The Iberian financial sector is generating plenty of disputes, but while this may be lucrative work for lawyers in Lisbon, it is less so for those in Madrid
Financial sector-related disputes are common in both Spain and
Portugal at the moment. While class actions against banks are
becoming more popular in Spain, the fallout from the collapse of
major banks in Portugal continues. However, there is one important
distinction between the two jurisdictions, while advising clients
on disputes relating to the collapse of Portugal's Banco
Espírito Santo, for example, are a rich source of work for
law firms, banking-related cases in Spain are, in contrast, not
particularly lucrative, though lawyers accept the work in the
interests of maintaining good relations with clients. Lawyers
specialising in dispute resolution in Spain generally find richer
pickings in energy-related cases. With regard to alternative
dispute resolution (ADR), uptake in Spain is particularly slow,
however there is a feeling that Portugal is beginning to make some
notable progress in this respect.
There is more litigation than arbitration in Spain, according to
Gómez-Acebo & Pombo partner Francisco A. Peña. He
adds that there is a significant amount of litigation in the areas
of renewable energy and gas, with disputes occurring in the latter
sector due to "difficulties in fulfilling long-term gas supply
agreements". There are also many banking-related disputes,
however the bad news for lawyers is that such cases do not amount
to particularly lucrative work.
Class actions in fashion
Uría Menéndez partner Álvaro López
de Argumedo points out that there are now more "multi-tier
clauses" in contracts. Such clauses demand that parties
negotiate, and, if that fails, proceed to mediation and then to
arbitration. López de Argumedo adds that class actions are
becoming "more fashionable" in the financial sector
– highlighting the example of a recent case involving 1,200
consumers who are in dispute with banks in relation to terms and
conditions relating to mortgages.
Lawyers have highlighted the introduction of a new law on
international legal cooperation in civil matters as one of the
major developments in the last year and add that it will create
significant opportunities for law firms. The purpose of the new law
(Law 29/2015, of July 30, 2015) is to establish rules on
international judicial cooperation between Spanish and foreign
authorities in civil and commercial matters.
In recent years, most litigation has fallen into two distinct
categories – cases related to regulators and disputes
involving consumers, according to Rafael Murillo, partner at
Freshfields Bruckhaus Deringer. However, he adds that, in general,
there has been a decline in appetite for litigation. Murillo says
there has been a huge increase in claims by consumers and that,
given the approach of courts has changed, a large number of
consumer claims have been successful.
Financial institutions are now wondering whether they should try
and reach an agreement in consumer disputes relating to mortgages,
for example, because such claims are being accepted by the courts,
explains Baker & McKenzie´s Spain managing partner
José María Alonso, who is head of the firm's
litigation and arbitration department. He adds that, in such
instances, legal costs are incurred by the financial institutions.
However, Alonso says the defendants in such cases know that, if
they do not continue fighting such claims, there will be a growing
queue of people looking to bring similar cases. Meanwhile, he
explains that the modification of the criminal code in Spain means
lawyers are increasingly needed by clients to advise on
compliance.
Another new phenomenon is a rise in lawyers selling their services
to consumers in an effort to generate legal work, according to
Clifford Chance partner Iñigo Villoria. He adds:
"People are investing in legal business as there is less
certainty about what outcomes can be expected in courts."
Pérez-Llorca partner Guillermina Ester says that in 2016 we
will see more decisions made by the European Court of Justice that
will have a direct impact on ongoing cases in Spain, especially in
relation to banking litigation.
Banking litigation can be divided into that brought by "common consumers" and disputes involving "sophisticated consumers", says Cuatrecasas, Gonçalves Pereira partner Alfonso Iglesia. With regard to claims brought by sophisticated consumers, banks have often strong defences, he adds. Iglesia also highlights the trend for disputes related to price amendments in public-private partnerships (PPPs), and says that some of such cases are "now being seen in the criminal courts because they are being presented as potential fraud".
Cultural barriers
Villoria says mediation is not working in Spain as it is in
other jurisdictions, while Araoz & Rueda partner Clifford
Hendel adds: "We don't yet see a lot of ADR in Spain, or
in much of continental Europe – mediation is a long-term
project, but when decision makers realise that 75 per cent of
mediations tend to settle on the very day of mediation, they will
begin to take notice. When they do, today's vicious cycle
– and the view 'it will never work here' –
could give way to a virtuous circle, where understanding leads to
confidence and confidence leads to results." López de
Argumedo says lawyers have "pressed hard to convince clients
that mediation is one of the possible ways" with limited
success. He adds: "Lawyers need to take the lead and show
clients the benefits of mediation or judges must force parties to
mediate."
