The Securities Litigation Review: Portugal


i Sources of law

The main legal source applicable to securities in Portugal is the Securities Code, enacted by Decree-Law No. 486/99 of 13 November, as amended, which sets out the general legal framework applicable to securities, public offers, exchange markets, financial intermediation and supervision of capital markets.

The legal framework under the Securities Code is complemented by the regulations and instructions issued by the Portuguese Securities Market Commission (CMVM) pursuant to its regulatory powers. The CMVM also issues general 'soft law' instruments, such as recommendations and general opinion assessments, which, although lacking binding regulatory effect, offer guidance to market participants for the application and interpretation of the corresponding legal provisions.

The Securities Code was amended in December 2021, in view of achieving the following goals:

  1. simplification and reduction of regulatory burdens and barriers, including market operations, safeguarding investor protection and market integrity;
  2. greater alignment and harmonisation with European legislation to eliminate legal and regulatory requirements at national level;
  3. changes to the legal framework for public offerings for distribution aimed at increasing the competitiveness of the national market both for current issuers and for potential new issuers of debt and shares; and
  4. amendments to the legal framework for takeover bids to increase the efficiency and flexibility of their operation, as well as securing the protection of minority shareholders.

Specific legislation may apply to particular securities instruments and transactions (e.g., commercial paper, covered bonds).

Other relevant legal instruments pertaining to the Portuguese securities markets include the Commercial Companies Code, enacted by Decree-Law No. 262/86 of 2 September, as amended; the Commercial Code, enacted by Letter of Law of 28 June 1888, as amended; the Credit Institutions and Financial Companies Framework enacted by Decree-Law No. 298/92 of 31 December, as amended; and the Civil Code, enacted by Decree-Law No. 47344 of 25 November 1966, as amended.

ii Regulatory authorities

Securities enforcement actions in Portugal are generally brought by three authorities: the CMVM, the Bank of Portugal and the Public Prosecutor's Office.

The CMVM, under the supervision of the Ministry of Finance, is empowered to regulate, monitor and supervise the conduct of financial markets, issuers of securities and financial instruments and financial intermediaries, and to enforce the Securities Code and related regulations. The CMVM's statutory framework is currently set forth in Decree-Law No. 473/99 of 8 November, as amended.

The Bank of Portugal, as Portugal's central bank, supervises and controls the banking sector, regulating and supervising all credit institutions and investment companies acting in the country. The Bank of Portugal also enforces the Credit Institutions and Financial Companies Framework and related regulations.

Although the CMVM and the Bank of Portugal do not have the power to bring criminal charges, they nevertheless have extensive supervisory, regulatory and enforcement powers. In particular, they may initiate proceedings for administrative offences and impose penalties of up to €5 million (which can be raised up to a maximum of 10 per cent of the perpetrator's turnover or to triple the economic benefit obtained) and severe ancillary sanctions.

The Public Prosecutor's Office has exclusive powers to bring criminal charges, regardless of the nature of the crimes. For instance, only the Public Prosecutor's Office can charge someone with criminal market manipulation.

In some cases, the CMVM may conduct preliminary investigations of crimes, although the investigation must ultimately be handed over to the Public Prosecutor's Office for charges to be brought against the perpetrator. The Public Prosecutor's Office also represents the Portuguese state in any civil claim against third parties (thus acting as 'general attorney').

iii Common securities claims

Since 2008, because of the financial crisis, there has been an increase in securities litigation in Portugal, particularly relating to the mis-selling of listed shares, bonds, commercial paper and interest-rate swap agreements.

Most cases brought to court by investors against financial institutions relate to civil liability concerning the sale of negotiable securities and other financial products. These claims seek compensation for damage and are generally based on mis-selling and breach of duties of information. In broad terms, investors typically claim that the financial institution did not comply with its information duties, either because it provided inaccurate or insufficient information or simply because it omitted the required information, whether through fault or negligence.

Further, claims seeking the annulment of sale and purchase agreements of securities have also become common in Portugal, specifically on the grounds of an investor's error regarding the nature and risks of the securities or an abnormal change of circumstances caused by the financial crisis.

Regarding interest-rate swap agreements, it was frequently argued that they should be classified as a game of chance and therefore prohibited under Portuguese law, and that the sharp drop in interest rates caused by the financial crisis was an abnormal change of circumstances that allows the termination of the contract.

