Arbitration in Portugal is not a new field of law: the
Arbitration Act dates from 1986 – although it has had
some amendments – and arbitration proceedings were
possible before then.
Despite being around for at least 20 years, the practice of
arbitration has been limited for a number of reasons, such as a
general suspicion about arbitration, the costs involved, and
the fact that the Arbitration Act contained some provisions
that could be used by a party less interested in starting
litigation to freeze proceedings for years.
As to the general suspicion – although it is
becoming less relevant, at least when compared with other
criticisms that can be made of the state court system
– it has several different causes.
In the Portuguese system there is not a tradition of
conciliation. Almost all disputes go into litigation and
settlements only are negotiated close to the stage of trial. No
punitive damages are foreseen in the law and the defeated party
will only bear a limited part of the legal costs of the
counterparty, so litigation – considering the slow
pace of Portuguese courts – frequently appears as an
This obstacle will always exist – at least until
the law strongly penalizes the party that does not fulfil
– but there is a growing conviction that disputes and
litigation are disruptive and should be avoided or, when
unavoidable, solved as swiftly as possible.
Arbitration, by nature and because of the proximity between
the parties and the tribunal, tends to provide many more
opportunities for informal conciliation. However, the pursuit
of unanimous decisions by tribunals can provoke more balanced
decisions, therefore harming the parties aiming for full
conviction or acquittal.
Similarly, there is a belief (which still has several
followers) that the parties' appointed arbitrators should be an
extension of the parties' lawyers, which necessarily undermines
their position before the president of the tribunal (who will,
ultimately, render the decision). But parties (and their
counsel) are becoming more convinced of the advantages of
having a fully independent arbitral panel as the sole means of
ensuring the effectiveness of arbitration.
Traditionally, there was also a high level of respect for
the state courts, which has been progressively diminishing
because of the slowness of the proceedings (a case might easily
take five years to be decided) and the state courts' inability
to deal with the demands of some types of modern
For example, in theory a judge may appoint an expert to
assist in their decision. But the provisions of the law
concerning the payment of such experts are so strict and
limited that it is almost impossible to appoint top experts.
Likewise, the law does not allow the possibility of having a
team of experts and always looks at the expert as a single
A similar problem occurs with the non-specialization of the
courts. The courts (at least in the big cities) specialize in
broad areas of the law (such as family, crime, civil, labour,
tax, and commerce), but no court is prepared to address, for
example, a dispute concerning project finance or a dispute on
the perfect fulfilment of a contract involving the procurement
of a large industrial facility.
So, despite the reservations the market might still have
concerning arbitration, it is slowly establishing itself as the
main alternative dispute resolution method.
As to costs, state courts used to be substantially less
costly than arbitration. However, the law on costs was changed
recently and state court fees were increased, leading to a
situation in which – especially in large disputes
– the costs of arbitration could be similar to the
fees charged by a state court.
Lastly, in the original version of the Portuguese
Arbitration Act, the arbitral proceedings could only begin when
the parties had agreed on the object of the dispute. This led
to having parties systematically challenging the object of the
dispute or simply stating that it was not acceptable. In those
cases the object of the dispute would have to be established by
a state court. Non-cooperative parties could, by forcing the
recourse to courts, freeze arbitration for years.
This strange system was changed in 2003 and now, like in
other systems, agreement is no longer necessary. Although the
practitioners were developing remedies, this change clearly
constitutes a step towards making arbitration a more secure
alternative dispute resolution system.
The Portuguese Arbitration Act is far from perfect and could
benefit from some changes. But it is a valid tool and provides
almost complete freedom to arbitrators in defining the
applicable rules and/or allows the application of international
regulations. This means that, despite some local
eccentricities, the Portuguese Law regulates and accepts
arbitration in similar terms to what happens with other modern
Regarding commercial disputes – excluding conflicts
regarding consumer protection and similar small disputes
– from a moment it was considered as an option for
wealthy parties and multinational companies, arbitration has
become an increasingly popular method of solving conflicts. And
the inefficiency of the Portuguese court system is not the only
reason for this increased popularity: arbitration clauses are
often included in contracts involving foreign parties (due to
the foreign party's lack of trust of the counterparty's
jurisdiction) and in national contracts where it is expected
that, due to the complexity of future disputes or the values
involved, the matter would be better decided if analysed by a
The government has made a big step towards the acceptance of
arbitration as an effective dispute resolution method
– a number of major contracts it entered into in
recent years included arbitration clauses.
As to advantages, it is generally accepted that arbitration
is faster and more efficient. Secrecy of the proceedings is
also an advantage, together with the possibility of choosing
the arbitrators and the possibility of adapting the procedural
rules to the particulars of the case.
This does not mean that in judicial courts parties are
condemned to have bad decisions: however, court judges often
have to analyse hundreds (and in some cases thousands) of cases
running simultaneously, without easy access to technology,
expert support and, sometimes, even court rooms for trials.
The Portuguese Arbitration Act – present
Despite the presence of national arbitration centres and the
acceptance of rules of international centres (such as ICC,
LCIA, and Uncitral), most arbitration proceedings in Portugal
are ad hoc proceedings conducted according to the
Portuguese Arbitration Act: Law 31/86 of August 29, with the
modifications introduced through Decree-Law 38/2003 of March
This Act only provides general guidelines and, concerning
procedural rules, leaves almost absolute freedom to the
Tribunal (and the parties) to define the applicable rules. A
number of general principles have to be respected, most of them
common to the New York Convention of 1958.
The party that wishes to submit the dispute to the Arbitral
Tribunal must notify the other party by mail, referring to the
arbitration agreement and stating the nature of the dispute, if
this has not already been established in the agreement. If the
parties wish to appoint one or more arbitrators, this
notification must contain their identification, as well as an
invitation for the other party to appoint the arbitrators it
chooses. No pleadings should be prepared at this stage.
