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Drafting an Arbitration Clause

The way a dispute is conducted and settled relies greatly in the way the dispute resolution clause is inked in. There are several initial options to consider when doing so. See also the formal requirements and sample clauses, including a template of a complex "ad hoc" arbitration clause.

The first choice to make relates to the mechanism to resort: state court litigation, arbitration, mediation, or other ADR. We consider the two basic and most usual options:

1. State court litigation (forum jurisdiction clause): "The parties submit all their disputes arising out of or in connection with this Agreement to the exclusive jurisdiction of the Courts of [Lisbon]"

2. Arbitration: "Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration.The number of arbitrators shall be
[one or three]. The place of arbitration shall be [city, state]. [State] law shall apply. Judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof." 

With a multi-tiered dispute resolution clause the contracting parties must engage in negotiation, mediation, or some other form or combination of alternative dispute resolution prior to commencing litigation or arbitration.
Sample:

"1. In case of disputes rising out in relation to any issue regarding the interpretation, performance, breach, termination or validity of this contract, the parties shall make any effort to negotiate and find a solution to the issues therein, within 20 days from the request of either party to the other party.
2. In case after the expiry of this term no settlement has been reached, the parties shall meet at the level of Managers within the following 10 days after expiry of the first term, to find a solution.
3. In case after the expiry of the second term the parties have not reached a settlement to the issues therein, either party, within 10 days from the expiry of such term, may demand the mediation [of the .... Center for Mediation] in accordance with the Portuguese legislation on mediation.
4. If an agreement has not been reached within 60 days from the day the issue has been submitted to the [ .... Center for Mediation], either party may submit the case to Arbitration. The number of arbitrators shall be [one or three]. The place of arbitration shall be [city]. Portuguese law shall apply. Judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof."
5. Each of the steps foreseen in this provision is a condition precedent to proceed with the following step, unless the terms have expired."


"AD HOC" ARBITRATION

“Ad hoc” commercial arbitration is established by the parties to a dispute in order to resolve a specific dispute on a non-recurrent basis. The dispute then ceases to exist after the adoption of a decision on the matter in question.
Advantages:
- cost & time effective
- suited for smaller claims and less wealthy parties
- flexibility and taylor-made proceedings
- broader choice of arbitrators.


INSTITUTIONAL ARBITRATION

International commercial arbitration is generally established at the national chambers of commerce, associations, unions, stock exchanges and acts on a permanent basis. These organizations do not take part directly in the settlement of disputes but provide consultancy, supervisory and administrative-technical services. The institutional arbitration established under the auspices of such organizations have their own articles of association and procedural rules. In some cases the arbitrators are elected by the parties out of a permanent list of candidates.
Advantages:
- availability of pre-established rules and procedures;
- administrative assistance from the institution;
- list of qualified arbitrators;
- assistance in encouraging reluctant parties to proceed with arbitration; and
- established format.

Portugal has a number of institutions administering arbitration. Some are generic (such as the Arbitration Centre of the Portuguese Chamber of Commerce and Industry (CAC - visit website), while others are industry specific, such as Arbitrare (Arbitration Center for Industrial Property, Domain Names, and Corporate Names - visit website). 

See more on our page "INSTITUTIONS"


Written form
Arbitration agreements must be in writing.

This requirement applies whether the agreement takes the form of a stand-alone submission agreement or an arbitration clause in a contract (Art. 2(1) of the PAL).

An arbitration agreement is binding even when it is merely incorporated by reference into the contract giving rise to the dispute (Art. 2(4) of the PAL).

Digital format
This writing requirement is met "if the agreement is recorded in a written document signed by the parties, in an exchange of letters, telegrams, faxes or other means of telecommunications which provide a written record of the agreement, including electronic means of communication" (Art. 2(2) of the PAL) or "if it is recorded on an electronic, magnetic, optical or any other type of support, that offers the same guarantees of reliability, comprehensiveness and preservation" (Art. 2(3) PAL).

Implied consent
This requirement is also met "if there is an exchange of statements of claim and defense in arbitral proceedings, in which the existence of such an agreement is invoked by one party and not denied by the other" (Art. 2(5) PAL).

Incorporation in Standard Form Contracts

The Portuguese superior courts have upheld arbitration clauses inserted in a standard form contract. For instance, in a matter related to a swap contract, governed by the ISDA Master Agreement, the Guimarães Court of Appeal, the Lisbon Court of Appeal, and the Oporto Court of Appeal enforced the arbitration clause (see decisions of 24 September 2014, 25 February 2015, and 13 April 2015). 

