Arbitration and tourism- a field to explore by João Vidal IJTTHL PRE-PRINT Arbitration and tourism: a field to explore João Almeida Vidal University of the Algarve International Journal of Tourism, Travel and Hospitality Law PRE-PRINT

Arbitration and tourism: a feld to explore João Almeida Vidal 1 1. INTRODUCTION Tourism, particularly international tourism, as a human activity that involves the temporary relocation of the subject, brings into confict, more than many others, diferent and distinct legal systems. This fact determines that, in a dispute situation, two or more legal orders may be called upon to resolve the problem, with the ensuing problems of articulation. Such problems, which are so insurmountable, more often than not result in the injured party being denied compensation for damages. In order to remedy this problem, recourse to alternative dispute resolution procedures has been increased and encouraged, of which arbitration is of particular importance. Arbitration is nothing more than the use of a set of arbitrators who act as judges of a specifc case, promoting all the steps they deem appropriate with a view to a fair solution to the dispute presented to them. As an alternative means of dispute resolution, arbitration implies voluntariness. This means that only in cases in which the parties in a legal relationship have agreed to submit the litigation to arbitration this mechanism is possible. In other words, arbitration is not a means of dispute resolution that someone can impose unilaterally on another who has not given his consent. There are already cases of necessary and even mandatory arbitration in domestic arbitration, but not in international arbitration, so we will not consider them. Tour operators, travel agencies and hotels, among other stakeholders, enter into legal transactions with each other and with their clients. Their objective, as a business, is and will always be the maximisation of proft, which is in direct proportionality with the volume of business they are able to generate. From the business perspective, it therefore seemed relevant to us to assess whether, and to what extent, if so, prior and voluntary submission to an international arbitration system for dispute resolution infuences the wealth-generating capacity of a given tourism company, since arbitration allows the parties to tailor the process to the particularities of their commercial relations and ensure a rapid resolution of the dispute. The main objective of this article is, therefore, to analyse the arbitration procedure, particularly international arbitration, and, at the same time, to assess the efect on tourism businesses of resorting to alternative methods of dispute resolution. This evaluation should contribute to the clarifcation of whether there is, or not, a competitive advantage for companies that adopt this type of dispute resolution mechanism. As we will see at the end of the article, we will prove that there is a direct and statistically relevant relationship between the performance and competitiveness of a tourism company and the fact it has been subject to a more or less institutionalised international arbitration scheme. Invited Assistant Professor at ISMAT and at the University of Algarve; PhD in Law; PhD in 1 Tourism; Lawyer. 1

2. ARBITRATION Arbitration has a distinguished history. References to arbitration begin in ancient Greece, which illustrates the antiquity of the subject in the law world. Many of the sciences that exist today were centuries before being invented and topics that are still current were already being discussed in law. From Homer's Iliad, where many identify references to means of dispute resolution similar to arbitration, to the philosophers Plato and Aristotle, who expressly address the subject, there were many who referred to it. It is commonly accepted that the roots of arbitration, in the sense we still use it today and as an autonomous legal instrument, lie in Roman Law. In its genesis, the power to arbitrate a confict was frst attributed to the paterfamilias, later evolving to the designation of an external arbitrator. The distinction already present in Roman Law between arbitrium in viri and arbitrium ex compromiso corresponds, nowadays, to the distinction between jurisdictional arbitration (which essentially concerns us in this article) and contractual arbitration, devoid of its own and direct enforceability. The Catholic Church, contrary to what one might think, given the need to control decisions which the existence of dogmas normally requires, has historically always been in favour of arbitration. The Bible itself refers to arbitration in the Old Testament, which clearly demonstrates the importance of the topic for the Christian world. Arbitration appears many times in ecclesiastical writings as an alternative to the courts of the Church itself, and various popes encouraged the use of arbitration as a privileged form of pacifcation of peoples. An important peculiarity is the fact that the Church has come to use and encourage arbitration even in criminal matters, in the rare experiences of this kind that the world has known, since sovereign states are particularly jealous of their competence in criminal matters and do not accept that private persons can replace them. The role of the Catholic Church in arbitration was important, especially in the Middle Ages, favouring peaceful solutions to cross-border disputes and also in private matters. The Pope, supreme arbitrator, encourages the use of alternative means of dispute resolution, by nature more pacifying. Penalties imposed by arbitration tribunals at the time included so-called religious penalties, such as excommunication or suspension from the ofce of mass in a particular locality. 2.1 The concept of arbitration Arbitration, in general, consists of a means of dispute resolution that is characterized by the attribution of the competence to judge them to one or more persons, chosen by the parties themselves or by third parties, whose decisions have the same efectiveness as court decisions. Arbitration is, therefore, "a way of resolving disputes between two or more parties, carried out by one or more persons who hold powers for this purpose recognised by law, but attributed by agreement of the parties . The concept of arbitration has 2 three fundamental aspects, namely: jurisdictional function, the source from which it arises, and the legal recognition of the awards rendered. The Barrocas, 2010, pag. 31. 2 2

