Court Deference to Due Process Decisions in Arbitration

  1. Summary of the case


In January 2015, a French company (“Claimant”) and two Portuguese companies (“Respondents”) entered into agency agreements, whereby the former would be the exclusive vender and representative of the later near clients of fotovoltaic projects. The agreements submitted disputes to arbitration under the WIPO rules seated in Paris, France.


The Claimant initiated an arbitration arguing that four invoices were unpaid. WIPO appointed a sole arbitrator, who on September 2019 rendered an award ordering the Respondents to pay circa EUR 956.000 regarding these unpaid invoices, interest and arbitration costs and fees.


The Claimant attempted to recognize and enforce the arbitral award before the Court of Appeals of Lisbon (“Tribunal da Relação de Lisboa”, “TRL”). The Respondents objected invoking, inter alia, breach of the principles of adversarial proceedings and equality, under Articles 56(a)(ii) and (v), and (b)(ii) of the Portuguese Voluntary Arbitral Law (“VAL”), and 980(e) and (f) of the Portuguese Civil Procedure Code ( “CPC”).


In this regard, the Respondents alleged that after submitting their witness statements, the time came to indicate which witnesses each party intended to cross examine, but no reaction occurred within the procedurally agreed deadline. 10 days after this deadline, and 4 working days prior to the hearing, the Claimant noted its intention to cross-examine 2 of the 4 witnesses presented by the Respondents. By then, the witnesses had made other plans, and could not attend the hearing. The arbitrator rejected the Respondents proposed rescheduling the hearing, and it took place in the absence of the Respondents.


In the Respondents’ view, the refusal to postpone the hearing despite their impediment was a breach of the principles of adversarial procedure and equality, contained in Articles 3 and 4 of the CPC and Article 20(4) of the Constitution of Portugal (“CRP”). Another breach of the same principles was the Claimant’s extensive examination of its witness following the untimely request. A third breach was the Respondents’ inability to comment on Claimant’s witness examination and oral pleadings, and on the written statements submitted by their own witnesses, all key to the arbitrator’s (incorrect) factual findings.


In response, the Claimant argued that the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“Convention”) provided the applicable grounds of refusal of recognition and enforcement, and that the Respondents had not evidenced any limitation in the exercise of their procedural rights under its Article V(1)(b).


The Claimant accused the Respondents of dilatory and procedural terrorism tactics. It noted that the Respondents were the ones that insisted on holding an oral hearing, scheduled 2 months in advance, despite the Claimant and the arbitrator proposing a documents-only arbitration.


Notably, it claimed that the Respondent had mischaracterized the procedural deadline in contention. Following the submission of the witness statements, a date was set to indicate which witnesses the parties did not intend to examine (“Avisos de Ausência de Contrainterrogatório”). The Claimant, out of courtesy, indicated shortly thereafter that it only wanted to examine 2 witnesses. It was the Respondents’ burden not to schedule conflicting appointments and to guarantee the presence of their lawyers and witnesses, or alternatively to provide proof of supervening impediment of attendance, which never happened.


  1. Main issues addressed

This section of decision rendered in Case No. 991/20.5YRLSB-2, of April 28, 2022, by the TRL analyzed the issue of maintaining a default oral hearing, when the absent parties’ representatives, lawyers, and witnesses could not appear due to its alleged delayed scheduling.


The TRL sided with the Claimant on the factual depiction of the procedural deadline in discussion. Even if there was a misunderstanding, the Respondents had no wish to correct it. Time was sufficient to allow their lawyers to go in Paris, no proof of impediment was presented and no willingness to appear remotely was manifested. The TRL stated that lack of witnesses did not constitute grounds to postpone the hearing.


Secondly, the court highlighted that the Claimant’s witness was examined by the arbitrator and Claimant’s counsel, as is the case in when the counter parties and their lawyers unjustifiably miss the hearing.


Thirdly, the court stated that the Respondents did not have a right to reply to the hearing examination nor to clarify further aspects of their own witnesses’ written statements following the hearing. This would go against the principles of no delay of hearings and procedural celerity (both not waivable due to public interest), and often seen as advantages of arbitration.


Thus, the TRL concluded that the principles of adversarial proceedings and equality were upheld, protected as general civil procedure principles under Article V(1)(b) of the Convention, (although emphasizing that the invoked events would also not qualify as breaches under national law). The court cited the arbitration award where the sole arbitrator considered that none of the parties were prejudiced in their rights of defense. The court added that the fact that the arbitrator referred to the witness examination in its decision was only natural.


The court also noted that the principle of party accountability must be sustained, requiring parties to suffer the consequences of their procedural actions and omissions. It cited the French judicial decision that denied the annulment request made by the Respondents, where the former court concluded that no procedural principles were harmed in the arbitral proceedings, and that it did not fall on the arbitrator to cure the parties’ omissions (in this case deliberate default).


  1. The state of art


Article V(1)(b) of the Convention provides that: “1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that: (…) (b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case (…).”.


This provision aims to guarantee procedural fairness in arbitration proceedings, and has been recognized as one of the most important grounds of the Convention[1]. It is often associated with the parties’ rights to be heard and to be treated equally, and the principle of adversarial procedure[2].


It is consensually argued that in light of the Convention’s goals to achieve prompt and efficient enforcement[3] courts tend to interpret this ground narrowly, that is, only serious violations of procedural fairness will lead to non-recognition and enforcement[4] and the focus is on the facts and conduct of the parties[5].