A - INSTITUTIONAL ARBITRATION and MEDIATION SAMPLE CLAUSES

Sample Clause for Arbitration at the Arbitration Centre of the Portuguese Chamber of Commerce and Industry (CAC - visit website) -

MEDIATION

A. Simple Mediation
“1. The parties shall obligatorily submit all disputes, arising out of or in connection with this contract, to mediation according to the Rules of Mediation of the Commercial Arbitration Center of the Portuguese Chamber of Commerce and Industry (Commercial Arbitration Center).
2. The place of mediation shall take place at [city and/or country].
3. The language of the mediation shall be [...].”
Note: Adopting this clause, the parties chose for all disputes to be settled by mediation according to the CAC Rules of Mediation.


ARBITRATION

B. Normal Arbitration

1. All disputes arising out of or in connection with this contract, shall be finally settled by arbitration according to the Rules of Arbitration of the Commercial Arbitration Center of the Portuguese Chamber of Commerce and Industry (Commercial Arbitration Center), by one or more arbitrator(s) appointed in accordance with the Rules.

2. The place of arbitration shall be [city and/or country].

3. The language of the arbitration shall be [...].

Note: Adopting this clause, the parties chose for all disputes to be settled by normal arbitration according to the CAC Rules of Arbitration.

C. Fast Track Arbitration

1. All disputes arising out of or in connection with this contract, shall be definitely settled by arbitration according to the Rules of Fast Track Arbitration of the Commercial Arbitration Center of the Portuguese Chamber of Commerce and Industry (Commercial Arbitration Center), by an arbitrator appointed in accordance with the Rules.

2. The place of arbitration shall be [city and/or country].

3. The language of the arbitration shall be [...].

Note: Adopting this clause, the parties chose for all disputes to be settled by fast arbitration according to the CAC Rules of Fast Track Arbitration.

D. Fast Track Arbitration for disputes of value inferior to [...€] and normal arbitration for higher value disputes (not changed by counterclaim)

1. All disputes arising out of or in connection with this contract, and of same or inferior value to [...€] shall be definitely settled by arbitration according to the Rules of Fast Track Arbitration of the Commercial Arbitration Center of the Portuguese Chamber of Commerce and Industry (Commercial Arbitration Center), by one arbitrator appointed in accordance with the Rules.

2. The previous rule shall apply even if the defendant presents a counterclaim that surpasses the referred value.

3. All disputes arising out of or in connection with this contract, and of superior value to [...€] shall be definitely settled by arbitration according to the Rules of Arbitration of the Commercial Arbitration Center of the Portuguese Chamber of Commerce and Industry (Commercial Arbitration Center), by one or more arbitrator(s) appointed in accordance with the Rules.

4. The place of arbitration shall be [city and/or country].

5. The language of the arbitration shall be [...].

Note: Adopting this clause, the parties chose for all disputes inferior of a established a value, fast track arbitration and for the higher amounts normal arbitration according to the Rules of Arbitration. In the case there is a counterclaim and the value surpasses the amount established by the parties the rule does not change and the process continues to follow the Rules of Fast Track Arbitration.

MEDIATION AND ARBITRATION

E. Mediation followed by normal arbitration

“1. The parties shall obligatorily submit all disputes, arising out of or in connection with this contract, to mediation according to the Rules of Mediation of the Commercial Arbitration Center of the Portuguese Chamber of Commerce and Industry (Commercial Arbitration Center). 2. If the dispute is not settled through mediation, it shall be definitely settled by arbitration according to the Rules of Arbitration of the Commercial Arbitration Center of the Portuguese Chamber of Commerce and Industry (Commercial Arbitration Center), by one or more arbitrator(s) appointed in accordance with the Rules.

2. The place of mediation and arbitration shall be [city and/or country].

3. The language of the mediation and arbitration shall be [...].

4. During mediation, any of the parties can start an Emergency Arbitrator proceedings.

Note: Adopting this clause, the parties chose for all disputes mediation and, in the case they cannot reach an agreement, the dispute shall be settled by normal arbitration according to the CAC Arbitration Rules.

