The Portuguese Arbitration Act (Lei de Arbitragem Voluntária), similar to many others, does not address the issue of multiparty disputes. Moreover, the 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, such as in 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 to: save time and money; avoid conflicting decisions on the same issues of law and fact; allow a defendant to pass on the liability to third parties (e.g., suppliers, sub-contractors); or to provide flexibility when the claimant is unsure which defendant the claim should be directed to (e.g., when it is unclear which of two parties is responsible for certain conduct).
However appropriate in some cases, multi-party arbitrations often have two downsides. Firstly, the proceedings tend to become lengthier and more complex (particularly when they result from joint claims), and secondly it is more difficult to agree on appointing arbitrators. The latter becomes even more significant when there is more than one arbitrator, as the claimants or the defendants each have the right to appoint someone. This is particularly relevant in Portuguese arbitrations since, unless otherwise agreed, the arbitral tribunal is composed of three persons with one appointed by the claimant, another by the defendant, and the third arbitrator, who acts as chairman of the tribunal, appointed by the other two.
Thus, although multiparty arbitrations may be particularly advisable in some cases, they can often be detrimental to at least one of the parties.
Portuguese law does not forbid multi-party arbitrations. Therefore, if all parties agree either expressly or implicitly, we understand that the arbitral tribunal may not dismiss the parties to the arbitration on the grounds of illegal joining of parties or claims, regardless of a lack of relevant connection between the claims. As to defendants appointing an arbitrator (the claimants must always agree on who will hear the proceedings), article 12 of the Portuguese Arbitration Act applies: if the parties fail to reach an agreement within 30 days, any party may request that the president of the Portuguese court of appeal (Tribunal da Relação) appoint the arbitrator.
More difficult obstacles may arise when one party does not agree on multiparty arbitration. From an overall analysis of Portuguese law, the general principle provides that a party cannot be forced to participate in multi-party arbitration or accept the participation of a party it did not sign an agreement with, regardless of the convenience of the intervention. Bearing this in mind, multi-party arbitrations may only be imposed 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 signatories may not reject multi-party arbitration unless otherwise provided for in the agreement. The presumption that, by adopting a common agreement the parties involved have agreed on multi-party arbitration and to assume 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 appointing arbitrators, which is a matter of public policy.
In fact, this principle also means that multi-party arbitration resulting from several contracts with different groups 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 if this participation does not make the proceedings slower (by simply adhering to the claim without presenting evidence).
Although the Portuguese act does not govern multi-party disputes, this does not make it flawed. Ultimately, the parties need to determine an appropriate procedure for resolving any issues that may arise during business. .
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.