbitrators,
the language in which the proceedings are held, and whether the proceedings
will be confidential – but especially by the increasing failure recently
of the state courts to provide adequate final decisions for business disputes
within a reasonable time. This failure was even recognised by the government,
which in 2001 approved a resolution promoting and recommending alternative dispute
resolution mechanisms, even in disputes between the state and private entities,
as one of the solutions to the problems created by the explosion of demand for
access to the state judicial system.1 Currently, the signs of this growing importance
of arbitration abound.
An increasing number of scholars now specialise in arbitration – with
the consequent rise in the quality and quantity of literature dedicated to the
subject – and specific programmes and courses on arbitration are being
offered by law schools. Many practitioners are active in arbitral matters and
conferences and seminars on the subject are now frequent. Case law regarding
arbitration has also increased and the growth in the number of institutional
organisations administering arbitral proceedings has been remarkable, with about
30 organisations now authorised by the Ministry of Justice to conduct institutional
arbitrations.2 In 2006, the Portuguese Arbitration Association, composed of
many respected scholars and practitioners, was created, aiming to fostering
the use of arbitration in Portugal, among other things. Likewise, in 2006 the
Portuguese section of the Spanish Arbitration Club was founded, also seeking
to promote knowledge and recognition of arbitration as an efficient dispute
resolution procedure.
Basic legal sources
The legal framework governing arbitration in Portugal is essentially composed
of the relevant international conventions to which Portugal is a party and internal
legislation, notably Law No. 31/86 of 29 August 1986, as amended by Decree-Law
No. 38/2003 of 8 March 2003 (the Arbitration Act);3 the Code of Civil Procedure,
particularly regarding the enforcement of foreign arbitral awards; and the Code
of Procedure in Administrative Courts. It is worth noting that, unlike in ‘dualist’
legal systems, international conventions duly ratified by Portugal are directly
and automatically applicable by Portuguese courts without the need for any specific
internal act of implementation or transposition. Further international conventions
prevail over domestic law (except constitutional law). In the context of international
arbitration, Portugal is a party to the Geneva Protocol on Arbitration Clauses
of 1923, to the Geneva Convention on the Execution of Foreign Arbitral Awards
of 1927,4 to the New York Convention on the Recognition and Enforcement of Foreign
Arbitral Awards of 1958, to the Washington Convention on the Settlement of Investment
Disputes between States and Nationals of Other States of 1965, and to the Panama
Inter-American Convention on International Commercial Arbitration of 1975.5
The Arbitration Act is the central Portuguese legislative document governing
most matters related to arbitration. It follows a territorial approach in that
it is applicable to all arbitrations taking place in Portugal, either domestic
or international. Regarding arbitrability of disputes, the basic principle contained
in the Arbitration Act is that any dispute that does not concern inalienable
or indisposable rights may be submitted to arbitration, by means of a written
arbitration agreement, provided that such matter is not exclusively reserved
to the courts by law (article 1(1)). This criterion of arbitrability of disputes,
centred in the alienability or disposability of the substantive rights under
dispute, gives rise to some doubts and difficulties when applied in practice
and has been subject to criticism. It is important to stress that the Arbitration
Act adopts a very broad concept of dispute, allowing the parties to submit to
arbitral tribunals, in addition to stricto sensu disputes, any other differences,
notably those related to the need to clarify, complete, update or even review
the contracts or legal relationships to which the arbitration agreement refers
(article 1(3)).
Although drawing some inspiration from the 1985 UNCITRAL Model Law on International
Commercial Arbitration, the Arbitration Act cannot be considered as a statute
based on the mentioned Model Law, since several differences may be found in
the scope, structure and content of these two instruments. In order to shed
some light on the specificities of the Arbitration Act, the following major
differences to the UNCITRAL Model Law can be highlighted:
• The Arbitration Act governs both domestic and international arbitration.
• Under the Act, the jurisdiction of the arbitral tribunal can be challenged
before the state courts only together with the challenging of the final award
of the tribunal (article 21).
• The Act does not contain any specific provision dealing with interim
measures.6
• Unlike the Model Law, which contains default rules concerning the development
of arbitration proceedings (articles 23, 24 and 25), the Act only sets forth
the fundamental principles that must be complied with in any arbitration, namely
the absolute equality of treatment of the parties, the obligation for the defendant
to be summoned to the arbitral proceedings and the right of the parties to be
heard in an adversarial manner throughout the arbitration proceedings. The Act
leaves to the parties or to the arbitrators the issuing of any other procedural
rules deemed necessary (articles 15 and 16).
