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PORTUGAL: An Introduction to Dispute Resolution

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Chambers Practice Area Overview 2019 – Dispute Resolution

Portugal continues to enjoy a high profile on the international scene. The Portuguese economy has resurfaced with a new strength, grounded on lasting organisational changes in skills, investment, export orientation and in the labour market, implemented by recent reforms that sought essentially to restore business and consumer confidence.

Portugal has been praised as an example to follow, for its resilience and commitment in restoring the balance of public finances and structural fiscal consolidation. The country is expected to continue along an expansionary path, although further reforms are still crucial.

Business investment has also grown above the EU average, particularly in transport infrastructure, urban regeneration, healthcare, education services and research and development. According to the OECD, EU structural funds are expected to contribute positively to investment growth in 2019 and 2020.

The growth in exports of goods and services is expected to continue to be around 5%, reflecting the expansion of world trade and external demand for Portuguese goods and services, and the competitiveness of Portuguese firms in international markets.

In its internal economy, Portugal continues to be recognised as one of the best international tourism destinations. It is consistently top-ranked, winning a record number of international awards in every tourism category. This has been instrumental in improving the country’s trade balance. Housing investment is rising in response to high demand, strong growth in prices of both new and existing dwellings, and recent reforms and changes implemented by the Portuguese Government.

Importantly, the vehicle manufacturing sector is also thriving and showing significant signs of increased use of its capacity.

Portugal’s unemployment rate fell considerably during 2018 and at the year-end, it stood at around 6.6%, its lowest rate since 2002 and in line with the Euro Area average. During 2018, the total number of people in employment also grew, registering its highest level since March 2009. Although still high at 19.4%, the country’s unemployment rate among young people has shown encouraging signs, registering a 4% decrease when compared with the 23.4% registered in 2017.

Portugal’s increasingly services-based economy continues to recover from the European financial crisis, driven by the following leading sectors: financial services, telecommunications, and a buoyant tourism industry.

Portugal’s social, legal and economic developments are evident not only from its capacity to attract tourism and investment, but also from its high quality human capital and improved reputation worldwide. Portugal has made steady broad-based progress in various rounds of the OECD PISA assessments, being placed above the OECD average in all areas of assessment. This portrays a society able to cope with demanding and rigorous organisational adjustments.

In internal policy, the current government is still managing the fall of four of Portugal’s most important banks and has reformed the state bank CGD. Following the BES resolution, a bridge bank was created with its most important assets. It was held by the BES Resolution Fund and controlled by the Bank of Portugal, and has now been sold to the US fund Lone Star. This deal was, nevertheless, very controversial. Consequently, there has been a wave of high-value, extremely complex litigation involving the whole process of BES’s resolution, and there may be new cases to come, relating not only to BES but also to other banks.

Portugal has emerged from its crisis with a modern, high-standard dispute resolution system. The country has successfully implemented an e-justice platform (CITIUS), creating a completely paperless justice system. It has also introduced a more flexible and simplified Civil Procedure Code and upgraded its insolvency law, including a chapter 11-style mechanism that is now a solid handrail for struggling businesses. Changes have also been made to cost allocation in judicial proceedings, allowing for a mitigated loser bears all system, which is expected to reduce frivolous claims and the backlog of court cases. Further significant changes are expected during 2019.

The specialisation of the courts and the judges by matters and practice areas has, in recent years, been one of the main concerns of the Portuguese Government. A decree-law was recently approved that alters the judicial map, reinforcing the specialisation of the judicial courts. This legislation is based on the need to re-evaluate what the judicial system offers, with reference to the evolution of procedural flows. The changes introduced are aimed at strengthening the capacity for specialisation, bringing justice closer to citizens and adjusting the number of judges and prosecutors. The reinforcement of the specialised offer will be achieved through the creation of new commercial, family and minors, and employment courts, and the breaking down of the general courts into specialised courts.

2019 is also expected to see a significant reform of the Portuguese Procedural Code, specifically regarding the removal from the courts of ‘inventory’ proceedings to identify and distribute assets upon divorce or death, to help clear the backlog.

Actions brought by consumers in both environmental and finance/capital markets matters continue to increase. Although Portuguese legislation on class actions dates back to the end of the last century, consumers have found that the Portuguese system, which is the opt-out type, favours this type of litigation, and NGOs and some law firms have focused on bringing this type of action. The implosion of the largest Portuguese financial group (GES) had a significant impact, because it directly or indirectly affected practically the whole country.

Among the cases with the greatest impact is the criminal case known as "Operação Marquês" (Operation Marquês) or "Caso Sócrates" (the Sócrates Case). In this case, several leading Portuguese companies, high profile individuals (in the telecommunications market, construction, financial and banking sectors and in the tourism market) and politicians, including a former Portuguese Prime Minister, were investigated and accused of committing the crimes of corruption, money laundering and tax fraud, among others. This is the largest ever criminal case in the history of the Portuguese justice system. It is also extremely challenging because it involves complex financing schemes and is based on a time-consuming and far-reaching investigation. There have been more than 200 witness interviews and more than 3500 wiretapping transcriptions. Furthermore, the case file has now more than 134 main volumes and 904 annexes (with several volumes each) and approximately 13.5 million computer files.

Directives 2015/849/EU and 2016/2258/EU, which establish measures to combat money laundering and terrorism financing, were partially implemented in 2017. The innovations relating to the identification of the beneficial owner in transactions carried out and the concept of “politically exposed persons" will lead to an increase in dispute resolution and criminal cases.

Arbitration is thriving in Portugal. The UNCITRAL Model Law based Arbitration Act has been in force since 2012 and the assessment of the last five years is very favourable: the arbitration community has been active in creating legal doctrine and domestic soft-laws (including an IBA-inspired arbitration code of ethics). More importantly, recent years have seen prolific pro-arbitration court decisions, notably from the Court of Appeals and Supreme Court, where it is common for judges to include references to international doctrine and case law.

Overall, arbitration legislation is modern and inspired by the best international practices and trends. There have been some missteps, notably with mandatory arbitration (imposed in certain areas to reduce the backlog in the state courts) and with recent procedural obstacles imposed on arbitration with public authorities. Nevertheless, arbitration in Portugal has seen consistent development and the market has responded positively to this evolution, with more and more arbitration cases and practitioners.

In general, dispute resolution practitioners are very well prepared to work in an international market, adapting and accommodating their services for clients from different cultural and legal backgrounds. Moreover, the most reputed dispute resolution teams have internationally educated lawyers offering multi-disciplinary and multi-location teams, with considerable experience and impressive track records in international litigation and arbitration.

Recent years have been kind to dispute resolution practitioners and, fortunately, more and greater challenges lie ahead.