Portuguese Arbitration Case Law: International Public Policy | Annulment of the Arbitral Award | Power Purchase Agreement | Constitutionality Appeal | Case # 146

Summary:

I – The arbitral award challenged in this annulment action is not vitiated by a failure to address issues (“omissão de pronúncia”) for not having ruled on the constitutionality of the provision establishing and imposing on the Respondent the obligation to finance the Social Tariff (Decree-Law 138-A/2010), since the Arbitral Tribunal was not applying any provision of that statute, but rather interpreting a contractual clause of the Power Purchase Agreement (CAE) entered into between the parties.

II – In concluding that the said social tariff falls within the category of a “Relevant Tax” under the CAE, the contracting parties had defined the term “Relevant Taxes” broadly, so as to encompass all forms of state impositions, including the social tariff. This does not mean that it qualifies as a “tax” in the strict sense as defined under Portuguese law. In line with the Arbitral Tribunal’s understanding, the assessment of the alleged unconstitutionality was rendered moot.

III – The arbitral award is not affected by a failure to address issues regarding the Applicants’ argument that Clause 20 of the CAE should be deemed a “stability clause,” since this issue was examined and considered in the award. Any disagreement by the parties with the tribunal’s reasoning does not amount to a ground for annulment.

IV – In annulment actions against arbitral awards, the review does not concern the merits of the decision, but rather its validity, assessed against compliance with the procedural rules and principles exhaustively listed in Article 46(3) of the Portuguese Voluntary Arbitration Law (LAV). Consequently, errors of interpretation or application of the law, as well as failure to observe mandatory or supplementary provisions, do not, by themselves, constitute grounds for annulment.

V – The international public policy of the Portuguese State refers to certain laws which, due to their strictly mandatory nature or ethical reasons, operate as exceptions to the principle of the applicability of foreign law. This principle is set aside whenever its application would infringe upon Portugal’s inalienable core values, as foreseen in Article 22 of the Civil Code.

VI – The control that the state court must exercise in order to assess whether the arbitral award offends the international public policy of the Portuguese State consists solely in verifying whether the award, by its outcome, contravenes any principle regarded as essential within the legal order. Thus, the reference in Article 46(1) and (3)(b)(ii) LAV to a violation of international public policy means that the award must lead to a result intolerable and unacceptable to the community, amounting to a manifest and gross affront to the prevailing legal-ethical sentiment and to interests of the highest importance or to fundamental principles of the legal order.

VII – Under Article 267 of the Treaty on the Functioning of the European Union (TFEU), the Court of Justice of the European Union (CJEU) has jurisdiction to give preliminary rulings “on the validity and interpretation of acts adopted by the institutions, bodies, offices or agencies of the Union.”

VIII – The purpose of Article 267 TFEU is to ensure European harmonisation, which is why a preliminary reference only makes sense when questions of interpretation concerning the application of EU law arise. Accordingly, where the interpretation and application of national law are at stake, the CJEU has no role and the mechanism of preliminary reference does not apply.

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