litigation & adr 2013

January / February 2013 • IBERIAN LAWYER • www.iberianlawyer.com

EU & CompEtition REpoRt

IBERIAN LAWYER

LITIGATION & ADR REPORT 2013Opening up to ADR

An abstract from Iberian LawyerJanuary / February 2013

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Litigation & aDR REpoRt

Opening up to ADR

With both domestic and cross border disputes on the rise, the increasing cost of litigation and a huge judicial backlog, Spain

and Portugal are beginning to properly explore the

benefits of ADR. But while both countries face

cultural obstacles in doing so, recent regulations and moves by their respective Governments could prove a turning point in dispute resolution going forwards.

These days, conflicts are an increasingly normal part of day-to-day business for any corporation. But the crisis is propelling us into even more contentious times, with a huge increase in the number of lawsuits and arbitrations.

2013 is seeing Iberian economies continuing to deteriorate, resulting in a steep rise in disputes over breaches of contractual obligations. Also bankruptcy, insolvency and restructuring proceedings, are leading to highly disputed litigations and lengthy negotiations involving banks and financial institutions.

The costs associated with traditional litigation, and inefficient court systems with cases that can drag on for years, have prompted Iberian companies to explore the possibilities of a new and ever increasing range of dispute prevention and resolution options – alternative dispute resolution (ADR).

But while ADR is booming in common law jurisdictions, it continues to lag behind in civil law ones, particularly in the Latin jurisdictions like Spain and Portugal, says Clifford J. Hendel, Partner at Araoz & Rueda. New legislation and governmental support, however, may just provide the push that is needed for non-judicial resolution of disputes to really get off the ground.

Contentious timesAcross Iberia, lawyers see individuals and organisations more likely to resort to litigation to resolve their disputes. “Our professional experience is that in 90 percent of claims, the decision is taken in court and 10 percent are

En estos tiempos, la conflictividad se convierte en un elemento cada vez más habitual para las empresas. La crisis, nos conduce a situaciones aún más contenciosas, con un incremento de demandas judiciales y arbitrajes. Pero con los sistemas de resolución alternativa de conflictos en crecimiento exponencial en países de derecho común, parece que en las jurisdicciones civilistas, como las de España y Portugal, estos métodos no acaban de consolidarse. La nueva legislación implantada y el apoyo gubernamental quizás consigan el aliciente necesario para sacar partido a estos métodos de resolución alternativa de conflictos.

decided by ADR,” says Jordi Calvo Costa, Litigation Partner at Roca Junyent.

In Spain, the downturn has led to an increase in litigation fuelled by the recent restructuring of the banking sector. And the services sector has seen a rise in contract-related litigation and arbitration, says Jesús Remón, Head of Litigation and Arbitration at Uría Menéndez. “A diminishing growth outlook, coupled with tighter credit requirements, has forced companies into renegotiations, which often result in the early termination of contracts giving rise to numerous disputes.”

Lawyers also point to an escalation in disputes regarding energy and telecoms, mis-selling of financial products, antitrust, unfair competition, insolvency and bankruptcy. And following the surge of takeovers and sale and purchase agreements during Spain’s economic boom, they now see an increasing amount of disputes involving financially distressed purchasers seeking to reduce the price paid for the acquired companies.

In Portugal, lawyers are seeing clients more willing to litigate, in spite of the inherent costs. “Those who are not prepared to litigate are those who are insolvent,” says João Saúde, Litigation and Arbitration Partner at Sérvulo & Associados. “However, for the same reason, they are also not prepared to negotiate.”

Credit claims and restructuring debts are on the rise, alongside disputes against banks and financial institutions, generally for wrongful conduct or advice to clients, and litigation arising out of the termination of distribution and agency contracts, says Francisco Colaço, Head of Litigation at Albuquerque & Associados. “And this is a type of work that we expect to increase over this year.”

There is a focus on restructurings, both on a corporate level and for employment matters, essentially through lay-offs and collective dismissals, says Sandra Ferreira Dias, Head of Litigation and Arbitration at Caiado Guerreiro. Lawyers are also seeing an increase in contractual liability cases. “This flows from the fact that parties face accruing difficulties in observing their contractual obligations,” explains Joaquim Shearman de Macedo, Co-head of the Dispute Resolution Practice at CMS Rui Pena & Arnaut, “and eventually are led or forced to breach the contract”.

But the biggest challenge is the huge judicial backlog, which lawyers blame on the

January / February 2013 • IBERIAN LAWYER • www.iberianlawyer.com 39


inefficiency of the courts. To tackle this, the Government has recently approved the draft of a new Civil Procedure Code, intended to end the backlogs and address key challenges in the country’s litigation system, which has been heavily criticised for unacceptable delays in cases being heard and difficulties in getting judgements enforced. The draft Code seeks to address these and other issues including enabling parties to enforce judgements without the sign-off of the presiding judge, an increased focus on pre-trial reviews, the shortening of deadlines for procedural acts, and new restrictions on the grounds for delaying proceedings.

