Answer ... Collective actions are admissible under Portuguese law for the pursuit of diffuse interests – such as cases involving public health, environment, consumer protection, cultural heritage or public domain collective interests – as well as individual homogeneous interests, as per Law 83/95, which establishes an opt-out system.
There are also several laws which specifically provide for collective redress, such as:
- Law 23/2018, which transposed the EU Damages Directive (2014/104); and
- Law 58/2019, which enacted the EU General Data Protection Regulation.
The Class Actions Act contains no provisions on third-party funding, meaning that there are no specific rules to guide the parties or the courts on this subject.
The system, however, is already being tested, since several private enforcement and consumer protection class actions have been filed in recent years by consumer associations with third-party funding.
The main difficulties that third-party funding in class actions raises involve transparency and management of conflicts of interest, which in the case of the Class Action Act are compounded by the fact that it provides for a lump-sum compensation system when the members of the class are not individually identified, which is the norm in opt-out systems. According to Article 22 of the Class Action Act, the lump-sum compensation is then distributed by the members of the class who file a request for payment, with the residual value that is not claimed within three years reverting to a public fund aimed at supporting class actions, which is managed by the Ministry of Justice.
When third-party funders are involved, their remuneration must come out of the lump-sum compensation – which not only is something that is not contemplated in the Class Actions Act, but also seems to be at odds with the principle that any unclaimed compensations must revert to the public fund.
Furthermore, the terms of the funding (which will most likely include coverage of the consumer association’s own administrative and legal costs) and remuneration will in principle be negotiated beforehand with the consumer association. This is where, theoretically, conflicts of interest may arise and the interests of the members of class can be put at risk.
On the other hand, the Class Actions Act establishes a very favourable regime on court costs for the plaintiffs, including exemption of costs for consumer associations, which raises the question of whether this regime should apply when third-party funders are involved in multi-million damages claims.
Many of these concerns have been addressed in the EU Class Actions Directive (2020/1828), which provides in Article 10.1 that:
Member States shall ensure that, where a representative action for redress measures is funded by a third party, insofar as allowed in accordance with national law, conflicts of interests are prevented and that funding by third parties that have an economic interest in the bringing or the outcome of the representative action for redress measures does not divert the representative action away from the protection of the collective interests of consumers.
Although member states should adopt and apply the Class Actions Directive by 25 December 2022 and 25 June 2023, respectively, Portugal is still to issue legislation for this purpose, including regulating third-party funding in class actions. In the meantime, therefore, it is up to the courts to adjudicate on the ongoing discussions between consumer associations and corporations on whether and how third-party funding can be used in class actions, based on the existing legislation and principles of law and – most importantly – the specifics of each case.