jurisdictional function is clear from the Voluntary Arbitration Law (LAV) , more 3 specifcally from its article 42. As a jurisdictional act is that which settles or resolves a dispute, the arbitration award, to the extent that it efectively resolves a dispute, performs an important jurisdictional function, alongside the judicial courts, here in the sense of courts bound to the State and which, on its behalf, administer justice. Arbitration, as a generic concept, appears in the legal world (and beyond) by reference to a relatively extensive set of activities and meanings. It is therefore important to delimit which arbitration constitutes the basis of our study. Thus, the arbitration we are concerned with is voluntary arbitration and, within this, international commercial arbitration. In other words, the one that has to do with private business (or, if we wish, private economic activity), which arises from a self-binding commitment on the part of the subject (there is no obligation to submit to arbitration). 2.2 The arbitration agreement The arbitration agreement is the agreement of the parties to submit the resolution of one or more determined or determinable disputes to arbitration, in line with the concept adopted by the New York Convention on the Recognition of Foreign Arbitral Awards of 1958, in its Article 2, paragraph 1 . It may, 4 therefore, have as its object a current dispute (arbitration commitment) or potential disputes arising from a particular contractual or non-contractual legal relationship (arbitration clause). The arbitration agreement has autonomy in relation to the contract where it is inserted, if this was the willing of the parties. It is established in Portuguese law, in line with the other "UNCITRAL" legal systems, that the nullity of the contract in which the arbitration agreement was inserted does not determine the nullity of the arbitration agreement, except when it is shown that the contract would not have been concluded without the arbitration agreement. This regime is well understood, as it ensures that the parties are unprotected in relation to the resolution of the dispute arising from the nullity of the contract they entered into. Or, in another situation, when the contract has not yet come into efect because it has been subject to a suspensive condition. Arbitration agreements may only be entered into on tradable rights. This expression fortunately replaced the previous reference to unavailable rights, as it was already common knowledge that there were unavailable rights that could be subject to voluntary arbitration. Currently, if the legal position of the parties is susceptible to transaction, any resulting dispute is arbitrable. 2.3 The arbitration commitment and the arbitration clause The arbitration commitment is the agreement (agreement) relating to a dispute already existing, including in the courts of the State. Indeed, there is nothing to prevent the parties to a court proceeding already in progress from deciding and Law n.º 63/2011 of 14 December. 3 "Each signatory State shall recognize the written agreement by which the parties undertake to 4 submit to arbitration all diferences which have arisen or which may arise between them with respect to a defned legal relationship, whether contractual or not, concerning a matter capable of settlement by arbitration." 3

binding themselves reciprocally to have that dispute decided by an arbitral tribunal. The most common cause for the conclusion of arbitration commitments is the slowness of the State courts, which makes the parties feel the "need" to resort to an arbitration court in order to safeguard the useful efect of the decision that will be rendered. The arbitration commitment should be set out in a written document signed by the parties. The arbitration clause shares the form of the arbitration commitment and must be agreed in writing , either as part of another contract or as an autonomous 5 agreement. Practice shows that arbitration clauses are usually integrated into the contract whose relationship they aim to protect. Despite the virtues of arbitration, some care must be taken in drafting arbitration clauses. We refer to this special care here, rather than in the arbitration clause, because the latter, because it deals with an existing dispute, is more immune to the necessary predictive abilities of the author of the arbitration clause. If in the commitment the parties already know what divides them and, probably even, the respective arguments they have put forward in the ongoing dispute, at the time of the conclusion of the clause the parties are still at a contractually sound moment and, whether through inertia or ignorance, are less alert to the dangers arising from the contract they are concluding. In this respect, it will be said that it is not enough for the parties, in more complex legal relationships, to determine that any disputes will be settled by arbitration. Such a generic designation will easily lead to many surprises when the dispute arises. Care must therefore be taken, with the advice of professionals in the sector, preferably with experience in arbitration, to choose and defne the desired arbitration model (whether institutional or ad hoc), which arbitration centre is most qualifed to deal with the problem in question, whether the court will have one or three arbitrators, etc. 2.4 The problem of unilateral transactions A diferent question is whether a unilateral legal transaction may contain an arbitration clause. Portuguese law, unlike German law, does not expressly refer to this possibility, but, by systematic interpretation of the law, it does not seem to us that the existence of such a possibility can be denied. In the words of Menezes Cordeiro , "If someone can unilaterally dispose of a right he may, a 6 fortiori, determine that the doubts arising from that disposition be subject to arbitration". Such considerations lead to, in the most enlightening example, the author of an inheritance may, in a will, fx an arbitration clause by which any disputes arising from that instrument, already after his death, are mandatorily settled in an arbitration court. 2.5 Institutionalised and ad hoc arbitration The more instrumental aspects of contractual arbitration may be entrusted to an entity that manages the proceedings. Thus, issues such as the constitution of the arbitral tribunal, the logistical support necessary for the development of This requirement of written form already appears in the 1958 New York Convention 5 Cordeiro, 2015, pag. 97. 6 4