Some are therefore suggesting that 2013 could prove a turning point for the Portuguese judicial system.

ArbitrationThe continuing crisis means that clients’ budgets are no longer able to support long and expensive litigations. And with the rise of cross-border disputes, no one wants to litigate in another party’s country either, agree lawyers. In many cases, parties choose arbitration contractually, says Ramón C. Pelayo Jiménez, Managing Partner of Ramón C. Pelayo Abogados, in order to solve their differences due to a lack of trust in foreign courts and their national legislation.

The advantage of arbitration, however, especially for multinationals operating worldwide, is that once you decide to go down that route, it takes away all the dangers and repercussions of litigation, says Miguel Ángel Fernández-Ballesteros, President of the Arbitration Court of Madrid. “In particular where you may have to litigate in various jurisdictions and a decision in one country could be detrimental to the rest.”

Following the amendment of its Arbitration Law in 2011, Spain has seen a significant growth in the use of arbitration. There has been a surge of arbitrations relating to disputes between shareholders or in joint ventures, and arbitrations with a financial component , such as the Yukos case that was resolved through an investment arbitration at the Court of the Stockholm Chamber of Commerce, explains Antonio Hierro, Litigation and Dispute Resolution Partner at Cuatrecasas, Gonçalves Pereira in Madrid. “Also arbitrations resulting from transactions to buy or sell companies, frequently involving the invoking of hardship clauses.”

There have been some high profile arbitrations before ICSID concerning Spanish investments in South America, most notably involving Repsol and Telefónica. And 2012 also saw the second ICSID claim ever brought against Spain, filed by a group of Venezuelan real estate investors under the Spain-Venezuela bilateral investment treaty of 1995.Warming up to the alternativeBut while lawyers agree that there is still a cultural obstacle

to overcome in instilling a culture of ADR in Spain, clients are warming to it as they are increasingly seeking cost-effective methods of dispute resolution. “Mediation is increasing,” says Gonzalo Stampa, Managing Partner at arbitration boutique Stampa Abogados, “but arbitration is leading by far, and in my opinion it will continue to lead in the future”.

In Portugal, the approval of a New Arbitration Law last year has received a warm welcome from the legal community. It is applicable to all arbitrations taking place in Portuguese territory, as well as to the recognition and enforcement of Portuguese judgments in foreign arbitrations. “In terms of impact and independence, the new Arbitration Law is much better than before,” says José Carlos Soares Machado, Head of Litigation and Dispute Resolution at SRS Advogados. “But there is now a real danger that we may have a court deciding that an arbitration decision is null for lack of independence of the arbitrator.”

As a small country, this is a big concern. Arbitrators are either lawyers or professors, and so lawyers say it is very difficult to find somebody without a conflict of interest. And there is a serious lack of arbitrators, says Frederico Gonçalves Pereira at Vieira de Almeida & Associados. “The few that there are have taken on a huge number of cases each and are stretched to the limit.”

But while arbitration is championed by lawyers, there is a misunderstanding in Portugal about what it can accomplish and which disputes it can resolve. “Arbitration is an excellent choice for some kinds of disputes,” says Filipe Vaz Pinto, Senior Associate at Morais Leitão, Galvão Teles, Soares da Silva & Associados, “but it is not suitable to solve the problems of the Portuguese Justice system.” Many arbitrations still end up in the courts to be fully resolved, so parties could end up finding themselves faced with the prospect of the costs, and delays, of litigation.

At an international level, the IBA Guidelines on Conflicts of Interest in International Arbitration are being revised in relation to arbitrator impartiality and independence, and Draft Guidelines on Party Representation in International Arbitration are being drawn up. These aim to create a set of guidelines addressing counsel professional behaviour within the framework of arbitration proceedings. “When both projects are completed,” says Félix J. Montero, Arbitration and Commercial Litigation Partner at Pérez-Llorca, “two of the most important personalities in the

New legislation and governmental support may just provide the push that is needed for

non-judicial resolution of disputes to really get off the ground. .

Clifford J. Hendel, Partner, Araoz & Rueda

“”



arbitration process – the arbitrators and counsel – will have a defined set of unified principles addressing their respective duties vis-à-vis the parties, other counsel and arbitral tribunals.”

MediationWhile arbitration is now a well-established method of resolving disputes in Spain, the same cannot be said for mediation – ie the use of a third party neutral to facilitate resolution between parties. However, its 2012 Mediation law does put it a little further down the road than Portugal, where this is still no legal framework in place to support it.

