In General
Arbitration Law
National arbitration and international arbitration
Arbitration clause
Request for setting up of arbitral tribunal
Process
Challenging the award and Appeals - Equity
Recognition of foreign awards and respective enforcement
Recognition
Enforcement
Arbitration in Portugal is now governed by law 31/86 of August 29. It is generally accepted by Portuguese law as a means for settlement of any litigation, whether it be of a commercial nature or not. The only matters left out relate to the so-called unavailable rights, as well as to those cases that the law refers directly to judicial courts.
The law also provides for the existence, through legal approval, of institutions authorized to conduct arbitrations. These may have their own rules, provided they are not contrary to the legal framework briefly described below.
The main advantage of resorting to institutionalized arbitration centres is to avoid the practice of some dilatory measures which, as we shall see, are made possible by the terms that regulate ad-hoc arbitration.
The two main centres of institutionalized arbitration in Portugal are:
(i) the Commercial Arbitration Centre of the Portuguese Chamber of Commerce and Industry (of the Commercial Association of Lisbon and Commercial Association of Porto/Chamber of Commerce and Industry of Porto) which is the representation in Portugal of ICC - International Chamber of Commerce; and
(ii) the Arbitration Centre of the Portuguese Bar Association.
Both have their own rules which reconcile the fundamental requirements of Portuguese law with the concern for speedy settlements of disputes.
Given the ever increasing complexity of litigations, the lack of means on the part of courts to decide conscientiously, and the resulting slow pace of law, the recourse to arbitration seems an increasingly attractive alternative for the parties to a contract to consider.
National arbitration and international arbitration
Portuguese law defines international arbitration as that which brings into play international trade interests. It is not a definition that can be applied easily, since its object is neither trade between states nor relations between parties in different locations (for the place of contractual performance or for the nationality of the parties). The legislator has stated that it is the substance of the contract (and therefore of the litigation) that should dictate if there are international trade interests at stake. Like all ill-defined concepts, the classification of each litigation can only be made on a case by case basis.
Nonetheless, there are small differences between the two regimes, the most relevant concerning appeals (as mentioned below).
Portuguese law makes the distinction within the arbitration convention between:
(i) the 'arbitration compromise' which is established once litigation has started or a judicial court is examining the litigation; and
(ii) the 'arbitration clause' which is established before any litigation within the context of a legal relationship.
The most relevant difference is that in cases of arbitration compromise it is not sufficient to refer to the legal relationship from which the litigation emerges, but the parties must precisely define the object of litigation.
The arbitration clause must be established in writing. The legislator will accept arbitration clauses written in letters, faxes or any other writing which the parties refer to.
The clause may merely prescribe arbitration as a means for settlement of disputes or may go on to stipulate the number of arbitrators, indicate their names, the procedural rules applicable, the place of arbitration, the time for delivering an award, etc.
Request for setting up of Arbitral Tribunal
The party wishing to start an arbitral litigation must give notice of that fact to the other party by registered letter requesting confirmation of receipt. Such letter must define the object of litigation and indicate the arbitrator or arbitrators.
The law does not specify a limit to the number of arbitrators. The only requirement is that there be an uneven number . Where the number of arbitrators is not specified, there will be three. Two of them appointed respectively by each party and the third one chosen by mutual agreement between the two first appointed arbitrators. The parties may legitimately entrust a third entity with the task of appointing the third arbitrator.
In most cases, a party will nominate its arbitrator and suggest the name of the third arbitrator, inviting the other party to accept him.
After the arbitration has been requested, the other party has one month to report as to the object of litigation and, if appropriate, the name proposed as third arbitrator or single arbitrator.
The other party may accept the object of litigation and, if it was proposed, the third arbitrator. Alternatively, it may propose a different object (or extend or reduce it). It must nominate its arbitrator (if it is entitled to do so) and, if applicable, suggest a different third arbitrator.
If a month has elapsed since the request for setting up the arbitral tribunal, and the other party has not appointed its arbitrator (assuming that it is entitled to do so) or if a month has elapsed since the other party's answer, and the parties or the appointed arbitrators have not reached an agreement as to the object of litigation or as to the choice of a third arbitrator, then a request may be filed with the Court of Appeal to settle the dispute. The Court of Appeal has its function limited to this point, but it may refuse to appoint an arbitrator or to fix the object of litigation if it considers the arbitration convention to be clearly invalid.
The Court of Appeal is a Judicial Court of Appeal, between the County Court and the Supreme Court. This solution presents the great inconvenience of the inherent slowness of the Judicial Courts, aggravated by the possibility that the decision on the object of litigation can be subject to appeal.
The best way to avoid this inconvenience is (i) to resort to institutionalized arbitration centres, where the rules do not allow a true litigation as to the object of arbitration, or (ii) to stipulate in the arbitration clause that court intervention may be dispensed with, like a provision to the effect that, in the absence of agreement the third arbitrator will be appointed by an external entity (a Chamber of Commerce, for example), and that the object of litigation will be defined, in the absence of agreement, by the arbitrators' panel.
The tribunal is considered to be set up the moment the last arbitrator is appointed. The law does not state that the object of litigation has to be definitively fixed by then, but it seems obvious that it must.
The law establishes a six months term for the award to be delivered, but the parties may establish a different term or extend this term up to twice its length. If an award fails to be delivered within the established term, the arbitration clause is forfeited and it will be necessary to resort to Judicial Courts.