There are cultural barriers to using mediation in Spain, according
to Alonso. "Unless the clients are big companies, they think
that if the issue is not solved in a short meeting then it should
be resolved in the courts," he adds. Murrilo says that, while
lawyers have shown a commitment to promoting arbitration, there has
not been the same effort at promoting mediation. He continues:
"Clients have less appetite for mediation."
"One may think that there is little incentive for defendants
in cases to go to mediation," says Ester. "Litigation is
not expensive, and clients may think [given the time litigation
takes], it is better to pay in five years, for example, than pay
now." Iglesia says another problem affecting efforts to
promote mediation is that "many mediations do not end with an
agreement accepted by both parties".
Law firms that settle a dispute via mediation can earn a reasonable
amount in fees, says Alonso. However, he adds that the challenge
lawyers face in mediation is that they have to perform many
different roles when serving their clients, such as acting like a
"psychiatrist", for example. Hendel says that mediators
in Spain face the problem of a lack of real-life experience and
effective training: "Until they have had substantial, hands-on
experience, they are not serious, sophisticated mediators –
we have a situation where classroom-trained mediators are not
developing their skills where they really can best be developed, in
the conference room."
Regarding major opportunities in the future in the area of
litigation and ADR, Murillo identifies insolvency proceedings,
cases involving consumer associations. as well as criminal law
cases. Hendel says that a notable trend in Spain has been the
emergence of a "sub-industry" in which funds, for
example, are financing insolvency claims. The coordination of
international litigation in multijurisdictional cases is also a big
opportunity for law firms, according to López de Argumedo,
who also highlights Latin American arbitration as a growing area.
There will be a considerable number of gas and electricity-related
disputes in the coming year, according to Peña. He adds that
shareholder disputes will also be on the increase: "There is a
lot of co-investment and different institutions need to
disinvest."
Fees not increasing
Maintaining profits remains a significant challenge for law
firms. "Margins are a real problem," according to Alonso.
"Prices are not increasing, we need to improve efficiency and
knowledge management systems." In reference to the political
uncertainty in Spain, Ester says a scenario of political stability
will lead to more M&A transactions. She adds: "If the
economy recovers we will see an increase in disputes related to
M&A."
Law firms have to re-think their business models, according to
Murillo. He adds: "Rather than having a huge office in Madrid,
it may make sense for some firms to have a smaller office in Madrid
and a cheaper location elsewhere for business services."
José Luis Huerta, partner at Hogan Lovells, says clients are
now choosing legal services on price, so law firms need to have
more flexible structures. He adds: "Now, when you talk to
young people in law firms, you have to tell them their career path
is not as predictable as it used to be." On the issue of law
firms needing more flexible structures, López de Argumedo
highlights a new service called Lawyers on Demand, which involves
lawyers providing legal services to clients on a short-term
basis.
br /> Criminal litigation is on the rise, according to
Peña. However, he adds: "There are some problems in the
criminal courts when they are dealing with cases that would
previously have been considered civil litigation." In
addition, Peña says that law firms can earn fairly big fees
for litigation related to intellectual property. Meanwhile, a
number of significant disputes related to gas supply contracts are
expected to go to arbitration.
The coming year will be a challenging one for law firms in Spain,
according to one partner. "There has been a drop in litigation
work, so we have to find new products." Meanwhile, Hendel
believes shareholder disputes, as well as energy litigation will
continue to provide opportunities for law firms in 2016. However,
he adds: "ADR is a concern as it has had a long period of
gestation in Spain."
Alonso expects an increase in criminal cases in the coming year,
that is, in relation to the criminal liability of legal entities.
