Portugal: Litigation Funding Comparative Guide

1 Commercial legal finance basics

1.1 How is commercial legal finance defined in your jurisdiction?

Although this concept is not expressly defined in Portuguese law, ‘commercial legal finance' is understood to mean the total or partial financing of a lawsuit by a third party that has no interest in the litigation. This third party, which is completely unrelated to the dispute, bears the costs of the lawsuit of one of the parties – usually the plaintiff, but sometimes the defendant in case of counterclaims. These costs may include lawyers' fees, the costs of legal opinions, the costs of hiring other experts and court fees, among others.

Initially, this type of funding usually arose in the context of arbitration, where disputes tend to have a higher monetary value and a greater degree of complexity and sophistication than court claims. However, more recently, given the surge in consumer-related class actions in the Portuguese courts, third-party funding is increasingly found in judicial disputes.

1.2 How does commercial legal finance differ from consumer litigation finance and contingency agreements?

Consumer legal finance as such is virtually non-existent in Portugal, except in the context of class actions, which tend to be more complex and have higher values than other types of litigation. In such cases, the relevant class is often represented by a consumer association, with sophisticated lawyers.

Contingency agreements under which the legal adviser charges nothing to the client unless the case is successful, in which case it takes a percentage of the award as remuneration, are prohibited and as such are null and void under Portuguese law.

Portuguese lawyers are bound by the Rules of the Portuguese Bar Association, established in Law 145/2015 (as amended), which prohibits pactum quota litis (ie, fee arrangements entered into between a lawyer and a client before the dispute in which the client is involved ends, whereby the lawyer's fees take the form of a percentage of the claim and depend exclusively of the outcome of the litigation).

1.3 What are the major legal finance products/solutions in your jurisdiction? (a) Single case fees and expenses; (b) Portfolio fees and expenses; (c) Monetisation of claims; (d) Monetisation of judgments and awards and (e) Other

Although the Portuguese legal finance market is still developing, with probably no more than a handful of cases being funded each year, several UK, US and European litigation funders have already put the country on their radar and have visiting the leading law firms to offer their services and pursue opportunities. Some have even established local branches and representatives. This means that the full array of solutions offered by reputable and well-established litigation funders are available in the Portuguese market.

1.4 In what areas of law is litigation finance most prevalent in your jurisdiction (eg, competition, insolvency, patents, contracts)?

Please refer to question 1.1. Although initially more prevalent in international and domestic arbitration cases, litigation finance is now becoming more commonly used in litigation – mostly in private enforcement and consumer protection cases relating to collective claims and class actions. As the accessibility and awareness of litigation finance solutions increase, third-party funding is expected to expand into other areas of litigation.

1.5 Who are the major players in the industry (eg, pure players, multi-strategy firms, start-ups)?

The major players in the Portuguese market are UK, US and European third-party funders, with consolidated practices and strong track records, which in our experience has facilitated the access to and availability of third-party funding. There are also some Iberian-based players with greater proximity and knowledge of the local market, many of which have former local litigation lawyers on their management and sales teams.

2 Legal framework

2.1 How mature is the market for legal finance in your jurisdiction? What types of commercial litigations and/or arbitrations may be funded by a third party?

Portugal continues to be a developing and peripheral market for third-party funding, especially when compared to other countries in Europe and across the globe. However, it has significant potential and Portugal is clearly on the radars of international funders, which regularly visit the country's main law firms to showcase their solutions and pursue new opportunities.

However, third-party funding is still making its way into corporation boardrooms, which is where the clients and real growth opportunities for litigation finance can be found.

Given that third-party funding is not regulated in Portugal, as described in question 2.2, there is in principle no immediate limitation with regard to the types of litigation or arbitration that can be funded by a third party. However, in some areas there are hurdles which must be taken into consideration.

2.2 Is there a dedicated legal finance regime in your jurisdiction? What other laws and regulations have relevance to legal finance in your jurisdiction?

Like many other European countries, Portugal has not introduced a specific national statutory or regulatory framework for third-party funding, although calls have been made for such regulation – especially in the wake of the recent resolution of the European Parliament on responsible private funding of litigation.

The first soft law rules on this matter appeared within the arbitration context at the end of 2020 and in 2021. They primarily focused on the duty of disclosure in order to ensure the independence and impartiality of the arbitrators.