The arbitral tribunal may be composed of one or more
arbitrators, in accordance with the agreement, but there must
always be an odd number. The same principles of judges'
exemption and incapacities apply to arbitrators. If the parties
cannot agree on the appointment of the arbitrators, the
appointment will be requested to the appeal court at the seat
of the arbitration. The most common procedure, and one that
generally gives the best results, is that each party appoints
an arbitrator and the two arbitrators thus appointed agree on a
third member to preside the arbitral tribunal.
Once arbitration has commenced, with the written
notification, the proceedings must be conducted according to a
few fundamental principles, which if breached can set the
grounds for the nullity of the arbitral award: (i) the
defendant will be summoned to present their defence; (ii) the
adversarial principle will be observed at all stages of the
proceeding; (iii) both parties will be heard, orally or in
writing, before the final arbitral award is issued.
Notwithstanding the legal framework, there is a tendency to
follow the civil procedural law applicable in national courts,
which sometimes brings some stiffness to the proceedings.
Despite that, arbitration still constitutes an effective
dispute resolution method, with a wide range of advantages over
The parties are free to grant the tribunal the power to
decide ex aequo et bono or to establish that the award
will be rendered according to the strict applicable law.
Regardless of that choice, it is not uncommon to see an
arbitration panel acting as amicable compositeur, which again
appears as an advantage to national courts, where normally
conciliation is no more than a mere formality.
If nothing is agreed by the parties, the law establishes
that the award will have to be rendered six months after the
constitution of the Tribunal. This time limit can only be
extended by mutual agreement of the parties, which can be a
problem, as experience shows that fast-track arbitrations are
difficult to deal with. Therefore it is advisable that the
parties, when drafting the arbitral clause, foresee remedies to
situations such as these.
As to the effects of the decisions rendered, the law states
that domestic arbitration awards have the same value as
national court decisions and awards rendered abroad will be
accepted in terms close to the ones applicable to judgments
given by foreign courts. Portugal is a signatory state of the
New York Convention of 1958 regarding the recognition and
enforcement of arbitral awards.
The parties are free to waive the right to appeal, which
does not prevent them from challenging the award. However, and
as in most European legal systems, the grounds for a request to
set aside an award are limited and filing such a request will
not suspend the enforcement of the award.
Portuguese law makes a distinction between domestic and
international arbitration, although in practical terms the
consequences of the distinction are few. Article 32 of the
Arbitration Act defines international arbitration as an
arbitration in which international trade interests are at
stake. This definition is less than satisfactory because it is
not always clear what these interests are. In a more pragmatic
and necessarily simplistic manner, international arbitration is
that which has an international element, usually parties with
In the scope of international arbitration, the differences
between court proceedings and arbitral ones, which are
generally related to formalities, become even more evident than
in domestic arbitration. The prevailing influences of
international arbitration are the ideas of flexibility and the
purpose of the proceedings.
Mainly due to the greater flexibility, arbitrators play a
more active role both in directing the dispute and in its
outcome, which has contributed to the rise of this form of
justice as an independent means of international dispute
resolution. Additionally, the fact that international
arbitration is not as fettered by the legal concepts of a given
country or legal system as is state justice makes it an ideal
instrument to settle disputes that have an international
International sets of rules (such as the ones from ICC) are
well accepted in Portugal, and Portuguese practitioners are
familiar with awards rendered abroad, and with the doctrine
produced in the past decades. Consequently, the local approach
to international arbitration tends to be similar to most of the
legal systems in Europe.
In international arbitration seated in Portugal, the set of
principles mentioned above have also to be fully complied with.
Consequently it is of the utmost importance that the parties be
represented by lawyers who are familiar with this type of
proceeding and the rules applicable, not only during or
immediately before the dispute, but also in negotiating and
drafting the arbitration clause.
Arbitration is the future
Portuguese judicial courts have been facing exceptional
delays in the past 10 years, mainly due to the exponential
increase in the number of claims filed. Many changes in the
procedural law have been introduced recently but their
practical effects are yet to be seen. Although the civil
procedure has been greatly improved, the shortage of immediate
results has contributed to the growth of the arbitration and
No dispute resolution method is perfect and there will
always be criticisms about arbitration. However, and after
considering the situation of national courts and the tight
legal framework that applies to the development of proceedings
in such courts, there can be no hesitation in recommending
arbitration as an alternative dispute resolution method.
This acceptance of arbitration is further confirmed in
day-to-day practice, where more and more new contracts include,
ab initio, arbitration clauses. In the future, and at
least when the matters under dispute are complex, arbitration
will stand side by side with national courts as the favoured
dispute resolution method.
Arbitration should be strongly considered whenever is
possible to anticipate that a future dispute will arise and
will assume a complex nature. Ironically, a judge, despite
having all the support of the legal machine, will normally
decide alone; an arbitrator, without any structure to rely on,
will be free to make use of many more resources.
Taking into account the sophistication of some modern
disputes, arbitration is – at least for now –
the best answer the legal system can provide.
Pedro Metello de Nápoles
Pedro Metello de Nápoles' main practice areas
are litigation and arbitration.
Metello de Nápoles holds a law degree from
the Portuguese Catholic University Law School, Lisbon
(1995). He was admitted to the Portuguese Bar
Association in 1997.
Metello de Nápoles' speaks Portuguese and
Inês Gomes da Cruz
Inês Gomes da Cruz practises litigation and
She graduated from Lusíada University Law
School in 1996 and was admitted to the Portuguese Bar
Association in 1998.
She speaks Portuguese, English, and French.