The above explains this article’s popularity but sporadic success. A 2022 empirical study based on the Kluwer Arbitration database placed this in the top 3 grounds invoked in the framework of the Convention, showing parties bring it up in 20% of the cases reported, although only with success 11% of times[6].


Another reason for the narrow application of this provision is deference to arbitral discretion[7]. Arbitrators have the powers to decide non-consensual or non-resolved matters[8]. When reviewing arbitral tribunal’s decisions, as part of their supervisory function, courts tend to trust the arbitrators’ procedural case management.


Portuguese literature mirrors international scholars in acknowledging that Article V(1)(b) protects the adversarial procedure principle arising from an equitable process[9]. In addition, when it comes to the analysis national courts should conduct in relation to arbitration awards, both Portuguese scholars and courts agree that supervision is required when it comes to procedural fairness, but without a review on the merits[10].


  1. Conclusion


This judgement merits highlighting three main points.


First, the Portuguese judicial track record regarding Article V(1)(b) aligns with the international statistics. Composed of 5 decisions, the judgment in analysis is the most recent case on the matter[11], and only in 1 case was Article V(1)(b) raised successfully.


Second, Portuguese courts evidence an increasingly mature application of the Convention. This results from the acknowledgement of the fact that the Convention applies with precedence over national law, save if other rules are more favorable under Article VII of the Convention.


Third, the deference shown to the arbitrator’s powers in conducting the proceedings reveals the Portuguese courts confidence in international commercial arbitration. The TRL goes as far as citing the arbitral award directly on the matter under analysis. This shows more broadly that arbitrators need not fear the glomming shadow of “due process paranoia”[12] in relation to awards recognized and enforced in Portugal.

[1] Nigel Blackaby and others, Redfern and Hunter on International Arbitration (6th edn, Oxford University Press 2015) 627; Herman Verbist, ‘Chapter 24: Challenges on Grounds of Due Process Pursuant to Article V(1)(b) of the New York Convention’ in Emmanuel Gaillard and Domenico Di Pietro (eds), Enforcement of Arbitration Agreements and International Arbitral Awards. The New York Convention in Practice (Cameron 2008) 681.

[2] Maxi Scherer, ‘F. Violation of Due Process, Article V(1)(b)’ in Reinmar Wolff (ed), New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards – Commentary (Beck, Hart and Nomos 2012) 280.

[3] Albert Jan Van den Berg, The New York Arbitration Convention of 1958: Towards a Uniform Judicial Interpretation (Kluwer Law International 1981) 310; George Bermann, ‘Recognition and Enforcement of Foreign Arbitral Awards: The Interpretation and Application of the New York Convention by National Courts’ in George Bermann (ed), Recognition and Enforcement of Foreign Arbitral Awards, vol 23 (Springer 2017) 45.

[4] Verbist (n 1) 687–689; Scherer (n 2) 281.

[5] UNCITRAL, ‘UNCITRAL Secretariat Guide on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards New York, 1958)’ 156.

[6] Roger P Alford and others, ‘Empirical Analysis of National Courts Vacatur and Enforcement of International Commercial Arbitration Awards’ (2022) 39 Journal of International Arbitration 299, 321–322.

[7] Van den Berg (n 3) 310; ICCA, ‘ICCA’s Guide to the Interpretation of the 1958 New York Convention: A Handbook for Judges’ 89; Gary Born, International Commercial Arbitration (3rd edn, Kluwer Law International 2021) 3837.

[8] Franco Ferrari, Friedrich Rosenfeld and Dietmar Czernich (eds), Due Process as a Limit to Discretion in International Commercial Arbitration (Kluwer Law International BV 2020) 2.

[9] Paula Costa e Silva, ‘A Execução Em Portugal de Decisões Arbitrais Nacionais e Estrangeiras’ (2007) 67 Revista da Ordem dos Advogados para 29 <> accessed 1 July 2022.

[10] Mariana França Gouveia, Curso de Resolução Alternativa de Litígios (3rd edn, Almedina 2019) 258–261. Also António Pedro Pinto Monteiro, ‘O Princípio Da Igualdade Das Partes e a Constituição Do Tribunal Arbitral Em Caso de Pluralidade de Partes’ (Universidade Nova de Lisboa 2015) 113–127.

[11] See also Decision 05B3766 [2006] Supreme Court of Justice, Portugal 05B3766, Oliveira Barros; Decision 160143YREVR [2015] Court of Appeals of Évora, Portugal 160/14-3YREVR, Manuel Bargado; Decision 1251/190YRLSB1 [2021] Court of Appeals of Lisbon (Portugal) 1251/19.0YRLSB.1, Vera Antunes; Decision 20/211YRPRT [2021] Court of Appeals of Porto, Portugal 20/21.1YRPRT, Jorge Seabra.

[12] This is the case where parties strategically raise frivolous due process claims to derail the proceedings, causing prejudice to the other party, and the arbitrators become too cautious in their procedural decisions, fearing their challenge. See for example Michael Polkinghorne and Benjamin Ainsley Gill, ‘Due Process Paranoia: Need We Be Cruel to Be Kind’ (2017) 34 Journal of International Arbitration 935, 935; Lucy Reed, ‘Ab(Use) of Due Process: Sword vs Shield’ (2017) 33 Arbitration International 361, 364–365.