Investors have also brought claims against issuers of securities for damage allegedly caused by misleading information concerning their financial situation, fraud and falsification of documentation. This has been demonstrated in high-profile cases such as those relating to Banco Privado Português, Banco Comercial Português and Grupo Espírito Santo (GES). Claims were also brought against auditors and the regulatory authorities, namely the CMVM and the Bank of Portugal, for breach of their corresponding duties, although most of these claims have since been rejected by the courts.

In recent years, there has also been a growing number of claims concerning the monitoring of investments and the obligations of financial intermediaries following the client's investment decision, in particular those concerning potential information duties regarding subsequent changes to the risks of the financial instruments and even advice duties during the investment period. This was the case for certain bonds issued by Portugal Telecom SGPS, SA and Portugal Telecom International Finance BV.

In light of the resolution measures applied to Banco Espírito Santo (BES) and Banco Internacional do Funchal (Banif), there was also a new wave of litigation directed at the Bank of Portugal, challenging these resolution measures. Although the validity of a resolution measure itself may only be challenged before the administrative courts, civil courts have been indirectly asked to review these measures, especially as to whether it was a constitutional decision not to transfer subordinated bonds to Novo Banco. On 19 June 2019, the Portuguese Supreme Court held that the BES resolution measures did not breach the constitutional principles of trust and legal certainty, nor the principle of the separation of powers.2

Litigation regarding criminal and administrative offences related to securities – but not the sale of securities – has also grown significantly in the past few years. In these proceedings, in addition to crimes such as insider dealing and market manipulation, the main charges relate to fraud, false accounting and improper management, as well as use of false or misleading information. This has been demonstrated in high-profile cases relating to various Portuguese banks, specifically Banco Português de Negócios, Banco Comercial Português and, most recently, BES.

In this context, criminal liability is usually attributed to directors or representatives of the entity issuing the security, although legal entities can also be held criminally liable for some crimes, such as misleading advertising, fraud, false accounting and schemes to manipulate market prices. In light of the recent high-profile cases, the Securities Code's criminal framework was amended in 2017 to reflect new types of markets and phenomena.3 For instance, the crime of market manipulation was amended to include benchmarks, emission licences or spot commodity contracts. The crime of insider trading was amended to include other types of criminal acts, such as the cancellation or amendment of an order or the attempt to cancel or amend an order. In addition, a new type of crime was introduced that consists of using false or misleading information for the capture of investment. This is punishable with imprisonment of one to six years, or, if any investment is effectively captured, two to eight years.

The Securities Code was amended in December 2021, specifically in relation to the prospectus liability framework. The amendment clarified that only members of the management and the supervisory body, and the statutory auditor of the offeror and the issuer who are in office on the date of approval of the prospectus, may be liable for the prospectus's contents. To the extent that such persons are not in office at the date of the offer, their liability cannot be stated to correspond with any duty to inform at the time of the offer or with any obligation to monitor compliance of such duty at the time of the offer. Likewise, it may not be said that these members were bound by such a duty and responsibility at the time they exercised their duties (at a date prior to the offer) when they could not foresee, at the time of the 'certification' or 'examination' of the accounts, that the same would later serve as the basis for a public offer. Moreover, the liability of the financial intermediary for assisting with the offer is eliminated, in line with the removal of the mandatory nature of the assistance services in public offerings, and the financial intermediary providing assistance services shall remain liable for the prospectus if, and to the extent that, it accepts to be identified as such in the prospectus.

Private enforcement

i Forms of action

In Portugal, private enforcement securities actions are typically brought by investors for contractual or non-contractual liability or seeking the annulment of contracts.

In liability claims, investors usually claim compensation for damage, arguing that the financial institution did not comply with its information duties. In these cases, the plaintiffs must allege and prove that: (1) no information was provided, or that the information provided was inaccurate or insufficient through the fault or negligence of the financial institution;4 (2) they suffered real and actual damage; and (3) the damage was caused by inaccurate or insufficient information or a lack of information.5

In actions for annulment of contracts, investors commonly argue that there was an error regarding the nature and risks of the contract or an abnormal change of circumstances. Should the plaintiffs prevail, these actions result in the annulment of the contract and, consequently, in the mutual restitution by the parties of the corresponding consideration exchanged.

The defence in securities litigation matters is generally grounded on the adequacy of the product to the investor's profile, the information provided during the sale, the specific documentation signed by the investor and the information made available after the contracting process.

