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Arbitration and Art Law: Navigating the Intersection of two Complex Fields

The need for expertise

As the art world continues to grow, so does the need for professionals who understand both the legal and commercial aspects of the industry. With the increasing frequency of disputes in the art market, it is crucial to have a deep understanding of arbitration and its relationship with art law.

Arbitration is a method of resolving disputes outside of the traditional court system. It is often used in art law to settle disputes between buyers and sellers, collectors and museums, and artists and galleries. The key benefit of arbitration is that it provides a confidential and efficient process for resolving disputes, without the need for public court proceedings.

Art law, on the other hand, covers a wide range of legal issues related to the creation, ownership, and sale of art. It encompasses areas such as copyright, trademark, and cultural heritage laws, as well as contracts and negotiations in the art market.

As arbitration and art law intersect, it is essential for professionals to have a thorough understanding of both fields. Whether you are a lawyer, art dealer, or artist, having a deep understanding of both arbitration and art law will give you a significant competitive advantage in the art world.

Types of Disputes in the Art sector

The art sector is subject to a variety of disputes, including:

  1. Ownership disputes: when multiple parties claim ownership of the same work of art.
  2. Authentication disputes: when the authenticity of a work of art is called into question.
  3. Contract disputes: when disagreements arise over the terms of an agreement between an artist, gallery, or collector and a buyer.
  4. Copyright disputes: when someone uses a work of art without the permission of the copyright holder.
  5. Forgery disputes: when a work of art is found to be a fake or counterfeit.
  6. Insurance disputes: disagreements between insurance companies and policyholders over coverage for losses related to works of art.
  7. Financing disputes: when a work of art is used as a collateral in a financial facility.
  8. Valuation disputes: when the value of a work of art is in dispute, often in the context of insurance or tax matters.
  9. Cultural heritage disputes: disputes over the ownership and display of cultural artifacts, including works of art.

Stakeholders to Disputes in Art Law

In art law disputes, there can be several potential stakeholders, including:

  1. Artists – They have a vested interest in the protection of their work and the recognition of their rights as creators.
  2. Collectors – They may be involved in disputes over authenticity, title, and ownership of artworks.
  3. Dealers and Galleries – They can be impacted by disputes over commission, fraud, and breaches of contract related to the sale or exhibition of art.
  4. Auction Houses – They can be parties to disputes involving the sale or authenticity of artworks.
  5. Insurance Companies – They may be involved in disputes over coverage for loss or damage to artworks.
  6. Museums – They may be involved in disputes over the ownership, loan, or exhibition of artworks.
  7. Estate Executors and Heirs – They may be involved in disputes over the distribution of artworks in an estate.
  8. Governments and Public Institutions – They may be parties to disputes over the return of cultural heritage or stolen artworks.

These stakeholders may seek to assert their rights and interests through various legal mechanisms and arbitration is surely the best tool to do so.

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Duarte Henriques is a founder member of Victoria Associates and he is arbitrator listed at the Court of Arbitration for Art (CAfA)

#Arbitration #ArtLaw #Legal #ArtMarket #Culture #Heritage #Copyright #Trademark #Negotiations #Disputes #Confidentiality #Efficiency #CompetitiveAdvantage #Lawyers #ArtDealers #Artists

(Photo of Steve Johnson on Unsplash)

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Dispute Settlement in Outer Space: an odyssey in the making

I. Outer space and dispute settlement: a glimpse of the last five decades.

Space: the last frontier. Since the launch of the first artificial satellite Sputnik 1, which started the “Space Age” back in 1957, Humanity has been actively present in outer space. At that time, space activities were conducted by a handful of countries, and in practice only by the former USSR and the US, the two belligerent superpowers of the Cold War era. The first discussions on space activities within the United Nations (UN) showed the international community’s main concern to anticipate and therefore prevent a scenario of militarization of outer space, as well as to promote exploration and use of outer space for peaceful purposes only: this is the origin of Space Law. As early as 1961, the UN General Assembly adopted the Resolution 1721 (XVI), 20 December 1961, laying down the first core legal principles applicable to outer space. Such principles were then crystallized in 1967 with the approval and entry into force of the “Outer Space Treaty” (OST), which was followed by four other treaties, among them the 1972 “Liability Convention” (LIAB).

