Litigation and arbitration in Portugal: 2024 analysis and forecast
January 2024
Here is our 2024 forecast of the main developments and trends in litigation and arbitration in the Portuguese market.
2. Civil and criminal proceedings
3. Insolvency and restructuring
5. General contract terms and consumer litigation
6. Representative actions and competition offences
1. Digital law and AI
We predict that 2024 will see growth in digital litigation, with big tech proving to be an increasingly attractive target for representative actions brought by consumer associations, not only to seek injunctions but also compensation.
- After the Portuguese Association for Consumer Protection - DECO sued Facebook in 2018 for hundreds of millions of euros in a representative action for redress measures and compensation that ended shortly afterwards in a settlement, between 2022 and 2023 Ius Omnibus, a recently formed consumer association, filed representative actions against Google (Play Store), Apple, Sony (PlayStation) and TikTok. Similar actions are expected to emerge soon in Portugal given that this is a sector where there has been a deluge of regulatory changes and intense activity by regulators.
- In addition, issues such as protecting copyright over press articles used by digital platforms or using and accessing personal data for targeted advertising will, in our view, continue to give rise to high-value litigation in 2024 thanks to the rules imposed by EU legislation aimed at consolidating the single digital market, i.e. the Digital Markets Regulation (Regulation (EU) 2022/1925 of the European Parliament and of the Council of 14 September) and the Digital Services Regulation (Regulation (EU) 2022/2065 of the European Parliament and of the Council of 19 October 2022). This will most certainly give rise to new challenges for the main players in this market in terms of complying with their obligations and guaranteeing the security of online users and consumer protection.
- On the other hand, the imminent approval of the European Artificial Intelligence (AI) Regulation, which classifies AI systems according to the level of risk (minimal, limited, high or unacceptable) that they pose to health, safety, democracy and the law, will also bring important compliance challenges and might give rise to litigation between creators, suppliers and users of AI systems.
2. Civil and criminal proceedings
Civil proceedings are expected to suffer disruptions and delays due to strikes by court staff. Criminal proceedings are expected to be dominated by cases investigated by the European Public Prosecutor's Office or relating to grants and state aid, as well as by trials in some of the “mega” cases involving former government officials and other high-level public figures.
- 2024 is expected to be yet another year marred by delays and postponed (non-urgent) civil and criminal court cases due to the successive strikes by court clerks. This situation is expected to continue and could worsen given that the revision of the clerks’ statute has not progressed owing to the president of Portugal’s decision to dissolve parliament on 7 December 2023.
- In criminal matters, following the first charge brought by the European Public Prosecutor’s Office in Portugal on 6 December 2023 for alleged intra-Community VAT fraud, the European Public Prosecutor’s Office is expected to move forward with other cases in 2024 and bring charges for damaging the European Union’s financial interests (e.g. for intra-Community VAT fraud crimes or crimes of fraud to obtain grants or other financial support from the European Union).
- It is also probable that in 2024 possible irregularities in rolling out grants and state aid programmes, including the Recovery and Resilience Plan, could give rise to new cases.
- The Public Prosecutor's Office will continue to focus on corruption in the public and private sectors, malfeasance, influence peddling, money laundering and tax fraud, with the year also marked by the start of trials in some of the most notable cases of recent years in Portugal involving former government officials and high-ranking state figures.
- Finally, in view of the parliamentary elections in March 2024 and the circumstances that led to the fall of the government, an intense public debate is expected on legislative initiatives regarding the criminalisation of illicit enrichment and the likely regulation of lobbying.
3. Insolvency and restructuring
The number of insolvencies and restructurings is likely to continue to rise significantly during 2024, but no substantial legislative developments are expected.
- Insolvency and corporate recovery activities have risen exponentially since May 2023, mainly affecting small companies and particularly those from the services, construction and retail sectors. This upward trend is expected to continue in 2024, as the impact of economic instability and rising financing costs affect even more companies, including medium-sized and large companies.
- It is not possible to predict what, if any, legislative developments there will be in 2024 owing to the prime minister’s resignation, the dissolution of parliament and the scheduling of new elections for March 2024, the outcome of which remains uncertain.
- The Portuguese legal system underwent a major reform in 2022 as a result of the transposition of Directive (EU) 2019/1023, which introduced the main changes that the legal community had been demanding for years.
- The Supreme Court of Justice is expected to clarify how insolvency administrators’ remuneration is calculated, which is perhaps the most controversial aspect of the 2022 reform and on which there are still differing interpretations today.
4. International arbitration
International arbitration is expected to grow in 2024, along with alternative forms of dispute resolution, such as dispute boards and mediation. It is also anticipated that Madrid’s position as the seat of international arbitration (particularly for Latin American cases) will be consolidated as a result of the CIAM’s work. It is expected that Portugal’s Commercial Arbitration Centre will be able to take on the same role for arbitration in Portuguese-speaking countries.