However, the lack of specific regulation does not mean an absence of rules applicable to third-party funding. It simply means less certainty and clarity for parties that want to avail of third-party funding, because they will need to seek guidance from and take into account a number of general rules and principles.

The main points of concern are not exclusive to the Portuguese market and include matters such as:

• licensing of the activity itself;
• the independence and impartiality of arbitrators;
• conflicts of interest;
• the national courts' perceptions of third-party funding;
• the legal and ethical issues that third-party funding poses for lawyers; and
• possible interference with control and strategy in the proceedings.

Furthermore, the Code of Ethics published by the Portuguese Arbitration Association (APA) at the end of 2020 also applies to the parties' representatives (lawyers) and other participants in arbitration proceedings, and is binding on all APA members. This was the first time in Portuguese soft law that the matter of third-party funding was regulated. However, the main concern of the Code of Ethics is that the parties provide sufficient information on the participation of any third-party funder in order to avoid potential conflicts of interest with anyone involved in the case.

Finally, in an attempt to provide clarity and certainty on its scope of application, the new Code of Ethics defines a ‘third-party funder' as any natural or legal person which is not a party or legal representative of a party to the dispute that:

• contributes financial support (for consideration or for free), or other economic support, for the judgment of the claims of one of the parties to the dispute; and
• has an economic interest in the outcome of the dispute or a possible obligation to indemnify one of the parties as a consequence of such a result.

Finally, there are no known judgments of the Portuguese courts regarding third-party funding. However, this is likely to change in the near future since, as described in question 4, a heated debate remains ongoing about third-party funding in private enforcement and consumer-related class actions.

2.3 Which public sector bodies and authorities are responsible for enforcing the applicable laws and regulations? What powers do they have?

Please refer to question 2.2.

2.4 Do the rules and codes of any self-regulatory organisations or professional associations have relevance to legal finance in your jurisdiction? What powers do such organisations and associations have?

Please refer to question 2.2.

2.5 What is the general attitude towards legal finance in your jurisdiction among the courts and other relevant bodies?

Although it is not easy to find reliable statistics in this field, to the best of our knowledge, the years 2020 and 2021 saw the first cases of third-party funding in the Portuguese courts, as consumer associations filed class actions for private enforcement and consumer-related disputes.

Although the intervention of third-party funders in these types of litigation has prompted heated debate – including on issues such as conflicts of interest and even the legality of third-party funding in light of the Class Actions Act – there are as yet no known judgments of the Portuguese courts on these issues.

In our view – as with many other innovations in the legal market which were initially met with suspicion by local operators – third-party funding is here to stay. However, in order to thrive and respond to the needs of local businesses, it will require not only specific regulation to provide a legal framework which brings certainty, clarity and transparency to the market, but also the adaptation of some existing procedural rules and regulations, which will need to account for third-party funding. In the meantime, legal finance will need to comply with local laws and limitations.

2.6 Is legal finance considered consumer credit and is it captured by the relevant protective regulations in your jurisdiction?

Legal finance is not subject to a specific national statutory or regulatory framework. In addition, the Portuguese courts have not yet ruled on this issue either. This is mainly because this financing mechanism does not fit within any of the regulated structures that exist in Portugal:

• Third-party funders do not fall within any of the various categories of credit institutions or financial companies established the General Framework of Credit Institutions and Financial Companies. This is because their activities do not constitute any of the activities performed by these types of entities.
• Third-party funders do not fall within the scope of the pursuit of insurance activity set forth in the Legal Framework of the Taking Up and Pursuit of the Insurance and Reinsurance Activity, given that an essential element of such activities – payment of the premium – is missing in this case.

Although there is nothing to indicate that this is likely to happen, it cannot be excluded that the Central Bank may consider third-party litigation finance to constitute the pursuit of a lending activity, given that the characteristic performance of a loan involves the provision of funds by a lender and thus a loan should be deemed granted where funds are made available to the borrower. At the end of the day, if the contract between the litigant and the legal finance partner were found void, the litigant would be expected to repay the sum used in its case as though it were a loan.

