Multi-party arbitrations in Portugal

Tito Arantes Fontes, Nuno Salazar Casanova.

2008 The European Lawyer, n.º 80

The Portuguese Arbitration Act (“Lei de Arbitragem Voluntária”), similar to many others, does not address the issue of multi-party disputes. Moreover, the Portuguese Arbitration Act is clearly designed to accommodate disputes between only two parties - a claimant and a defendant.

This gives rise to serious problems. In some cases, multi-party arbitration is indispensable to settle disputes; situations in which an arbitral award must necessarily be binding on more than two parties (e.g., separation of property owned by three tenants in common). In other cases, although multi-party arbitration is not necessary, it may be highly advisable, saving time and money, avoiding conflicting decisions on the same issues of law and fact, allowing a defendant to pass on the liability to third parties (e.g., suppliers, sub-contractors, etc.), or providing flexibility when the claimant is unsure as to which defendant the claim should be directed  (e.g., when it is unclear which of two parties is responsible for a certain conduct).

Multi-party arbitration may, therefore, be appropriate either when the same claim involves more than one claimant or defendant, or when one or more claimants wish to file different claims against one or more defendants (joint claims and parties). In the latter situation, the convenience of having the same proceedings may depend on whether (i) the claimant is the same, (ii) the defendant is the same or (iii) the issues of law and fact are connected or are the same.

However appropriate in some cases, multi-party arbitrations often have two downsides: the proceedings tend to become more complex and lengthier (particularly when they result from joint claims), and it is more difficult to agree on the appointment of arbitrators - which becomes even more significant when, in arbitrations with more than one arbitrator, the claimants or the defendants each have the right to appoint an arbitrator. This is particularly relevant in Portuguese arbitrations since, unless otherwise agreed, the arbitral tribunal is composed of three arbitrators: one appointed by the claimant, another appointed by the defendant, and the third arbitrator, who acts as chairman of the arbitral tribunal, appointed by the other two arbitrators.

Thus, although multi-party arbitrations may be particularly advisable in some cases, they may often be detrimental to at least one of the parties.

Portuguese law does not forbid multi-party arbitrations. Therefore, if all parties agree, expressly or implicitly, it is our understanding that the arbitral tribunal may not dismiss the parties to the arbitration on the grounds or illegal joinder of parties or claims, regardless of the existence or lack of relevant connection among the claims. As to the appointment of an arbitrator by the defendants (the claimants must always agree on the arbitrator to hear the proceedings), the rule provided in article 12 of the Portuguese Arbitration Act will be applicable: if the parties fail to reach an agreement within 30 days, any party (either of the claimants or of the defendants) may request the President of the Portuguese court of appeal (“Tribunal da Relação”) to appoint the arbitrator.

More difficult obstacles may arise when one party does not agree on the multi-party arbitration. From a general analysis of Portuguese law, the general principle applicable to arbitrations provides that a party cannot be forced to participate in a multi-party arbitration or to accept the participation of a party with whom it did not sign an arbitration agreement, regardless of the convenience of the intervention or the desire of the intervening party. Bearing this in mind, multi-party arbitrations may only be imposed on the parties if there are several parties to one contract or several contracts, that provide for arbitration, with different parties that all have a bearing on the matters in dispute.

In our opinion, if there are several parties to one contract, the signatory parties may not reject the multi-party arbitration, unless otherwise provided for in the arbitration agreement. The presumption that, by adopting a common agreement, the parties involved have agreed on multi-party arbitration, assuming the inherent burden - including the restriction on the power to solely appoint arbitrators - seems equitable. This view, however, should not undermine the principle of equality in the appointment of arbitrators, which is a matter of public policy.

In fact, it is also with respect to this principle that multi-party arbitration resulting from several contracts with different parties may not be imposed on parties. In limited circumstances, however, it may be argued otherwise, for instance if the participation of a third party does not limit the exclusive power of the parties to appoint arbitrators (because the intervening party waives his/her right or wishes to participate after the constitution of the arbitral tribunal) or this participation does not make the proceedings slower (by simply adhering to the claim without presenting evidence).

Although the Portuguese Arbitration Act does not govern multi-party disputes, this does not mean it is flawed. Ultimately, the parties carry the burden of determining beforehand the procedure they find appropriate for resolving any issues that may arise in the course of business.

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