Analysis and expectations for 2023 in litigation and arbitration in the Iberian market

As in previous years, we set out Uría Menéndez’s view regarding the main developments and trends that could affect litigation and arbitration practice in the Iberian market throughout the rest of 2023.

1. Significant legislative developments expected in civil litigation

2. International arbitration

3. Corporate criminal law

4. Digital law and cybersecurity

5. Environmental and climate change litigation

6. Insolvency law

7. Class actions

8. Consumers: general conditions and litigation

9. Damage arising from competition law infringements

10. Insurance conflicts

11. International sanctions

1. Significant legislative developments expected in civil litigation

Three significant legislative reforms acquired the status of bills of law in Spain in 2022: the Basic Law for Organisational Efficiency of the Public Justice System (Ley Orgánica de eficiencia organizativa del servicio público de Justicia), the Law on Measures for Procedural Efficiency of the Public Justice System (Ley de medidas de eficiencia procesal del servicio público de Justicia), and the Law on Measures for Digital Efficiency of the Public Justice System (Ley de medidas de eficiencia digital del servicio público de Justicia). They are currently going through the Spanish parliamentary system.

The first of these planned regulations could involve an in-depth reorganisation of the courts through the creation of first-instance multi-judge courts instead of the current first-instance structure based on single-person bodies, the definitive implementation of the office of the court throughout Spain and the introduction of offices of justice at a municipal level.

The second regulation is intended to reform a broad range of procedural law issues, including the use of electronic means and the promotion of alternative dispute resolution mechanisms. It also aims to streamline proceedings in the civil courts by extending the scope of oral hearings, reducing the holding of hearings and making it easier to issue oral rulings. The concept of the “leading case” (pleito testigo) will also be introduced.

The third regulation is focused on technological aspects that can modernise and increase the flexibility of the Spanish procedural system. It includes rules on records, case files and electronic communications, remote hearings and mechanisms for the digital identification of parties to proceedings. The aim is to develop the interoperability of the different technological systems used by the courts.

These regulations are expected to be approved in 2023, although this might be subject to change depending on electoral calendars.

The courts have returned to normal in Portugal and are expected to recover their normal routine during 2023, following the lengthy delays caused by the pandemic. However, the proposed reform of Portugal’s Civil Procedural Code that was presented in December 2021 has expired and neither the government nor any political party has expressed an intention to introduce significant new reforms to Portuguese civil procedural law.

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2. International arbitration

Given the growing investment in renewable energy projects (driven by the United Nations’ Sustainable Development Goals and by Next Generation EU funds), it is highly likely that new conflicts will arise with regard to the pre-contractual and execution phases of these projects (and their operation). These conflicts will mainly be resolved through international arbitration. Problems involving gas supply due to the Ukraine war and the resulting increase in gas prices will also cause new energy-related conflicts that will be resolved by means of arbitration.

Commercial arbitration will see continued growth in the use of innovative forms of evidence and interaction (including the metaverse), particularly for construction and infrastructure projects. There will also be ongoing expansion in terms of third-party funding of litigation and arbitration, which will also give rise to an increase in arbitration disputes.

In investment arbitration, potential recessions in developing economies could give rise to legislative and regulatory changes that affect foreign investments. This may trigger a corresponding increase in investment arbitrations.

Spain will continue to develop as a seat for international arbitration involving Latin American and European parties, with Madrid at the forefront. This trend will be significantly bolstered by settled case-law of the Spanish Constitutional Court in support of arbitration, the suitability of Spain as a seat and the impact of the Madrid International Arbitration Center (CIAM).

Portugal’s legal and business communities have welcomed the new rules on arbitration, expedited arbitration, business arbitration and mediation adopted in 2021 by the country’s leading arbitration centre, the Arbitration Centre of the Portuguese Chamber of Commerce and Industry, which are being successfully applied.

Listed below are some of the recent publications by Uría Menéndez in this area:

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3. Corporate criminal law

In Spain, internal investigations have continued to be the focal point of significant criminal proceedings as an internal mechanism for companies to respond to evidence of potential criminal activity in the context of their activity. However, there are still no clear legal or case-law reference points regarding the effects that these investigations should have on determining the criminal liability of legal persons. As some of those proceedings are now at an advanced stage, there may be noteworthy case-law developments in this regard during 2023.

