Portugal Travel

A little bit of history

Commercial arbitration has been, at least in theory, an alternative way to solve disputes in Portugal for many years. In the early years of commercial arbitration, the legal framework governing arbitration was set forth by articles 1511 to 1524 of the Civil Procedure Code, dated 1961. There were, however, concerns about the consistency between arbitration and the principles of the 1976 Constitutional Law.

As a result, in 1982 parliament amended the Portuguese Constitutional Law so as to expressly cater for the existence of arbitral tribunals and confirm the validity and enforceability of arbitral awards. The concerns about the consistency between articles 1511 to 1524 of the Civil Procedure Code and the legal framework set forth by the Constitutional Law were then overcome. Arbitration has been fully recognised as an alternative means to solve disputes in Portugal ever since.

In 1984, parliament approved a statute exclusively dedicated to arbitration — Decree-Law No. 243/84 of 17 July 1984. The problems were, however, not over. Not all provisions of this statute were enforceable because there were some concerns about their scope of application, as well as inconsistencies with the aforementioned articles 1511 to 1524 of the Civil Procedure Code. Despite the government's intervention, the legal framework to facilitate arbitration as an alternative means of solving disputes in Portugal still had to be worked upon.

The Portuguese government decided, therefore, to re-evaluate the situation. On 29 August 1986, only two years after the initial changes, the government simultaneously revoked articles 1511 to 1524 of the Civil Procedure Code and Decree-Law No. 243/84, and enacted the Portuguese Arbitration Law, thereby setting forth the basis of the current legal framework for domestic and international commercial arbitration in Portugal. An unofficial English translation of the Portuguese Arbitration Law can be found on the website of the Portuguese Chamber of Commerce and Industry (http://en.acl.org.pt). A few months later, on 27 December 1986, the government further enacted Decree-Law No. 425/86, setting forth the rules applicable to the incorporation of arbitration centres for the administration of institutional arbitration proceedings in Portugal. Thereafter, the Portuguese Arbitration Law has been consistently applied and its provisions enforced by arbitral tribunals, courts, and the 31 arbitration centres that have been created so far.

ADR: recent developments

In order to deal with the congestion and delay in Portuguese courts, as well as to modernise the judicial system, the Ministry of Justice has, in the past years, been focusing part of its work and action on the creation and implementation of a number of legal and political measures that aim to encourage the use of alternative dispute resolution (ADR) methods.

In 2001, the Ministry of Justice created a special department exclusively designed to study and develop ADR solutions, the Cabinet for Alternative Dispute Resolution (GRAL). The GRAL is responsible for many of the legal and political measures taken by the government in this regard. Examples of the measures implemented by the government are as follows.

A number of innovative solutions have been adopted by the government to encourage arbitration. As an example: the Portuguese government has, in conjunction with a law school in Lisbon (Universidade Nova de Lisboa), set up an arbitration centre in the online computer game Second Life (www.ejusticecentre.mj.pt).

Additionally, the government currently finances several arbitration centres that administer consumer-related disputes at no cost. Many companies accept almost automatically, on the date of incorporation, to submit their consumer-related disputes to these arbitration centres. This is the case for 55 per cent of the companies that have been set up through a mechanism recently created by the government which allows private parties to incorporate and put a company into operation in a day.

Moreover, in recent years, studies have been announced with a view to implementing new arbitration centres to deal with disputes in areas where this type of ADR solution is less frequent in Portugal. These include areas such as industrial property, corporate names, public procurement, employment in the public sector, as well as disputes between state hospitals and insurance companies.

The number and nature of disputes submitted to arbitration have been increasing in Portugal over the last few years. Recently, the Municipality of Lisbon and a number of trade unions have agreed to submit to arbitration a dispute over 834 employment-related claims.

Naturally, there has also been an increase in the number of requests and authorisations granted by the government for the creation of arbitration centres — such as the Arbitration Centre for Civil, Commercial and Administrative Disputes of the Bar Association, the Arbitration Centres of the German-Portuguese Chamber of Commerce and Industry or the Association of Portuguese Travel Agents.