As these treaties were drafted at a time when only a few States possessed space industry and capability, one can understand why the OST established a State liability regime, i.e., in addition to their own activities, States are also responsible and liable for their private entities. The LIAB would further develop the provisions laid down in the OST, defining damage from a collision perspective, whether it is a bodily damage (loss of life and injury) or a material damage. In addition, the LIAB adopted the “Launching State” criterion, the basis of its dual system of liability: (i) objective/absolute liability, for damages caused by space objects on the surface of the Earth or to aircraft in flight; and (ii) subjective/fault liability, i.e., damages being caused elsewhere than on the surface of the Earth to a space object of one launching State or to persons or property on board such a space object by a space object of another launching State. To this end, LIAB holds States liable for damage caused by their space objects and comprises a dispute resolution procedure consisting of diplomatic negotiations followed by the establishment of a Claims Commission. However, this mechanism is only available to States and not to private parties – or rather, any private entity would need to resort to its respective State, which will then diplomatically approach the other State(s) in question, and the latter may not even have anything to do directly with the dispute, in case it concerns another private entity registered in that country – and the award given by the Claims Commission is of a merely recommendatory nature, unless States involved agree otherwise. The LIAB was invoked only one time: in 1978, the Soviet satellite “Cosmos 954” crashed on Canadian territory, and Canada issued a claim against the USSR, but the dispute was eventually resolved through diplomatic channels, with the specific amount paid to Canada being unknown to this day.

Even though the LIAB still remains very relevant today, its legal framework presents many difficulties and has very limited practical use for commercial space entities. In fact, given the accelerated increase of private actors in space, the UN recommends and encourages States to develop their own national space laws, outlining, e.g., the scope of application of activities to be addressed, conditions for authorization and licensing or insurance requirements. Besides, considering the world and present-day challenges, it is not the appropriate legal instrument to address and settle other types of disputes, such as investor-state disputes or any others regarding complex, multi-party, international contracts. 

II. Outer space in the 21st century: many actors, activities, and disputes. A role for arbitration?

Over the course of the last three decades, space has evolved from a status of a vast majority of state-owned space objects and activities to a much broader presence of non-state actors, notably, private commercial space entities, developing a wide range of space applications (e.g., telecommunications, satellite navigation, etc.), thus entering the space industry, in contrast with a previous (almost) exclusive public environment – representing the so-called “New Space”. But along with new actors and opportunities, new obstacles also arise, including legal ones. As outer space is open to more and more private entities, the number of space objects also increases, thus, the congestion of Earth’s orbits (specially, the lower earth orbit) adds substantial risks to space operations which are exposed to a greater danger for collisions, one of the reasons for the growing need for space traffic management tools. Moreover, such growth of space activities has led to an increasing amount of space debris that will most likely cause more accidents. In this context, as space gets more “crowded”, the risk of damages to space objects consequently increases, including those of non-governmental actors.

It goes without saying that if the number of actors in space is gradually rising, it will soon result in more disputes. But disputes are not only those based on collisions, as they may encompass any contractual disputes that may arise, e.g., satellite-related disputes; disputes regarding any components of the space industry, from manufacturing, to launching, and operating; seizure of assets related to space-related contracts; disputes relating to the launch of space objects into space orbits; as well as disputes in regulatory, insurance or even intellectual property rights domains. Consequently, space disputes are (and will be) numerous, diverse, and complex, which may include States, private actors, or both. In the latter cases, international space law does not have a specific dispute resolution mechanism available for private parties.

As highlighted, although such private entities can indeed request the State to trigger the application of the LIAB, the Convention operates via diplomatic channels that certainly presents an uncertain outcome based on a burdensome procedure that is ultimately non-binding and unsuitable for many disputes. This being said, non-state actors lack legal resources provided to States by international law, and domestic litigation addressing cross-border space disputes is also likely to be insufficient in many levels because obstacles such as lengthy decisions on the  jurisdiction of national courts or the applicable law, loss of confidentiality, uncertainty about the recognition and enforcement of judgments in other jurisdictions, as well as possible scenarios on sovereignty immunity if the claim is filled against a State. As many legal scholars point out, space, space activities, and the diversity of space actors mean that space law should not rely solely on a unique dispute resolution mechanism, instead, it should be open to a diversity of legal instruments to address cross-border and highly complex disputes.

