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Arbitration

Spain

On March 22 2006 the Madrid Court of Appeal ruled that an arbitration award is not deemed to be issued until it has been written down and signed by the arbitrators. A mere vote on the outcome of the award cannot be deemed to constitute an award. The arbitrators are free to vote on the award as many times as they see fit and no principle of law obliges them to stick to their first decision.

The Supreme Court has ruled on a case concerning the scope of an arbitration agreement in a company's bylaws. The Supreme Court decided that a dispute between the company and a shareholder did not have to be resolved by arbitration because two agreements were in place: the company bylaws, which contained an arbitration agreement, and the founding contract, which did not.

Unlike its predecessor, the new Arbitration Act states that unless an agreement to the contrary has been reached by the parties, either of them is entitled to amend or add to its claim or defence while the arbitration is underway, provided that the arbitrators do not deem this non-admissible due to the delay in doing so.

The new Spanish Arbitration Act regulates the form of arbitration agreements pursuant to the United Nations Commission on International Trade Law Model Law. However, it departs from the Model Law by stating that the written form requirement is fulfilled when the arbitration agreement is recorded and remains available for further consultation in electronic form or equivalent.

Spain's new Arbitration Act is based on the United Nations Commission on International Trade Law Model Law, which balances the civil and common law arbitration traditions. Where the parties do not state whether the arbitration should be decided in law or according to the principles of what is right and good, the act provides that the issue must be decided in law.

The Spanish Supreme Court has revoked an earlier decision that allowed an arbitration case to be heard in Spain even though the relevant contract provided that contractual disputes would be heard in London. The Supreme Court held that nothing in Spanish law prevented the arguments from being submitted to a foreign arbitration panel.

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Banking

Portugal

The Bank of Portugal has issued a notice on the applicability to payment institutions of a number of previously issued regulatory notices. Among other things, payment institutions must comply with its notices on uses of own funds, provision for credit and other risks, the provision of client information and the requirement to prepare consolidated and non-consolidated financial statements.

The Council of Ministers has approved a legislative decree that transposes the EU Payment Services Directive into Portuguese law. In addition to defining the categories of entity that may provide payment services, the decree stipulates prudential requirements for such entities and requires them to guarantee the transparency of the conditions and information requirements relating to their services.

As a result of a new legislative decree, the legal framework governing banking practices for the granting and renegotiation of mortgages - which covers interest calculation, early repayment, associated sales and duties of information and disclosure - now applies to other loans secured by the same property.

A new legislative decree sets out the information duties of credit institutions that wish to link life insurance contracts to mortgages. It reinforces consumer protection measures by establishing the required minimum content of life insurance contracts that may be offered to persons seeking a mortgage.

The Portuguese legislature has once again reacted to the problems in the financial sector, introducing changes to promote the disclosure of information about board-level remuneration in public-interest entities, including in the banking sector, and tasking the Bank of Portugal to supervise the credit institutions' lending to certain borrowers.

The Bank of Portugal has published details of a regulatory initiative that would impose greater duties on credit institutions to disclose the list of fees and interest rates that they levy on products and services. A notice and instruction set out details of the information required and the manner of its presentation.

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Spain

The government has recently introduced rules that affect the free movement of capital directly. Order EHA/1439/2006 of the Ministry of Economy and Treasury establishes the obligation to declare cash movements of €10,000 of more when entering or leaving Spain in accordance with the EU Control of Cash Regulation, and cash movements of €100,000 or more within the Spanish territory.

The government has failed to meet the deadline for transposition of the EU Markets in Financial Instruments Directive. However, the directive will come into force for entities carrying out investment services on November 1 2007. In order to alleviate the lack of domestic regulation, the Spanish Securities and Exchange Commission is considering leaving room for self-regulation in the banking industry.

Being a compliance officer in the banking sector in Spain is becoming a tough task. In addition to the general regulations to which banks are subject, the autonomous regional governments have recently passed legislation on the use of local languages and the protection of consumers, which is applicable to financial institutions.

The legislation on anti-money laundering was recently amended in order to reflect the latest international trends regarding the prevention of money laundering and terrorist financing. Comparatively, the Spanish legislature has established stronger prevention measures than most EU member states. Moreover, Spain is actively engaged in the implementation of the recently approved EU Third Money Laundering Directive.

The Royal Decree Law 5/2005 has implemented the EU Financial Collateral Directive. This new regulation has been welcomed by the Spanish financial industry, as it gives financial players a high level of comfort when entering into the transactions covered by the decree. The new framework establishes a more flexible enforcement regime and increases legal certainty for winding-up proceedings.

In May 2005 the Madrid Provincial Court handed down a decision declaring the nullity of eight clauses that credit institutions usually include in client contracts. This ruling is significant because it is binding not only on the defendant banking institutions, but also on all financial institutions in Spain.