There are also legislative initiatives that, if approved in 2023, could have a significant impact on internal investigations and criminal proceedings concerning circumstances that companies internally uncover. The main development would be the approval of the “Law on the protection of persons reporting regulatory breaches and on the fight against corruption” (“Ley reguladora de la protección de las personas que informen sobre infracciones normativas y de lucha contra la corrupción”), commonly known as the Law on Whistleblowing. As the bill is currently drafted, several aspects of the future regulation could have an impact on the commencement and development of internal investigations, such as how internal whistleblowing channels should be designed (including the possibility of anonymous reporting), the implementation of a three-month time limits for internal investigations, the need to allow persons under investigation to be heard during investigations and the obligation to “immediately” notify the public prosecutor when there is evidence that the whistleblowing report concerns criminal activity.

Added to this are other potential legislative developments during the year in Spain, such as the possible “Law on the protection of human rights, sustainability and due diligence in multinational corporate activities”, which is currently in the process of being drafted and could introduce new corporate compliance obligations,as well as the need for internal investigations of potential breaches. This potential law would follow the lines established in the proposal for a Directive of the European Parliament and of the Council on corporate sustainability due diligence published on 23 February 2022.

In Portugal, the public prosecutor office is expected to take a highly proactive role during 2023 in investigating potential corruption offences (particularly in the area of public procurement) and fraud relating to public funding and grants, in view of the high volume of European funds that will be distributed to implement the recovery and resilience facility that is part of the Next Generation EU programme. The public prosecutor office referred in May 2022 that the Portuguese recovery and resilience programme lacked adequate mechanisms to prevent potential criminal fraud and corruption. The public prosecutor office is hence expected to focus on the allocation of these funds.

In addition, the new general corruption prevention regime came into effect on 7 June 2022 (Decree-Law no. 109-E/2021 of 9 December). It is expected that the public prosecutor office will particularly focus on investigating potential criminal offences involving public entities and private businesses with 50 or more employees, which are required to implement prevention mechanisms targeted at corruption, money laundering, improper advantage (recebimento indevido de vantagem and concussão), embezzlement, public officials’ involvement in business, abuse of power, malfeasance in judicial, administrative and disciplinary proceedings and misconduct in public office (prevaricação), influence-peddling, benefit fraud and misappropriation of funds or credit. In addition to the foregoing, the National Anti-Corruption Mechanism administrative entity approved by Portaria (Administrative Regulation) no. 164/2022 of 23 June has been operating since 7 November 2022.

Finally, 2023 is expected to see significant efforts from Portuguese businesses to fulfil the compliance duties established in Law 93/2021 of 20 December (which transposed Directive (EU) 2019/1937 of the European Parliament and of the Council of 23 October 2019 on the protection of persons who report breaches of Union law), which implements the whistleblower protection mechanism, and in Decree-Law 109-E/2021 of 9 December, which establishes the general regime for the prevention of corruption and related offences. According to this regulation, businesses with 50 or more employees are obliged to implement a whistleblowing channel, a risk prevention plan in respect of corruption and related offences and a related code of conduct and training plan, all coordinated by a compliance officer.

Listed below are some of the recent publications by Uría Menéndez in this area:

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4. Digital law and cybersecurity

2022 continued the trend of previous years in the areas of technology and digitalisation: increasingly intense business digitalisation. Beyond the consolidation of remote working and the implementation of associated measures, 2022 has seen companies introducing hybrid workplace models that allow people to work in an integrated and secure way that combines in-office and remote work. These two trends have continued to shape corporate decision-making regarding technology, consolidating the need for organisations to use secure tools and technology and leading to the allocation of increasing amounts of resources to this area.

In this context, technology risks are increasing year by year – particularly those arising from cybersecurity incidents and personal data breaches affecting the confidentiality, integrity or availability of data. This is observed, for example, in the Spanish Data Protection Agency’s monthly publications of data and statistics on corporate notifications of security breaches.

In Portugal, 2022 also saw an increase in cybersecurity breaches across all sectors (media groups, telecommunications companies and airlines), which triggered an increase in inspections and hence in sanctions issued by the Portuguese Data Protection Authority. For example, sanctions have recently been imposed on public-sector entities (particularly the municipalities of Lisbon and Setubal and Statistics Portugal (Portugal’s national statistics institute)). This indicates growing concern over compliance with laws regulating citizen privacy and rights.

Another noteworthy digital issue is the range of regulation approved by the European Union in 2022 or pending approval over the coming months. The EU has displayed its intention to remain at the global forefront of digital law. 2022 saw the approval of regulations with major ramifications for the digital market, including the Digital Services Act Package (which includes the Digital Services Act [1] and the Digital Markets Act [2]), and to create a European data market, such as the Data Governance Act [3]. In procedural terms, these laws will help to define higher levels of diligence that can be required of companies in relation to complaints arising from technological incidents.