In this context, in recent years we have witnessed the emergence of alternative dispute resolution (ADR) in space, with a clear preference for arbitration: in 2011, the Permanent Court of Arbitration adopted its “Permanent Court of Arbitration Optional Rules for Arbitration of Disputes Relating to Outer Space Activities,”; last year, Dubai has established its own specialized “Space Court.” On a broader international scale, it appears as though the role of arbitration for space disputes is not an “alternative” but is by far the default option for resolving disputes. This is not surprising considering that international contracts usually have an arbitration clause, and arbitration truly is the most popular solution chosen by the parties in light of the technical complexity associated with space issues. For example, it is well-known that the European Space Agency has been preferring arbitration in its model contracts for some time. Arbitration is anchored on several principles, including, e.g., that of consent of the parties and the principle of autonomy.

If parties do consent and submit their dispute to arbitration – without prejudice of space accidents between parties not bound by any contractual relationship, and thus lacking an opportunity to agree to submit a possible dispute to arbitration – parties may appoint their respective arbitrators, surely to be chosen based on their expertise and know-how required to handle space matters and understand the characteristics of a specific case. Besides, flexibility and suitability are features in arbitration proceedings, both international and domestic, that escape from the rigidity of the so called “one-size-fits-all” of national courts, and which renders them inappropriate to resolve outer space disputes.

On a final note, it is also known the possibility of investor-state dispute settlement regarding space activities, whose bilateral and multilateral investment treaties around the world contain arbitration clauses that could allow, as the case may be, a private entity (investor) to choose the applicable rules, for example, ICSID Arbitration Rules or the ICC Rules of Arbitration – this is a very interesting but complex topic, worthy of considerations in a future article.

III. Outlooks

The current international framework addressing dispute settlement in outer space, foreseen both the LIAB and the OST, although of greater importance, does not provide favourable mechanisms to facilitate outer space disputes to private entities, particularly because space technologies, applications and activities have grown at a much faster pace than the legal system drafted back in the 1960s and 1970s. ADR proceedings, notably arbitration, both international and domestic, are useful and capable of resolving disputes on a wide variety of space-related issues, and may indeed help space stakeholders, public and private, to overcome legal pitfalls.

Victoria Associates has a unique track record in all sorts of international proceedings with a keen interest and focus on international arbitration, including international commercial and investment disputes, but also advising and representing clients in ADR proceedings in domestic arbitration and litigation before national courts in jurisdictions where we are qualified.

Above all, Victoria Associates’ members understand their clients’ business and motivation, helping them “reaching for the stars”.

João Nuno Frazão

Victoria Associates

joao@victoria.associates

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Third-Party Funding: Portuguese and International Experiences and Current Trends

When Third-Party Funding (TPF) is mentioned, surely the first question that (still) arises for most people is: what is it all about? If we translate this expression into “third-party funding of litigation”, perhaps the doubts will be dispelled for the overwhelming majority of people. However, it is inevitable to question right away what TPF really is and how it works.

The business model can be summarised as follows: for a lawsuit or set of lawsuits, there is a third party that will bear all the costs (including the lawyer’s fees and, in the case of arbitration, the arbitrators’ fees) in exchange for a percentage of the amount received by the financed party (usually 30% to 40%) or a multiple of the money invested (typically between three and five times, i.e. for every euro financed, the third party will receive between three and five euros). The specificity of this business model is that there is only an obligation to repay if the client succeeds; if the client loses the case, the funder will not be entitled to recover the amounts that were spent in the case.

This is, broadly speaking, the business model. But, there is an inevitable question that follows: is it “legal”? Is there not a quota litis prohibited by ethical regulation? The answer, categorically, is: no! There is no legal rule that prohibits this business model. Nor does it involve any violation of the ethical duties of the lawyer (in particular the prohibition of quota litis), provided that the lawyer does not allow the relationship with his client and with the cases he handles to become conditioned or submitted to rights and duties that should typically be located only within the agreement between funder and funded party.