the proceedings, the general management of the proceedings, which includes making the necessary notifcations, among others, may be entrusted, right in the arbitration clause and by agreement, to an arbitration centre. This arbitration centre has no power to decide the dispute, since this competence is always exclusive to the arbitrators, but only facilitates the way in which the arbitrators carry out their judging function. This type of arbitration is called "institutional" or "institutionalised" arbitration. Unlike this, so-called ad hoc arbitration pursues the same goals as institutional arbitration but does not beneft from any institutional support. All the work, starting with the appointment of the arbitrators, falls on the parties and, in the worst-case scenario, that is, if no consensus is reached in the initial phase of arbitration, the emerging dispute will have to be decided by the courts, thus losing most of the advantages that were intended to achieve with the introduction of the arbitration clause. In these cases, all the work of organising and conducting the proceedings is carried out by the arbitrators, which may jeopardise the intended swiftness of the decision. 2.6 Internal arbitration Domestic arbitration is that which operates within a particular legal system, usually coinciding with the State/Nation. Here, arbitration replaces, in a direct and regulated manner, the courts of that State, promoting the celerity of decisions. In the feld of internal arbitration, issues are much easier to equate and resolve, since we are in a single legal space. The parties are given the possibility to deviate from the ordinary courts, but the arbitrators normally apply the body of law in force in that State, except in cases of decisions made in equity. Equity is a legal fgure of reasonable complexity and therefore also lends itself to several misunderstandings. Equity is a formal criterion for deciding concrete cases and is thus opposed to the legal rule, which is a material criterion for deciding concrete cases. In practical terms, and with reference to the Portuguese legal system, the decision-maker is bound by the law and the legal rules contained therein. A decision according to equity is only possible if and when the legal rule allows it. Equity refers, therefore, to an idea of justice of the concrete case, to be decided ponderously by the judge, but only when an enabling legal rule allows it. This limitation disappears in arbitration, as the parties may voluntarily agree to submit the resolution of their dispute to criteria of equity and thus achieve the fairest possible outcome to the dispute. 2.7 International arbitration International or transnational arbitration, as some authors prefer to call it , is 7 that which puts into play the interests of international trade or, in another formulation, the interests of distinct national legal orders. The object of international arbitration will therefore be disputes arising from economic operations involving the movement of goods, services or capital across borders. When conducted in Portugal, arbitrations that fall within this concept are subject to the special regime established by Articles 49 et seq. of the LAV, Pinheiro, 2005, pag. 23. 7 5

with regard to determining the applicable law, appeals and the admissibility of the so-called amicable settlement. In international commercial relations arbitration is nowadays a fundamental way of settling disputes (it is estimated that around 90% of international trade contracts contain arbitration agreements), and in some sectors of activity, such as civil aviation, it is even the normal way of settling such disputes. This "success" of arbitration is easily explained by several factors, usually assumed as the advantages of resorting to an alternative form of dispute resolution. 2.8 The arbitration procedure In arbitration, the parties to a contract have great freedom to establish, a priori, the rules by which the arbitration process will take place. But the most common thing is for the parties to opt for an existing international institution, with its own regulations, as it is the case of the arbitration tribunals. In general, and with minor adaptations and fuctuations, an arbitration procedure comprises the following phases: i. The proceedings commence with a request for arbitration submitted by the Claimant to the Secretariat of the Court; ii. The Respondent, like the Claimant, is notifed of the fling of the Request for Arbitration and of the date on which it was fled. That date shall be deemed to be the date, for all purposes, of the commencement of the arbitration; iii. The Secretariat shall request the parties to make an advance payment of the costs of the arbitration; iv. In the Request for Arbitration, in addition to other data, the Claimant shall formulate the request; v. Generally, within 30 days of the notifcation of the claim, the Defendant may fle a response and may also fle a counterclaim; vi. The time-limits for reply may be extended by the Court of First Instance having regard to the specifc difculty of the case; vii. Should a party refuse or refrain from participating in the arbitration at any time during the arbitral proceedings, the arbitration shall proceed irrespective of the refusal or refraining; viii. The number of arbitrators shall be a single arbitrator or three, depending on what the parties have agreed, in the latter case, each party shall nominate one arbitrator and the third shall be appointed by the court. ix. The Arbitral Tribunal shall then summon the parties to draw up and sign the Minutes which shall include, amongst other matters, the full identifcation of the parties, the location of the Arbitral Tribunal, a summary of the claim and defence, and specifc aspects relating to the arbitration proceedings; x. The proceedings shall continue with the presentation and production of evidence, followed by the necessary discussion of the case; xi. The Arbitration Tribunal shall make the fnal award, which shall be notifed to the parties; xii. They may also ask the Court for formal corrections or for help in interpreting the fnal judgment; xiii. There is no appeal from the fnal award, but an action for annulment is 6