The statement of defence of the financial institutions usually focuses on, first, proving that all the duties of information were duly complied with, and second, that the institution acted as a mere financial intermediary, without any private interest in the transaction. Financial institutions claim that the investors fully understood the transaction and were not in error regarding the nature and risks of the contract, and argue that the contracts are valid pursuant to Portuguese law. Additionally, financial institutions argue that the financial crisis and the sharp fall in interest rates do not qualify as abnormal changes of circumstances. Financial institutions commonly invoke multiple objections, such as statutes of limitations of civil liability, abuse of rights and the existence of an arbitration agreement.

The Securities Code explicitly grants standing to non-qualified investors, associations for the defence of investors and foundations created for the protection of investors to bring class actions for the protection of collective or individual homogeneous interests of non-qualified investors in financial instruments. If the financial institution is found liable for damages in the class action, it must indicate the entity – a guarantee fund, an association for the defence of investors or one or more of the investors identified in the action – that will be in charge of receiving and managing the compensation due to all investors that could not be individually identified.

ii Procedure

Civil judicial proceedings are initiated by means of a written petition. The plaintiff must argue the material facts constituting the cause of action. For example, if the claim seeks compensation on the grounds of breach of information duties, the plaintiff must allege that the financial institution did not comply with the corresponding duties,6 that the financial institution acted with fault or negligence, that those circumstances resulted in damage to the plaintiff, and, lastly, that there exists a causal link between the damage and the breach of information duties.

In claims pertaining to the mis-selling of securities, the decision as to who bears the burden of proof regarding the fulfilment of information duties is particularly important. In a 2017 ruling concerning an interest-rate-swap agreement, the Portuguese Supreme Court, contradicting the majority of Portuguese jurisprudence, ruled that, according to the regime on general contractual clauses, the burden of proving that the bank complied with its information duties rested with the bank itself. This understanding was further confirmed in a ruling of the same court on 26 March 2019.7 However, in a ruling issued on 7 November 2019, the Supreme Court once again considered that it is the claimant who must prove that the financial intermediary did not comply with its information duties.8

In this context, it should also be noted that Portuguese courts have mostly held that in mis-selling claims, the claimant must prove the cause–effect relationship between the breach of duties and the damage suffered. This usually amounts to proving that the claimant would not have bought the financial products if the bank had complied with its duties, which may be difficult to prove, thus leading to many claims against financial institutions being rejected. In recent years, certain decisions from the courts of appeal have argued that this cause–effect relationship should be presumed, and hence the burden of proving that the relationship did not exist lies with the financial intermediaries. Although such a presumption would certainly be a game changer in most mis-selling claims, the Portuguese Supreme Court has upheld and restated its previous jurisprudence, stating that there is no such presumption.9 Indeed, in a recent demonstration of judicial uniformity, the Supreme Court decided that the burden of proof that the financial intermediary breached his information duties and the cause–effect relationship between such breach and the damage suffered lies with the investor. Moreover, the Court decided that, to prove such a cause–effect relationship, the investor must prove that the required information would cause him or her to decide not to invest.10 However, out of 29 judges, 12 voted to oppose the decision, which demonstrates that this issue is far from uncontested.

Subsequently, the defendant must present its defence, either asserting that the facts alleged by the plaintiff are not true or do not produce the consequences claimed by the plaintiff, or that the plaintiff's petition must be dismissed for some other circumstance, such as a legal objection. For instance, the defendant may argue that it did, in fact, provide all information required by law or that the plaintiff's petition for compensation must be dismissed because of the statute of limitations. The defendant may file a cross-complaint, in which case the plaintiff may reply. The plaintiff and the defendants must file their requests for evidence along with the legal briefs.

In civil proceedings, parties with the burden of proof are required to disclose documents and information that support their claims or defence. Unlike the common law system, Portuguese law does not provide for a disclosure or discovery phase. Further, Portugal lodged a reservation to the Hague Convention with regard to the taking of evidence in civil and commercial matters, declaring that it will not execute letters of request issued for the purpose of obtaining pretrial discovery of documents as practised in common law countries. Notwithstanding this, the parties may request that the court orders that certain documents in the possession of the counterparty or of a third party are produced to prove facts alleged in the proceedings, which the court may do if it deems them relevant to the dispute.

The pleadings phase is usually followed by a preliminary hearing in which procedural matters are discussed by the parties and decided upon by the judge. The parties may change their requests for evidence in the preliminary hearing. The judge may order specific documents to be presented by the parties or by third parties and may order expert reports to be made. The judge should also schedule the trial dates.

Witnesses and experts are examined at the trial hearing. Subsequently, the parties present their closing arguments and the court issues the final decision. In litigation involving sums exceeding €5,000, the decision may be appealed.