The qualification under Portuguese law of lending as a regulated activity does not take into consideration the nature of the borrowers or the type of loan. The only exception to this principle is provided for in Article 9(2) of the Banking Law, which states that the following transactions will not be qualified as regulated credit/lending transactions:

• long-term loans and other forms of loans and advances between a company and its shareholders;
• credit granted by a company to its employees for social reasons;
• delayed or early payment agreed between the parties to contracts for the acquisition of goods or services;
• cash pooling, where legally permitted, between companies in a control or group relationship; and
• the issue of tickets or cards for payment of goods and services supplied by the issuing company.

3 Other risk-sharing models available to litigants and law firms

3.1 Are conditional (contingent or success) fee agreements permitted in your jurisdiction? In what circumstances are they typically used? What are the advantages and disadvantages for clients and for law firms?

Although, as mentioned in question 1.2, contingency agreements are prohibited, success fees for lawyers are allowed under Article 106, paragraph 3 of the Rules of the Portuguese Bar Association.

However, the Rules of the Portuguese Bar Association prohibit fee sharing. In particular, Article 107 provides that lawyers are forbidden to share fees, even in a form of commission or any other form of compensation, except with other lawyers, trainee lawyers or paralegals with whom they collaborate or to whom they provide assistance.

However, if the lawyers are not the funders (and are only paid by the funder to advise on the dispute), this rule is not breached, because in this case the lawyers are not sharing their fees – and third-party funders are not subject to these rules.

Lawyers are also prohibited from (directly or indirectly) soliciting clients pursuant to Article 89, paragraph (h) of the Rules of the Portuguese Bar Association. This means that they should be careful when exploring opportunities in the market, as they should not direct a third-party funder to finance a specific issue for the sole purpose of becoming the legal counsel assisting in that case – as the funder would end up paying the fees of those lawyers for advising the funded party, which could be considered to constitute solicitation.

3.2 What is the maximum contingency that is permitted (ie, up to 100% of hourly fees or something less)? Is there a cap on the amount of success fees lawyers can receive under such arrangements?

As mentioned in question 1.2, contingency fee arrangements – whereby payment is fully dependent on the outcome of a dispute – are prohibited and are therefore null and void. Furthermore, solicitation is also prohibited.

That said, success fees are allowed; although there are no specific rules or guidelines on how much the portion of the fees resulting from the outcome of the case should weigh overall. As a general rule, the portion of the fees based on the outcome should not significantly outweigh the fixed or hourly rate portion, in order not to be perceived as a way of circumventing the prohibition on contingency fees.

3.3 Are damages-based agreements permitted in your jurisdiction? In what circumstances are they typically used? What are the advantages and disadvantages for clients and for law firms?

Please refer to questions 3.1. and 3.2.

Portuguese lawyers are bound by the Rules of the Portuguese Bar Association, established in Law 145/2015 (as amended), Article 106 of which prohibits pactum quota litis (ie, agreements entered into between a lawyer and a client before the dispute in which the client is involved ends, under which the lawyer's fees depend exclusively on the outcome).

The purpose of this provision is to protect the integrity of the legal profession by considering null and void any agreement whereby a lawyer is paid only according to the outcome of the case or for a successful performance.

As long as lawyers or law firms are not themselves the funders (and are only legal counsel paid by the funder to provide legal assistance to the funded party), third-party funding does not seem to breach this provision.

Notably, in the event of a favourable ruling, the fact that a third-party funder benefits from a percentage of the proceeds obtained is not considered a form of quota litis because third-party funders are not subject to the Rules of the Portuguese Bar Association. However, this is still rather uncommon in Portugal; thus, it is not possible to indicate in which circumstances they are specifically used.

3.4 What other funding and/or risk-sharing options are available to litigants in your jurisdiction? In what circumstances are they typically used? What are the advantages and disadvantages for clients and for law firms?

In Portugal, there is a market practice which, although not the same as third-party funding, has some similar elements: the legal protection insurance contract. This corresponds to insurance cover for legal or judicial risks, which does not imply any supervision or accompaniment of the process, but merely involves the payment of expenses and fees up to the cover limit established in the insurance contract.

The advantages and disadvantages of this type of mechanism for both parties are the same as those resulting from a standard insurance contract. Therefore, although this option does not entirely replace the third-party mechanism, it does have a few similarities.

3.5 Are law firms in your jurisdiction allowed to have non-lawyer owners or non-lawyer shareholders?

In Portugal, law firms have no shareholders, but only partners; and according to Article 213 of the Rules of the Portuguese Bar Association, the partners of law firms must be lawyers.