admissible under the arbitration law of the seat of the Arbitral Tribunal. 2.9 UNCITRAL Model Law UNCITRAL (United Nations Commission on International Trade Law), is a United Nations agency specialising in international trade law, which has been created on the 17th December 1966 with the avowed aim of reducing disparities between the various commercial legal systems. These disparities have always been seen as obstacles to international trade and it was therefore important to minimise their impact. As we shall see, this problem greatly afects tourism, especially international tourism, which pits diferent states and diferent legal systems against each other. The Model Law on international arbitration, approved by UNCITRAL, was perhaps the most relevant legal instrument in the history of this agency, along with the arbitration rules known as the "UNCITRAL rules", which are expressly applied in multiple institutional arbitration tribunals around the world. This Model Law, as the name indicates, was intended to "inspire" the various countries when creating their own arbitration laws, which has been happening at an accelerated rate. The 2011 Portuguese Law is a clear example of this, having often translated the articles contained in the Model Law. Although the rules of international arbitration law are transnational in nature, the truth is that the rules that give them content usually come from national state sources. 2.10 Advantages and disadvantages of arbitration At this point, it is important to identify, albeit briefy, the main advantages and disadvantages of arbitration. While it is true that economic agents in countries like Portugal still look at arbitration with some mistrust, it is equally true that more and more people are resorting to these alternative forms of dispute resolution, which are showing signifcant growth. In the feld of the advantages of arbitration we highlight the speed of decisions, the possibility of the parties to choose the judges, the confdentiality of arbitration proceedings, the certainty that the arbitration agreement generates as to the way in which disputes will be resolved, the specialization of the arbitrators and the greater guarantees of neutrality that arbitration bodies ofer, compared to state jurisdictions, usually "home-made" when it comes to the confrontation of its law with the law of another state. This phenomenon is often caused by the normal unfamiliarity of the foreign legal order, which impels the judge to try to use the legal system that he knows and dominates best. One of the great advantages of resorting to international arbitration is the possibility of choosing the law applicable to the merits of the case. This enshrines the principle of autonomy of the will in Private International Law, which the Civil Code and the 1980 Rome Convention on the Law Applicable to Contractual Obligations (in force in Portugal since 1994) also embrace. Note that the law authorises the parties to choose a law, i.e. a legal system, and not simply to refer to general principles or to the principles common to the legal systems connected with the dispute. In the absence of a choice by the parties, the court will apply, according to Article 52(2), "the law of the State with which the subject-matter of the dispute has the closest connection". In order to determine this law, arbitrators must examine all the circumstances of the 7

disputed relationship, inquiring about the connections that it presents with diferent state laws in order to subject it to the law of the state where these connections are predominant. In addition to the law applicable to the solution of the problem, the parties (or the arbitrators, in their silence) may also choose the procedural rules that best ft the problem or that best ensure the pursuit of the ultimate goal of any dispute resolution: justice. This important feature of the arbitral process is not always respected and there is a clear tendency to apply codifed rules of procedure, due to an imperfect concept of arbitration and a lack of knowledge of its independence from state jurisdiction. In matters of contracts, the area most often submitted to arbitrators, it is of great importance the possibility of arbitrators taking into account the material result of the application to the individual case of the various rights connected with the dispute, by application of the principle of favor negotii, the cornerstone of Private International Law. For example, arbitrators are given the possibility of considering, among the possible legal systems, the only one which holds the contract in question as valid as the most appropriate for resolving the dispute. Arbitration also allows international trade usages to be taken into account. This last advantage assumes particular relevance for countries like Portugal, where common law is only in very special cases considered a source of law, i.e. a way of formation and revelation of legal rules. In the words of Dário Vicente "in international arbitration, arbitrators may take 8 international trade usage into consideration in two situations: if the parties have expressly referred to it in the contract or in the arbitration agreement and it is not incompatible with the mandatory rules of the law applicable to the material relationship in dispute, but it can never be the sole criterion for assessing the subject matter of the dispute in international arbitration; if the parties have not said anything about it, usage can still be taken into consideration by the arbitrators as elements of interpretation and integration of the parties' negotiating statements". It is also important to mention that the international arbitration regime is also distinguished by the possibility, foreseen in article 39, paragraph 3 of the LAV, for the arbitrators, if the parties have entrusted them with this function, to decide disputes submitted to them "by resorting to the composition of the parties on the basis of the balance of the interests at stake". Portuguese law thus expressly enshrines the admissibility of the so-called amicable settlement, a fgure whose outlines are not yet well defned, but to which most authors and market players attribute great potential. Through this mechanism a dispute is judged in an attempt to obtain a solution that is accepted by both parties as a fair decision, capable of favouring the continuation of the commercial relations between them. In other words, the case is judged less bound by established law and more attentive to the specifcs of the concrete case. Finally, another feature of arbitration that has promoted much of its success with transnational companies should also be highlighted: the confdentiality of proceedings and decisions. In fact, unlike state justice systems, which are public by nature, arbitrations are confdential. This characteristic is extremely important, since litigation, although often necessary, does not favour other Vicente, 2004, pag. 4. 8 8