In addition, in recent years, arbitration proceedings related to securities litigation have increased. Portuguese arbitral proceedings tend not to differ significantly from judicial proceedings, which is to say that they usually have the same procedural phases as the former (i.e., a pleadings phase, followed by a preliminary hearing and, subsequently, the trial hearing).

iii Settlements

Under Portuguese law, the parties may reach a settlement at any stage, provided that it does not affect inalienable rights. The claimant may also, at any time, waive its claim.

If a court settlement is reached, the agreement must be judicially approved. The court will verify whether the settlement is valid and whether the signatories have sufficient powers to execute it.

Under Portuguese law, there are no mandatory rules governing the payment of attorneys' fees pursuant to a settlement. Judicial fees are usually borne by both parties in equal shares and each party bears its own attorneys' fees.

iv Damages and remedies

Pursuant to the Portuguese Civil Code, whoever causes damage to another person through wilful misconduct or negligence may be subject to contractual or non-contractual liability and, consequently, be ordered to pay compensation.

In securities litigation, damage usually refers to the losses suffered by the investor. For example, if the investor purchased bonds that lost their value because the issuer became insolvent, the financial intermediary could be ordered to pay the price of the bonds. In litigation relating to an interest-rate-swap agreement, the financial institution could be ordered to pay the negative financial flows of the swap agreement.

Other common remedies sought by investors include the annulment of the contract, the termination of the contract and barring the financial institution from initiating enforcement proceedings, charging bank accounts or registering the debt in the Central Credit Register.

Civil liability may also be sought through criminal proceedings, as has been the case with, for instance, the proceedings related to GES and BES (collectively, BES/GES) where several investors have indicated they will request compensation for damage.

Public enforcement

i Forms of action

In Portugal, there are two forms of public enforcement of securities actions: criminal proceedings and administrative offences proceedings.

Public securities actions are brought against the perpetrator by the Public Prosecutor's Office, the CMVM or the Bank of Portugal. In some cases, the issuance or sale of securities may have consequences for the financial institution's accounts or financial ratios, and – if there is a breach of the respective governing rules – the Bank of Portugal may also initiate enforcement proceedings. For example, if the financial institution sells bonds and guarantees payment or interest but does not register that liability in its accounts, it may be subject to administrative proceedings for having false or inaccurate accounts. Hence, although the CMVM is the regulator empowered to supervise the securities market, the Bank of Portugal may have indirect intervention.

In Portugal, the Public Prosecutor's Office has exclusive powers to bring criminal charges regardless of the nature of the crimes, although in some cases administrative regulators may conduct preliminary investigations into crimes (e.g., the CMVM may investigate the crime of market manipulation). Ultimately, however, the investigation must be handed over to the Public Prosecutor's Office for charges to be brought against the alleged perpetrator.

Regulators can collaborate on the investigation and information may be shared between the enforcement agencies, with the exception of information and documents subject to privilege and information that can only be used for specific purposes (e.g., information obtained from a judicially authorised seizure for the purposes of prosecuting a crime may not be used in administrative offence proceedings).

Proceedings for administrative offences may be brought by the CMVM and the Bank of Portugal for breaches of the Portuguese Securities Code and the Credit Institutions and Financial Companies Framework, respectively, within their enforcement powers, which allow the two organisations' regulators to impose severe penalties and ancillary sanctions.

Since the financial crisis, there has been an increase in prosecution activity by the supervisory authorities with regard to securities, and a special court for regulatory matters was set up to enhance the capacity to respond to regulatory demands.

The Public Prosecutor's Office and the administrative regulators may – and do – simultaneously investigate the same entities for similar or identical facts. Although there is no obligation for these government entities to coordinate their investigations, all regulators must report to the Public Prosecutor's Office if they suspect a crime has been perpetrated.

In recent cases, the Public Prosecutor's Office and the administrative regulators have investigated and sanctioned very similar – if not identical – facts. For instance, forged accounts have concurrently been considered a crime (forgery of documentation), an offence sanctioned by the Bank of Portugal (breach of the duty to report the true financial situation of a bank) and an offence sanctioned by the CMVM (introducing false information to the market). This situation has raised public concern on the basis of potentially breaching the ne bis in idem rule, with recent court decisions concluding that no such breach exists, thus raising constitutional concerns. The Portuguese Constitutional Court has since been asked to render a decision on the matter, which is pending at the time of writing.

ii Procedure

Criminal investigations must be initiated by the Public Prosecutor's Office when it acquires knowledge that a crime or offence has been committed, whether directly or on account of a report. The mere reporting of a crime is sufficient for the Public Prosecutor's Office to open a criminal investigation, unless the report is anonymous, in which case an investigation may only be initiated if there is evidence of the commission of a crime.

