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PORTUGAL: An Introduction to Dispute Resolution

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Chambers Practice Area Overview 2020 – Dispute Resolution (Portugal)

Portugal recently confirmed growth of 2% in its GDP and a historic budget surplus in 2019, the first since 1973. The surplus was meagre but the result was achieved while reducing the weight of public debt on the gross domestic product and while incurring considerable expenditure in the banking sector, especially with Novo Banco.

Emerging from the recent economic crisis, Portugal has been praised internationally as an example to follow, for its resilience and commitment to 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.

The Portuguese economy has been benefiting from its renewed export orientation, with a considerable growth in exports of goods and services that is expected to continue to be around 5%. This reflects 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 and has won a record number of international awards in every tourism category. This has been instrumental in improving the country’s trade balance.

The real estate industry continues to thrive and house prices continue to rise, fuelled by a consistent increase in demand in excess of 5% per year, with the contribution of the advantageous tax schemes for non-habitual residents and the golden visa. 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 and the country has been placed above the OECD average in all areas of assessment. This portrays a society able to cope with demanding and rigorous organisational adjustments.

The same socialist Government was re-elected in recent elections, with the same PM and most of the major ministers. The government maintains a minority representation in parliament. Nevertheless, political stability is expected for 2020.

Despite this rather optimistic picture, Portugal is still facing several challenges, notably those arising from the recent fall of four of Portugal’s most important banks and the very costly recapitalisation of the state bank CGD.

Additionally, the budget surplus was – to a considerable extent – achieved at the expense of a reduction in public expenditure and investment, which was 74% below the original budget. This has come at the expense of essential sectors, such as healthcare, with only 46.8% of the expenditure from the original annual budget.

The government is expected to increase public spending and the recently approved 2020 national budget seems to confirm this understanding.

Portugal has emerged from its crisis with a modern, high-standard dispute resolution system. This can be seen in the very successful e-justice platform (CITIUS) and the now paperless justice system. Portugal 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 courts’ backlogs.

Portugal has also recently reorganised its judicial system to bring greater effectiveness to the courts and judges by organising cases into practice areas, by strengthening their capacity for specialisation, by bringing justice closer to citizens, and by adjusting the number of judges and prosecutors to bring greater efficiency.

Banking, corporate and financial litigation continues to arise in the wake of the fall of important banks and the sale of bank businesses and insurance companies in Portugal.

Highly complex corporate control litigation has been decisive in very recent years for several groups of companies and their stakeholders through a set of interim measures and court proceedings seeking suspension from office, management step-in, the squeeze-out of disloyal directors and/or shareholders, and asset recovery. Not only has this litigation been contributing to developing case law on complex and once most exceptional legal doctrines, such as piercing the corporate veil, but it has also entailed complex forensic audits to investigate disloyal action and the assets stripped from the companies concerned.

In line with the European trend, recent legislative developments have led to an increased focus on competition litigation. In fact, 2019 was a pivotal year because, following the implementation in 2018 of the Directive 2014/104/EU of 26 November 2014 into national legislation, the first claims for private damages arose before the Portuguese Competition Court under the European Commission’s decision in the Trucks Cartel Case (Case AT.39824 – Trucks). This litigation involves particularly sophisticated economic analyses with a view to determining the impact of this cartel in Portugal. Additional claims are expected to be filed in 2020.

2020 will be a very significant year regarding criminal cases. The following developments are expected in certain high-profile criminal cases: (i) Operação Marquês: a decision will be taken on whether the former Portuguese Prime Minister will face trial for several crimes of corruption, money laundering and tax fraud, among others; (ii) Pedrogão Grande: the defendants will face trial for crimes of negligent homicide among others, regarding the biggest Portuguese forest fires which killed at least 63 people and injured another 44; and (iii) Portuguese Hacker: the hacker involved on the Football and Luanda Leaks will face trial for crimes of illegal access, improper access, violation of correspondence, computer sabotage and attempted extortion.

Regarding criminal legislation, in 2020 Portugal will prepare to implement Directive 2019/1937/EU on the protection of persons (whistleblowers) who report breaches of Union law. This may lead to an increase in dispute resolution and criminal cases regarding corruption, and to a national debate regarding the admission and validity of proof obtained through hacking or other illicit activities.

Following the entry into force of the Portuguese law that implemented the 4th AML Directive, almost all the supervisory authorities for each sector of activity have approved new sets of regulations.

As a result, it is expected that, in the coming year, the supervisory authorities will begin to carry out checks on entities obliged to comply with the AML duties and this may lead to administrative offences or even criminal proceedings.

Furthermore, in 2020 Portugal shall transpose the 5th AML Directive, which will have an impact on obliged entities, which will have to amend their compliance policies.

Arbitration is thriving in Portugal. The 2012 UNCITRAL Model Law based Arbitration Act has been a success from the outset and the arbitration community has been active in creating legal doctrine and domestic soft-laws (including an IBA inspired arbitration code of ethics). The state courts and Portuguese judges have been instrumental in this success, not only with pro-arbitration court decisions, notably from the Court of Appeal and Supreme Court, but also as participants in the development of Portuguese arbitration, embracing international doctrine and case law which has been consistently referenced in their decisions.

The demand for Portuguese arbitration practitioners is increasing, especially in Sub-Saharan Africa, with a particular focus on intricate and highly complex infrastructure and construction disputes.

Other ADR mechanisms have not been as successful as arbitration. Nevertheless, mediation is expected to grow in the coming years, not only based on already in force pro-mediation national and European legislation, but also fuelled by international trends and the recent Singapore Convention.

In general, Portuguese dispute resolution practitioners are very well prepared to work in an international market. The growth and variety of foreign investment in Portugal has tested and proved their ability to adapt and accommodate clients from different cultural and legal backgrounds.

Portuguese law firms, especially the ones with the most reputable 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.

By: Rita Samoreno Gomes, Alexandra Mota Gomes, António Júdice Moreira and Bárbara de Bastos Viegas