aspects of the company's operations and, in some cases, it even involves the disclosure of certain business secrets or company processes, whose knowledge by the market could easily weaken the company. In the chapter on disadvantages, the frst to be mentioned is the cost of the arbitration process. As an example, in a dispute submitted to the International Court of Arbitration of the International Chamber of Commerce and where the sum of €500,000.00 is discussed with the intervention of three arbitrators, the total costs of the proceedings may range from a minimum of €33,157.00 to a maximum of €112,717.00, with the average being €72,937.00. If the same dispute is submitted, for example, to a Portuguese court, the amount to be spent on legal fees will be €4080. To these amounts, in both cases, one must add the fees of the lawyers responsible for the case, which also tend to be higher in arbitration proceedings than in state proceedings. The cost diferences between the two dispute resolution procedures are overwhelming. The choice for arbitration, given the high cost, should therefore bring some beneft to the organisations resorting to arbitration that not only cancels out this cost diference, but supplants it. The International Chamber of Commerce, for example, seeks to justify the advantage of resorting to international arbitration with the fact that lawyers' fees are much lower, since the proceedings are resolved in much less time. We do not agree with this justifcation. In fact, lawyers' fees are mostly fxed taking into account the complexity of the issue and the amounts involved in the dispute, not the time it takes for the proceedings to be concluded. Still on the disadvantages, we should mention the greater difculty for the less well represented party (usually the economically weaker one) in choosing a trustworthy and competent arbitrator, the difculty for lawyers to justify to their clients the loss of the case in the arbitral tribunal, considering the added cost it represented, or, still, when the matter to be decided implies the carrying out of many and complex acts of proof, as in these cases the arbitrators may come up against strong state limitations on the obtaining of that proof, which do not exist in courts of law. 3. ARBITRATION AS A COMPETITIVENESS FACTOR Arbitration, beyond the legal aspects of its context, is also, and above all, a socio-economic phenomenon. Sociological, because society demands more and better dispute resolution processes, to which legislators, everywhere, are sensitive; economic, because the feld of development of arbitration cannot but be the economy and, within this, national and international trade. Regarding the enormous infuence of arbitration in international trade, Menezes Cordeiro even states that "Arbitration is a pioneer in globalisation" . Indeed, the 9 challenges posed by the economic globalisation movement at the end of the last century, whose efects have extended into the current one, demand a dispute resolution model that goes beyond national barriers and accepts a self-regulatory, highly specialised and, no less importantly, swift content. It is therefore understandable the "popularity" of international arbitration in international trade relations. Cordeiro, 2015, pag. 62. 9 9

Despite the antiquity of the study of issues related to arbitration, it is almost astonishing to note the relative absence of scientifc studies relating arbitration to business. This fact, we believe, is often due to excessive conservatism in the law world, which claims for itself the study of what it understands to be legal and does not admit interaction with other areas of knowledge, and also to the corresponding difculty for other sciences or areas of knowledge to use law to establish and study empirically supported relationships, as they come up against a single methodology specifc to legal science, which most often hinders multidisciplinary analyses that include it. A good example of this is the fact that it is relatively easier to fnd studies related to arbitration and mediation in the area of psychology, where they seek to understand the motivations and the efects of certain stimuli in this area, than in the areas of management or economics. Bearing in mind everything that has been said so far, the importance of arbitrage for the company is almost obvious. For what particularly concerns us, the tourism company operates in a tourism market, seeking to maximise its proft through a correct analysis and use of business variables. It happens, therefore, that litigation is one of the variables present in any economic exploitation. In efect, the web of relationships that is generated for any company to be able to succeed and assert itself in a given market is of such a scale that, almost inevitably, litigation appears. It may be a small, almost inconsequential dispute, but it may also be a serious problem requiring the intervention of a third party to resolve it. In a state governed by the rule of law, such as ours and those around us, the natural external intervention falls to the courts, with all the limitations already listed above. Perhaps the most penalising for the company is the length of the processes which, more often than not, always produce unfair decisions because they are extremely slow. And, when we introduce the variable of confrontation between two or more legal systems, the problems become even more critical. Arbitration then appears to be the easiest way to a swift decision which, for this reason alone, will be more just and efcient than any other, and also because, in arbitration the specialised technical competence of the arbitrators in a given matter can be safeguarded. Competitiveness, as far as we are concerned, is a concept of comparison of the capacities and performance of a given company with another company, of a sector of activity with another sector of activity, of a tourist destination with another tourist destination or even of a country with another country. The concept of performance refers us, in turn, to a comparison between the results achieved and the results expected to be achieved. Here, as can be easily understood, we are within an organisation and unrelated to other organisations. This comparison will necessarily require the presence of monitoring processes of these results that allow their measurement. The performance and competitiveness in tourism have been widely studied, both in terms of tour operators and tourist destinations themselves. We do not intend to establish relationships between international arbitration and the competitiveness of the tourist destination. We intend only to evaluate the efects on the performance and competitiveness of the tourism company, be it a travel agency, a tour operator or a hotel, of the institutionalised and generalised use of arbitration as an alternative method of dispute resolution. We will ask, therefore, and in the 10