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Capital Markets

Portugal

According to the Securities Market Commission, 47 of the 50 companies listed on Euronext Lisbon have some form of limitation on voting rights. The commission's latest measures are aimed at improving corporate governance by promoting the principle of one share, one vote in order to increase the proportionality between investment and influence at shareholders' meetings.

Commercial Property

Portugal

A recent government order has approved a new technical file model for residential buildings, which aims to strengthen consumers' right to information and protect their interests when acquiring a residential building. Detailed technical information on residential buildings must be collated and made available to prospective buyers before purchase.

Company & Commercial

Portugal

The signature on a promissory note of a partner in the capacity of manager (where such capacity is not stated in the Commercial Register) is not binding on the company - despite the production of minutes attesting to the fact that the partner was entrusted with the management of the company - if such minutes were not signed by another partner whose managerial capacity is recorded in the register.

The Companies Code provides that a private limited company is not bound by the signature of only one of its directors if its articles of association provide that the signatures of two directors are required to bind it, unless the company ratifies the action. However, a Supreme Court judgment has cast doubt on the safety of legal transactions by reversing an established view of directors' responsibility.

An amendment to the rules governing the Court of Auditors extends the scope of the court's financial supervision to include undertakings which hold a concession for public works and services and for the management of undertakings, state-owned companies and semi-public companies.

Significant changes to the Portuguese Companies Act have streamlined the procedure for amending company bylaws by doing away with the requirement for a notarial deed in many cases. The new administrative requirements make it easier for companies to increase or reduce their share capital.

A new system of online incorporation offers an immediate, cheap and convenient way to create and register a company. Even if the applicant chooses not to use one of the pre-approved templates for the articles of association, the process will take no more than two business days.

A recent Supreme Court decision examined the effect of Article 409(2) of the Companies Code, which sets out the principle that, in all actions performed by a company's directors which fall outside the scope of the company's activity, the company’s interests take priority over those of third parties.

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Construction

Portugal

Overview
Including: Who is Qualified to Build?; Registration; Licence; Subcontracting; Contractor's Obligations; IMOPPI Supervison; Liability for Administrative Offences; Criminal Liability.

It is the owner's duty to verify whether works are in the agreed condition and free of defects before accepting them. As such, the inspection of the works is a right, but also a burden that the law imposes on the owner, since failure to carry out the inspection implies acceptance of the works without reservation. Inspection must occur within a reasonable period of time.

Under Portuguese law, contractors can revise the price quoted in public works contracts in case of unforeseen changes to the circumstances on which the contract is based. A new regime extends the scope of this mechanism to private works agreements and public goods and services purchase agreements - a timely development, given recent increases in steel prices.

Corporate Finance/M&A

Portugal

The Portuguese government has decided to revoke Decree-Law 380/93, which requires the authorization of the minister of finance for the acquisition of stakes of over 10% in companies undergoing reprivatization. The government has thus brought the legislation into line with European law and prevented the commencement of infringement proceedings by the European Commission.

The squeeze-out right included in the Companies Code has proved controversial since its introduction in 1986. The Portuguese ombudsman recently challenged the legality of this provision before the Constitutional Court, but the court ruled that it is valid since it breaches no constitutional rights, liberties or guarantees.

Including: Private Acquisitions; Public Takeovers; Mergers; Divisions; Recent Developments.

Recent legislative reforms relating to major investment projects have created a favourable environment for both national and foreign investors to contemplate M&A transactions, joint ventures, takeovers and similar deals. The creation of the new Investment Agency is central to this policy.

Spain

Overview
Including: Share and Asset Deals; Tax Implications; Transfer of Employees; Injecting Funds in SPVs; Financial Assistance; Consistency with International Practice; Regulatory Filing Obligations; Goodwill.

Venture capital regulation and the role of authorities in the supervision of venture capital entities have changed considerably in recent years. New legislation has relaxed the administrative regime regarding incorporation, creating simplified venture capital entities.

Employment & Labour

Spain

The Supreme Court has recently issued two decisions regarding administrators' remuneration in public limited companies. The decisions clarify that administrators' remuneration cannot be offset from corporate income tax because the amount of such remuneration is not clearly determined in advance in the company's bylaws.

The Data Protection Agency has declared that principals in a contracting relationship are not entitled to access contractors’ employees’ payslips or TC2 social security payment forms because these documents include personal data that is protected by the Data Protection Act and the Workers Statute does not provide for such disclosure.

The Data Protection Agency has issued a decision on the amount of employee personal data that employers should disclose to employee representatives, which includes basic copies of employment agreements, Social Security Payment Form TC-1 which identifies the money owed by the company to social security if any, and Social Security Form TC-2 on payments made to and benefits received from social security.

The Supreme Court has declared in a decision dated June 11 2008 that in order to terminate employees on business grounds, a company need not evidence that the terminations will result in commercial viability, but only that it has suffered continuous and substantial losses.