• While the Model Law adopts a conflictual method regarding the law applicable
to the merits of the dispute in the event of a failure of the parties to indicate
the applicable law (article 28(2)), the Arbitration Act, regarding international
arbitrations, preferring a direct method to that effect, providing that the
arbitral tribunal shall apply the substantive law most appropriate to the dispute
(article 33(2)).
• Under the Act, awards, as a condition of their own validity, must always
be reasoned and address all the issues, and only those issues, raised by the
parties (article 23).
• The Act sets a default time limit of six months, within which the arbitral
tribunal must render the award, calculated from the appointment of the last
selected arbitrator. An extension of this period is only possible by agreement
of both parties and only up to twice the period initially set by the parties7
(article 19).
• As well as the annulment procedure, the Act contemplates the possibility
of an appeal to the state courts on the merits of the award.8 In domestic arbitrations,
the right to appeal on the merits is excluded only when the parties have waived
such right (article 29). In international arbitrations, the rule is the opposite:
an appeal on the merits is allowed only if provided for, and its terms regulated
by, the parties (article 34).
A few more observations can be made. First, the Arbitration Act expressly accepts
the Kompetenz–Kompetenz principle to the fullest extent. According to
article 21 of the Act, the arbitral tribunal has the power to rule on its own
jurisdiction even if it may have to assess the existence, the validity or the
effectiveness of the arbitration agreement or of the contract in which the same
is included. The decision of the arbitral tribunal declaring its jurisdiction
to decide the dispute may only be reviewed by Portuguese courts after a final
award has been made, in the context of an appeal on the merits of the award
(when such appeal is admissible), as a ground for annulment of the award or,
defensively, when opposing its enforcement. Second, as to the constitution of
the arbitral tribunal, the Act requires an odd number of arbitrators and provides
for a default procedure with the intervention of the president of the territorially
competent Court of Appeals to appoint the arbitrators when the parties fail
to make such an appointment (articles 6 and 12). Third, as to the criterion
according to which the dispute will be settled, the Act allows the arbitrators
to decide ex aequo et bono when the parties have expressly conferred such power
upon them (articles 22 and 33). Finally, according to article 27 of the Act,
an arbitral award may be annulled by a court, following an application by one
of the parties, only if:
• the subject matter of the dispute is not capable of settlement by arbitration;
• the arbitral tribunal did not have competence or the constitution of
the arbitral tribunal was irregular (ie, not in accordance with the agreement
of the parties or with the applicable law);
• there was a breach of the above-mentioned fundamental principles that
must govern arbitration proceedings;
• the award did not include the arbitrators’ signatures or did not
contain a number of signatures at least equal to the majority of the arbitrators
or did not include the dissenting opinions, if any, duly identified;
• reasons were not given for the award; or
• the arbitral tribunal decided issues that the parties had not submitted
to it or failed to address all the issues submitted by the parties.
The specific relevance of the Code of Civil Procedure to arbitration is felt
in two major areas. First, it provides that the party against whom court proceedings
are initiated in breach of an arbitration agreement has the right to raise an
objection to that effect – this power is construed as an exception and
cannot be assessed ex officio by the court (article 494). The court will simply
verify the existence and validity of the alleged arbitration agreement and,
if it is prima facie satisfied that such agreement exists and is valid, will
dismiss the proceedings and refer the case to arbitration. Second, the Code
sets forth the rules regulating enforcement of arbitral awards. Domestic arbitral
awards do not need to be recognised or confirmed. They have the same binding
nature and enforceability as a court sentence and may be immediately enforced
or executed in the state court of first instance (article 48). Foreign arbitral
awards must be recognised by Portuguese courts (competent Court of Appeals)
before they can be enforced in Portugal (articles 49 and 1094). If the award
was made in a state that is party to the New York Convention, this treaty will
apply, namely as to the strict grounds admissible for non-enforcement, supplemented
by the non-conflicting provisions of the Code of Civil Procedure.9 If the award
was made in a state that is not a party to the New York Convention, the award
can still be recognised and enforced in Portugal provided that the requisites
laid down in article 1096 of the Code (similar to, but not identical to, those
provided for in article V of the New York Convention) are met.