The new Law came into force last year, establishing a general regime applicable in all domestic civil and commercial matters as well as to cross-border disputes. Further, on October 10th, 2012, a collaboration agreement was signed between Spanish judges and the Chambers of Commerce to promote mediation as an alternative to litigation. As a result, commercial and first instance courts can refer cases to the Chambers of Commerce for mediation. “Moreover, a unified commercial mediation services system will be implemented in all 88 Spanish Chambers of Commerce,” explains Carlos de los Santos Lago, Head of Litigation and Arbitration at Garrigues in Spain, “for which model regulation and a standard training programme for mediators have been developed”.

For some, however, the New Law has not had the desired effect. “This is probably for two reasons,” says

Francisco Málaga, Head of Litigation at Linklaters in Madrid. “We still don’t have a culture of mediation like in other countries and, also, under the New Law, judges cannot force parties to go to mediation. That said, some judges are doing a great job of convincing parties at preliminary hearings to go to mediation.”

Lawyers note a significant difference between domestic and international clients, as while international clients are familiar with mediation, Spanish companies are reluctant to solve their disputes using ADR. Many feel that the law does not contain sufficient mechanisms to make it a real alternative to litigation.

Going forward, more mediation clauses are expected to be included in contracts, say lawyers, but it is still too early to see if it is going to prove to be a successful and popular option, if currently seen as a poor alternative to avoid costly and lengthy court or arbitration proceedings.

In Portugal, mediation is at its infancy, and there is no legal framework to support it. “Although we are noticing a trend in the market asking for mediation,” says Gonçalves Pereira at Vieira de Almeida. “It should be considered as an alternative way to address the high costs of litigation and arbitration as it is much less expensive.”

One of the biggest coming out of the crisis has been the significant increase in Iberian companies internationalising. This has caused not only a considerable rise in cross-border litigation, but also arbitration, say lawyers. “And this will inevitably lead to an increase in international arbitration, not only because companies will try to avoid having to litigate in the opponents´ jurisdiction, but also because their legal systems tend to be slow, complex, expensive and less reliable when compared to arbitration,” says Fernando Aguilar de Carvalho, Litigation and Arbitration Partner at Uría Menéndez-Proença de Carvalho.In particular, lawyers are seeing a rise in cross-border commercial disputes including breaches or renegotiations of existing contracts, distribution and financing agreements, loss of interest and investment in certain countries and markets, insolvencies and the need to restructure businesses in light of the crisis.Cross-border disputes have become commonplace for the increasing number of

Spanish companies investing overseas, say lawyers, with a rise in international disputes work in relation to projects, engineering, construction, energy and telecoms, oil and gas, distribution agreements and aviation. All of which, they say, tend to use arbitration over litigation. And there has also been a growth in cross-border disputes using arbitration in the construction and infrastructure sectors, say lawyers, due to the fact that in the Spanish Real Estate Market boom years the trend was to include arbitration clauses in project contracts.The expropriation of certain Spanish investments in Latin America has also led to major conflicts for breach of bilateral investment treaties, says Gonzalo Ardila, Litigation and Arbitration Partner at Gómez-Acebo & Pombo in Madrid. And the vast majority of these disputes use international arbitration over other means of dispute resolution, including litigation. Many are being resolved under the UNCITRAL Rules or the International Centre for Settlement of Investment Disputes (ICSID), adds

José María Alonso, Head of Litigation and Arbitration at Baker & McKenzie in Madrid. And with much Spanish investment having been made in key sectors in Latin America, lawyers predict the region will be an ongoing battlefield for litigators. Portugal has also seen a growth in international disputes in particular in renewables, construction, communications and public works. And the real estate sector, hit hard by the crisis, has a noticeable peak in litigation with international investors. As Portuguese companies have increasingly chosen Africa as a destination for their internationalisation strategies and investments, most notably Angola and Mozambique, consequently cross-border disputes are normally linked to these jurisdictions, says Sandra Teixeira da Silva, a Partner at AVM Advogados. Particularly the investment vehicles used by the investors in those countries, commercial, land or labour disputes. Here lawyers are seeing an increasing use of international arbitrations in this area, often with the arbitration seat in Lisbon.

Cross-border trends



Civil and commercial litigation costs can be huge when compared to the economic value of the case itself, and

while judges do have the power to decide on the final amount payable, for the most part they do not seem to

pay attention to the escalating costs of litigation. .Nuno Líbano Monteiro,

Head of Litigation, PLMJ

“”

Unlike in other countries, lawyers note that the culture is absent in Portugal and mediation is seen as somehow ‘giving up’. “As litigation attorneys,” says Ana Grosso Alves, Senior Associate at Gómez-Acebo & Pombo in Lisbon, “we should do our best to change the mindset so that the client does not see the use of mediation as a sign of weakness and understands that it can be used effectively to solve disputes.”