With regard to securities-related criminal prosecution, once the investigation phase has terminated, the Public Prosecutor's Office must decide whether to charge the alleged perpetrator or close the proceedings. If the alleged perpetrator is charged, it may then request that a judicial investigation phase be opened and conducted to ascertain whether or not it should be charged and subject to trial for the relevant crime.

If the judge renders a charging decision, the accused party must then present the corresponding statement of defence and will subsequently be subject to trial, upon the termination of which the judge will render a decision. That decision may generally be appealed to a superior court.

Administrative offence proceedings, which are brought by the relevant administrative regulator, are initiated with an investigation. If evidence of an offence is collected, the regulator issues a charge. In recent cases, the administrative regulators have come under fire for not presenting their evidence, which is usually composed of tens of thousands of pages of documents, in a systematic, coherent and organised form, to the extent that it forgoes the defendant's right of defence. Pursuant to a court decision annulling the Bank of Portugal's charge and subsequent final decision in a high-profile case on the grounds that the defendant's right of defence had been violated owing to the way in which the Bank of Portugal presented its evidence, small changes have been enacted regarding the way in which these proceedings are conducted. For instance, in other proceedings, the Bank of Portugal has provided defendants with a list of the documents included in the proceedings.

After being served the charge, the defendant must then file the corresponding defence and its request for evidence. The regulator will produce all the evidence it deems relevant. Afterwards, the regulator will render its final decision. If not acquitted, the defendant may appeal to a court with exclusive jurisdiction on competition, regulation and supervisory matters.

In recent years, the Portuguese public's outrage at cases in which bankers have been acquitted on the grounds of the statute of limitations, and subsequent court decisions where defendants allege that their rights are not being fully respected have raised concerns among lawyers and scholars on the impartiality of the decisions, both by the administrative regulators and the judicial court. This has been the case in the recent high-profile cases relating to Banco Privado Português, Banco Comercial Português and GES, where, during both the administrative and the judicial phases of the proceedings, the administrative regulators and the courts have the exclusive power to decide on the evidence to be produced and render decisions that can lead to the enforcement of millions of euros in penalties.

iii Settlements

Under Portuguese law, it is not possible to settle securities claims within criminal and administrative offence proceedings. Currently, only the Portuguese Competition Law allows a settlement with a guilty plea as an alternative to prosecution.

Nevertheless, the Bank of Portugal and the CMVM may agree to issue an opinion on the sanction likely to be applicable in the event of a guilty plea and the full cooperation of the perpetrators, thus allowing the latter to weigh their options.

In addition, the Securities Code sets forth a regime for a reduction of the penalty based on a system of confession and collaboration of the defendant. The maximum and minimum limits of the applicable penalties and ancillary sanctions may be reduced by one-third if the defendant (1) confesses to the facts, (2) provides relevant information to reveal the truth of facts or (3) effectively assists in the production of evidence that is decisive for establishing the facts or for identifying other perpetrators. The maximum and minimum limits of the applicable penalties and ancillary sanctions may be reduced by half if the defendant simultaneously confesses to the facts and collaborates with the authorities in revealing the truth of the facts and identifying other perpetrators.

The Portuguese Criminal Procedure Code also establishes that the Public Prosecutor may – subject to the judge's authorisation – stay the proceedings for crimes punishable with a maximum five years' imprisonment for a certain period as long as the defendants comply with specific injunctions. If the injunctions are satisfied and the defendant does not commit a similar crime during the period of stay, the proceedings are definitively closed. This has rarely, if ever, been used in securities enforcement actions.

iv Sentencing and liability

In securities-related criminal proceedings, the perpetrators are subject to imprisonment or to the payment of fines. Factors that help determine the applicable penalty include the severity of the infraction and its consequences, the intensity of the perpetrators' fault or negligence, the personal and economic conditions of the perpetrators, and recidivism.

In administrative offence proceedings, the CMVM may impose severe fines and ancillary sanctions. Depending on the severity of the infraction, fines can range from €5,000 to a maximum of €5 million, which can be further increased up to a maximum of 10 per cent of the perpetrator's turnover, with the exception of offences resulting from market manipulation and the use or transmission of inside information, which are punishable by a fine up to 15 per cent of the turnover of the infringing entity. In any case, the penalty may be increased up to triple the economic gain of the perpetrator.