The parties may agree on the rules of process to apply in arbitration. If they fail to do so, it will be for the tribunal to choose. The law only imposes absolute respect of the right of defence and the right to adversary proceeding (where a party is afforded an opportunity to contest the request or statement brought by the other party), and also establishes that all means of evidence will be admitted which are admitted by civil procedure law.
The tribunal will start by assessing its own competence, even if for that it must verify the existence, validity or efficacy of the arbitration clause or of the very contract where it is inserted. However, the nullity of the contract containing the arbitration clause does not determine the nullity of the clause itself.
The question of competence of the tribunal may also be raised by the parties, provided they do so up to the moment of filing their position as to the main issue. If they do not raise such question before then (being able to do it) the eventual incompetence will not be grounds for challenging the award delivered by the tribunal.
The president of the tribunal shall be the one designated in the arbitration clause or chosen by the arbitrators. If the parties resort to judicial appointment, the arbitrator thus designated shall be the president.
As far as resolutions are concerned, in the absence of any special provisions they are taken by majority. However, the parties may establish a qualified majority or provide that where the required majority is lacking the decision will be made with the vote of the president alone, or that the president will hold the casting vote.
After an award has been delivered, it must be notified to the parties and subsequently deposited with the court of first instance of the county of arbitration, and the president must notify the parties accordingly.
Such deposit may be dispensed with by agreement between the parties or, if some institutionalized arbitration rules have been adopted, if such rules provide for a different form of deposit.
The award delivered and deposited have the same standing as a sentence of a court of first instance.
Challenging the award and Appeals - Equity
The law establishes a distinction between 'challenging' the award and 'appealing' it.
Challenging is always possible, even if the parties have renounced the appeal. The grounds are very limited and relate to the impossibility of settling the dispute through arbitration, incompetence of the court, disrespect of the parties' procedural rights, lack of signature by the arbitrators or absence of foundation, or disrespect of the fixed object of litigation.
To challenge an award, a separate suit must be filed with the Judicial Courts within one month from the date of notification to the parties. This suit does not suspend an eventual enforcement of the arbitral award.
An appeal from the arbitral award will only be admitted if the parties have not renounced it. The appeal is meant (with some limitations) to reconsider the matter that was subject to arbitration. The appeal must be filed with the Court of Second Instance within a period currently of 10 calendar days. The law does not clarify if that period starts on the date the parties are notified of the award or on the date they are notified that the award has been deposited (if applicable). We consider that the term must be counted from the latter date since between the two dates the tribunal has powers (within certain limits) to rectify the award. It would not make sense to appeal from an award which might not be entirely final.
An arbitral award is considered to be final from the moment it can no longer be subject to appeal as explained above (although it can be annulled through a suit filed for that purpose, or subject to some appeal of a very exceptional character as, for example, if it can be proved that an arbitrator was bribed or was under coercion).
The law allows the parties to agree on settling the question through recourse to equity. Such agreement implies necessarily a waiver of the possibility of appealing.
In international arbitration, in addition to the possibility of referring to equity, the law allows the parties to agree on the possibility of the tribunal deciding the dispute by appealing to a fair composition of the parties on basis of equilibrium of the interests at stake.
In international arbitration no appeal can be lodged from the arbitral award unless the parties have agreed not only on that possibility but also on the very terms of the appeal.
Recognition of foreign awards and respective enforcement
Portugal signed the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10 1958 in 1994, and its provisions have applied to Portugal since January 16 1995.
The only reservation made by the government of Portugal was the reservation regarding the principle of reciprocity, according to the provisions of Article I n. 3.
Nevertheless, under certain conditions, Portugal recognizes any foreign arbitral award.
To be enforceable in Portugal, any award needs to be recognized.
If the award was rendered in any country that signed the New York Convention, the only purpose of the recognition procedure will be to analyse the award in order to find if any of the recognition refusal causes referred to in Article V of the convention applies to the award.
If the award was rendered in a country not bound by the New York Convention the causes of non-enforcement under Portuguese law are very similar to the ones prescribed in Article V of the convention.
The court will not order a re-hearing of the dispute or a revision of the award. It is however possible that, because of the compliance with the general principles of Portuguese law (the so-called 'public policy'), the court may not recognize the entire award.
The petition for the recognition is filed with Tribunal da Relação, and it must be presented with the documents referred in Article IV of the convention. The defendant may answer within 15 days and the plaintiff may reply in 10 days. The grounds for the opposition are, in general, the ones prescribed in Article V of the convention.
The court or the parties may request that evidence is produced and after that the parties shall present their final written statements. A hearing can be scheduled where the parties shall produce their oral statements.
Once a foreign award is recognized, or an award rendered in Portugal is deposited (provided that an appeal has not been filed), no other obstacle exists to its enforcement.
Enforcement follows the provisions of the Portuguese Procedural Rules regarding the enforcement of judicial court decisions. Those rules still allow some opposition procedures to the enforcement (on very strict grounds), but in general those procedures are not able to stop the enforcement procedure, unless a bail is offered.
For further information on this topic please contact Nuno Morais Sarmento or Pedro Metello de Napoles at A.M.Pereira, Sáragga Leal, Oliveira Martins, Júdice e Associados by telephone (+3512 1 319 7300) or by fax (+3512 1 3197400) or by e-mail ([email protected]).
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