By way of example: it may be thought that the funder (because it is the funder who up-fronts the cash to move the case forward), will determine the way the process is conducted and will condition the procedural strategy (including the choice of counsel). This would involve a clear violation of the lawyers’ ethical duties. Admittedly, this type of conditioning may occur, particularly when the funder is not “comfortable” with the legal team, either because they have never worked with them or for any other reason. However, our experience shows otherwise.
In cases where we have worked with third party funding, the funder already knows the team of lawyers well. Often, the funders themselves come to us to understand which cases they can fund, which involves a judgement of trust in the team that is in charge of sponsoring the case. Afterwards, during the case, the funders limit themselves to a monitoring of the case in a “light touch mode”.

Despite the attractiveness that this model involves, there is a catch, because not all the cases are likely to be funded.

Firstly – and one would expect nothing less – the case must have a fair chance of success (better said: the case needs to present a high likelihood of success, typically above 80% of chances of prevailing). It is therefore expected that due diligence of the case and of the entities involved will be conducted to some extent and depth. This immediately raises a concern: information provided to the funder is not covered by professional privilege, which naturally impacts on the confidentiality of the information.

Secondly, not all the amounts involved are attractive to funders. Internationally, and from what we have seen in our practice, it is very difficult to find anyone willing to fund litigation involving sums of less than 10 or 15 million euros. The reason for this threshold is that the entities that, in turn, are behind the third party funders, and the funders themselves, are looking for minimum returns on their investments.

This point means that the phenomenon is not yet very popular in Portugal. It is not that there are not areas of the law where this financing could blossom (for example, companies in insolvency or actions related to intellectual property rights, especially patents). Among us, business initiatives to launch this financial model have already been started but, as we see it, they do not seem to be adjusted to the dimension of the Portuguese landscape. We must keep in mind the scale of our legal market and must direct the focus towards small and medium litigation of SMEs which are the ones that mostly make up the business fabric of our country. Eventually, some more specific and higher value cases may benefit from this funding, but those will be isolated cases.

There are some trends that have been developing, as regards TPF, at the international level, more specifically in international arbitration and, within this, in investment arbitration.
The most prominent one concerns the duty to disclose the existence and identity of the funder in order to ascertain the existence of conflicts of interest. In fact, it is enough to think that one of the arbitrators has a connection with the funder (because the funder has funded another case where the arbitrator acts as counsel for the party, to give just one example) to understand that the integrity of the tribunal (its independence and impartiality) may be at risk.

From this point, a duty of disclosure has been firmly affirmed and is virtually internationally consolidated. However, this (limited) duty of disclosure has quickly evolved into a duty to disclose the terms and conditions of the funding arrangement, with a view to address another very hot topic in this area.

We are referring to the problem of the security to cover the costs of the proceedings (cautio judicatum solvi or “security for costs”). In fact, when the existence of a third-party funder is known, the logical step is to presume, as some (admittedly few) arbitral tribunals have already done, that the (funded) claimant is not in a position to honour a potential “adverse” award obliging him to pay the costs of the winning party. And from this it will invariably follow a request for that funded party to provide security for costs. The understanding of the vast majority of arbitral tribunals has been very restrictive on this point since, addressing it as a typical interim measure, they require the verification of all its requirements (including the danger of not being able to recover the costs). International arbitral tribunals also have made a point that the existence of a TPF is not synonymous to “impecuniosity”. However, it is clear that respondent parties in arbitration, when suspecting or knowing about the existence of a funding arrangement, very hardly escape from the temptation to seek security for costs, as it also represents a weapon to weaken the strategy and distract the procedural endeavours of the claimant.
Nonetheless, often times a poor command of the issue on security for costs endangers the procedural strategy (of either claimant or respondent). A curious example in this regard occurred in an investment arbitration case where the arbitral tribunal relied on a statement made by the legal team (who had stated that the law firm would be responsible for paying the costs of the arbitration) to require from the claimants the filling of a unilateral undertaking to pay those costs. The law firm eventually produced that undertaking.

This is indeed a point where the greatest care must be taken by counsel lest a court considers them to be the “funders of the litigation” and consequently orders them to pay the opposing party’s costs (as has it happened in the past in England).