greatest simplifcation that we can achieve, if in situations in everything identical in which the only variation is the use of arbitration, such diferentiation brings or not a real beneft to organizations. Diferentiation appears as a label for a wide range of strategies and allows, at the limit, the creation of something that is considered unique in the sector where the organisation is inserted. We will also seek to answer the question whether, even if at a marginally higher cost, the institutionalised adoption of arbitrage continues to bring benefts to organisations. As we said, it is not easy to fnd in the literature references linking arbitration issues with the competitiveness or performance of companies. Although arbitration is a subject of study of the legal science since its beginnings and since classical antiquity, the analysis of the advantages and disadvantages for companies of the use of this alternative method of dispute resolution have been successively approached from a strictly legal perspective, which necessarily reduces its scope and efectiveness. In the words of Drahozal "Although legal scholarship often has been criticised as being too divorced from empirical realities, numerous eforts - from hiring faculty with interdisciplinary backgrounds, to conducting training in research methods, to the creation of specialised journals - have sought to encourage and facilitate empirical research on legal issues" . 10 A large part of the root of this problem lies in the fact that arbitration awards are confdential, which makes it impossible, in practice, to empirically analyse the success or failure of a given company in resorting to arbitration and, therefore, establish the infuence of that decision on its performance. Some arbitration centres, such as the ICC, make available some of the most emblematic decisions, but the criteria for selecting these decisions does not al low us to extract, with certainty, acceptable empirical results. Notwithstanding the above, there are several studies that have looked at various aspects of the arbitration process that should be revisited. These studies cover various aspects of arbitration, namely: the agreement to submit a dispute to arbitration; arbitration proceedings; the selection of arbitrators; applicable rules; and arbitration awards. As for the arbitration agreement, the two reasons that appear as the most relevant for making the decision to resort to arbitration are to avoid the state courts and take advantage of the international legal framework. On the other hand, reference to the rightness and fairness of the decision also appear to be the main motivating criteria for resorting to arbitration. As regards arbitration procedures, "The procedures in arbitration present a wide-ranging topic for empirical research, and the existing studies merely scratch the surface of possible research" . Apart from some studies on the criteria for choosing 11 arbitrators and on the use of preventive measures in arbitration, there has been very little scientifc production in this area. As for the decisions themselves, and also their formation process, the existing empirical studies focus essentially on their feasibility, leaving aside the efects that the existence of Drahozal, 2006, pag. 291. 10 Drahozal, 2006, pag. 291. 11 11

these decisions may have had on the performance of the companies that promoted them. Drahozal himself presents as future lines of research "a study of the efects of international arbitration on economic growth". In this context, it is important to assess, although partially, the importance of the use of arbitration for companies, particularly in terms of their performance and competitiveness. And it is necessary to do so, here, abandoning the strictly legal positioning of the arbitration issue, incorporating the dispute and its resolution in the business variables, seeking answers that help managers in the decision-making process on whether or not to resort to arbitration. 3.1 Refections on organisational strategy The word “strategy” may carry several meanings, depending on the context in which it is used. The most common and frequent meanings have to do with policies, objectives, tactics, goals or programs, then requiring an efort of conceptualization to fnd the correct defnition within the scope that concerns us. In Mintzberg's words, "human nature insists on a defnition for all concepts. The domain of strategic management cannot aford to rely on only one defnition of strategy, since the word has, over time, been implicitly used in many senses, despite being traditionally defned only in one" . 12 Strategic thinking is often presented as from the radical changes to which the environment is subjected, imposing on organizations the need to seek new practical forms of survival. These changes translate into a philosophy that presents as main assumptions an ambitious long-term vision and the development of the organization based on its own resources and competences so as to promote, whenever possible, changes in the competitive environment that may beneft the one that promotes them. Thus, the key objective of strategy is not the adaptation to the conditions defned by the competition, but its transformation and renewal, based on the idea that the competition game is not an absolute and irremovable fact, but rather a situation over which organizations can exert infuence and change facts. Within this context, it is increasingly assumed that every competitive advantage is temporary, strategy is diversifed, emerging and complex, one must reinvent, i.e., live the present supported on past resources and projecting the future, impose the pace of change, develop the strategy as of the terrain that constitutes the domain of activity and coherently recombine the various felds of activity. Several authors have diverged as to the number of schools of strategic 13 thought, but there is reasonable convergence that strategy, although there are earlier references to it, arose after the Second World War and that, as of the sixties and seventies of the last century, with the interest academia showed in the theme, it really developed. More often than not, it will be through the happy combination of these factors that a prosperous, sustainable and efcient company will emerge. It is therefore important to trace a path through the most important things that have been said in this domain so as to fnally focus on the concepts and resources that enable us to fully explain the object of our study. Mintzberg, 1988, pag. 1-67. 12 Ansof, 1991; Mintzberg, 1991. 13 12