Finally, it is worth mentioning that several of the existing arbitration centres have recently amended their arbitration rules so as to modernise them and improve the services rendered. Examples of arbitral institutions that have recently amended their rules are the Portuguese Chamber of Commerce and Industry, the Portuguese Business Association and the Portuguese Industrial Association.

The need to modernise the current legal framework

It is commonly accepted by Portuguese arbitration practitioners and scholars that the Portuguese Arbitration Law contains, in many aspects, an innovative approach to arbitration which provides parties and arbitrators with substantial freedom to define their own arbitration rules. Yet currently it is also almost unanimously accepted that the Portuguese Arbitration Law could also benefit from a number of amendments. Naturally, more than 20 years later, some aspects of the legal framework created by the Portuguese Arbitration Law are fairly outdated.

At the time the Portuguese Arbitration Law was enacted, the Portuguese economy and political scene were very different from what they are today. Studies made at the time state that in 1992 the number of outstanding proceedings in Portuguese judicial courts was lower than 250,000. At the end of the 20th century, this number increased to 850,000.

In 1986, it was less evident how necessary it would be to set up ADR methods which did not resort to local courts and so provide foreign investors and international companies with an arbitration-friendly and trustworthy environment. Portugal and its legal and political community were more focused on internal affairs and not fully aware of international legal trends in commercial arbitration. It is worth noting in this regard that the Portuguese Arbitration Law was prepared at the same time and enacted right after the approval of the 1985 United Nations Commission International Trade Law Model Law on Arbitration (UNCITRAL Model Law). And, although the UNCITRAL Model Law has been considered by some as the state of the art on international commercial arbitration since its creation, the fact is that those two documents are worded very differently even though their principles are basically the same. Moreover, the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards was only ratified by Portugal many years later, in 1994.

What could be improved in the Portuguese Arbitration Law?

Despite the appeals of Portuguese arbitration practitioners and scholars, as well as the legal community in general, the Portuguese government did not make the amendment of the Portuguese Arbitration Law a priority until recently. Early this year, the minister of justice announced that his Ministry is preparing a proposal for amending the Portuguese Arbitration Law, which is expected to be disclosed and submitted to public discussion very soon.

There is much anticipation surrounding the Ministry of Justice's proposal to amend the Portuguese Arbitration Law. It will be the first sound amendment to the Portuguese legal framework since 1986. The current Portuguese Arbitration Law has only been subject to a minor — though important — amendment in 2003, which aimed to restrict the intervention of judicial courts in arbitration, namely in assisting the arbitrators in limiting the subject matter of the submitted dispute.

The major aspects of the Portuguese Arbitration Law that could be improved can be summarised as follows.

Interim measures of protection

The possibility of the courts ordering interim measures of protection to assist arbitration, as well as the possibility of the arbitral tribunal itself ordering such measures, is not expressly provided for in the Portuguese Arbitration Law. Notwithstanding this, it is generally accepted that the parties may resort to courts to obtain interim measures of protection during arbitral proceedings. There are, furthermore, a wide number of practitioners, scholars and courts who believe that an arbitral tribunal should grant interim measures at least when said measures do not require resorting to public policy enforcement methods. This possibility should, nevertheless, be expressly provided for in the Portuguese Arbitration Law; otherwise, it will be difficult and time-consuming for tribunals and courts to develop a consistent practice in this regard.

Appeal against arbitral awards

In domestic arbitration, the general rule is that an arbitral award may not be final and binding on the parties. In other words, the parties are entitled to appeal against arbitral awards, unless expressly agreed otherwise. For international arbitration, the rule is the opposite: under the Portuguese Arbitration Law, parties cannot as a rule appeal against arbitral awards rendered in international arbitrations. Such awards may only be subject to appeal if the parties have expressly agreed to do so. The Portuguese Arbitration Law should be amended so as to set forth that any arbitral award, either domestic or international, is final and binding on the parties and only subject to appeal if the parties expressly agree to do so. A provision expressly setting forth that the parties can agree to submit the appeals to another arbitral tribunal could also be added.

