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30 July 2009
The Supreme Court recently confirmed that the suspension of arbitral proceedings does not entail the suspension of the time limit for the issuance of an award.
After the end of the hearings in an arbitration, the chair of the arbitration panel informed the parties that he was permanently and physically unable to remain as arbitrator. The procedure for replacing the third arbitrator lasted for more than a reasonable period, as the new president insisted on having full knowledge of the process and access to the transcripts of the sessions as a condition of his acceptance. Therefore, the award was rendered after the time limit set forth in the arbitration agreement.
In appealing the award to the courts, the losing party invoked the rule that an arbitral tribunal is not competent to render an award after the arbitration agreement has expired. The award was consequently revoked by the court.
The counterparty appealed to the Supreme Court, arguing that: (i) a suspension of arbitral proceedings due to the replacement of the presiding arbitrator also pauses the time within which the tribunal must render its final award; and (ii) the non-suspension of a deadline for the award infringed its right to effective legal protection and an award in reasonable time as prescribed by the Constitution.
The court declared that the deadline for an award is a substantive term, not a procedural term. Thus, the suspension of arbitral proceedings does not entail the suspension of the time limit for the issuance of the award, except in cases specified by law (ie, under Article 328 of the Civil Code). Moreover, arbitrators may not amend the time limit, which may be set and modified only by agreement of the parties.
The court also stated that the arbitration agreement was concluded under the Arbitration Law (31/1986), which states that an agreement lapses if an award is made after the expiry of the given time limit or an extension thereto (which is for six months unless the parties agree otherwise). Therefore, the right to effective legal protection had been duly guaranteed and nothing prevented the parties from submitting the matter to the state courts upon the expiry of the arbitration agreement.
Although the decision is not favourable to arbitration, it appears to be consistent with the strict meaning of the law. In a previous decision the court had accepted the validity of an award rendered after a six-month period and a six-month extension on the principle of venire contra factum proprium (ie, a party may not contradict its previous statements or actions). In this case it appears that neither party caused the delay, either by action or inaction. Nevertheless, the ruling does not protect the parties from losses caused by a delay for which none of the participants - including the other arbitrators - was liable. Under Article 19(5) of the law, arbitrators are liable for damages caused by a delay if it results in unjustified conduct, but that was found not to be the case.
Despite its strict interpretation of the law, the decision recognizes that the award would have been valid even after the set time limit if, in light of the complexity and scale of the arbitration, the procedure for replacing the presiding arbitrator had been completed and the award issued within a reasonable time. The court held that in this case, three months would have been a reasonable time and that, as such, the appeal for annulment could be rejected on the grounds of abuse of rights. This more flexible view of the deadline for an award (and of the competence of the arbitral tribunal and the validity of the arbitral agreement) is significant in the context of a decision which is not otherwise supportive of arbitration.
The court stated that an arbitral tribunal is not competent to amend the time limit set for the issuance of an award, but also observed that if the arbitrators had requested (and obtained the parties' approval for) an extension of the time limit, no procedural or substantive problem would have arisen - it would have been difficult for either party justifiably to withhold its consent, but the arbitrators ignored the party's statements on the issue. However, this position leaves open the possibility for parties to agree that decisions on an extension of the deadline for an award should be within the arbitrators' competence and at their exclusive initiative.
The decision reflects the fact that in light of existing Portuguese arbitration law, the deadline for the award determines not only the expiry of the arbitral tribunal's jurisdiction, but also the point at which the arbitration agreement lapses, which jeopardizes the parties' interests. A project prepared by the Portuguese Arbitration Association at the minister of justice's request proposes to amend this position. A new rule would clarify that if an award cannot be rendered during the time allowed by the parties or provided for in the law, this does not imply a lapse of the arbitration agreement. Thus, even once the time limit is exceeded, the parties would be able to lodge new arbitration proceedings and constitute a new arbitration tribunal.
For further information on this topic please contact José Miguel Júdice or Frederico Perry Vidal at AM Pereira, Saragga Leal, Oliveira Martins, Judice e Associados - Sociedade De Advogados by telephone (+351 21 319 7300) or by fax (+351 21 319 7400) or by email (firstname.lastname@example.org or email@example.com).
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José Miguel Judice