There is no doubt, however, that the litigation financing by third parties continues to attract a great deal of attention and some criticism as well but, on the other hand, it deserves the necessary support because it represents an undeniably useful tool when it comes to guaranteeing access to the justice.

Photo by Lukasz Radziejewski on Unsplash

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Setting up distribution contractual relationships in Portugal

1. Context

Setting up a business in Portugal, including any distribution contractual relationships, usually begins with choosing the business entity that best suits specific cases. To this effect, the most common and best suited types of business for an importer owned by a foreign supplier are: (a) public limited liability company; (b) private limited liability company (Lda.); and (c) single shareholder limited liability company.

In the case (a) of public limited liability companies, the basic (mandatory) elements for its incorporation are: (1) minimum of five shareholders; (2) minimum share capital of € 50,000; (3) articles of association; (4) commercial name; (5) board of directors and supervision board, which must be composed of at least one public certified auditor.

For (b) private limited companies, the basic elements for incorporation are: (1) minimum of two shareholders; (2) minimum hare capital of € 2,00 (€ 1,00 per shareholders); (3) articles of association; and (4) commercial name.

Unlike both previous options, (c) single shareholder limited liability companies are based on individual investment, and the basic elements are similar to private limited liability companies with minor exceptions: in addition to the sole shareholder, the minimum share capital is € 1,00.

Bearing this in mind, any distribution relationship (producer-distributor-final consumer) is available in Portugal, including the following and best known:

  • Agency – by which an agent (an individual or a company) undertakes the obligation to promote contracts on behalf of the principal, with autonomy and stability;
  • Concession – by which one of the parties undertakes to sell its products to the other party who the undertakes to buy them and sell them to the third parties, on its own account and on a stable basis, in a given constituency;
  • Franchising – by which one party grants another the right to exploit its trademark, company name or patents or any other licenses of intellectual property rights for certain consideration, often committing to provide its assistance and knowledge of the market, as well as its know-how.

2. Key Legislation

In the case of suppliers’ internal personnel, the rules of the Portuguese Labour Code apply, which regulate employment contracts. Regarding other distribution relationships, when the distributor is independent, the rules for service contracts mentioned in the Portuguese Civil Code apply. This is without prejudice to the agency law regime set forth in Decree Law nº 178/86 of 3 July 1986 (DL 178/86), which may be applicable to certain distribution contractual relationships.

The basic legal aspects to consider when assessing the contractual relationship between suppliers and distributors are the following:

  • Agency contracts – are subject to the legal regime laid down in DL 178/86. In line with the case law and legal commentary, the provisions of this regime may apply to other contracts that present similarities, although they do not operate automatically, but rather on a case-by-case basis.
  • Concession contracts – are not subject to a specific legal regime. In general, they follow the principle of contractual freedom, as well as the general rules of contracts. When admissible, the agency regime may be applicable by analogy.
  • Franchise contracts – are not subject to a specific legal regime either. Like concession contracts, franchise contracts are common. Such contracts are also governed by the principle of contractual freedom and other general rules of contracts.

It is important to mention that certain industry regulatory constraints exist, generally adopted in the form of codes of conduct, (e.g., in the context of the automobile industry, alcoholic drinks and publicity).

—

To learn more, please read the Portuguese chapter of the Lexology Getting the Deal Through’ guide “Distribution & Agency 2022”, submitted by the Portuguese team of Victoria Associates (available here).

Victoria Associates has successfully represented clients in disputes related to distribution contractual relationships and welcomes any question that may arise in this context (info@victoria.associates).

Victoria Associates

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New Office in Lisbon

  • Meetings Room | Victoria Associates

We are pleased to announce the opening of our new Lisbon office on January 17. You can find our new office at Av. Duque de Ávila, no. 23 – 3 Dto., 1000-138 Lisbon, Portugal and opening time 09:00 AM.

This is a necessary but truly delightful step since we are growing on a steady pace: more and bigger cases to handle by a growing team of talented and enthusiastic people. Onwards and upwards, doing what we like and liking what we do.

We would like to thank you for your consistent support and look forward to assisting you in our areas of expertise.