Interpretation and correction of the arbitral award

The Portuguese Arbitration Law does not allow the parties to request any correction or clarification of the contents of an arbitral award once it is served. The jurisdiction of the arbitral tribunal ceases when the notice of the award is delivered to the parties. It is important to amend the Portuguese Arbitration law so as to expressly set forth the parties' rights to request the correction of mistakes in the award and the clarification of any aspects of its reasoning. The amendment would itself require a change of other rules, so as to delay the time at which the award should be deposited with the state court (when applicable) and also to expressly state that the powers of the arbitrators shall endure after the parties are served notice of the award. The government should, moreover, amend the Portuguese Arbitration Law so as to set forth that, upon request of the parties, the courts could ask the arbitrators to clarify the arbitral awards during annulment or enforcement proceedings.

Multi-party arbitration

It is only natural that the number of disputes in Portugal involving more than two parties has a tendency to increase. At least in the main areas in which arbitration takes place worldwide (ie, construction, IT, publicity, capital markets, sports, intellectual property, etc) it is common for several participants to intervene in each side of the dispute. Such cases are a consequence of the current organisation of the market and of the way in which companies carry out their business activities. Some would call it globalisation. The Portuguese Arbitration Law, however, does not have rules for multi-party arbitration. This raises concerns about the choice or method to appoint the arbitral tribunal. How should an arbitral tribunal be appointed in a multi-party arbitration? It should be carefully considered how to balance the number of arbitrators with the rights of the parties to appoint 'their' arbitrators. Similarly to the solution provided for in several rules of international arbitration centres such as the International Chamber of Commerce (ICC), the Ministry of Justice should amend the Portuguese Arbitration Law so as to provide for a mechanism that could be implemented to appoint the arbitral tribunal, in case the parties fail to reach an agreement as to who shall be the arbitrators.

Impartiality and independence of arbitrators

There are no rules on impartiality and independence of arbitrators properly designed for arbitration in the Portuguese Arbitration Law. According to this statute, the provisions of the Civil Procedure Code regarding the impartiality and independence of judges should also apply to arbitrators. As those rules are, however, not appropriate for arbitration, they do not cover the majority of the conflict of interest situations increasingly appearing in arbitration these days. It is well known that the development of arbitration is deeply related to the credibility of the arbitrators. The Portuguese Arbitration Association has recently prepared and approved a Code of Ethics to be adopted by arbitration practitioners as a guide in domestic and international arbitrations. It is crucial, however, to amend the Portuguese Arbitration Law so as to provide appropriate rules in this regard. The Portuguese Arbitration Law should include a provision based on article 12 of the UNCITRAL Model Law expressly establishing the arbitrators' duty to communicate to the parties and other arbitrators any circumstance capable of raising doubts about their impartiality and independence. This would allow the parties to challenge the arbitrators for reasons which the party becomes aware of after the appointment is made.

Autonomy of the arbitration clause

Although the principle of the autonomy of the arbitration clause is included in the Portuguese Arbitration Law, its scope of application is not exactly the same as set out in article 16.1 of the UNCITRAL Model Law. Pursuant to the Portuguese Arbitration Law, the general rule is that the invalidity of a contract does not affect the validity of the arbitration clause included therein.

But this general rule has an important limitation: the arbitration clause included in a contract deemed null and void would also be null and void if one of the parties is able to establish that the relevant contract would not have been executed without the arbitration clause. This awkward solution should be eliminated from the Portuguese Arbitration Law. The law should be amended so as to reflect the principle of the autonomy of the arbitration clause in similar terms to the UNCITRAL Model Law.

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In view of the above, we may say that Portugal is aware of the advantages of resorting to domestic and international arbitration to, inter alia, solve commercial disputes. The government is determined to adopt measures encouraging arbitration in Portugal, such as the revision of the current Portuguese Arbitration Law.

More than 20 years after its approval, the Portuguese Arbitration Law is fairly outdated. In a time where, furthermore, globalisation and the consequent harmonisation of the domestic legal systems worldwide seem to be an imperative, there are no excuses for maintaining domestic legal solutions which separate Portugal from the rest of the world in the area of arbitration.

Any amendment made to the Portuguese Arbitration Law should be made with a view to adopt the same solutions as set out in the UNCITRAL Model Law. This would certainly encourage domestic and international commercial arbitration and increase the trust of foreign investors in the Portuguese legal system.