Thus, Igor Ansof , suggested a matrix with four strategies (market 14 penetration, product development, market development and diversifcation) that quickly gained acceptance in the market and in the academic world, usually called the "Ansof matrix". In fact, even today, many of the strategies implemented fnd their genesis in the teachings of this author. One of the best known and most replicated theories on strategy was proposed by Porter , who suggests a two-dimensional model: strategic advantage and 15 strategic objective. Subsequently, Porter uses the dimensions of competitive advantage instead of the referred strategic advantage and strategic objective. Thus, Porter identifes three generic competitive strategies that can be followed by companies: leadership by cost; diferentiation; and focus, whether on cost or diferentiation. Companies that use a strategy focused on cost will try to be the cheapest producers in the industry. Those using a diferentiation strategy will aim to diferentiate their product from the competition, to enable charging a higher price. Mintzberg, on the other hand, proposes a typology of competitive strategies using the dimensions of diferentiation strategies (e.g., price diferentiation strategy; image diferentiation strategy; diferentiated support or support strategy; quality diferentiation strategy; design diferentiation strategy; and non-diferentiation strategy), and scope strategies (e.g., non-segmentation strategy; segmentation strategy; niche strategy; and customization strategy). For Mintzberg, diferentiation is thus a concept determined by supply, whereas scope is determined by demand. This author also proposes the commonly called fve P's theory of strategy, where he discusses the fve dimensions of the concept: plan, pattern, positioning, ploy and perspective. 3.2 The diferentiation approach The bet on arbitration in order to gain a possible competitive advantage takes us, in a clear and logical-deductive way, to the feld of the so-called "generic strategies" and, within these, to the diferentiation strategy. In fact, it is reasonably evident that the submission to arbitration of any disputes that may occur in a given contractual relationship between two or more players in the feld of tourism, will never represent a classic strategy of product creation or prospection of new markets. Ansof, with his matrix of four strategies, introduced important and decisive concepts in the feld of business strategy. However, this strategic model, although decisive for the emergence of strategic conceptions, is relatively little comprehensive, leaving out important aspects of strategy design, primarily because it incorporates in the so-called "product development" a vast set of strategies that needed to be autonomised and conceptualised, in order to give them a greater and more accurate operationality. Aware of this problem, Porter presented what he called "generic strategies": leadership by cost, diferentiation and focus. This author places the centre of the problem in the identifcation of the strategy, criticising Ansof's Ansof, 1965. 14 Porter,1980. 15 13

approach for having focused only on the expansion of already existing strategies. Porter even writes, referring to Ansof's ideas, that "...acquisition and vertical integration are not strategies but means of achieving them" to conclude, in the same passage, that "the centerpiece of a frm's strategic plan should be its generic strategy". As can be seen, Porter's generic strategies already explicitly include diferentiation as a strategy for obtaining a competitive advantage. In this strategy, the company invests in its image, technology, technical assistance, distribution, research and development, human resources and market research, with the aim of creating a diferentiating efect that can capture the consumer's attention and, in a second moment, build consumer loyalty. Mintzberg devotes great attention to diferentiation strategies, even 16 establishing that, basically, all strategies involve a greater or lesser degree of diferentiation. Says the author " organization distinguishes itself in a competitive marketplace by diferentiating itself in some way - by acting to distinguish its products and services from those of its competitors. We take this to mean that all competitive advantage amounts to one form or another of diferentiation, hence, this becomes the fundamental basis of every businesslevel strategy, and therefore flls the face of the circle we have used to identify the core business." Mintzberg details in an exhaustive manner the diferentiation strategies, indicating that these can be determined by the following factors: price, image, support, quality, design, and also undiferentiation, which the author still considers a strategy of this family. Diferentiation allows, according to the author, to efectively distinguish the core business of a company. The price continues to be the most basic of the diferentiation strategies, but we are mainly interested, given the scope of this work, in the so-called diferentiation by support. Mintzberg says that diferentiation by support (or peripheral, as the author suggests it can also be called) is more substantial than diferentiation by price or by the projected image of the product, but still without having efects on the product itself. In other words, the product will become more appealing (or, at least, it is intended to be) by adding something that, although it does not interfere with the essence of the product, gives it a lateral distinctive capacity. The problem of diferentiation by support had already been addressed by other authors, such as Levitt , who argued that no matter how difcult it is to 17 operate a diferentiation between products by the most classical means, such as price or design, there will always be a way to diferentiate them by support. The author says that "to the potential buyer, a product is a complex cluster of value satisfactions", and not only the intrinsic value of the product. The result will be an "augmented" product, which includes attributes that the consumer will probably never have thought of. Still with the same author, "it is the process, not just the product, that is diferentiated". Mintzberg, 1988, pag. 1-67. 16 Levitt, 1980, pag. 83-91. 17 14