F. Mediation followed by fast track arbitration

1. The parties shall obligatorily submit all disputes, arising out of or in connection with this contract, to mediation according to the Rules of Mediation of the Commercial Arbitration Center of the Portuguese Chamber of Commerce and Industry (Commercial Arbitration Center).

2. Any dispute that has not been settled through mediation shall be definitely settled by arbitration according to the Rules of Fast Track Arbitration of the Commercial Arbitration Center of the Portuguese Chamber of Commerce and Industry (Commercial Arbitration Center), by an arbitrator appointed in accordance with the Rules.

3. The place of mediation and arbitration shall be [city and/or country].

4. The language of the mediation and arbitration shall be [...].

5. During mediation, any of the parties can start an Emergency Arbitrator proceedings.

Note: Adopting this clause, the parties chose for all disputes to be settled by mediation and, in the case they cannot reach an agreement, the dispute shall be settled by fast track arbitration according to the CAC Fast Track Arbitration Rules.


B - "AD HOC" ARBITRATION CLAUSE (COMPLEX)

Applicable Law and Jurisdiction
1. This Agreement shall be governed and interpreted according to Portuguese law.
2. All disputes arising out of or in connection with this Agreement, shall be finally settled by arbitration according to Law n.º 63/2011 of 14 December.
3. If the overall amount in dispute, including the amount stated in the Initial Request for Arbitration and the amount stated in the corresponding Response (in the event of a possible counter-claim) does not exceed or is equal to € 500.000,00, the dispute shall be settled by one arbitrator. If the overall amount in dispute is superior to € 500.000,00, the dispute shall be settled by three arbitrators appointed in accordance to Law n.º 63/2011 of 14 December. If the amount in dispute changes after the Tribunal is already constituted, such will not have an impact on the number of arbitrators composing the Tribunal.
4. The seat of the arbitration shall be in Portugal, in the city of Lisbon.
5. The language of the arbitration shall be Portuguese.
6. Without disregard for the clauses mentioned below, the value of the fees to pay to each arbitrator will not be determined in accordance to the amount in dispute or to the value of the procedure determined by the arbitral tribunal according to the applicable law. Thus, the parties agree that the maximum amount of fees to pay to each arbitrator fees shall be of € 20.000,00 added by the correspondent VAT at the applicable legal rate (when applicable).
a. If however:
(i) The arbitral proceedings end before the submission of any memorials or without relevant activity from the Arbitral Tribunal, the value of the fees to pay to each Arbitrator will be fixed in € 3.000,00 added by VAT at the applicable legal rate (when applicable);
(ii) The tribunal merely ratifies an agreement of the parties or declares the incidental uselessness of the proceedings without having been submitted a Respondent’s memorial, the amount of the fees to pay to each arbitrator shall be fixed between € 3.000,00 and € 5.000,00, added by the corresponding VAT at the applicable legal rate (when applicable);
(iii) It is submitted a Claimant’s memorial but is not submitted a Respondent’s memorial, without an evidentiary hearing taking place, the amount of the fees to pay to each arbitrator shall be fixed between € 5.000,00 and € 9.000,00, added by the corresponding VAT at the applicable legal rate (when applicable);
(iv) It is submitted both a Claimant’s and Respondent’s memorial, but without an evidentiary hearing being held, the amount of the fees to pay to each arbitrator shall be fixed between € 5.000,00 and € 9.000,00, added by the corresponding VAT at the applicable legal rate (when applicable);
(v) It is submitted a Claimant’s memorial and is not submitted a Respondent’s memorial, but still, an evidentiary hearing is held, the amount of the fees to pay to each arbitrator shall be fixed between € 6.000,00 and € 12.000,00, added by the corresponding VAT at the applicable legal rate (when applicable);
(vi) There are procedural incidents (such as an injunction procedure), the fees of the arbitrators shall be determined autonomously at the reason of 1/3 of the fees due for the main proceedings;
b. The fees of the chairman shall be majored in 1,30 regarding the fees of the other arbitrators. For the avoidance of any doubt, the fees of the chairman will not exceed € 26.000,00 added by the corresponding VAT at the applicable legal rate (when applicable);
c. The secretary will be paid in an amount correspondent to 10% of the fees of a party-appointed arbitrator.
d. The expenses relating to trips and stays of the arbitrators, as well as administrative and production of evidence costs shall be fixed in accordance to its effective cost.
e. If the Arbitral Tribunal is composed by a sole arbitrator, the rule determined under 6.2 of the present clause will apply. 

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