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

New Office in Lisbon

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

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

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

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.

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

SVAMC Task Force on Tech Disputes, Tech Companies & International Arbitration

Victoria Associates’ Member Duarte G Henriques is co-chairing the Silicon Valley Arbitration and Mediation Center Task Force on Tech Disputes, Tech Companies & International ArbitrationThe Silicon Valley Arbitration and Mediation Center (SVAMC), a not-for-profit “think tank” organization with a global focus that encourages the use of alternative dispute resolution in the technology sector, has established this Task Force on Tech Disputes, Tech Companies & International Arbitration (the “Task Force”).

The Task Force, which is led by Paul Cohen, Duarte Henriques and Patricia Shaughnessy, seeks to explore the apparent underrepresentation of global technology companies in the arbitration community.

The lack of use of arbitration by this resourceful industry puzzles as arbitration would seem to offer a particularly attractive dispute resolution mechanism for technology company disputes. Unlike litigation, arbitration offers expeditious, private, flexible, effective adjudication by specialized arbitrators resulting in awards enforceable in 162 countries. The Task Force aims to find out why this is so through a comprehensive study using reliable methodologies and engaging in dialog with technology companies and other relevant players in the sector. Through the study and dialog with leaders and lawyers in the tech sector, the arbitration community can learn how to better serve this sector, as well as share needed information about the process and opportunities that arbitration may offer.

The Task Force also envisages to offer a bundle of tools that can make the use of arbitration more friendly for those who may be less familiar with its advantages, are accustomed to state court litigation, or have some negative impressions of arbitration.As a starting point, the Task Force has ventured some initial premises that may underlie the underuse of arbitration by technology companies; these premises are discussed in the White Paper.

The Task Force will test and adjust these premises through research, a large-scale survey, and dialog with the tech sector. A diverse working-group of experts representing different backgrounds and regions will be enlisted to carry-out the work. The on-going work of the Task Force will be presented for public discussion and comment to ensure robust review and to enhance collaboration within the arbitration and the technology business communities.

The Task Force report will become a public document which can serve to explain and adapt arbitration to technology companies needs and to inform the tech industry about the suitability of arbitration for effectively resolving their disputes.

Co-Chairs:

Patricia Shaughnessy

Paul Cohen

Duarte G. Henriques

Download the white paper HERE

Katie Hyman & João Nuno Frazão Join Victoria Associates

It is our pleasure to announce the Victoria Associates’ new members. Katie Hyman, based in Washington DC, and João Nuno Frazão, based in Lisbon joined Victoria Associates as of September 2020.

Katie Hyman is dual-qualified as an English solicitor and New York attorney and is admitted as a special legal consultant in the District of Columbia. She is widely experienced in international dispute resolution, including multijurisdictional, offshore and investor-state matters.

Katie represents a variety of clients, including in the energy and telecoms industries, in high-value, complex international commercial arbitration proceedings under the major arbitral rules all over the world, as well as in investor-state arbitrations. She is a Fellow of the Chartered Institute of Arbitrators, and accepts arbitrator appointments in addition to her practice as counsel.

With this addition, Victoria Associates has now offices in Washington D.C.

João Nuno Frazão is a lawyer qualified in Portugal, admitted to the Portuguese Bar Assocation in 2016. João is a PhD candidate at Nova School of Law, with research focused on Space Law, International Law and European Law.

Custody Deposit and Publication of Arbitral Awards

Custody Deposit and publication of arbitral awards

Portugal is unquestionably spearheading the use of technology, transparency and publicity regarding arbitration and, more particularly, arbitral awards.

Indeed, the recently enacted Ordinance (Portaria) nº 165/2020 of July 7, 2020 sets forth that all arbitral awards related to disputes involving matters of administrative law (whether or not administrated by arbitral institutions) or tax law (administered by the only authorized arbitral institution) are now subject to a custody deposit and to publication in a web-based platform.

The custody deposit must be requested by the presiding arbitrator or by the sole-arbitrator (not by the Chairman of the arbitral institution in question), through an online process which entails the upload of the award in pdf searchable format. The applicant must fill up the form with, inter alia, the following details:

  • Name and address (and other details) of the applicant;
  • Date of the award and date when the award has become final and subject to no appeal (if applicable);
  • Summary of the decision (redacted from any detail that could identify the parties in question);
  • Identity of the members of the tribunal;
  • Identity of the parties and related details;
  • Arbitration agreement whereby the public entity submitted itself to arbitration.

The platform will make those awards publicly available, with the following details:

  • Number and date of the deposit;
  • Date of the award and date when it has become final;
  • Identity of the members of the tribunal;
  • Summary of the decision (redacted from any detail that could identify the parties in question);
  • Full text of the award (redacted from any detail that could identify the parties in question); and
  • Indication of whether the arbitration was administered by an arbitral institution and, if so, identity of the arbitral institution.

This step certainly represents a progress towards transparency in arbitrations involving public entities, making arbitration less opaque and subject to public scrutiny, which have been the major criticisms that have been levelled against the use of arbitration by those entities.

If you want to learn more about arbitration and international dispute resolution, please reach out to us — info@victoria.associates