Finally, the new Code of Procedure in Administrative Courts, enacted in 2002,
is also of great importance to arbitration, particularly to disputes with public
entities. In fact, in line with Resolution No. 175/2001 of the Council of Ministers,
this new statute was intended to send a clear signal that arbitration should
be viewed as a consistent and reliable mechanism of dispute resolution. This
code clarifies that matters related to administrative contracts, to extra-contractual
liability of public entities (tort) and even to some administrative unilateral
acts can be adjudicated through arbitration. Most importantly, the code seems
to contain a unilateral commitment from all public entities to agree to arbitration
in respect of the above-mentioned matters, thereby giving a right to any interested
party to require from the concerned public entity the conclusion of an arbitration
agreement.10
Recent case law
Regarding case law, we must start by saying that, with few exceptions, arbitral
awards are not regularly published in Portugal. They only become public in the
context of judicial proceedings, which are public in nature, typically in annulment
proceedings, which have grown in number in the past years. There are also many
judicial decisions concerning the enforcement of the agreement to arbitrate,
when a party tries to initiate judicial proceedings in breach of an arbitration
clause.
One important issue that has been raised, in different ways, in several recent
judicial cases is the extent to which disputes relating to distribution agreements
can be adjudicated by arbitrators. Its practical relevance and recentness deserves
a specific reference. According to Decree-Law No. 178/86 of 3 July 1986, as
amended by Decree-Law No. 118/93 of 13 April 1993,11 commercial agents are entitled,
upon termination of the contract, to a special equitable compensation (indemnização
de clientela), provided that they have brought the principal new customers or
have significantly increased the volume of business with existing customers
and the principal continues to derive substantial benefits from the business
with such customers. Further, article 38 of the same statute states that, regarding
termination and its consequences, Portuguese law has to be applied to contracts
that are executed exclusively or predominantly in Portugal, unless foreign law
is more favourable to the commercial agent. These rules are mandatory and have
been consistently extended by Portuguese courts to all kinds of distribution
agreements, namely commercial concessions and franchising agreements. In this
light, three recent court cases will be considered.
In 2005, the Court of Appeals of Guimarães considered null and void an
arbitration clause included in a commercial concession contract that established
that the arbitrators should decide ex aequo et bono.12 The distributor initiated
judicial proceedings against the principal seeking damages for wrongful termination
of the contract and an equitable compensation for the termination. The principal
asked for the dismissal of the proceedings grounded on the existence of an arbitration
clause. Considering that the special compensation attributed by law is mandatory
and was under discussion in the dispute, the court held that it cannot be adjudicated
by arbitrators deciding ex aequo et bono, because the arbitral tribunal would
be entitled to disregard the mandatory provisions of the law. So the court allowed
judicial proceedings to continue. Also in 2005, the Supreme Court of Justice
had the opportunity to address the question of the applicability of the above-mentioned
article 38 to international arbitration proceedings.13 This provision has been
construed by some commentators as also implying the jurisdiction of Portuguese
courts to decide disputes related to distribution contracts performed predominantly
in Portugal. Despite the existence of an ICC standard arbitration clause in
the contract, the plaintiff initiated judicial proceedings in Portugal against
the principal, arguing that article 38 prevented arbitration. The Supreme Court
correctly enforced the arbitration clause, pointing out that article 38 is first
and foremost a provision regarding the applicable substantive law, which applies
despite the existence of an arbitration clause. It also recalled that there
was nothing in the records indicating that Portuguese law would not be applicable.
Obviously, this line of reasoning seems to suggest that the decision of the
court might have been different if there were a choice of law clause referring
to a law other than Portuguese law (and if such law were worse for the agent
than the Portuguese one). More recently, in 2007, the Court of Appeals of Porto
returned to this question.14 In a commercial concession contract between a Portuguese
and a Spanish company (a subsidiary of a French company), the parties included
a clause indicating French law as the substantive law of the contract and an
FIS arbitration clause referring to the International Seed Trade Federation
Rules. Here the court, although following very questionable reasoning, considered
that the arbitration clause, coupled with the choice of a foreign law, amounted
to a violation of article 38 and implied a serious inconvenience for the plaintiff
and, as such, the arbitration clause could not be enforced. In this case, the
court failed to consider if French law was indeed worse for the agent than Portuguese
law, a very important question, especially taking into account that in this
respect Portuguese law is an enactment of a European Directive that was also
implemented in France. Hopefully, in the future the Supreme Court will have
opportunity to clarify this issue, providing adequate guidance for lower courts.
* * *
Arbitration practice and culture in Portugal is now much more dynamic than a few years ago and appears to be seeking to meet the goals and aspirations of parties resorting to it. It is clearly a favoured means of dispute resolution and this certainly is to be welcomed. However, some things still need to be done to transform Portugal into a truly arbitration-friendly situs. Courts need to better familiarise themselves with the principles and characteristics of arbitration, a process in which scholars and practitioners must surely have a role. On the other hand, the Arbitration Act was a good law when it was enacted in 1986. Now more than 20 years have passed and, similarly to what has been done in Europe and throughout the world, Portugal clearly needs a new Arbitration Act, preferably based on the UNCITRAL Model Law, in line with the modern concepts and trends prevailing in the field of commercial arbitration.