If you have any questions regarding the new location, you can contact us at +351 213530560 or send us an email to info@victoria.associates

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Portuguese International Arbitration – Chapter of the International Comparative Legal Guides

A practical cross-border insight into international arbitration work.

Victoria Associates’ members Duarte Henriques, João Frazão and Teresa Roldão (trainee), in collaboration with International Comparative Legal Guides (iclg.com), have written the International Arbitration Portuguese Guide*.

This Guide provides an overview of the most important aspects of the Portuguese International Arbitration legal framework and practice related to arbitration.

The Guide provides answers to questions such as:

  • What has been the approach of the national courts to the enforcement of arbitration agreements?
  • Are there any subject matters that may not be referred to arbitration under the governing law of your jurisdiction? What is the general approach used in determining whether or not a dispute is “arbitrable”?
  • Are there any limits to the parties’ autonomy to select arbitrators?

Read the full Guide HERE and contact us if you have any question (info@victoria.associates)

About Victoria Associates

Victoria Associates is international and knows no borders. 

We are qualified to practice in France, Arizona, California, D.C., Massachusetts, New York, England & Wales, Portugal,  Spain, Greece, Frankfurt, Brazil and Venezuela.  

We work in English, Greek,  French, German, Spanish and Portuguese.

We advise and represent our clients in international commercial arbitration, investment arbitration and sports arbitration. Our team has vast experience in representing clients in arbitral proceedings under the rules of the main international arbitration institutions, including the Court of Arbitration for Sport – CAS, the International Chamber of Commerce – ICC, the International Centre for Settlement of Investment Disputes – ICSID, the London Court of International Arbitration – LCIA, the American Arbitration Association (AAA) and its international arm (ICDR), as well as in “ad hoc” arbitrations under the UNCITRAL Arbitration Rules. While Victoria Associates covers disputes in a wide range of business and commercial areas, our team has strong expertise in disputes related to Banking & Finance Law, Oil & Gas, Insurance & Reinsurance, Shipping, Energy, Public International Law and Human Rights, Construction, Engineering & Real Estate, Distribution, Business & Commercial Law, Intellectual Property and Internet Gaming, Mergers & Acquisitions and International Frauds and tracing assets.

* First published in the ICLG – International Arbitration –

https://iclg.com/practice-areas/international-arbitration-laws-and-regulations/portugal

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Resolving Disputes in International Distribution Agreements in Portugal

Summary

This post addresses very briefly the mechanisms to solve international disputes, in Portugal, in the context of international distribution and agency agreements.

In order to solve disputes, suppliers and distributors have at their disposal all means of dispute resolution, including judicial litigation and other alternative means of resolution (e.g., arbitration, mediation or negotiation). Other remedies may include notifications to the Portuguese Competition Authority or to the Economic and Food Safety Authority.

Litigation

Under European Regulation (EU) No. 1215/2012, foreign companies may bring a judicial proceeding before the Portuguese courts if an agreement conferring jurisdiction has been concluded (according to article 25).

Such agreement attributing jurisdiction must be concluded: (a) in writing or verbally with written confirmation; (b) in a form which accords with practices which the parties have established between themselves; or (c) in international trade or commerce, in accordance with a usage of which the parties are or ought to have been aware and which in such trade or commerce is widely known to, and regularly observed by, parties to contracts of the same type in the particular trade or commerce concerned.

However, this Regulation applies only to member state and to civil and commercial matters, in this sense points out Article 6 of the European Regulation (EU) No 1215/2012.

Arbitration

As mentioned, it is possible to resort to alternative means of dispute resolution, requiring the existence of an arbitration agreement for this purpose. As to this specific scenario, parties may agree to submit to arbitration, thus requiring the intervention of an impartial decision maker.

The arbitration agreement should adopt written form, as the requirement being deemed to be met when the agreement is contained in a written document signed by the parties. A typical advantage of arbitration is that the award is enforceable in far more countries than court judgments considering the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. When settling their disputes through arbitration in Portugal, parties are granted full confidentiality and, in general, such proceedings are faster than judicial proceedings; plus, the experience and expertise of arbitrators may contribute to a more suitable decision.