- In international arbitration, disputes in the renewable energy sector will continue, both in the pre-contractual and contract negotiation phases and in the construction and operation of projects.
- We also expect the trend towards major arbitration for oil and gas supply contracts to continue, particularly when price adjustments are required.
- The development of major infrastructure projects in various parts of the world (particularly in Latin America) will also give rise to important disputes, which will be resolved through international arbitration.
- However, in large construction projects we envisage alternative dispute resolution methods, such as dispute boards, being used as a step prior to arbitration to speed up the resolution of disputes and to hopefully prevent them from consolidating and escalating.
- Other alternative dispute resolution methods, such as mediation, will continue to be progressively introduced. These alternative dispute resolution systems, which could end in arbitration (if no agreement is reached), will lead to the inclusion of escalation clauses in contracts.
- It will also be important to see how the changes to the regulations of the Madrid International Arbitration Centre develop, which should play an important role in administering international arbitration taking into account Madrid’s growing importance as a seat of arbitration.
- Finally, investment arbitration is expected to consolidate its expansion into less traditional areas, such as disputes arising from tax measures or related to international sanction regimes.
- At the same time, it will be necessary to closely monitor the implementation of the Code of Conduct for Arbitrators in International Investment Dispute Resolution, which was drawn up by the United Nations Commission on International Trade Law and ICSID and published in October 2023. It could have an impact not only on investment arbitration practice, but on international arbitration in general.
- We expect corporate dispute arbitration to increase in Portugal, particularly in relation to shareholders’ agreements and purchasing and selling shareholdings. We also expect arbitration relating to building works to continue, especially in relation to price reviews.
- In addition, the Lisbon Commercial Association Arbitration Centre has sought to establish itself as the institution of choice for arbitration in disputes involving investments and contracts in Portuguese-speaking countries, particularly Angola and Mozambique, and it is hoped that this commitment will begin to yield positive results in 2024.
5. General contract terms and consumer litigation
An upward trend in litigation regarding general contractual clauses and consumption is expected, particularly in matters such as unfair commercial practices, misleading advertising and e-commerce infringements, mainly due to the increased involvement of consumer associations, private financing initiatives in this area, and the possibility of representative actions being brought by qualified foreign entities.
- The upward trend in disputes is expected to continue in relation to general contractual clauses and consumption, particularly in matters such as unfair commercial practices, misleading advertising and non-compliance with the rules applicable to e-commerce.
- The main impetus for this type of litigation has been ASAE’s (Portugal’s Economic and Food Safety Authority) growing interest in e-commerce, together with the emergence of consumer associations that are specialising in these matters and using the representative action mechanism. These associations have already filed dozens of actions and it is expected that they will continue in this vein by covering every business sector, from banking to food retail, as well as various types of conduct, from general contractual clauses to non-compliance with labelling rules and misleading advertising.
- Furthermore, the adoption of Decree-Law 114-A/2023 of 5 December, which transposed Directive (EU) 2020/1828 (“DL 114-A/2023”) on representative actions for the protection of consumer rights and interests, should lead to an increase in consumer litigation because it introduced a specific framework for private funding of this type of litigation.
6. Representative actions and competition offences
Alongside an upturn in the Competition Authority’s sanctioning activity, Portugal will continue to see a high number of representative actions for competition offences, both follow-on and stand-alone actions, driven by a favourable legislative framework and particularly active consumer associations, supported by litigation financing funds.
- The Competition Authority is expected to resume its investigations into anti-competitive practices, following a year marked by changes in its board of directors and some judicial setbacks.
- 2024 is expected to be marked by a considerable number of cases, both at the administrative stage and in judicial appeals against the Competition Authority’s decisions.
- On the latter point, there will be significant developments in the pending appeals regarding investigations into the banking sector and private hospitals, among others, particularly before the higher courts and the Constitutional Court.
- Important developments are also expected in the area of private enforcement. Since 2019, when the first private enforcement actions based on Directive 2014/104/EU of the European Parliament and of the Council of 26 November 2014 (“Damages Directive”) and Law 23/2018 of 5 June (“Law 23/2018”), which transposes it, were brought in the context of the so-called Truck Cartel, Portugal has seen a veritable boom in actions for damages for competition offences. There have been both private enforcement representative actions and stand-alone actions, many of which have had the support of litigation funders or third-party funders and are driven by newly formed consumer associations, such as Ius Omnibus and Citizens’ Voice, which joined the Portuguese Association for Consumer Protection - DECO.
- Portuguese courts are expected to have a vast workload in this type of litigation, driven by these consumer associations and the existence of a favourable legislative framework in the form of the 1995 Representative Action Law (“LAP”), plus recently enacted Decree-Law 114-A/2023 of 5 December, mentioned above.