It is also admissible – albeit very unusual – for law firms previously incorporated and registered with the Bar Association or associative organisations of professionals equivalent to lawyers incorporated in another EU member state to be partners of a law firm (as long as the majority of the capital and voting rights belongs to the professionals in question).

3.6 How do the available funding and risk-sharing options impact on the attitudes of corporate litigants about affirmative recovery programmes or the pursuit of high-value commercial claims more generally?

Please refer to question 3.3.

3.7 How do the range of funding and risk-sharing options available impact on the attitudes of law firms about their own business?

Please refer to question 3.3.

4 Collective actions

4.1 Is it possible to bring collective actions in your jurisdiction? If so, can they be funded by third parties? In those circumstances, how is the amount of the funder's return determined? Are there caps or other restrictions? Do such agreements require court approval?

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.

4.2 How significant is the funding of collective actions in your jurisdiction relative to the use of legal finance by individual commercial litigants?

Please refer to question 4.1. In Portugal, third-party funders seem to have entered the market mainly through consumer protection and private enforcement class actions; although, of course, information on this kind of litigation is publicly available, as opposed to financing by individual commercial litigants. We expect that going forward, third-party funding will probably be used in both collective redress cases and commercial litigation between corporations; but this will, of course, depend on how the courts adjudicate on the existing disputes on the use of legal finance in class actions and on how Portugal implements the Class Actions Directive.

5 Securing financing

5.1 What factors will a funder generally consider when evaluating whether to fund a case?

In our experience, third-party funders which are active in the Portuguese market seek high-value claims with good prospects of success, where return on investment compensates for the risks of funding.

Third-party funders will conduct rigorous legal due diligence on the dispute and the party's likelihood of success before deciding to provide funding.

Legal due diligence can be conducted by the third-party funder's in-house legal team; but in our experience – at least in Portugal – this assessment is usually provided by external law firms, which work closely with the third-party funder's legal team.

Besides the value of the claim and the prospects of success, other aspects – such as the capability of the opposing side to effectively pay compensation awarded, the possibility to enforce an award and the effectiveness and efficiency of the legal system as a whole – will be considered when deciding whether to fund.

5.2 What should a litigant or litigant's counsel look for in a legal finance partner?

From the litigant's perspective, a legal finance partner should provide just that: financing to ensure that the dispute can be managed efficiently and smoothly, including having the financial means to work with the best legal and expert advisers, in order to maximise the likelihood of success.

Although third-party funders should not get directly involved in legal advice and strategy for the dispute itself, given the third-party funder's interest in the outcome of the case and its overall experience in managing disputes, it can also be a valid partner and adviser.

That said, it is very important to have clear boundaries in relation to control of the strategy adopted during the dispute – particularly if settlement negotiations occur, which is when potentially conflicting views can emerge.

In addition, the litigant should always read the fine print in its contract with the legal finance partner.

5.3 What is the typical process for concluding the legal finance agreement?

Third-party funding is not regulated in Portugal, which means that there are no rules governing agreements between third-party funders and funded parties.

Therefore, parties have full discretion on what to include and how to regulate their relationship, and are limited only by the general rules of public policy (prohibition of excess; proportionality between the parties' obligations), good faith, abuse of rights and moral principles.

That said, all third-party funders have their standard forms of agreement which they tend to impose, with only limited parts relating to the commercial agreement being open to negotiation.

5.4 What terms does the legal finance agreement typically include?

Although third-party funding contracts are not regulated in Portugal, there has been an attempt to identify in them some of the characteristics found in regulated and standard contracts.

These include, according to some commentators, a form of joint venture – specifically an ‘association in partnership', as regulated by Decree-Law 231/81; while others contend that there are similarities with some forms of structured financial instruments, which constitute a form of funding to cover risks associated with company activity beyond the conventional ways that might be included in the balance sheet.

Despite any similarities with a partnership structure or a structured financial instrument, third-party funding has unique features that clearly set it apart. Thus, not only is it not regulated under Portuguese law, but it also does not match any of the extensive list of standard contracts in the Portuguese legal system, meaning that it is at the parties' discretion to define the terms of the funding agreements within the civil law limits.