Listed below are some of the recent publications by Uría Menéndez in this area:

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5. Environmental and climate change litigation

Regarding environmental issues, 2022 saw a continuation of the trend observed in previous years: higher case numbers and an evolution of the type of actions and proceedings filed before administrative bodies and the courts. Environmental, social and governance issues have been on the public agenda in recent years, generating significant litigation on an international level and particularly in the Netherlands, the United Kingdom, Germany and the United States.

Several factors explain this trend: greater social and corporate awareness, increasingly complex and demanding regulation (mainly driven by the European Union), and the existence of ever more active and sophisticated associations and entities.

Widely reported court rulings have forced governments in countries such as the Netherlands, Ireland, France and Germany to change their laws to include stricter targets for the reduction of greenhouse gas emissions. In addition to litigation challenging administrative provisions and acts, there have been rulings directly affecting major emitters. In the “Shell case” (still pending appeal at second instance), the Hague District Court ordered the whole Shell group to cut its emissions by 45% across its entire supply chain by 2030.

In the Spanish and Portuguese Spanish legal systems, attempts to use the courts to protect the environment and make Spain and Portugal comply with their international climate change targets are expected to continue to grow in 2023. This may include claims for damages in some cases.

Greenwashing is one of the main potential sources of litigation. Increasingly demanding environmental transparency obligations and the trend to present a “green” public image for all corporate activities and products may produce litigation in areas such as misleading advertising and consumer protection. A Directive is expected to be approved in 2023 that will attempt to define and limit this practice. The second potential source of litigation is the current energy crisis and discussions regarding the ongoing European Union energy transition programme and international agreements (such as the Paris Agreement). And third is corporate liability for supply chains, with the expectation that the European Union will approve a regulation that requires companies with activity in the European market to supervise, prevent and rectify environmental and human rights abuses throughout their supply chain, including suppliers and sub-contractors.

In Spain, the Supreme Court will have to rule in 2023 on the contentious administrative appeal that several environmental associations have filed to challenge the Integrated National Energy and Climate Plan (Plan Nacional Integrado de Energía y Clima), seeking more ambitious action against climate change. A successful appeal would affect multiple sectors and activities.

In Portugal, environmental activists have already stated their intention to file actions against the Portuguese State for its alleged failure to introduce the regulation required to meet the greenhouse gas emission reduction targets established in the Paris Agreement, as well as for not having acted in accordance with the “European Climate Law” approved by Regulation (EU) 2021/1119 of the European Parliament and of the Council of 30 June 2021 establishing the framework for achieving climate neutrality and other European instruments.

The decision of the Grand Chamber of the European Court of Human Rights in the action filed by a group of Portuguese individuals against 33 countries is also being eagerly awaited. The claimants are alleging that the forest fires that have occurred annually in Portugal since 2017 are the direct result of global warming and are endangering their health, and that climate change is causing severe storms during the winter that are endangering their homes close to the coast in Lisbon (Duarte Agostinho and Others vs. Portugal and Others, case no. 39371/20).

Listed below is a recent publication by Uría Menéndez in this area:

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6. Insolvency law

2023 will be an important year for insolvency in Spain. A combination of various legislative developments and the national and international economic outlook mean that Spanish companies can expect to face a difficult year.

Law 16/2022 of 5 September has transposed Directive (EU) 2019/1023 on restructuring and insolvency. This law introduces essential insolvency-related reforms and also reinforces pre-insolvency instruments to facilitate business restructuring, offering parties (from a position of greater balance between the interests of creditors and debtors) far more flexibility to avoid a declaration of insolvency leading to the impairment of assets.

Even if insolvency cannot be avoided, the law establishes optimal mechanisms (in terms of speed and legal certainty for purchasers) for the transfer of businesses or their productive units, which will mean their value can be preserved and minimise the harm caused to business and employment.

It will also be time to examine whether the desired return of all insolvency powers for the commercial courts results in an overload of cases for those courts.

Finally, it will be the right moment to analyse how the largest ever insolvency experiment has worked: the special procedure for micro-enterprises, which will completely bypass the ordinary insolvency procedure. The generally small size of Spanish businesses makes this special procedure highly likely to play an unexpectedly important role.

