Introduction to litigation and dispute resolution in Portugal

Litigation in Portugal is a dynamic legal landscape, providing a platform for resolving a diverse array of disputes.

Portugal’s legal framework’s efficiency is reflected in the World Bank’s “Doing Business” 2020 report, where the country ranks 38th in the “Enforcement of Contracts” indicator. This metric indicates the efficiency with which contracts are enforced, providing businesses and individuals with confidence in the reliability of the legal system.

Types of Litigation

The Portuguese legal system is characterized by its adaptability to various types of litigation. Civil and commercial litigation form the bedrock of legal disputes in the country, with administrative and tax disputes accounting for a lesser volume of disputes.

The Portuguese Court System

The Portuguese court system is structured to handle different types of litigation, ensuring access to justice and fair resolution of disputes. The hierarchy consists of three levels: first-instance courts, appeal courts, and the Supreme Court of Justice.

1. First Instance Courts: These are the trial courts where cases are initially heard. They are divided into civil, criminal, and administrative branches, with specialized judges presiding over each area.
2. Appeal Courts: If parties are dissatisfied with the decision of a first-instance court, they can appeal to the appropriate appeal court. These courts review the legal aspects of the case and may order a retrial or uphold the initial decision.
3. Supreme Court of Justice: This is the highest court in Portugal, primarily dealing with issues of significant legal importance. It functions as the court of last resort and ensures the uniform interpretation of the law.

The judicial efficiency is further underlined by the country’s emphasis on alternative dispute resolution (ADR) mechanisms. Portugal encourages mediation and arbitration, offering litigants a means to resolve disputes outside the traditional court system. A well-regulated ADR framework supplements the court system, providing parties flexible and tailored solutions to their disputes.

Foreign Creditors’ Rights

For foreign creditors seeking redress in Portugal, it is crucial to understand the legal framework that governs their rights and the mechanisms available for debt recovery.

1. Recognition and Enforcement of Foreign Judgments: Portugal recognizes the principle of reciprocity in enforcing foreign judgments. Foreign creditors can seek recognition and enforcement of their judgments in Portuguese courts, subject to certain conditions and procedural requirements.
2. Insolvency Proceedings: Foreign creditors may participate in insolvency proceedings when dealing with an insolvent debtor. Portugal has a comprehensive insolvency regime provides for the equitable distribution of assets among creditors.
3. Alternative Dispute Resolution (ADR): To avoid lengthy court proceedings, parties, including foreign creditors, can explore alternative dispute resolution methods such as mediation and arbitration. These mechanisms offer a more expeditious and cost-effective way to resolve disputes.

The country’s commitment to international agreements facilitates recognizing and enforcing foreign judgments. Portugal is a party to the Hague Convention on Choice of Court Agreements and an EU Member-State, possibly taping into tools to streamline the process for recognizing and enforcing foreign judgments.

In some instances, and depending on the application of specific requirements, it is possible to make use of alternative and faster debt recovery procedures, namely through:

1. Injunction Procedure: serves as an expedited method for creditors to recover debts, offering a swift resolution for uncontested debt claims. It begins with the creditor issuing an injunction order to compile the defendant to pay the debt or contest it within a specified timeframe. If the defendants do not oppose, the injunction order becomes final, allowing the creditor to start collecting procedures by seizing and, if possible, selling the debtor’s assets.

2. Court of Julgados de Paz: these specialized courts aim to resolve minor civil disputes with a low claim amount in a more accessible, informal and expedited manner. These courts operate on the principles of conciliation, seeking amicable settlements between the parties, mainly concerning minor civil matters such as consumer issues, neighbourhood conflicts, and small claims.

Breach of contract under Portuguese law

According to Portuguese law, contractual agreements require parties to fulfil their obligations as specified in the contract. The obligation of good faith complements this general standard of performance, compelling parties to carry out their contractual duties with integrity and honesty.

Commercial contracts, while subject to this overarching standard, have distinctive features. Goods delivered under a commercial contract must align with the agreed-upon quantities, quality, and other stipulated features. Scholars in Portugal argue that this principle has shifted the paradigm from the classic caveat emptor model, where buyers are responsible for assessing goods, to a caveat venditor model, where sellers are now responsible for ensuring that goods meet contractual standards, particularly evident in consumer contracts.