Moreover, says Rui Tabarra e Castro, Senior Associate in Dispute Resolution at F. Castelo Branco & Associados, some of the largest law firms in Portugal have been developing mediation, anticipating that, in the near future, it will be able to be consolidated as an effective and economical resolution of some disputes.

The crisis has also prompted a rise in clients resorting to settlement proceedings, say

lawyers, which closely resemble the mediation process, so there is the hope

that this could open up the country to the possibilities of mediation. But until

there is a legal framework to support it, lawyers don’t see mediation truly coming on the Portuguese agenda anytime soon.

Litigation v arbitrationWhile the debate of arbitration versus litigation is old news, the reality today is that companies are tired of arbitrations that last for years. “We need to find new ways of solving litigation,” says Bernardo Cremades, Founding Partner of B Cremades & Asociados. “That’s the hot topic for discussion these days.”

Lawyers are increasingly seeing a demand for dispute resolution services that offer creative solutions, even if that means clients not pursuing all of their claims. “While it is clear that the crisis is causing clients to rethink how to solve disputes in a fast and cost-effective way, I don’t think that this is necessarily reducing court litigation and promoting ADR,” says Montero at Pérez-Llorca, “but I have the perception that settlements are now being pursued with more interest”.

A client’s decision on whether to litigate or use ADR does very much depend on the circumstances of each case, agree lawyers. Often, the problem is not about the method parties choose for the dispute resolution (arbitration or litigation), says Raúl Da Veiga , Head of Litigation and Arbitration at GOLD Abogados, but they prefer that judgment or the award will be fully effective.

In Spain, certain factors have played a part in clients being more reticent to use conventional forms of dispute resolution, explains Manuel Rivero, Of Counsel in dispute resolution at Herbert Smith Freehills in Madrid. The recent increase in court fees and the financial situation of clients

means that they have less budget set aside for litigation and are therefore interested in exploring other options, with a greater need for a quick resolution.

Lawyers also notice an increasing trend for including ADR clauses in most contracts. “The slowness and lack of specific commercial and corporate skills of the first instance judges make it advisable to use ADR in these situations,” says Fernando Martínez Comas, a Partner at Deloitte Abogados. “Conflicts are solved quicker using ADR than before the courts.”

But Spanish clients remain reluctant, in general, to pursue non-judicial methods of dispute resolution. Arbitration has a certain acceptance, says Hendel at Araoz & Rueda, but principally for international disputes and contracts, where in practice there is no real alternative.

While clients in Portugal used to just push for litigation, more recently they are taking time to negotiate and study all the options available to them before filing, says João Maria Pimentel, Head of Litigation and Arbitration at Campos Ferreira, Sá Carneiro & Associados. Clients are now very active in looking for viable alternatives.

Medium-size businesses prefer to resolve disputes out of court, says Ana Cláudia Rangel, Head of Litigation and ADR at Raposo Bernardo, even if they have to give up certain rights or benefits. “Clients intend to get a resolution quickly, at a lower cost and without risks.”

Costs have always played a part in the debate. But while in the past you could just increase the client budget, lawyers now find clients want reliability of fee estimates – and that is very difficult to provide in litigation. “One has to ensure to explain to clients the potential costs involved in litigation,” says Camila Pinto de Lima, Litigation and Arbitration Counsel at CMS Rui Pena & Arnaut, “as most aren’t aware of what they may have to pay in the end”.

Civil and commercial litigation costs can be huge when compared to the economic value of the case itself, adds Nuno Líbano Monteiro, Head of Litigation at PLMJ . “And while judges do have the power to decide on the final amount payable, for the most part they do not seem to pay attention to the escalating costs of litigation.”

Therefore, whenever there is a possible litigation ahead, the first thing clients ask for is a ‘cost benefit’ analysis. Nowadays, this is the most critical factor related to the decision to litigate, says Pedro Cabral, Senior Associate in Litigation and ADR at Macedo Vitorino & Associados. Even given the crisis, clients are not always willing to accept conciliation or mediation as the cheaper options.



Law firms are therefore finding themselves confronted with a necessity to use fixed fees, as in-house lawyers are increasingly reluctant to accept assumptions, which is a serious inconvenience when it comes to maximising the profit of litigation work. “This comes at a time when disputes are becoming even more complex,” says José Luis Huerta, Managing Partner of Hogan Lovells in Spain, “and despite law firms’ efforts to introduce alternative fee arrangements (AFAs) and provide creative estimates, the reality is that most in-house lawyers are only willing to accept fixed or capped fees”.

But despite being more agile than resorting to national courts, arbitration is still seen as more expensive with a higher initial disbursement. But the costs system of state civil courts can be misleading. “During the course of proceedings you pay very little, but then at the end you get a huge bill,” says José Jácome, a Founding Partner of AAA Advogados. “With arbitration you must pay up front and thus you must prepare and know exactly what you are going to pay at the start.”