He adds that there will be an increase in transnational disputes
and, consequently, law firms will have a role to play in
coordinating disputes in different parts of the world because
Spanish companies are "moving to markets they are less
familiar with". However, Alonso says law firms face the
challenge of trying to attract talent because it is getting
"more and more difficult to become a partner at a law
firm".
br /> Law firms do not face the challenge of commoditisation in
the area of litigation and ADR whereas this is an issue in other
areas of practice, according to Iglesia. He continues: "In
complex cases, price is not the key factor for clients". Ester
says she expects the level of insolvency cases to continue in the
coming year, and also anticipates more consumer cases against
banks. She adds that disputes relating to Spanish companies'
activities in Latin America should create opportunities for law
firms. Huerta fears the political situation in Spain will slow down
investment and this will have an impact on litigation and ADR. He
adds: "Lawyers will have to recover their entrepreneurial
spirit as we need to be innovative and find new products for
clients – however, corporate disputes will increase as well
as stand-alone and follow-on actions, compliance-related work will
also increase."
Portugal: BES fallout continues
In Portugal, the "tsunami" of litigation related to
the collapse of Banco Espírito Santo continues, according to
one partner, who adds that the disputes relate to a wide range of
areas including, banking and finance, criminal law and public law.
Meanwhile, the recent collapse of the Portuguese bank Banif will
also lead to significant dispute resolution-related work for
lawyers.
There is a significant amount of litigation related to
transnational insolvencies involving Luxembourg, Switzerland and
the Cayman Islands, PLMJ partner Nuno Líbano Monteiro
explains. He adds: "There are also cases related to the
liability of boards of directors with disputes concerning D&O
policies." With regard to arbitration work, in addition to
matters related to the collapse of BES, there is also some major
disputes in the pharmaceutical sector that are going to
arbitration. Meanwhile, Fernando Aguilar de Carvalho, partner at
Uría Menéndez Proença de Carvalho, says
disputes relating to white collar crime continue to be on the
rise.
Commercial mediation is making progress but it is still
practically non-existent in Portugal, according to MLGTS partner
Miguel de Almada, though he adds that, in contrast, arbitration is
used more and more frequently. Meanwhile, Abreu Advogados partner
Natália Garcia Alves says that the Portuguese civil courts
are handling cases more quickly, but that there are still problems
with enforcement courts. In the view of Rui Tabarra e Castro,
associate at FCB Advogados, the judicial courts are not properly
prepared to deal with some BES-related cases because some judges do
not have the relevant experience.
This view is echoed by Sérvulo partner António Teles
who says that sometimes commercial courts are worried that they
will have to deal with particularly difficult cases. He adds:
"There is the fear on the part of lawyers that courts will try
to oversimplify these cases." Linklaters counsel Ricardo
Guimarães says that judges in Portugal often take too long
to decide disputes. "In some cases, after 10 years we're
still waiting for the first decision," he adds.
Though there is pressure on fees in respect of litigation and ADR
– as there is in other practice areas – Vieira de
Almeida partner Frederico Gonçalves Pereira says that
dispute resolution work is becoming a more important source of
revenue for law firms." AAA Advogados partner José
Jácome says that litigation is an important source of
revenue for law firms: "The litigation department was the poor
relation in law firms, but now it's one of the rich
relations."
The market for legal services relating to litigation and ADR in
Portugal is fiercely competitive, according to Aguilar de Carvalho.
However, he adds that there are many foreign investors seeking
legal advice, who are used to different fee structures and
Portuguese firms are having to adapt: "This is both a
challenge and an opportunity, particularly in the wake of the Novo
Banco/BES-related litigation, with complex and high-level services
being sought." If a law firm quotes very low fees for its
services, it may deter some clients from using them, according to
Jácome: "One US investment fund said some fees proposed
by other firms were so low, they didn´t think the law firms
could be good."
Resolving conflicts
Aguilar de Carvalho says one of the major challenges for law
firms is "sorting out conflicts of interest",
particularly in BES-related matters. He adds: "This is
relatively new and has led to lots of firms having to say no to
work they would have been keen to take on." Improving
efficiency is another major challenge facing law firms, according
to Guimarães. He continues: "Some clients are open to
paying fees that are higher than the standard, but they want
efficiency, quality and results". Jácome says that
clients want to have certainty regarding what they will spend on
legal fees and this means there is a "higher recourse to
success fees". According to Líbano Monteiro, clients
are demanding fee caps and "they want to cap the different
parts of the case, such as the preliminary hearings, the trial and
the appeal, for example".
Another difficulty law firms face is that clients' in-house
legal teams are becoming stronger and more accomplished.
