PORTUGAL: An Introduction to Dispute Resolution

An Introduction to Dispute Resolution 

After experiencing a pandemic-driven record fall in gross domestic product (GDP) of 8.4% in 2020, Portugal’s economy rebounded in 2021 with growth of 4.8%. This positive trend continued in 2022, with a GDP growth of 6.7%. However, in 2023, economic growth slowed to 2.5%, a trend that persisted into 2024, with growth further decreasing to 1.7%.

In the first half of 2024, economic growth decelerated due to subdued external demand and weak business sentiment. Additionally, the conclusion of the 2014-2020 EU cohesion funds cycle, which allowed spending until the end of 2023, led to a substantial slowdown in investment growth at the start of the year.

Despite these challenges, private consumption picked up in the second quarter of 2024, driven by a significant increase in overall employee remuneration. In the external sector, exports and imports grew at similar rates.

Among the main business sectors, services, particularly tourism, continued to bolster the economy, although there was some moderation. In contrast, the manufacturing sector faced significant difficulties primarily due to weak external demand for goods.

Economic activity is projected to rebound to 1.9% in 2025 and 2.1% in 2026, primarily driven by domestic demand. Private consumption is expected to benefit from growth in real wages, while the accelerated implementation of the Recovery and Resilience Plan is set to boost investments. Additionally, the recent moderation in interest rates is likely to support both private consumption and investments. In the external sector, foreign tourism is anticipated to remain an important growth factor, though its impact will be less significant than in recent years.

Portugal’s general government surplus is expected to decrease, with surpluses projected to be 0.9% in 2024, 0.6% in 2025, and 0.4% in 2026. This decline is due to rising pressures on current expenditure and revenue fiscal policy measures that deteriorate the balance. However, there are more favourable prospects for gross public debt, which is forecasted to be 95.7% of GDP in 2024, 92.9% in 2025, and 90.5% in 2026, showing a consistent downward trend in public debt.

On Sunday, 10 March  2024, Portugal held an election to choose members of the “Assembleia da República” (the Portuguese Parliament), following Prime Minister António Costa’s resignation in November 2023. Mr Costa resigned amidst corruption allegations and an investigation into his administration’s misuse of funds. The government elected in 2022, led by Prime Minister Costa, was already unstable by the time of the election, with the resignation of 11 Secretaries of State and 2 Ministers by the summer of 2023.

The 2024 election meant a reshuffle of the 230-seat Assembly and a decline in support for the Socialist Party (PS), now led by Pedro Nuno Santos. The election results saw the centre-right Democratic Alliance (led by Luís Montenegro), consisting of the Social Democratic Party (PSD), CDS – People’s Party (CDS–PP), and People’s Monarchist Party (PPM), win 79 seats. The PS secured only 77 seats, while the far-right Chega party came third with 48 seats, indicating a clear shift to the right.

To achieve a majority of 116 seats in the assembly, forming an alliance with Chega would numerically make the most sense for Mr Montenegro (the leader of the Democratic Alliance). However, the Democratic Alliance (DA) leader repeatedly ruled out any deal with Chega due to the nature of its leader, André Ventura, whose views Mr Montenegro describes as “often xenophobic, racist, populist, and excessively demagogic”. This stance places the Democratic Alliance (DA) leader in a challenging position, which may result in elections being called before the four-year term has ended. Some speculate that the government will not last beyond the end of 2025, when the 2026 budget will be discussed and voted on in Parliament.

Regarding the social landscape, and in a surprising turn of events, the appointment of Mr Montenegro as the Prime Minister of Portugal has yielded some notable and unexpected outcomes. Mr Montenegro, a figure associated with more conservative policies, has succeeded in fostering a sense of social peace. This achievement is particularly striking given the challenges faced by the previous left-wing administration.

Under Mr Montenegro’s leadership, significant strides have been made in addressing long-standing issues that plagued the public sector. The relationship between the government and public servants, which had been fraught with tension and unrest under the previous regime, has seen some improvements.

However, the question remains whether this trend can be maintained in the longer term. As economic, social and political conditions fluctuate and new challenges arise, the resilience of Mr Montenegro’s strategies will be put to the test.

As to the legal trends that emerged or solidified in 2024, and are expected to evolve in 2025, cases related to competition breaches and general consumer rights violations are not only becoming more frequent but also more significant, given the number of actions and the total amount being claimed. Impressively, data from 2024 indicated that the Portuguese jurisdiction was the third highest in terms of the value of claims of this nature, with only the UK and the Netherlands seeing higher amounts being claimed. This is possibly justified by the particularities of the Portuguese representative action system (opt-out) and the evident appeal of the jurisdiction to third-party funders, which are heavily investing in cases in Portugal. It is also possible that some claims are being tried in Portugal as a testing ground for subsequent actions in more prominent jurisdictions.

While M&A activity slowdown in 2024, disputes surrounding these operations have persisted, driven by the sophistication of the market, rising conflicting interests amongst and within companies, as well as by parties seeking to recover value in a less dynamic market. Conversely, the real estate market has remained dynamic, and disputes in this sector are on the rise, typically associated with an active and flourishing market.

The courts and arbitral tribunals continued to handle numerous cases focused on contract performance and remedies for non-performance. However, the judicial system remains slower than ideal, which unfortunately contributes to reduced national competitiveness. Nonetheless, it is a reliable system with low susceptibility to corruption. Although there are specialised courts (such as competition, IP, and commercial courts), they unfortunately lack judges who are truly specialised. For companies that can access them, arbitral tribunals continue to be regularly used to compensate for the deficiencies of the system.

The legal market in Portugal is considered mature, featuring a mix of strong local firms and a few international ones. Among the top ten law firms, five are Portuguese, three are Spanish, and two are from the United Kingdom. The top three firms, based on revenue, are well-established Portuguese entities. Notably, Pérez-Llorca entered the Portuguese market in mid-2024. While the extent and effects of Pérez-Llorca’s Portuguese operations remain uncertain, their entry is anticipated to affect the market, particularly regarding competitors’ market shares and the recruitment dynamics between firms.