In fact, across Iberia, lawyers agree that the costs of litigation and arbitration are almost on a par. But the difference is that in arbitration there is the possibility for a certain level of control. “When you go to an arbitration you can control costs,” says José Maria Corrêa de Sampaio, Co-

Head of Arbitration and Mediation at Abreu Advogados, “and this is especially in the case of ad hoc arbitrations where parties can set out their own procedures.”

Ultimately, however, the relationship between client and law firm has to be transparent, adds Natália Garcia Alves, Co-Head of Litigation also at Abreu Advogados, where the client is aware of every stage in the proceedings so they understand all the costs involved.

Alternative possibilitiesTherefore, with disputes on the rise and showing no signs of stopping, Iberia’s Governments and its legal communities are actively encouraging and taking steps to foster the culture and use of ADR. Whether such efforts will be successful in establishing a solid culture remains to be seen, say lawyers, but at least it is firmly on the agenda.

“I strongly believe that it will take some time until our Spanish clients start to have trust in ADR as an effective method to resolve a potential dispute,” says Rafael Murillo, Litigation and ADR Partner at Freshfields Bruckhaus Deringer. “But it also took some time and many common efforts from the legal community to develop an arbitration culture in the Spanish legal market and I am inclined to believe that ADR will follow the same path.”

The same can be said for Portugal, where lawyers feel ADR still has limited acceptance and is far from living up to its potential. The lack of any framework to support mediation is a huge obstacle that needs to be addressed sooner rather than later. But, according to João Duarte de Sousa, Head of Litigation and Arbitration at Garrigues in Portugal, it is increasingly being seen as a highly-rated, neutral and swift form of cross-border dispute resolution.

With litigation increasingly being seen as a last resort as the crisis still has a firm grip on client budgets, lawyers hope that the Iberian market will continue to push for ADR, and not just as an ‘alternative’.

With international disputes on the rise, lawyers must ensure they are in a position to handle all their clients’ needs, domestic or otherwise. Law firms must respond to the market accordingly and convince their clients that international disputes can be, and should be, handled by their Iberian offices.“Increasingly, in-house counsel of Spanish companies are more international and better understand the different procedural systems,” says Fernando González, International Dispute Resolution Partner at Squire Sanders. “In transnational litigation, it is essential to reconcile the different legal

cultures to succeed in the process. The secret is to form international teams to start planning the litigation strategy from the outset of litigation.”While some believe the secret is in strengthening ties with foreign firms, facilitating cooperation through integrated-teams, others feel the only way to truly secure the work is to open your own offices. In order to properly handle international disputes it is of the utmost importance that law firms internationalise their business by opening offices in other jurisdictions and recruiting local lawyers, says Carlos Soares, Senior Associate in

Dispute Resolution at Gómez-Acebo & Pombo in Lisbon, which recently opened in New York. Law firms must follow the same transformation processes as their clients have in the crisis, in other words, move from a domestic law firm business model into a truly international one. “In my opinion, it is essential to show that the firm has solid and consistent litigation capabilities in the relevant jurisdictions, rather than just alliances with other firms or small representation offices,” says Francisco Málaga, Head of Litigation at Linklaters in Madrid. “For obvious reasons, international law firms are especially well placed in this race.”

Handling international disputes

We need to find new ways of solving litigation. That’s the hot topic for discussion these days.Bernardo Cremades, Founding Partner, B Cremades & Asociados

“”



Recent developments in arbitrationAlmost a year since Portugal brought in new arbitration laws, the overall feedback from the disputes market has been positive

Ya ha pasado un año desde la nueva Ley de

Arbitraje voluntario y, en general, la impresión del

mercado ha sido positiva. La normativa actualiza los procedimientos que se remontaban a 1986,

adoptando un modelo más sofisticado y en la línea de otras jurisdicciones similares, afirma Luís

Cortes Martins, de Serra Lopes, Cortes Martins &

Associados.

Luís Cortes Martins

Portugal enacted its new Voluntary Arbitration Law in March 2012. The legislation updated the original rules – which trace back to 1986 – by adopting a much more sophisticated model that was in-tune with comparable jurisdictions, says Luís Cortes Martins, Managing Partner of Serra Lopes, Cortes Martins & Associados.

“The old law was not based on UNCITRAL Model Law, so it was something of a stand-alone structure”, says Cortes Martins. “As such, and with regards to international arbitration, it was not a popular choice for dispute resolution.”

Portugal has also struggled with wider challenges amongst its courts, like heavy backlogs in commercial cases, he adds, so an update in arbitration procedures was due.