Ancillary sanctions may also be applied for crimes or administrative offences, the most relevant of which include publication of the decision at the expense of the perpetrator, loss of economic proceeds from the offence, temporary suspension or definitive prohibition against carrying out the activity underlying the offence, prohibition from entering into specific contracts or entering into contracts with specific entities, exclusion from public subsidies and aid, and closure of the commercial establishment. The catalogue of ancillary penalties also includes the prohibition of trading on one's own account, and the cancellation of registrations or the revocation of authorisations for the exercise of management, directorship or supervisory functions in entities subject to the supervision of the CMVM.

The determination of the fine and ancillary sanctions depends on the material illegality of the act, the agent's negligence, the benefits obtained and the prevention requirements, with the following circumstances, among others, being taken into consideration with regard to legal persons:

  1. the danger or damage caused to investors or the market for securities or other financial instruments;
  2. the sporadic or repeated nature of the offence;
  3. any concealment of acts tending to impair discovery of the offence; and
  4. the existence of acts by the agent, at the agent's own initiative, aiming at rectifying the damage or mitigating the dangers caused by the offence.

In addition, the following circumstances are taken into consideration in regard to natural persons:

  1. the level of responsibility, the scope of functions and the role in the legal entity;
  2. the intention to obtain, for itself or another entity, an illegitimate benefit or damage caused; and
  3. the special duty to not commit the offence.

When determining the applicable sanction, the agent's economic situation and previous and subsequent conduct are also taken into consideration, such as his or her collaboration with the CMVM or the court.

Lastly, the Securities Code specifies that the administrative liability of a legal person is only excluded when its agent acts against precise and specific orders or instructions, which were transmitted to the agent in writing before the commission of the infraction.

Cross-border issues

As a general rule, Portuguese entities only have jurisdiction with regard to securities-related matters that occurred in Portugal. Thus, in principle, private or public enforcement proceedings will only be brought against entities exercising their activities in Portugal and with regard to criminal or administrative offences perpetrated in Portugal.

Notwithstanding this, the Portuguese Securities Code establishes rules that require mandatory application, namely those that are applicable to cross-border situations that would otherwise be subject to foreign legislation pursuant to the general Portuguese conflict-of-law rules. These rules are applicable to cross-border situations to the extent that a material connection can be established between the specific circumstances and the Portuguese jurisdiction.

A material connection to Portuguese territory is considered to exist when:

  1. orders are addressed to members of regulated markets or multilateral negotiation systems registered with the CMVM, and operations are carried out in those markets;
  2. activities are carried out, and acts are performed in Portugal; or
  3. the diffusion of information that is made accessible in Portugal makes reference to situations, activities or acts regulated by Portuguese law.

On the other hand, pursuant to Regulation (EU) No. 1215/2012 (Brussels I bis) Portuguese courts have jurisdiction in civil and commercial matters when the contractual parties have agreed to submit their disputes to the Portuguese courts or when the respondent, irrespective of nationality, is domiciled in Portugal.

A defendant domiciled in another EU Member State may be sued in Portugal in the following cases:

  1. when the contract on which the claim is based was performed in Portugal;
  2. in tortious matters when the harmful event occurred in Portugal;
  3. when civil liability stems from criminal proceedings held in Portugal; and
  4. under certain circumstances where there is more than one respondent and one is domiciled in Portugal.

Defendants not domiciled in an EU Member State may also be sued before Portuguese courts in two circumstances relevant to securities litigation when the dispute:

  1. is connected to the operations of a branch, agency or other establishment situated in Portugal; and
  2. arises out of contracts with consumers who are domiciled in Portugal, provided that the other party pursues commercial or professional activities in Portugal.

Year in review

In recent years, more attention has been paid to securities litigation, most notably due to the continuing media coverage of high-profile cases, such as those relating to Banco Privado Português, Banco Português de Negócios, GES/BES, Portugal Telecom and Banif. Although fewer decisions have been rendered (owing to the measures adopted during the covid-19 pandemic), the recent developments in administrative offence and criminal proceedings, which have now started being decided by first instance and appeal courts, have renewed media interest in these matters.

While most civil proceedings related to GES/BES have been dismissed by the courts, proceedings initiated by a special fund constituted pursuant to a memorandum of understanding entered into between an association created for the protection of BES's bond and commercial-paper investors and the Portuguese government, the CMVM, the Bank of Portugal and BES, are still pending in the first-instance courts.