Learn more

To know more, please read the Portuguese chapter of the Lexology “Getting the Deal Through” guide “Distribution & Agency 2021”, submitted by the Portuguese team of Victoria Associates (available here).

Victoria Associates has successfully represented clients in disputes related to distribution contractual relationships and welcomes any question that may arise in this context (info@victoria.associates).

Victoria Associates

Team:

Duarte G Henriques – duarte@victoria.associates

João Nuno Frazão – joao@victoria.associates

Maria Teresa Silva – teresa@victoria.associates

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Onwards to the Future…

Movies from the last century looked up to the year 2000 as the beginning of a futuristic era in which high technology is a central element of human life. Drones, smart phones, tablets, mobile payment technology, biometric devices, wearable technology, video calls, and time travel are some examples among the rich variety of frontier technology that we could only imagine through the media back in the day. And while traveling in time remains quite improbable today, the rest of the items in the list became a reality—one that outshines the most sophisticated movie props. But what’s puzzling about these (otherwise accurate) accounts about the “future” is that by and large 20th-century pop culture failed to tell a story about the major forces that give life to all modern tangible manifestations of tech: software and the internet.

This failure, however, was also our own in that we didn’t seem to anticipate the many implications that a pervasive reliance on technology would entail for our societies. Confronted with the current technological revolution, our governments and legal systems have only been able to react to the new realities, oftentimes with tardy and insufficient regulation. Thankfully, the pressure that the civil society (including the independent legal and technological communities) and academia has exerted has also informed—and to a certain extent influenced—Big Tech’s corporate social responsibility and self-regulatory efforts. Nevertheless, as a result of the lack of a more adequate legal regulatory framework, personal rights of all sorts still appear vulnerable to the unintended consequences of an industry that remains largely underregulated.

To focus on the missing narrative on software and the internet is of course an oversimplification of the problems that today lie at the intersection of law, technology, and ethics. After decades of widespread internet use (i.e., social media, e-commerce, streaming, etc.) Big Tech, service providers, and almost anyone who cares about predicting future consumer behavior didn’t miss out on the opportunity to store huge amounts of behavioral and personal data drawn from online interactions of all sorts. These stakeholders are now using the resulting body of data—Big Data—in conjunction with complex algorithms to design and train software that is capable of performing activities typically associated with humans. The result is the so-called Artificial Intelligence (AI), part of a true technological revolution in which other cutting-edge technology such as Blockchain (BC) and the Internet of Things (IoT) converge, and which have been used to disrupt entire industries and to change our lives for good… or bad.

This AI-BC-IoT triumvirate is associated with the Big Tech’s market dominance and evokes the coolest side of technology. One aspect, however, that is less often discussed is the application of these technologies to the governmental activity, the law, and the judiciary. To name a few examples, government agencies are now adapting AI solutions relying on vast databases to efficiently manage risks associated with the maintenance and upgrade of all sorts of hardware (from buildings to aircraft) and software programs (for example, firewall programs). Likewise, business parties can enter into self-enforceable “smart-contracts” on the Blockchain that can include some type collateralization (i.e., escrow) as well as blockchain-based dispute resolution clauses that provide for the efficient adjudication of amounts at stake in case of contractual breach. Finally, a handful—but growing—number of courts are employing these new technologies to classify incoming filings, extract relevant information resulting in automatic docketing of documents and a significant reduction on the average life cycle of a case.

But not everything is cool about tech. There are more than a handful of notorious examples of use cases where AI and the other technologies have gone wrong. One such example involves the use by courts of certain algorithms to determine recidivism rates among criminals in order to inform judicial decisions about whether to grant bail in specific cases. Because AI is only as good as the data it’s built upon, and because nothing really has prevented humans from transferring their old biases to the machines, AI-based systems used in the bail-setting example have discriminated among groups group of past offenders, labeling the members of certain race as more prone to recidivism than members of other groups.

The lawyers at Victoria Associates are conscious that a convergence of law and technology will soon encompass most aspects of the law and our practice. Given the inevitable dangers of this convergence for the legal system, lawyers have a double duty to embrace the tech revolution and also to influence how it is implemented in the legal field. This duty exceeds the matters that we handle and requires an interdisciplinary involvement of each of us in the current debate about the use of the new technologies in the legal system. 