The 2012 Act followed the UNCITRAL Model Law, which outlines issues such as party autonomy, the jurisdiction of the courts, the time frame to follow (preliminary orders within 20 days), fees, multi-party disputes and the regulation of the process, such as the issue of claims and counterclaims.

“While the law has been in place for less than a year, and it is too early to draw definitive conclusions, it is fair to say the feedback so far has been positive,” says Cortes Martins. “The law made the whole arbitration process more straightforward and cleared up a number of issues with the old rules.”

Under the old system, the normal rule was that parties could appeal the arbitration court’s decision via the judicial courts, says Cortes Martins. “Now the rule is that the arbitral award is, in principle, definite. This gives much more power and efficacy to this jurisdiction. In addition, there are now much clearer rules on the division between arbitral and judicial court relations. This is a very important step to bring efficiency to arbitral court decisions.”

Market impact Cortes Martins says the feedback from clients has been positive. Many now view arbitration as a much more viable option and have been keen to enter proceedings to avoid costly litigation

and speed up procedures. Indeed, there has even been additional legislation from the Government that has actively encouraged the use of arbitration in certain sectors.

During 2012, they saw an increasing trend of cases involving pharma IP disputes after the Government published new rules that made it mandatory for some disputes to go through arbitration rather than litigation, he explains. “Now, pharma companies with a branded drug that want to bring action against a generic provider regarding a patent dispute must have their case heard in an arbitration court.”

Quite what the long-term impact of the new law will be is unclear, he adds. Neighbouring Spain, for instance, recently revived its efforts to become a seat for arbitrations involving Latin American companies.

The hope for Portugal is that, by following the UNCITRAL Model Law, it can be operated in a similar way to established bodies such as the International Chamber of Commerce’s arbitration court or the World Bank’s International Centre for Settlement of Investment Disputes. In doing so, says Cortes Martins, Portugal could start to make movements in the arbitration market with the potential to bring in claims involving parties from Portuguese-speaking jurisdictions like Brazil, Angola, Mozambique or East Timor.

“By bringing Portugal closer to the arbitration rules of other jurisdictions, the country could potentially be a seat for not only local disputes but Iberian issues involving Spanish entities or places such as Angola and Mozambique,” he adds.

Portugal has needed to undertake major restructuring off the back of the Troika agreement. State assets, public sector management, legislation and the courts have all been remodelled to meet the criteria of the bailout. While arbitration is one part of that process, and Portugal, like Spain, faces challenges if it wants to compete with better regarded seats, there is no reason the country cannot become a viable alternative to the existing hubs says Cortes Martins.



Alternative remedies for financial disputesInvestment banks have been engulfed by claims of financial mis-selling and interest rate fixing, as investors see their securities portfolios slump on the back of high risk, speculative products

Investors, therefore, are looking towards the courts for remedy against financial brokers and institutions, says Alejandro Fernández de Araoz, Partner at Araoz & Rueda in Madrid.

As part of the objectives of creating a safer and sounder financial system, preventing a future crisis and restoring investor confidence, both the European Commission and the various G20 Summits have recommended and sponsored various alternatives open to those looking for redress: improving collective redress mechanisms, arbitration and mediation.

The class actionsSecurities class actions are common in the US, explains Fernández de Araoz, but in Europe remain problematic and investors face an uphill struggle when suing. “Litigation is expensive and time consuming because of the high costs of expert witnesses and discovery. Spain, for example has a ‘loser pays’ legal system, so litigation can be risky and expensive. There is no question that collective redress schemes provide added value and cost savings for consumers and businesses.”

Contrary to conventional knowledge, these actions remain highly problematic in Spain since, under the current Spanish Civil Procedure Code, they are reserved to registered consumer associations; however, investors are not always consumers and some registered consumer associations are not always a reliable conduit to launch such claims. For Fernández de Araoz, investors (whether consumers or not) with dispersed interests and low individual stakes need special protection in adjudication.

ArbitrationA speedier, more cost-efficient and sophisticated alternative is to use arbitration, he says. “The problem is that arbitration is not cheap and when the claims are not quantitatively significant, it adds ‘insult to injury’ for investors. And in Spain, arbitration clauses remain relatively rare and the courts can struggle to apply them.”

This is down to a peculiarity in the law as to whether investors or companies can be called ‘consumers’, and whether to deprive them of the access to courts is “abusive” and against their rights. If so, the courts often argue that such clauses are abusive and should be declared null and void.

He highlights the recent case where the Spanish Government brought together 80,000 investors over around €3bn claims

over ‘preferentes’ issued by Bankia. “There is generally the benefit [for arbitration] that hundreds of investors are often in a same position, and an analysis of the Spanish case law shows that the outcomes of judgments are very different and rarely predictable.”