The litigation regarding bonds issued by Portugal Telecom SGPS, SA (the holding company of the PT Group) and PTIF, the company that issued most of the PT Group bonds (guaranteed by the holding company)11 has continued, with courts rendering decisions holding that financial intermediaries in execution-only cases (even when they are custodians) do not have to inform clients of events subsequent to the investment.12 For instance, in a decision on 8 October 2020, the Court of Appeal of Guimarães ruled that the duty to provide information does not entail an obligation on the financial intermediary to follow up on the insolvency proceedings of the issuer of bonds.13

Moreover, recent case law has maintained that the financial intermediary is responsible for considering the client's profile and for providing information adequate to his or her knowledge in investments pertaining to complex financial instruments. For instance, in a Supreme Court of Justice decision on 28 January 2020, the court held that a bank that informs a client without any financial experience that commercial paper is similar to a fixed-term deposit, with guaranteed capital, is not complying with the duty to provide complete, true and objective information regarding the risks inherent to the investment.14 Likewise, in a decision on 8 October 2020, the Lisbon Court of Appeal ruled that omission of information to the investor on the differences between bank deposits and subordinated bonds constituted a breach of the financial intermediary's duty to provide information.15 Moreover, in a ruling on 23 March 2021, the Supreme Court of Justice upheld that a financial intermediary is responsible for considering its client's profile and providing adequate information.16 However, as a Supreme Court of Justice decision dated 6 December 2021 demonstrates (see Section II.ii), there is yet to be a consensus in case law.

In the past year, several administrative offences proceedings relating to securities transactions have been brought by the CMVM and the Bank of Portugal, and their respective appeals have started to be decided by the judicial courts, raising several concerns about the protection of defendants' rights, pertaining to the retroactive application of rules that are detrimental to the defendants' position. For instance, several decisions of the first-instance court and the Lisbon Appeal Court have retroactively applied causes of suspension of statutes of limitations, with the constitutionality of these decisions being dubious.

Outlook and conclusions

There is ongoing public discussion regarding the liability of banking institutions, which is being sustained by new decisions being rendered in connection with the GES/BES crisis.

Although the number of new judicial proceedings has decreased, especially in the context of the covid-19 pandemic, many disputes related to the GES/BES crisis, the Banif resolution and the PTIF bond are still pending or have only just started to be decided by the first-instance courts, giving rise to appeals by both sides of the dispute. The final outcome of these disputes will not only determine the scope of financial institutions' conduct going forward, and securities litigation in Portugal, but also how the regulators will adapt the relevant legislation. In any case, we expect securities litigation brought by investor associations, retail investors, shareholders and subordinated creditors against the banks and their directors will continue to be a growing trend. In this respect, it will be interesting to see how the recent amendments enacted to the prospectus liability framework set forth in the Securities Code will shape future litigation.

Lastly, given that administrative offences proceedings relating to securities transactions continue to be brought by the CMVM and the Bank of Portugal against numerous entities, with decisions that raise concerns among lawyers and scholars, we expect litigation in this regard to continue.


1 Nuno Salazar Casanova is a partner and Nair Maurício Cordas is a senior associate at Uría Menéndez – Proença de Carvalho.

2 Decision of 19 June 2019, proceeding No. 4140/14.0YYLSB.L1.S1.

3 Law No. 28/2017, of 30 May, which amended the Securities Code and Decree-Law No. 357-C/2007, of 31 October, which transposed the new Market Abuse Directive (Directive 2014/57/EU of the European Parliament and of the Council of 16 April 2014 on criminal sanctions for market abuse) and adapted Portuguese law to the Market Abuse Regulation (Regulation (EU) No. 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse).

4 See decision of 11 July 2019 of the Portuguese Supreme Court, Proceeding No. 901/17.7T8VRL.G2.S1: '– The information to be provided by a financial intermediary to a client has varying levels of intensity, depending on the type of service provided by the intermediary: if the intermediary recommends an investment, the information duties are especially intense; if the intermediary provides a 'one-stop' service, such as collecting the financial product's subscriptions, opening a securities account or moving it, the intensity is different.– . . . In any case, however, whilst the intensity and type of the informative detail vary, the veracity of the information and other associated characteristics do not (Article 7 of the Portuguese Securities Code).'