Within the rigorous framework of performance standards, breaches in commercial contracts can manifest in three primary forms: non-compliance, delayed performance, and defective or improper performance. Under certain conditions, these breaches may entitle the party who suffered damage to terminate the contract or seek compensation for those damages.

To pursue compensation for breach of contract, the non-breaching party must establish several legal prerequisites.

Remedies for Breach of Contracts

In the instance of a breach of a contract, the Portuguese legal system provides various remedies for the aggrieved party.

The non-breaching party can initiate declarative proceedings, seeking a court order to compel the breaching party to fulfil their contractual obligations. If successful, the creditor can then pursue enforcement proceedings should the debtor fail to comply voluntarily with the court’s decision.

Additionally, the injured party has the right to seek economic compensation from the breaching party for damages incurred, including any loss of profits resulting from the breach. Notably, in Portugal, damages are viewed as compensatory rather than punitive.

Termination of the contract is another recourse available to the non-breaching party, but such termination is deemed lawful only in severe and definitive non-performance cases. Mere delays in performance (mora) generally do not confer the right to terminate. In delayed performance, the non-breaching party can terminate the contract only if it is no longer interested in its execution or provided the defaulting party with a reasonable opportunity to rectify the breach.

Upon contract termination, the non-breaching party is entitled to claim economic compensation for the damages suffered. The precise calculation of this compensation remains a subject of contention within the Portuguese legal landscape.

Lastly, non-breaching parties can resort to interim measures, which are expedited judicial proceedings in Portugal. These measures protect the interests of the non-breaching party while the main proceedings unfold. For instance, such measures may involve seizing the debtor’s assets to secure the eventual satisfaction of the judgment. This swift and provisional legal remedy ensures that the non-breaching party’s rights are safeguarded throughout the primary legal proceedings.

Asset recovery

Portuguese law provides fraud victims with both criminal and civil remedies. Victims can seek recovery and damages through civil courts, though asset tracing and specific evidence gathering for fraud cases are not generally available. In criminal proceedings, victims can participate as civil parties, allowing for asset recovery claims and access to extensive investigative powers. Therefore, bringing asset recovery claims within criminal proceedings is often more advantageous, with options like asset seizure and evidence-gathering procedures being unavailable in civil cases.

Asset tracing and recovery often require collaboration and cooperation with multiple stakeholders, including law enforcement agencies, financial institutions, and international counterparts.

Selecting a legal team for litigation

Engaging a reputable law firm is instrumental in navigating the complexities and delays of litigation in Portugal. A proficient law firm serves as a strategic partner, offering expertise in legal strategy, case preparation, and navigating the nuances of the Portuguese legal system. The experience of such firms, often reflected in a track record of successful cases, inspires confidence in clients facing a spectrum of legal challenges.

GFDL Advogados regularly assists foreign and domestic companies regarding asset or debt recovery or collection in Portugal.

We have extensive experience in representing foreign clients in relation to business disputes in several sectors. We also assist with undisputed and unpaid debts.

We advise clients on their exposures to distressed companies, debt recovery, and cross-border insolvency procedures. Our team provides a strategic approach to debt collection, mainly where other interests are at stake.

If it is in the client’s best interest, we endeavour to settle cases out of court. Our team is experienced in negotiating settlements at every stage of the process.

We are also acquainted with using multiple pre-litigation and litigation strategies and dispute resolution models. We act on our client’s behalf and assist them during every procedural stage of court proceedings where litigation cannot be avoided.

We advise on the use of precautionary and interim measures to ensure our client’s rights are preserved. Our business-oriented practice provides pragmatic advice so that each client can make an informed commercial decision on the best legal action to take.

Our team also has a comprehensive knowledge of the discrepancies between local and foreign debt collection systems.

Disclaimer

This publication or document contains general information and is not intended to be comprehensive nor to provide legal or tax advice or services. It should not be acted upon, relied upon, or used as a basis for any decision or action that may affect you or your business. Professional legal advice should be requested for specific cases. We do not undertake any continuing obligation to advise on future legal amendments or of the impact on the conclusions herein. Prior results do not guarantee a similar outcome. The contents of this publication or document may not be reproduced, in whole or in part, without the express consent of GFDL Advogados.