Portugal: Dispute Resolution
The economic indicators in 2019 and early 2020 suggested that the Portuguese economy was on a growth curve and that Portugal was in fact emerging from the economic crisis, but COVID-19 came to severely change the outlook as the economic activity reversed sharply in March. Tourism has been of course the most affected sector (until September 2020, the tourism sector, which in 2019 was the country's largest economic export activity, lost EUR7.7 billion in revenue, a 56% decrease comparing to 2019), but other sectors such as catering, cultural activities, and industry were seriously affected and/or have seen their activity strongly limited at some point. Other sectors were able to maintain a more normal level of activity, as they were able to adapt to remote working.
Despite the adverse context, Portugal was then presented as a good example in the management of the COVID-19 pandemic, due to self-discipline of the Portuguese population, the country's geographical location and the early measures taken by the Portuguese government when comparing to other European countries. From May to October 2020, with less restrictions, the economic activity slowly picked up for many businesses - in any case, naturally below its pre-pandemic level.
The last couple of months were marked however by a major setback in terms of the control of the pandemic and Portugal started 2021 weathering one of the worst pandemic surges in the world with its health system on brink of collapse and a new and strict lockdown, accentuating the natural uncertainty surrounding the economic impact of the COVID-19 pandemic.
Notwithstanding the uncertainty, the Portuguese Government expects the GDP to recover significantly in 2021 (+5.4%), after a historic fall of 8.5% in 2020, and to reach the pre-pandemic level in 2022, and even expects Portugal to end 2021 with a better economic performance than Spain, France or Italy. The Portuguese Government also estimates a reduction in the public deficit from 7.3% to 4.3%, the reduction of the public debt from 134.8% to 130.9% of the GDP and an increase of the public investment above 20%, largely justified by the execution of structural investments in sustainable mobility, health infrastructures, digital transaction in education and investments in the context of the new Recovery and Resilience Plan. The main measures of economic and budgetary politics to be implemented aim at protecting income, supporting companies, increasing public investment and reinforcing the health system and public education system. The unemployment rate is expected to go down from 8.7% in 2020 to 8.2% in 2021, and the exports of goods and services are expected to grow by 10.9% and imports by 7.2%, recovering from last year’s 22% and 17.9% falls.
The economic activity is obviously expected to recover substantially once the pandemic is brought under control, but the effective impact of the pandemic in the economy will depend, first and foremost, on how long this second lockdown will last and on how quickly each sector will be able to return to the pre-pandemic economic indicators. As per the real estate sector, one of the drivers of the economy in the past years, prices are expected to fall in the second semester of 2021, but the interest in the Portuguese real estate market is expected to remain high in the medium and long term.
Justice was naturally also affected by the pandemic, with a range of measures being approved in order to implement the various constraints that affect the normal and regular operation of the courts, including, between March and June 2020 and again to be approved in January 2021, the suspension of all procedural deadlines in non-urgent proceedings, including under arbitrations seated in Portugal, without prejudice of the possibility of the parties agreeing to proceed with the proceedings and participate in acts that would normally require the physical presence of all participants, as well as acts that are generally performed by electronic means through the use of the computer platforms that allow the electronic performance of the acts in question or other appropriate distance communication means. After a three months suspension the judicial system was able to respond quite properly, avoiding the collapse that some anticipated.
The Justice’s budget for 2021 amounts to EUR1,495.3 million, a 3.3% increase compared to 2019, EUR44 million of which goes towards financing works and construction in buildings such as courts, prisons, and judicial police facilities and being one of the key objectives to continue with the digital transformation of the Justice sector (the Recovery and Resilience Plan includes a EUR240 million investment to execute in a 6-year period from 2021). A major challenge for 2021 is also the fight against corruption and in this context the National Strategy to Combat Corruption was presented in September 2020.
2020 has been marked by legislative developments associated with COVID-19, with several exceptional measures being implemented to mitigate the economic impact of the pandemic. In this context, it is worth mentioning Law nº 75/2020, published on November 27, 2020, that, amongst others measures, created an extraordinary viability process for companies affected by the financial crisis arising from the COVID-19 pandemic. It is also worth mentioning that the Bank of Portugal put a draft of the Banking Activity Code to public discussion which is considered the major reform of the 1992 General Regime of Credit Institutions and Financial Companies. Also, in 2021, Portugal should be transposing two directives: Directive (EU) 2019/790 on copyright and related rights in the Digital Single Market and Directive (EU) 2019/771 on certain aspects concerning contracts for the sale of goods.
As for the litigation market, 2020 turned out to be a good year and 2021 is also expected to bring a significant volume of work, despite the adverse context and the uncertainty surrounding it. There are already disputes emerging from the pandemic: debt restructuring will continue to grow, contracts are being stressed and parties are seeking to exit or amend transactions, family law disputes have been growing exponentially and banking, corporate and financial litigation is also likely to arise. On the other hand, class action proceedings, mainly in competition cases, have been increasing and will most likely continue to increase, particularly if linked to third-party funding. In this respect, we are looking forward to seeing how the recent Directive (EU) 2020/1828, on representative actions for the protection of the collective interests of consumers, published on 4 December 2020, will be transposed to the national law. The long-term litigation related to BES’ collapse will also continue to dominate the litigation market in the upcoming years.
The arbitration market is strong as well. In fact, as a result of the pandemic, problems with the performance of contracts are occurring and will continue to occur, which will lead to an increase in the number of disputes and, thus, in the number of arbitration cases. Also, notwithstanding the current lockdown and the likely approval of new measures affecting all proceedings, it is expected that just like in 2020, many arbitration proceedings will continue through distance communication means. Many arbitral institutions are adopting new rules and guidelines to adapt to the current crisis, notably by promoting the use of new technologies in the context of arbitration proceedings (article 26 of the 2021 ICC Arbitration Rules now confirms that arbitral tribunals may decide, after consulting the parties, that any hearing will be conducted remotely).
The arbitration community in Portugal is also not standing still: discussion forums continue active, now through online events like webinars, and new associations are emerging (in particular, of young arbitration practitioners) and the Commercial Arbitration Centre of the Portuguese Chamber of Commerce and Industry, the oldest Portuguese arbitration centre, is reforming its current arbitration regulations and enacting new arbitration regulations for specific areas of law (corporate law, administrative law, etc.).
In short, 2020 was a challenging year and many of those challenges will remain in 2021, but, despite the global crisis the world is experiencing, notwithstanding the temporary slowdowns and lockdowns, the dispute resolution market in Portugal has shown to be well-prepared to adapt to this new reality, has been able to keep pace, to turn challenges into opportunities, and is doing overall quite well.
By: Sofia Vaz Sampaio and Ricardo Nascimento Ferreira