However,the big opportunity for lawyers lies in more complex
litigation because, in this area, clients generally do not have the
expertise. An additional trend being observed in the market is
clients now asking several law firms for a quotation when seeking
to outsource work.
Determining fee caps can be problematic for lawyers, according to
Teles: "It can be difficult to predict how a case will evolve
– in a judicial court, a two-day hearing could end up lasting
60 days." But hourly rates are largely a thing of the past. De
Almada says: "Arrangements based solely on hourly rates are
almost dead." SRS Advogados partner José Carlos Soares
Machado says the biggest concern for law firms with regard to
pricing is "limiting the risk". He adds: "When
clients want a capped fee, the risk is ours – the key is to
omit unpredictable events out of the fee estimate, but it depends
on the client, some want to know all the potential
outcomes."
How are current market trends impacting on the litigation and
ADR departments at law firms? Líbano Monteiro says that
departments need to organise along industry sector lines, such as
banking and finance, for example: "BES was proof that this was
necessary." Soares Machado adds that pressure from clients
means that law firms "need lawyers with a tendency to work in
a particular area".
Gonçalves Pereira says the first challenge litigation and
ADR departments have is ensuring they have the correct leverage. He
continues: "You need a strategic view of how to conduct
litigation, you need partners, managing associates and then you
need young associates – you also need specialisation, and you
also have to work with other teams." Guimarães says
that a key challenge is to "build the legal team you need for
specific cases".
BES-related matters have represented a strange new world for
banking and finance departments in law firms, according to Nuno
Pena, founding partner of CMS Rui Pena & Arnaut. He adds:
"In six months, we have had three different legal regimes
– we are dealing with new decisions and a lot of questions,
our litigation team has been updating our banking and finance team
[on the latest developments]."
One partner at a leading Portuguese firm expects a number of
arbitrations involving private equity funds, though he identifies
frequent challenges to arbitrators as a potential problem. He adds:
"The market is small and the fear is that such behaviour will
be repeated in arbitration concerning other sectors such as
pharmaceuticals." Jácome says the legal environment as
well as the Portuguese state courts' organisation is improving
and all major litigation practices are doing better. He continues:
"Lawyers are also more fairly paid, the question is are we up
to the challenge of improving in relation to ADR, for
example?"
'Pessimistic outlook'
With political uncertainty in Portugal, there is a possibility
that tax laws could change and privatisations could be reversed,
says Aguilar de Carvalho. "This will create a lot of
litigation opportunities, but it could be bad for law firms as a
whole – Portugal's economy depends on foreign investment
and funding and the uncertainty may drive investors away and make
funding more difficult," he adds. Tabarra e Castro says that
it is uncertain whether the current Portuguese government will
last: "It´s difficult to explain to clients that this
government will change the reforms of the previous government.
However, I'm optimistic that we may get faster judicial court
decisions."
Pena says he is "completely pessimistic" about the
outlook under the new government. However, he adds that law firms
now have more complex and demanding work, though he says he does
have concerns about courts in Portugal. "We have had no
evolution in our courts," says Pena. "You are lucky if
you get a judge capable enough to deal with these complex cases, it
is a complete mess – we should have a specialised commercial
court for complex cases, such as cases related to the collapse of
banking institutions."
Garcia Alves says one of the challenges for law firms is to
"make a difference". She continues: "There are a lot
of good law firms, clients will go to three or four firms before
making a choice, and they may not decide on price, empathy with the
client is important." De Almada says that growth in
arbitration and litigation will provide greater opportunities for
law firms: "Litigation and ADR departments can match the glory
of the transactional departments – the challenge is to focus
the competition on quality and not on pricing."
Political pessimism in Portugal is not necessarily bad for
litigators, according to Soares Machado, who believes there will be
a significant amount work related to financial litigation,
insolvencies, restructuring and white collar crime in the coming
year. He adds that the cases related to the collapse of BES and
Banif will go on for another five or six years. "Proceedings
will be faster as there has been a change in culture and in the way
judges act – enforcement is getting faster and there is
increased efficiency."
The prospects for litigation teams are good, according to
Gonçalves Pereira. However, he warns that the prospects for
the Portuguese economy in the medium term are not so healthy:
"Aside from the food distribution chain, we don't have a
lot of big companies – we need the economy to create new
opportunities, but foreign investment will decrease.
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