Furthermore, in Portugal, as in many other jurisdictions, third-party funders will have their own standard forms with a common law framework and the natural advantage of coming from regulated markets that have dealt with the many problems that we have briefly touched upon in this Q&A for a long time. However, these factors should not be allowed to overshadow the need to factor in the particularities of the local market. Additionally, third-party funding agreements will always include confidentiality clauses or a separate non-disclosure agreement to which both parties are bound.

5.5 Do any caps apply to the funder's fees?

Please refer to question 5.3.

5.6 Can the funder terminate the legal finance agreement before the litigation has ended? If so, under what circumstances and what are the implications?

Please refer to question 5.3.

5.7 Under what circumstances (if any) must funding be approved by the court in advance?

Please refer to question 5.3. The absence of regulation is a cause of uncertainty, but – at least in relation to class actions – the courts have been called upon to rule on the admissibility of third-party funding or, better yet, whether the intervention of third-party funders alongside a consumer association is cause for challenging the consumer association's legal standing to sue.

The outcome of these matters will most certainly shape the way in which the market evolves.

5.8 Have there been notable disputes arising from legal finance agreements, and if so, what can a litigant or counsel do to avoid such disputes?

Please refer to question 2.5.

Furthermore, given that the Portuguese market is still relatively new, except for the specific situation of legal finance within class actions, there are no disputes regarding legal finance agreements that we are aware of.

5.9 Is the funder bound to fund any counterclaims arising from the funded litigation?

Please refer to question 5.3.

6 Purchasing a litigation claim, judgment or award

6.1 Can the funder purchase legal claims?

Given that there are no specific rules on this matter, general rules on the assignment of claims will apply.

In this regard, Article 578(1) of the Civil Code foresees that the effects of the assignment between the parties are defined in accordance with the business on which it is based.

Additionally, Portuguese law admits the validity of an assignment of claims regardless of the debtor's consent, provided that the following requirements are cumulatively met:

• There is no legal rule expressly prohibiting the assignment;
• There is no stipulation by the parties preventing the assignment; and
• The credit is not inherent to the person of the respective holder (accordingly, credits of a strictly personal nature cannot be assigned, such as a credit relating to a child's right to maintenance from his or her parents).

However, for the assignment of claims to be valid, the debtor must:

• provide information about the assignment (which can be done extrajudicially); or
• give its explicit or implicit consent to the assignment.

Despite this, it is rather typical for creditors (eg, banks) to assign their claims to third parties without informing the debtor of the assignment. Since Portuguese law provides that if the debtor is not properly informed, the assignment has no effect, in such case the debtor may object to paying the amount to the new creditor.

Following an assignment of claims, the assignee (ie, the person that bought the claim) must proceed with the procedural replacement of the assignor in the legal claim in order to participate in the legal action, as per Article 376 of the Civil Procedure Code.

6.2 How does a funder purchase a claim out of an insolvency?

Please see question 6.1.

6.3 Are final judgments and/or mere causes of action assignable in your jurisdiction and is there a regulatory framework governing this?

There are no specific rules in this respect under Portuguese law. As such, please refer to question 6.1.

7 Role of the funder

7.1 Can the funder influence the litigant's choice of counsel?

Please refer to questions 2.2 and 5.3.

The Rules of the Portuguese Bar Association strongly protect the independence of lawyers and prohibit solicitation, meaning that the client must be free to elect its counsel of choice without external interference. Furthermore, in our experience, where a party decides to resort to third-party funding, it will in most cases already have elected counsel of its choice.

7.2 Can the funder attend and/or participate in the court proceedings?

Please refer to questions 2.2 and 5.3. Also, while the general rule in Portugal is that court hearings are public – meaning that anyone can attend in principle – only parties to the proceedings can actually intervene or participate, which is not the case of third -party funders; unless, of course, they have purchased a claim.

7.3 Can the funder influence the acceptance or terms of a proposed settlement agreement?

Please refer to questions 2.2 and 5.3.

7.4 In what other ways can the funder participate in, and exert influence on, the litigation?

Please refer to questions 2.2 and 5.3.

8 Ethical considerations

8.1 In what circumstances (if any) is it necessary to disclose a legal finance agreement to the court or to the opposition? What specific information must be disclosed?

The duty to disclose third-party funding is still a matter of much debate, especially because in Portugal, as in many other jurisdictions, there is no express statutory obligation in this regard.

In any case, most practitioners consider (and rightly so, in our view) that – in arbitration at least – the funded party should disclose this information, because it can give rise to conflicts of interest which must be taken into consideration when electing the members of the tribunal.