Mediate to accumulateOne example of Government sponsored mediation for financial disputes is the FIN-NET Dispute Resolution Network, an EEA Alternative Dispute Resolution (ADR) network. In Spain, however, the effectiveness of its results are dubious, says Fernández de Araoz, because decisions issued by Spain’s OIA (Investor Advice Office) are non-binding, and if an investor obtains a favourable decision by the OIA but still has to file a lawsuit, the courts often disregard such decisions.

Fellow Partner Clifford Hendel points to mediation as an alternative for securities disputes, although in its infancy in Spain as a New Mediation Law was only approved last year and is still awaiting a clear regulatory framework.

Hendel highlights that, concerning the right to redress, the European Commission is focusing on ensuring the adoption and application of its recent proposals on ADR and Online Dispute Resolution (ODR) to grant all EU consumers access to simple and speedy procedures to defend their rights.

“The Mediation law has rather detailed, and some would say, rather heavy-handed and bureaucratic, provisions regarding the mediation process,” he explains. “These include the creation of a public register for accredited mediators and institutions, a requirement for professional liability insurance for mediators and appropriate training, all of which is to be developed by way of implementing regulation.”

While Hendel believes that Spain could expect mediation to prosper, the sector starts from a “virtual blank slate”. The lack of history, knowledge, familiarity or understanding of mediation in the area of commercial disputes, and the consequent shortage of mediators with experience in this area, means the concept may take time to develop.

“The future of mediation here is uncertain for these very reasons, and depends on how quickly and solidly a real level of knowledge of, and confidence in, the concept can take root with lawyers,” he says, “both in private practice and (especially) in-house”.

Los bancos de inversión se han visto imputados por demandas vinculadas a sus diversos productos, lo cual ha afectado a sus inversores, incrementando el riesgo y la especulación. Por eso, los inversores recurren ahora a los Tribunales para buscar remedios contra las acciones de los agentes financieros y las instituciones, dice Alejandro Fernández de Araoz en Araoz & Rueda.

Alejandro Fernández de Araoz



Involving your experts earlyWith the economic downturn, litigation is on the rise, but parties are now much more reluctant to find surprises along the way

Fernando Cuñado

Alberto Rabano

Peru has a well-established body of domestic arbitration institutions and is increasingly seen as a preferred seat for regional disputes, says Carlos Soto, Head of International Arbitration at Peru’s Muñiz, Ramírez, Pérez-Taíman & Olaya Abogados. Soto is also President of the Peruvian Institute of Arbitration

“It has one of the world’s most modern arbitration laws, updated in 2008, built on over two decades prior experience,” he says. “The system reflects the best of the UNCITRAL model while drawing on international best practice to create a one-tier system applicable to cross-border disputes.”

The 2008 Act follows developments not only in legal practice but also cross-border trade and investment, with the merits of this practical approach recognised by Peru’s judiciary. “The Constitutional Court ruled that the only way to challenge the validity of an arbitral award is annulment under the Act,” explains Soto. “There is a clear recognition that arbitration offers a

complementary approach to justice through the national courts.”

Peru is a signatory to the New York, Panama and Montevideo Conventions, which ensures recognition and enforcement principles, and the Act also states that the Commercial Court is prohibited to hinder enforcement of an award, he explains. “Arbitration is in such good health that it has become the preferred dispute mechanism for entrepreneurs, investors and even the Peruvian state itself,” he adds, “for whom it is mandatory for all disputes arising out of supply contracts.”

But there is also an acceptance at Government level of the importance of the process for investment disputes under the ICSID rules, says Soto. And it is now the preferred mechanism for disputes arising out of Peru’s Free Trade Agreements. “These recognise the importance of a rapid resolution method, and it is this desire for legal and commercial certainty that is helping Peruvian arbitration expertise to flourish.”

Peruvian arbitration – a benchmark

Cuando se mira a la gestión de conflictos

en Latinoamérica, Perú ofrece no sólo instituciones

arbitrales arraigadas sino una reputación que poco

a poco se asienta entre los lugares preferenciales

para arbitrajes, dice Carlos Soto, Instituto Peruano de

Arbitraje.

Carlos Soto

Parties are increasingly calling on experts to advise in disputes at a very early stage, assessing strengths and weaknesses from an economic standpoint, says Fernando Cuñado, Partner of KPMG Forensic in Madrid. “Coming back to the earliest stage, which is the contract (SPAs or alike) itself, this is what is known within forensic accounting as ‘agreement vetting’ – to avoid grey areas within the economic definitions and price adjustment mechanisms where experts complete an in-depth review of these clauses”.

This is a definite trend, says Alberto Rabano, Manager also at KPMG Forensic, due to the huge increase in litigation that has seen warranty claims arise in around 50 percent of transactions closed over the past five years.