In Portugal, following two successive years of drops, the number of businesses in insolvency is expected to increase by between 16% and 20% in 2023 owing to the end of the bank moratorium and rising interest rates, inflation and energy bills.

This means that 2023 will put to the test the new insolvency and particularly pre-insolvency regulation that came into force on 11 April 2022 (following the reform of insolvency law introduced by Law no. 9/2022 of 11 January, which transported Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019, which establishes measures to support and increase the efficiency of procedures concerning business restructuring and discharge of debt).

Pre-insolvency debt restructuring procedures (“special revitalisation procedures”) subject to the creditor class approval system are expected to occur in numbers for the first time, with significant litigation expected in this respect. In addition, clarification is anticipated – if not legislative, at least through case-law – regarding the remuneration of insolvency administrators, which has drastically increased with the legislative reform of 2022 and could now amount to 10% of the asset liquidation proceeds depending on how the law is interpreted.

Listed below are some of the recent publications by Uría Menéndez in this area:

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7. Class actions

The class action trends we have observed in recent years can be expected to persist in 2023. Companies offering mass-market products and services have faced class action over allegedly abusive practices in addition to multi-case claims, whether in the form of individual actions bundled together in a single proceeding or via the simultaneous filing of individual actions across various courts.

The transposition of the recently approved Representative Actions Directive, with which the European Union intends to stimulate recourse to class actions for damages or restitution (which the Directive describes as redress actions), is expected in 2023. Spain’s Council of Ministers has approved a bill of law to be processed via the emergency mechanism to transpose the Directive. This crucial regulation will mean a paradigm shift in the functioning and dynamics of these kinds of procedures.

In Portugal, class actions are expected to continue to grow in number and scale during 2023, owing to increasing citizen awareness regarding the importance of public-interest issues (consumer law, environment, cultural heritage, transferable securities and financial instruments, etc.) and the increased number and sophistication of associations and law firms that are becoming experts in these areas, in addition to interest from international funds in covering the costs of these types of litigation. The Portuguese government is expected to transpose Directive (EU) 2020/1828 on representative actions for the protection of the collective interests of consumers in 2023. This may cause the reform of the popular action, which is the class action established in Portuguese law since 1995.

Listed below is a recent publication by Uría Menéndez in this area:

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8. Consumers: general conditions and litigation

Intense levels of consumer litigation activity are expected to continue in Spain. Actions concerning standard contractual terms will continue in the financial industry and will become increasingly prominent in other areas such as insurance, energy, telecommunications and real estate, particularly leases. It is important to bear in mind that since August 2022, the commercial courts have ceased to be competent to hear class actions regarding standard contractual terms. Competence has been shifted to the first-instance courts, which will undoubtedly cause significant changes to the dynamics of these kinds of proceedings.

ECJ case-law is also expected to develop in view of the pending issuance of preliminary rulings on significant issues, a large proportion of which have been referred by the Spanish Supreme Court, in areas including the scope of oversight of transparency in class actions for injunctions, floor clauses, mortgage reference index clauses and the initial calculation date of the limitation period for actions seeking restitution of sums paid under so-called expense clauses in mortgages.

There will also be high-profile litigation in relation to usury, particularly based on the latest Supreme Court rulings regarding revolving cards or credits that have significantly affected the existing case-law. There may be a move from these instruments to others, such as those relating to customer finance agreements for the acquisition of consumer goods.

Finally, the possibility of disputes directly arising from the energy and supply crises cannot be ruled out, particularly in relation to provisions for the amendment of contractual terms (such as price increase, delivery period amendment or service cancellation clauses) linked to these circumstances.

In Portugal, the government is expected to transpose Directive (EU) 2020/1828 on representative actions for the protection of the collective interests of consumers, which may give rise to increased litigation in this area.

However, the litigiousness of consumers during 2023 will largely depend on external factors, particularly the duration and level of increase in interest rates, energy costs and inflation in general, as well as their impacts on consumers.

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9. Damage arising from competition law infringements

Everything points to a continued increase in legal activity involving damages claims resulting from competition law infringements in 2023. This was more of a theoretical possibility than a reality only a few years ago, but Spain’s courts are now facing thousands of claims of this kind. And with each new sanction or threatened potential sanction from the authorities, the focus immediately shifts to the potential redress that might ensue.