Recently published Portuguese soft law incorporates and follows this approach. According to this soft law, not only must the parties and their representatives inform of any third-party funding agreement, but the arbitrators must also request this information before accepting any appointment, in order to properly weigh and verify whether there is anything that may affect their independence and impartiality or justify any disclosure.

Finally, the duty of disclosure foreseen in the Code of Ethics is also relevant in relation to a party's ability to pay adverse costs and may lead the arbitral tribunal to order the party concerned to pay security for costs.

Revealing the identity of the third-party funder triggers the arbitrators' duty to disclose any facts that an arbitrator believes might, in the eyes of the parties, raise questions or doubts as to his or her impartiality or independence.

The arbitrators' duties of impartiality and independence cannot be waived by the parties in the dispute, even in arbitration, because these duties are imposed not only to ensure that all parties receive fair treatment regarding the observance of the principles of due process, but also to ensure a fair and transparent justice and arbitral system.

Although these duties are imposed by law, there is no statutory definition of the impartiality and independence required of arbitrators, and Portuguese case law has been heavily reliant on soft law rules – in particular the International Bar Association Guidelines on Conflicts of Interest – to bolster these concepts and ascertain whether those principles are at risk of being infringed.

The above limitations and concerns do not, of course, typically apply to judicial litigation, where judges are bound by a set of rules, including limitations on exercise of other activities, which reduce the likelihood of such conflicts of interest emerging.

That said, for instance in class actions, for the reasons stated above, in our view the rule should – and following enactment of the Class Actions Directive shall – be full disclosure, including releasing a copy of the third-party funding agreement.

8.2 Are communications between the parties to the legal finance agreement subject to privilege in your jurisdiction?

Article 92 of the Rules of the Portuguese Bar Association establishes the rule of lawyer-client privilege, according to which lawyers have a duty of confidentiality regarding all information provided about a case.

Therefore, lawyers can only disclose information on a case to third-party funders subject to the client's waiver of lawyer-client privilege (which is usually regulated in the third-party funding agreement). Without the client's prior written consent, no information can be provided to any third party, with the exception of those facts that are absolutely necessary for the defence of the lawyers' own integrity, rights and legitimate interests, or those of their clients, and subject to prior authorisation from the chair of the regional bar association council.

Of course, this confidentiality rule does not extend to the funded party or to the third-party funder, as it arises from the nature of lawyers' professional duties, to which third-party funders are not bound.

However, third-party funding agreements will always include confidentiality clauses or a separate non-disclosure agreement to which both parties are bound.

8.3 Does the rule of attorney work product apply to documents generated for the purposes of securing legal finance in your jurisdiction?

Given that lawyer-client privilege is also applicable to documents, please refer to question 8.2.

However, this privilege is only applicable to documents produced by the lawyer for the client, so it will apply to the funder only if there is no lawyer-client relationship.

8.4 In what circumstances (if any) do rules about fee-splitting impact on the use and practice of legal finance?

Regarding legal counsel fees, please refer to question 3.1.

8.5 Do the doctrines of champerty and maintenance apply in your jurisdiction?

No. There is no parallel in Portuguese law.

8.6 Are there any types of proceedings (family, private prosecutions) for which funding is not permitted?

Please refer to questions 2.2 and 5.3.

9 Proceedings

9.1 What is the typical timeframe for first-instance proceedings in your jurisdiction?

According to the Ministry of Justice's Official Statistics, the average length of a case at first instance in 2021 and 2022 was:

• 30 months for civil justice;
• 7.5 months for criminal justice; and
• nine months for labour justice.

However, in our experience, complex high-value civil and commercial cases can take significantly longer – up to three to four years or even more. This will also depend on the workload of the courts – the Lisbon Commercial Court and administrative courts in general, for instance, are known to be much slower and inefficient.

9.2 What are the opportunities in the litigation process for a case to be struck out prior to a trial?

According to Article 595(1)(b) of the Civil Procedure Code, it is possible for a case to be decided by means of a despacho saneador-sentença (ie, a written or oral ruling of the judge at a pre-trial stage) if:

• the state of the proceedings so permits; and
• no further evidence is required for the total or partial judgment on the claim made or on any peremptory exception.

However, this is fairly unusual.