3.3 Economic performance and competitive advantage Every strategy aims at obtaining a Competitive Advantage or it would be meaningless. Competitive Advantage can be defned as an economic advantage obtained in a competitive market or, in other words, it generically corresponds to a diference between two competitors in any conceivable dimension, which allows one to create more value than the other and has traditionally been closely associated with the company. Subsequently, the concept was extended to other realities, being current to apply it to industrial sectors, regions and even countries. The reference to Competitive Advantage nowadays is so usual that many authors already refer to a supposed selfexplanatory capacity of it. On the other hand, new approaches to the subject, more or less innovative, constantly appear in the literature. A diferent and possibly more complex issue is measuring a particular Competitive Advantage. In fact, the measurement of the Competitive Advantage, which even allows organisations to be compared, is often difcult to obtain. Rumelt , among others, recognises the existence of a certain 18 convergence towards the concept of value creation, a concept which itself is not free of doubts and multiple interpretations. In efect, value creation is a broad concept that can be viewed from various perspectives, like those of customers, employees, suppliers, shareholders or other stakeholders of the company, necessarily comprising various points of arrival, according to the respective sensitivities. The process of measuring the Competitive Advantage has been successively addressed by various authors, such as Barney, Calil, Barney & Hesterly, who suggest quantitative/qualitative measurement methodologies of Competitive Advantage as a way of assessing the economic and fnancial performance of organizations. The evaluation of competitiveness, based on economic performance indicators, has limited the concept to the dimension of operational efciency. From this perspective, competitiveness would derive from business excellence in the performance of activities, which can be economically or fnancially measured. The frst aspect to consider is to try to clarify what is meant by "value creation". In line with Brandenburger and Stuart , we will say that the value 19 created by a given company will correspond to the diference between the supplier's opportunity cost and the customer's willingness to pay. The opportunity cost will be given by the minimum value for which the supplier is available to sell its products. This value cannot be determined in an absolute way, as it depends on several variables and on how these variables behave at a given moment in the market. The concept of willingness to pay, on the other hand, represents a monetary value that incorporates all the benefts that the customer receives from the use or consumption of a given product and is always subjective, as it depends on the customer's perception of the benefts ofered. This attribute determines that willingness to pay may vary from customer to customer, and between diferent competitive contexts. In addition, the customer will only value what is perceived by him, so the formulation of any Rumelt, 2003, pag. 1-5. 18 Brandenburger and Stuart, 1996, pag. 5-24. 19 15

strategy should always take into account this need to bring value to the customer. The creation of value is, therefore, infuenced in real time by the context of the relationships between companies in the market and will be in constant mutation. It is this capacity for constant change that must be appropriated by the company, interpreting or creating the circumstances that may alter the perception of value. In the context of this work, and although there are multiple concepts and approaches to defne Competitive Advantage, we follow Peteraf & Barney in 20 their proposal that Competitive Advantage is not restricted to the best competitor in a given market, but rather to all those who, in this market, create more value than the competitor who operates just above the breakeven point. The aim of this paper is to identify the efects on competitiveness of the phenomenon of voluntary submission of companies to an institutionalized system of international arbitration, in order to verify how Competitive Advantage can be viewed and how it can infuence the adoption of organizational strategies in the search for a competitive positioning. Companies with a competitive advantage will then be able to exploit the asymmetry between their customers' maximum willingness to pay and the average price charged by the market, charging a marginally higher price, which will necessarily result in higher proft margins. The following questions will therefore be answered: A) In identical situations where the only variation is that the tourism company resorts to international arbitration, does this bring a real beneft to the organisations or not? B) Does the institutionalised adoption of arbitration continue to bring benefts to organisations even if at a marginally higher cost of the goods and services they make available to customers? To confrm or disprove the existence of a Competitive Advantage for tourism businesses that adhere, in their commercial relations, to an institutionalised arbitration system, especially in cases where the commercial relations are international and confront diferent legal systems, primary data was collected, at source and by questionnaire, both regarding tourism supply and demand, in order to relate them and increase the explanatory power of the results obtained, which involved the use of a statistical technique for data analysis. 4. STATISTICAL ANALYSIS Data collection for the study was carried out by applying questionnaire surveys to senior managers of tour operators, travel agencies and 4 and 5-star hotels in the Algarve region, as well as customers/tourists. As far as possible, we sought to interview operators, agencies and tourists with and without experience of tourism-related disputes. The questionnaire was chosen due to its objectivity and the ability to obtain structured answers. Three questionnaires were applied, one to tourists, another to tourist agencies and operators, and yet another to 4 and 5-star hotels in the Algarve. Peteraf & Barney, 2003, pag. 309-323. 20 16