The proliferation of these kinds of proceedings in Spain is increasing the workload of the commercial courts, with concerning effects in many cases in terms of the duration of proceedings. Litigation regarding the “trucks cartel” case is now being succeeded by claims with respect to private vehicles and all of these processes are giving rise to significant rulings from the European Court of Justice (Judgment of 22 June 2022 on the temporal scope of the five-year limitation period established in Directive 2014/104 in the “trucks cartel”) and from the Supreme Court (Order of 13 October 2022 on type of hearing and territorial competence). Other significant Spanish Supreme Court decisions expected during 2023 may clarify key aspects of these types of claim.

In Portugal, the Competition Authority (Autoridade da Concorrência) is expected to remain highly active in the investigation and penalisation of competition infringements across all sectors of the economy, in addition to publicly (and immediately) disclosing accusations and penalties imposed in the proceedings it has pursued. This will inform customers in allegedly or potentially affected markets of the existence of these procedures and any penalties that have been imposed.

2023 will therefore see a considerable amount of this litigation in Portugal, both at the administrative stage and in terms of Competition Authority decisions declaring infringements being challenged before the courts. At the same time, a substantial increase is also anticipated in private enforcement actions, particularly via class actions, with the appearance of associations and law firms specialising in this area alongside international funds interested in covering the costs of such litigation.

Listed below are some of the recent publications by Uría Menéndez in this area:

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10. Insurance conflicts

Business interruption owing to the pandemic and the increased number and scale of cyberattacks and extreme natural events suggest a gradual increase in the amount of insurance litigation.

In Spain, 2023 is expected to continue to produce high levels of litigation related to the pandemic in terms of business interruption coverage. Various rulings were issued by provincial courts during 2022 that have developed specific positions on coverage based on the type of insurance and specific contractual clauses. It will be necessary to be attentive to any rulings from the Supreme Court and their impact on litigation.

D&O civil liability insurance will foreseeably continue to be a notable source of court proceedings. This is firstly due to the sector-specific regulation applicable to these groups in areas such as environmental, social and governance (ESG) and insolvency (end of insolvency moratorium and recent reform of Insolvency Law as regards classification section). The impact of the macroeconomic situation on corporate liquidity and profitability could also cause an increase in claims against directors and officers (derivative tax liability, individual and corporate liability actions, etc.), affecting D&O policy coverage.

In a continuation of the previous year’s trend, increasing numbers of cyberattacks and cyber threats are being detected, particularly following the outbreak of war in Ukraine. These issues will create potential claims under cyber-risk policies, including business interruption coverage, as well as potentially affecting D&O insurance for hypothetical breaches of duties by directors and officers in this area.

A gradual increase in the amount of insurance litigation is expected in Portugal during 2023 as a result of the number and scale of extreme natural events in 2022 (fires, heatwaves, droughts, floods, strong winds, etc.). The scope of exclusions established in insurance policies will be particularly subject to dispute.

In the event of disputes between beneficiaries and insurers, many beneficiaries will be likely to follow the pattern of 2022 and turn to the Insurance Information, Mediation, Ombudsman and Arbitration Centre (CIMPAS), which is an insurance arbitration tribunal. This trend is expected to continue over the next few years as a result of climate change and the recurrence of these kinds of event.

Listed below is a recent publication by an Uría Menéndez attorney in this area:

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11. International sanctions

The invasion of Ukraine has caused an unprecedented international reaction, mainly from members of the G7 and the European Union. This has resulted in a wide range of sanctions targeting Russian interests, including against natural and legal persons. In the case of the European Union, restrictive measures have been aimed at individuals close to the Russian government (such as politicians, businesspersons and government advisors), financial entities with links to the government and even the media (including Russia Today). These restrictive measures have also been applied to the Belarussian government, albeit to a lesser extent.

The measures have caused an increase in litigation before European Union courts and particularly the General Court, which has jurisdiction to hear appeals against acts by the European institutions. Natural and legal persons included on lists of persons subject to restrictive measures can be expected to appeal those decisions in 2023, as they have been doing in 2022. In addition to the filing of new appeals in 2023, rulings issued by the General Court over the next year can also be expected to be appealed before the Court of Justice.

Although the Spanish and Portuguese courts do not hear direct appeals against the European Union’s restrictive measures, the Spanish and Portuguese authorities are responsible for implementing the sanctions regime, and particularly for ensuring proper compliance and tackling attempts at evasion. If conduct of this nature is detected, the measures implemented by the Spanish or Portuguese authorities will be subject to appeal and litigation before their national courts.

The sanctions may also have effects in terms of arbitration and litigation in the sense that conflicts are likely to arise where sanctions have rendered certain parties unable to comply with their contractual obligations.

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