9.3 How much party discovery of evidence is permitted in your jurisdiction? Are there procedures for seeking or compelling evidence from non-parties?

Unlike common law countries, Portugal has no discovery phase where a party may obtain any information that pertains to any issue in the lawsuit from the counterparty. However, it is possible to request the court to order the counterparty (or a third party) to file specific categories of documents (not covered by legal privilege, such as client-solicitor privilege) that are relevant to the case; but these must be narrowly identified and be relevant to prove specific facts which are disputed.

More specifically, Article 432 of the Civil Procedural Code provides that if a relevant document is in the power of a non-party, a party may require the notification of its holder to hand it over at the registry within a set timeframe.

9.4 Are interlocutory appeals (appeals of non-final judgments) permitted during proceedings in the first instance?

As a general rule, it is only admissible to appeal final judgments. However, Portuguese law foresees that in exceptional cases it is possible to appeal interlocutory court decisions.

Accordingly, Article 644(2) of the Civil Procedure Code determines that interlocutory appeals are admissible (only) in the following cases:

• decisions assessing any impediment of the judge;
• decisions assessing the absolute lack of jurisdiction of the court;
• decisions about the stay of the proceedings;
• decisions on the admission or rejection of any pleading or means of evidence (including the partial rejection of any evidence request);
• decisions imposing a fine or any other penalty;
• decisions ordering the cancellation of any registration;
• decisions which it would be absolutely useless to challenge with the appeal of the final decision;
• decisions rendered after the final ruling; and
• other cases specially provided for by law where an appeal may be filed.

9.5 Are first-instance decisions commonly appealed in your jurisdiction? What is the typical timeframe for appeal proceedings?

Yes. Appeals against first instance decisions are fairly common.

In terms of timeframe, according to the Ministry of Justice's Official Statistics, in 2021 the average length of an appeal was three months, and in the Supreme Court three to six months.

Once again, in our experience, in complex high-value cases appeals can easily take up to 12 months – sometimes more.

There is also a bottleneck in the administrative courts, meaning that appeals take several years.

9.6 How are decisions typically enforced in your jurisdiction? What is the typical timeframe for enforcement proceedings?

If a definitive and binding court decision is not voluntarily complied with, it is necessary to initiate a judicial enforcement action against the debtor.

The enforcement of court decisions is a straightforward procedure, allowing for immediate attachment of the debtor's assets before notice of proceedings is served. Furthermore, although the debtor is entitled to oppose enforcement, when it is based on a final and binding award – as in no longer subject to appeal – grounds for opposition are limited.

According to the Ministry of Justice's Official Statistics, in 2021 and 2022 the average length of enforcement proceedings was 58 months.

9.7 Is there an automatic stay on enforcement pending appeal or under what circumstances is one granted? Are appeals from first instance granted as of right?

As a general rule, the Portuguese legal system provides that appeals do not have suspensive effect. The exceptions to this rule are for cases specifically provided for in Article 647(3) of the Civil Procedure Code (eg, appeals against the eviction of tenants or cases dealing with the legal status of individuals), where the appeal has a suspensive effect.

Moreover, in light of Article 647(4) of the Civil Procedure Code, the appeal may exceptionally have a suspensive effect upon the appellant's request, provided that the following conditions are met:

• Evidence is provided that the immediate enforcement of the decision would cause considerable damage; and
• A guarantee is offered and provided within the period set by the court.

While the judgment is pending appeal, the creditor cannot be paid without providing security, pursuant to Article 704(3) of the Civil Procedure Code.

10 Costs and insurance

10.1 Will the court order the losing party to pay the costs of the winning party? How else might costs be allocated between the parties and under what conditions?

According to Portuguese law, both judicial and arbitral courts decide how to allocate costs on the basis of the ‘loser pays' principle (ie, ‘costs follow the event'), which means that the winning party has the right to recover the costs of the claim (or at least part of them) from the other party.

The allocation of costs is limited in the judicial courts by legal criteria. In contrast, arbitral tribunals do not usually have specific rules in this regard and therefore, in practical terms, the allocation of adverse costs is left to the arbitrators' discretion, taking into account, among other aspects, the way in which the parties have conducted themselves during the proceedings.

10.2 Are some or all of the costs of funding recoverable by the winning party?

Please refer to question 10.1.