Notes
1 Council of Ministers Resolution No. 175/2001.
2 The leading Portuguese institution administering arbitration
is the Arbitration Centre of the Portuguese Chamber of Commerce and Industry.
Its rules of arbitration are available at www.port-chambers.com/eng/arbit_arbit.htm.
3 An unofficial English translation, without the amendments
made in 2003 to articles 11 and 12, can be found in the International Handbook
on Commercial Arbitration Suppl 12, 1991, annex I. Another translation (updated)
can be found at http://www.port-chambers.com/eng/arbit_arbit.htm.
4 The two Geneva conventions now have limited relevance and
applicability in view of article VII(2) of the New York Convention.
5 Although Portugal is a party to this convention and ratified
it in 2002, it has not yet deposited its instrument of adhesion, so it is not
yet in force in Portugal.
6 Despite this omission, Portuguese courts have consistently
(and rightly) decided that an arbitration clause does not impede a party from
requesting from a court an interim measure, therefore reaching a result similar
to the one provided for in article 9 of the Model Law. As to the different issue
of the jurisdiction of the arbitral tribunal to grant interim measures, the
distance between the Arbitration Act and the Model Law has increased, particularly
in light of the new articles 17-A to 17-J of the Model Law, as amended in 2006.
Because of the lack of legal provision addressing this issue, in Portugal the
question is still debated among scholars, specially when the arbitration clause
is silent regarding this possibility.
7 This legal regime has attracted a lot of criticism for being
very rigid. If not correctly addressed by the parties beforehand, serious negative
consequences may occur, including the collapse of the whole arbitration.
8 In any case, it should be noted that the rules of Portuguese
institutions administering arbitrations almost always exclude such right of
appeal to state courts.
9 In this regard, one important practical question has been
discussed in Portuguese courts: which is the court with jurisdiction to recognise
foreign arbitral awards made in states party to the New York Convention? While
domestic awards are enforced and executed by the courts of first instance, foreign
awards (and foreign court decisions) are recognised by the Court of Appeals.
Based on a very questionable understanding of article III of the New York Convention,
involving a so-called ‘principle of comparison’ (equiparação),
some courts, including the Supreme Court of Justice, have decided that these
foreign arbitral awards should follow the same regime of the domestic arbitral
awards, ie, they can (and must be) immediately enforced by the courts of first
instance without needing to be recognised by the Court of Appeals. This line
of decisions has been criticised, with commentators arguing that the foreign
arbitral awards should be recognised by the Court of Appeals and only thereafter
be admitted to enforcement.
10 This matter is debated among Portuguese legal scholars,
since some authors hold that the above-mentioned provisions need to be implemented
by further legislation.
11 Implementing Council Directive No. 86/653/EEC of 18 December
1986, on the coordination of the laws of the member states relating to self-employed
commercial agents.
12 Judgment of 16 February 2005, case 197/05-1.
13 Judgment of 11 October 2005, case 05A2507.
14 Judgment of 11 January 2007, case 0636141.
Morais Leitão, Galvão Teles, Soares da Silva & Associados, RL
Rua Castilho, 165
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Morais Leitão, Galvão Teles, Soares da Silva & Associados – Sociedade de Advogados RL (MLGTS) is an independent, well-rounded, full-service law firm and one of the leading law firms in Portugal, with offices in Lisbon, Oporto and Funchal (Madeira). We have a significant international practice in all major areas of law and represent multinational corporations, international financial institutions, sovereign governments and their agencies, as well as domestic corporations and financial institutions. We maintain close contacts with major law firms in Europe, the United States and South America and we are the sole Portuguese member of Lex Mundi, the world’s leading association of independent law firms. Arbitration is a major area of practice for the firm. Several of our lawyers have served as arbitrators or counsel in significant international arbitration cases, either under ICC rules or under other institutional or ad hoc regulations. Our clients benefit from the firm’s depth of experience and innovative strategies throughout the proceedings. A quick analysis of our firm’s resumé in this area clearly highlights that our experienced team of lawyers includes some of Portugal’s most renowned experts in this field. Partner Miguel Galvão Teles is now the sole Portuguese member of the International Court of Arbitration of the ICC and member of the Permanent Court of Arbitration at The Hague.
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