Also proving as a trend is making provision for a Dispute Review Board – made up of experts that provide recommendations when disputes arise – in particular in long-term contracts – giving an independent view of economic

events and transactions “This is so that if deviations and discrepancies arise, they can be dealt with straight away, and not escalate becoming far more difficult to settle years after,” explains Cuñado.

And they are increasingly being asked to add value, especially in international infrastructure projects, where clients are calling for experts – usually engineers and accountants. “We have also been seeing an increase in the use of ‘expertise clauses’, whereby the parties agree that any matter in dispute be put to an expert for an independent report following the ADR procedure established in the contract,” says Rabano. “If the parties are not happy with the outcome, then they can still go ahead with an arbitration.”

These precursors to launching an arbitration process are fast becoming the norm, says Cuñado. “And in terms of preventing conflict, it has become key to get experts involved, and we advise doing as early as drafting stages of any contract.”



Spanish arbitration looks to the future Madrid’s Court hopes to move forwards, with the recent introduction of new initiatives and novel technological solutions, and a two-step strategy to internationalise and become full-service

It has been nearly 12 months since Miguel Ángel Fernández-Ballesteros took stewardship of the Madrid Arbitration Court. And he has many plans for the future of the Court.

Fernández-Ballesteros is one of the leading forces in dispute resolution in Spain. He rose to prominence as a driving force behind Gómez-Acebo & Pombo’s top-tier disputes practice in the 1990s and 2000s, where he served as Head of Litigation and Arbitration, before launching his own practice.

He assumed the role as president of the Madrid Court of Arbitration in April 2012, succeeding Miguel Temboury. And while he has been in the post for a little under a year, he is pleased with the direction the Court is moving in.

Fernández-Ballesteros is quick to point out that, when he took over, the Court was already in a “promising position”. It had recently undertaken a number of initiatives, such as updating its rules to mirror other international arbitration centres and establishing novel technological solutions, like an online arbitration management platform. Although Fernández-Ballesteros is now looking to the future.

“We are continuing to change and move the Court forward,” he says. “In 2012, it heard 150 new cases valued at around €5m, which is a steady improvement on recent years. We have a two-step strategy next; first to internationalise the Court and secondly to make it full-service.”

On the first point, Fernández-Ballesteros has made building up global links a priority. He recently finalised international collaborations with organisations in Latin American jurisdictions such as Brazil, Mexico and Peru. He is presently also developing the Court’s European network, with a collaboration expected soon in Germany as well as regular dialogue with other seats. It is part of the bid to position Madrid as a centre for international disputes. While the Court is not as established as London or Paris, the hope is to increase this by leveraging off the Euro-Latin America axis.

“Many companies from places like Germany, Poland and Austria have found Latin America a difficult market, but Spain has historic links to both Europe

and Latin America,” continues Fernández-Ballesteros. “We are trying to promote Madrid as a court that can act as a bridge between Latin American and European parties.”

The international push is already having an influence. Fernández-Ballesteros says around 35 percent of 2012 cases were international arbitrations, with 85 percent of the biggest ones involving cross-border disputes. And the trend is set to continue.

To increase the geographical scope, Fernández-Ballesteros is aiming to enhance the scope of services to make the Court ‘full-service’. “A priority is to attract more investment arbitration, which is something the big Spanish conglomerates have embraced as they have internationalised their businesses,” he stresses.

The Court is presently drafting new rules to govern investment arbitration and has a congress linked up with American contacts in April. The Court is also drawing up dispute resolution rules on a number of other subjects that require more detailed analysis, including the construction and technology sectors, which are booming in Spain, as well as explore the options for mediation.

“We want to contribute to the promotion of arbitration through knowledge and service, to cover all the major issues and trends in dispute resolution,” he says. “We would like Madrid to offer arbitration for all topics, whether investment, competition or corporate. We also want to have more foreign arbitrators and more international matters as well as expand our arbitration capacity.”

Historically some parties have chosen to pursue arbitration in seats like Paris, London or Geneva. Even so, Fernández-Ballesteros believes that the clear support from the Spanish judges, the evolution of the Spanish rules – like many other jurisdictions inspired by the UNCITRAL Model Law – and the European and Latin American profile will help the Court’s development.

“It is ambitious and challenging to want to become a centre for something like investment arbitration, but it is not complicated,” he adds. “The fact is that the Spanish Arbitration Law and Court Rules are now very similar to the global standards and there is no reason why we cannot continue to improve our standing.”

Hace ya doce años desde que Miguel Ángel Fernández-Ballesteros se incorporó a la Corte de Arbitraje de Madrid. Ahora, en su función de Presidente, tiene muchos planes para la Corte, con el objetivo de que evolucione dentro de un mercado global y ofrezca una serie de servicios clave para la empresa.

Miguel Ángel Fernández-Ballesteros


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50

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