10.3 Can the court order costs against the litigation funder?

This is not foreseen in Portuguese law, because third-party funding is neither regulated nor considered. Therefore, according to the general rules, only the parties to the dispute can be ordered to pay costs. However, this has already been the subject of disputes and discussions, particularly in class actions and other forms of collective redress, which will probably lead to specific regulation on the subject in the near future.

10.4 Can the court order security for costs? If so, in what circumstances will it generally do so and how is this calculated and provided?

Although theoretically a party may apply for an order on security for costs by the counterparty, this is extremely rare in the Portuguese judicial system, where advances on costs are relatively modest and capped, and the adverse costs are also limited.

In arbitration, the situation is different and arbitral tribunals will order a party to pay security for costs if they have reason to believe that there is a significant risk that it will be unable to pay the adverse costs in the event of losing the case.

10.5 Is security for costs commonly ordered in funded litigation?

Please refer to question 10.4.

There are no known precedents for judicial courts to order security for costs in funded litigation, although we expect this to be a hot topic in the future – particularly in high-value consumer protection and private enforcement class actions.

In terms of arbitration, it is still too soon to say whether there is a trend in this regard in Portugal; although the fact that there is a third-party funder may, depending on the circumstances, be an indicator that otherwise the party in question would be unable to cover the costs and therefore cause for an order for security for costs.

10.6 Is after-the-event (ATE) insurance allowed in your jurisdiction? If so, how mature is the market?

This is not foreseen in Portuguese law.

10.7 In what circumstances is ATE insurance typically used? What are the advantages and disadvantages?

Please refer to question 10.6.

10.8 What other types of insurance are available for litigants in your jurisdiction? In what circumstances are they typically used? What are the advantages and disadvantages?

This is not foreseen in Portuguese law.

11 Trends and predictions

11.1 How would you describe the current legal finance landscape and prevailing trends in your jurisdiction?

Portugal continues to be a peripheral market for third-party funding, especially when compared to other countries in Europe and across the globe. However, the potential is significant and Portugal is thus on the radar of international funders, which regularly visit the country's main law firms to showcase their portfolios and pursue new opportunities.

Although legal finance first appeared in Portugal within the arbitration arena, it has recently been used in consumer protection and private enforcement high-value class actions, drawing the attention of a much larger audience.

On the one hand, this has resulted in considerable debate and controversy, the outcome of which remains to be seen; but on the other hand, the sudden notoriety of legal finance solutions may promote growth.

The question is whether legal finance will be limited to collective redress, where there is undisputedly a large and tempting market to explore, but also hurdles and limitations to overcome; or whether it will also expand into commercial and contract litigation. Only time will tell; but in our opinion, long-term sustainable growth depends on legal finance solutions being accessible to, and drawing the interest of, Portuguese business corporations as a valid and alternative source of funding.

Regulation is another important driver of the consolidation and growth of legal finance. In our view, it is only a question of time before regulation is imposed – most likely in the form of a European directive stemming from the resolution of the European Parliament on responsible private funding of litigation. A clear, concise, well-drawn-up legal framework, which provides certainty and transparency, would help to develop and consolidate legal finance, while avoiding disputes and controversy.

Until that happens, however, we will depend on the courts adjudicating on disputes surrounding the use of third-party funding based on the existing legislation and fundamental legal principles, and on tribunals and arbitration institutions enforcing the existing soft laws on the subject.

11.2 Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

Although we are not aware of any specific local legislative initiatives on the subject, EU member states should adopt and apply the Class Actions Directive by 25 December 2022 and 25 June 2023 respectively, which provides for certain rules regarding third-party funding.

This could be a good opportunity for broader reforms; but most likely, these much-needed regulations will materialise in Portugal only if and when the resolution of the European Parliament on responsible private funding of litigation bears fruit.

12 Tips and traps

12.1 What would be your recommendations for the smooth progress of funded litigation in your jurisdiction and what potential pitfalls would you highlight?

In our view, legal finance solutions have tremendous potential for growth in Portugal and can contribute positively to improving the litigation landscape by providing parties with access to funding for complex, high-value claims and risk-sharing solutions.

However, for the market to develop smoothly and transparently, self-regulation is in our view insufficient. Until such time as regulations are enacted, we will need to rely on ethical, transparent practices, including full disclosure – particularly in arbitrations and collective redress, where conflicts of interest are more likely to occur.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.