5 See decision of 26 March 2019 of the Coimbra Court of Appeal, Proceeding No. 3307/16.1T8LRA.C2:
'It having been proven, clearly, that: it was the bank that contacted the customer to convince him to subscribe subordinated bonds and informed him that the investment was 100% capital and interest guaranteed by the Bank itself; he stated that he only agreed to such subscription if it were totally free from any risk of losing his money; he would not have agreed to invest his money in these securities had he known that it had no guaranteed capital; and the capital was lost, it must be concluded that the institution did not fulfil, with the scope and accuracy required by law, its information duty regarding the product sold, and thus acted illicitly. The other contractual liability requirements having been met, it is obliged to compensate for the losses.'

6 See decision of 16 May 2019 of the Évora Court of Appeal, Proceeding No. 3129/16.0T8STR.E1:
'The banking entity, which, as a financial intermediary, proposes to its client – who has profile and experience as a term depositor – the acquisition of a financial product (bonds of the issuer) that, through the expression “guaranteed capital”, that the banking entity intends to equate the product to a term deposit, in terms of guarantees, to a term deposit, does not comply with the information duties by which it is bound.'

7 Decision of 26 March 2019, Proceeding No. 1942/12.6TVLSB.L1.S2.

8 See decision of 7 November 2019, Proceeding No. 1616/17.1T8LRA.C1.S1, where it was decided that '(…) in order for the requisites for the civil contractual liability of the financial intermediary to be met, it is necessary to demonstrate the unlawful fact (the provision of erroneous information, within the framework of the banking business relationship and financial intermediation); fault (which is presumed under the terms of article 799 no. 1 of the Civil Code and article 304-A of the Securities Code); the damage (the loss of capital arising from the subscription of the financial product, with the yield discounted, that is suffered by the Plaintiff; it is also important to assess the causal link between the act and the damage (recognizing that whoever claims the right must demonstrate the existence of the causal link between the breach of the duty and the damages, neither of which are presumed); and hence, in order to assert that the financial intermediary is liable for the damages suffered by investors, they must demonstrate the causal link between the breach of the duty to inform and the damage.'

9 See, for example, the decisions of 6 November 2018, Proceeding No. 6295/16.0T8LSB.L1.S1, and 7 November 2019, Proceeding No. 1616/17.1T8LRA.C1.S1.

10 See decision of 6 December 2021, Proceeding No. 1479/16.4T9LRA.C2.S-A.

11 In 2015, a corporate event occurred: PT Group was sold to Oi, SA and Portugal Telecom SGPS, SA became a minority shareholder of Oi, and thus was no longer the issuer or guarantor of the bonds. However, due to this corporate event, the clients had the possibility of early redemption above par. Later, in 2015, the majority of the PT Group was sold to Altice, while PTIF remained a subsidiary of Oi, SA. When the Oi group filed for insolvency, the bonds initially issued by PTIF became worthless. Certain clients argued they were not informed of the corporate event and that if they had been informed they would have chosen to redeem their bonds.

12 In 2019, the Lisbon Court of Appeal rendered a decision that had the following summary: 'in the course of the execution of a contract for the deposit and registration of financial instruments, the financial intermediary and custodian cannot alienate themselves from changes relating to the entity that issued the bonds nor from those relating to the maturity date of the products, factors which are capable of negatively impacting the outcome and solidity of the products, and should inform the investor in such a way as to allow him or her to adopt, in due course, conduct that minimises or prevents risks which are known and are not negligible, and which threaten the normal conservation and coming to fruition of the financial instruments' (decision of 8 January 2019, Proceeding No. 2115/17.7T8VFX.L1.7). However, in a decision subsequently rendered on 24 October 2019, the same Court of Appeal decided that: 'In the execution of a contract for the deposit and registration of financial instruments of “deposits of simple custody”, the financial intermediary is not obliged to communicate to the client, now the claimant, any change in the quotation – be it of appreciation, devaluation, or events that could determine these – of the securities of which it was the depositary, when they only reflect the materialization of a risk specific to the subscribed financial product, under the provisions of article 312º C, nº 1 of CVM' (decision of 24 October 2019, Proceeding No. 14027/17.0T8LSB.L1-6).

13 Decision of 8 October, Proceeding No. 1953/19.0T8GMR.G1.

14 Decision of 28 January 2020, Proceeding No. 2142/16.1T8STR.E1.S1. See also decision of 15 July 2015, Proceeding No. 4607/17.9T8LSB.L1-6.

15 Decision of 8 October 2020, Proceeding No. 13636/18.4T8LSB.L1-6.

16 Decision of 23 March 2021, Proceeding No. 1215/16.5T8LSB.L1.S1.

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