- Bearing in mind that the LAP had already given consumer associations broad standing to sue and established an opt-out scheme, the main provisions introduced by Decree-Law 114-A/2023 (in addition to cross-border actions) relate to the regulation of the use of third-party funding in representative actions. This is reflected in the establishment of tighter rules on the independence of consumer associations and the management of conflicts of interest vis-à-vis third-party funders, as well as limits on the remuneration of the latter and rules for their processing.
- It is expected that this new legislation will bring greater clarity and legal certainty to an issue - the use of third-party funding in representative actions - that has caused many disputes between respondents and consumer associations.
- We are also expecting the higher courts of Portugal to clarify and consolidate the case law on the interpretation and application of Law 23/2018 on proving damage, after two conflicting judgments were handed down by the Intellectual Property, Competition, Regulation and Supervision Division of the Lisbon Court of Appeal[1] in cases involving the Truck Cartel. The first judgment concluded that the European Commission’s sanctioning decision was not sufficient to prove the existence of damage, whereas the second – which concluded the contrary and set the damage at 5% of the price paid for the trucks based on a judicial estimate – is now under appeal before the Supreme Court of Justice.
- Finally, there are a number of follow-on actions to the Competition Authority’s decisions in the pipeline for 2024, from the actions relating to the investigation into the banking sector to the alleged hub-and-spoke cartels in the food distribution sector, which promise to test the capacity of national courts to manage and decide legally and technically complex cases in which the issues of proof and quantification of damages will be decisive.
7. ESG litigation
The expected approval of the proposal for a Directive on corporate sustainability due diligence, with new obligations for large companies and a particularly demanding sanctioning and civil liability regime, could give rise to more ESG litigation.
- The Council and the European Parliament recently reached a provisional agreement on the Directive on corporate sustainability due diligence, which means that we can expect it to be formally adopted in the coming months.
- This Directive aims to prevent the adverse impact (potential or actual) of business activities on human rights and the environment. It establishes obligations to integrate due diligence into corporate policies and measures to detect, assess, prevent, mitigate and remedy adverse effects on human rights and the environment. These measures affect the company itself, its subsidiaries, as well as its value chain and business partners.
- The Directive will apply to large companies (by number of employees and worldwide turnover) based in the EU, as well as non-EU companies with a net turnover in the EU that exceeds certain thresholds. Financial services have been temporarily excluded from the scope of the Directive.
- Failure to comply with obligations under the Directive could result in the independent national authority designated by each Member State imposing sanctions, which are intended to act as a deterrent and could amount to up to 5 per cent of the company’s net turnover.
- In addition, a civil liability regime is established that allows parties to claim compensation for damage suffered as a result of the breach of these measures. This civil liability regime includes a five-year limitation period, broad legal standing in favour of civil society organisations, a cap on court costs and specific rules on evidence and precautionary measures.
- Also in terms of ESG, 2024 will certainly be marked by developments in the legal action filed at the end of 2023 in the Lisbon Central Civil Court by three environmental groups - Último Recurso, Quercus and Sciaena - against the Portuguese state for breaching the Climate Framework Law (i.e. its law to tackle climate change), through which they seek, among other measures, that the state be ordered to adopt necessary and sufficient measures to ensure a reduction (compared to 2005 figures) of at least 55 per cent in greenhouse gas emissions by 2030. The claimants want the measures to be implemented within three months of the judgment taking effect.
- Moreover, we believe that this action will make 2024 a milestone in terms of ESG, and could serve as a model for similar future actions against large companies under the Directive.
8. EU litigation
We can expect to see an increase in references for preliminary rulings, state aid disputes and consumer, technology and digital disputes in Portugal in 2024 as a result of the growth in EU legislation in these areas.
- It is expected that in 2024 there will be an increase in EU litigation, mainly in areas such as consumer affairs, data protection, technology and digital. This is partly because these are rapidly changing sectors that have seen many recent legislative reforms and significant activity from regulators.
- Similarly to 2023, an increasing number of references for preliminary rulings from national courts to the Court of Justice of the EU are expected. For some time the Portuguese courts have been referring an increased number of preliminary questions to the Court of Justice of the EU in specific areas such as competition, consumer affairs and taxation. This is a trend that seems to be common to most Member States, as a result of increasing EU legislative activity, guidelines and rules in general that apply at a national level.
- The reform of the Statute of the Court of Justice of the EU may also bring about some changes in this area, since it is envisaged that the Court of Justice may transfer jurisdiction for preliminary rulings in specific areas to the General Court (such as some aspects of taxation, transport and the environment), while the General Court will retain jurisdiction in matters of principle, such as those involving the interpretation of the Treaties or the Charter of Fundamental Rights.
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[1] Judgment of 12 September 2023 in case 12/19.0YQSTR.L1 and judgment of 6 November 2023 in case 54/19.6YQSTR.L1.