In this spirit, Duarte Henriques and Luis Bergolla serve, respectively as co-chair and member, on the Task Force on Tech Disputes, Tech Companies & International Arbitration of the Silicon Valley Arbitration & Mediation Center. This task force seeks to explore the reasons for the apparent under-use of arbitration by global technology companies and to offer solutions and to offer a bundle of tools that could help the arbitration community better serve technology companies.

Miguel Salas is also leading a similar and perhaps more ambitious project in Spain. Recently launched in the middle of a global pandemic, the Foundation for the Legal Artificial Intelligence—FIAL—is an advanced tech think-tank that seeks to generate knowledge for the implementation of AI-based decision-making processes in existing judicial, administrative and conflict resolution systems. Since its inception, Duarte Henriques and Luis Bergolla both serve on FIAL’s academic advisory board.

Matheus Puppe Magalhāes and Luis Bergolla are also active independent researchers in the field of law and tech and their work focuses on disruptive technologies, cryptocurrencies, and blockchain-based arbitration.

Contact us at info@victoria.associates to learn more about our industry-specific know-how and dispute resolution philosophy.

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Compensation in Distribution Contracts: a snapshot of Portuguese Law

I. Background

The right to compensation in the event of termination may arise in multiple legal contexts. The contracts where this issue arises the most are the distribution contracts (agency, franchise and the like).

In Portugal, distribution contracts do not follow a specific legal framework. However, there is a specific legal regime applying to agency contracts, enacted by Decree-Law no. 178/86, of July 3, 1986 and later amended by Decree-Law no. 118/93, of July 3, 1993). This legal regime may also be applicable by analogy to other (if) similar distribution contractual relationships (e.g., franchise or concession contracts). In such cases, one must take into account, among others, the type of business model in question and also the obligations arising from the contract to both parties.

II. Rights to compensation

According to the agency legal regime, there are two different compensations to consider in case of termination: (i) a compensation, in general terms, for damages resulting from the other party’s default or breach and (ii) a so called “goodwill compensation”. Consequently, the agent (or other type of distributor, depending on the case) is entitled to a general compensation when it has suffered damages resulting from the breach or violation of the contract by the other principal. In specific cases, this compensation shall be calculated according to equity.

The agent may also be entitled to a “goodwill compensation”, provided that the following cumulative criteria are met: (i) the agent has brought new customers to the principal or increased substantially the volume of business of the latter with existing clients; (ii) the principal will benefit considerably after the termination of the contract due to the agent‘s activity; and (iii) the agent ceases to receive any remuneration for the contracts negotiated or concluded, after termination of the contract, with the customers referred in the first criterion. Such compensation is determined in accordance with equity, but cannot exceed a value equivalent to an annuity, calculated out of the average annual remuneration received by the agent during the previous five-year period.

The question that follows is whether this “goodwill compensation” also applies in case of termination of other types of distribution contracts, by virtue of analogy. The answer is not clear as it will depend on a case-by-case assessment. However, as a general rule, we now have the guidance from the Portuguese Supreme Court of Justice. Indeed, the Portuguese Supreme Court of Justice affirmed that the criterion above mentioned in (iii) should also be considered for the purposes of awarding a “goodwill compensation” in the context of concession contracts (Judgement no. 6/2019, of 4 November 2019). In other words, when applying such regime to other types of distribution contracts in case of termination, all the criteria set forth in the agency legal framework must also be met.

Accordingly, other types of distributor may be accorded with the “goodwill compensation” in case of termination. This holds a very important consequence: indeed, according to the Portuguese law on the agency contract, the goodwill compensation is not subject to any waiver, that is, it is mandatory. This means that any distributor may not waive its right to goodwill compensation.

III. Final notes

Several other legal and contractual details exist, notably when the reality of each business differs and parties agree on clauses to better suit their contractual relationship. This is why the application of the agency legal regime to other types of contracts should be considered cautiously and on case-by-case basis.

The Portuguese team of Victoria Associates has successfully represented clients in disputes related to termination of distribution contracts and welcomes any question that may arise in this context (info@victoria.associates).

Victoria Associates

Team:

Duarte G Henriques

João Nuno Frazão