When selecting a dispute resolution method, the expense of arbitration is a primary consideration. As disputes become unavoidable, parties often first wonder, “What will the financial implications be?” Sometimes, by this stage, it might feel late for such considerations.
Surprisingly, many arbitration agreements don’t directly address cost concerns. Typically, detailed discussions on this topic emerge only in prominent cases during dispute resolution clause negotiations. One reason might be that during the initial agreement, parties either don’t anticipate conflicts or underestimate the financial ramifications of their chosen method. In some instances, due to time constraints (a situation often referred to as “midnight clauses”), parties might hastily use a standard clause from an arbitration institute, assuming it addresses all potential concerns. However, by the time conflicts manifest, reevaluating such decisions is often not feasible.
This overview generally aligns with the situation in Portugal. Arbitration in Portugal often incurs higher costs than state court litigation.
There’s a belief that for disputes involving sums greater than €3 million, arbitration proves more economical. But this notion isn’t entirely grounded. The Judicial Procedural Costs Regulation grants judges the discretion to forgo final account preparations in cases, implying parties might not face additional costs beyond initial procedural fees. When making such a determination, judges consider the case’s intricacies and the efforts invested. Portugal’s Constitutional Court has clarified that any decision that fails to account for these factors, while still mandating parties to adhere to the full Regulation’s cost schedule, contravenes the national Constitution. Thus, in most cases, judges are inclined to trim the payable amounts.
Furthermore, the prevailing party in a court scenario cannot fully recuperate all costs tied to their claim or defense, especially legal team expenses. These recoverable sums are generally a fraction of the total legal fees. On the contrary, according to Portuguese Arbitration Law and prevalent arbitration institution rules, arbitrators have the liberty to incorporate legal fees into the final award, determining the extent borne by the unsuccessful party.
This flexibility often renders arbitration more enticing compared to court proceedings. However, it’s pivotal to juxtapose this with the initial financial outlay that arbitration participants typically need to cover, often in full, prior to the award.
Lastly, when looking globally, Portugal boasts several competitive advantages in arbitration expenses. One of the advantages is that, while maintaining high-quality legal services, attorney charges are considerably lower than in other leading jurisdictions. Another advantage in this respect is that arbitral institutions usually entail reduced costs when compared to other international venues.