A new law which took effect on January 1 2008 implements a number of changes to social security. The changes introduce stricter qualification requirements for certain social security benefits, but at the same time extend some rights and benefits to certain groups. The main changes concern retirement, temporary disability and permanent disability.

In a recent decision the Madrid High Court found a company to have terminated two employees as a consequence of them having successfully challenged their relocation from Madrid to Barcelona. According to the court, the employees were victimized and thus their fundamental right to claim legal protection without victimization or retaliation was infringed.

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Insolvency & Restructuring

Portugal

The Porto Court of Appeal has ruled that Article 192(2) of the Insolvency and Corporate Rescue Code does not preclude the reduction or waiver of debts, as these two legal measures have an effect on liabilities and are expressly provided for in Article 196(1)(a) of the code.

The financial crisis has led to greatly increased use of insolvency proceedings in Portugal. However, such proceedings are not only slow and inefficient, but also open to misuse, as many recent petitions for declarations of corporate insolvency have failed to fulfil specific legal requirements.

Acquiring distressed businesses has benefits and risks. Portugal's legislative framework is likely to be further tested in the present economic climate and a would-be acquirer must ensure that it understands the full effects and implications of the Portuguese insolvency regime.

The Constitutional Court has struck down an interpretation of Article 30(2) of the Insolvency and Corporate Rescue Code that disproportionately disadvantaged creditors. The court of first instance had held that if a debtor fails to submit a list of its five main creditors with its statement of opposition to an initiation of insolvency proceedings, it may not do so retrospectively and its opposition will be void.

The Constitutional Court has ruled on the constitutionality of two provisions of the Insolvency and Corporate Rescue Code. The court was asked to consider whether the managers of a bankrupt company may be prohibited from carrying out actions in relation to the company's assets or may be banned from engaging in business or holding a position within the governing body of a corporate entity.

Creditors' privileges have always been a cumbersome issue in Portuguese civil and banking law. A Constitutional Court decision that ranked mortgage creditors ahead of employees with a claim for unpaid wages is welcome news for banks, but the court's subsequent comments on Labour Code provisions on employers' privilege creates an additional concern for mortgage lenders.

Insurance & Reinsurance

Spain

The Supreme Court has clarified the way in which interest accrues against insurers for unjustified late payment of claims. The court ruled that interest shall accrue at the statutory rate increased by 50% from the date of the loss until the end of the second year as of the date of the loss; after the two-year period has expired, interest shall accrue at a rate of 20%.

The legislature has implemented the provisions of the EU Insurance Mediation Directive through the enactment of the Insurance and Reinsurance Mediation Law. The new law is based on three fundamental ideas, including the regulation of new types of insurance intermediary (eg, insurance agents tied to several insurance companies, reinsurance brokers and bank-insurance operators).

Under the new Spanish Insolvency Law, it is not entirely clear whether liquidators and the courts can order the estimation of long-tail claims in insolvent run-offs, and whether doing so obliges the reinsurer to pay in commutation for future liabilities. However, principles of equitable treatment and judicial restraint would seem to prevent the practice.

Draft legislation to implement a number of EU insurance directives has been placed before Congress. The draft seeks to ensure the mutual recognition of reorganization and winding-up measures taken in other EU member states. It also proposes to increase the solvency margin required by insurers and introduces new formal requirements for the distance marketing of insurance products.

Litigation

Portugal

Portugal has an extensive network of highways, some of which are managed by public limited companies under concession contracts executed with the state. A recent decision centred on the potential liability of these companies in the context of an accident. However, the decision appears to be fairly partial and a degree of prejudice during the trial was evidenced.

Under the Code of Civil Procedure, failure to produce a power of attorney has catastrophic consequences: it is treated as though the party did not intend to defend itself and the defence is duly withdrawn. However, this appears to contradict other provisions of Portuguese law and may also be unconstitutional.

A new decree-law has substantially overhauled enforcement proceedings in Portugal. It is hoped that the entry into force of the new regime in September this year will mark a turning point and will help to ease the administration of justice.

The option to record evidence presented to a court of first instance is necessary in order to protect the rights of citizens who have recourse to the judicial process, as it permits reconsideration of the facts by a court of appeal. It also speeds up court proceedings, which leaves assistant judges free to try other cases.

A Portuguese court recently handed down a landmark judgment against the state for failure to legislate. It awarded damages of approximately €600,000 to the parents of a child who was sucked into the pipes of a swimming pool at a water park, because had such facilities been properly regulated by the state their son’s death could have been prevented.

Spain

Overview
Including: Ordinary Proceedings; Special Proceedings; New Rules

The Supreme Court recently confirmed that a plaintiff has a duty to submit all relevant documents when filing its claim. Even when those documents are in the possession of another court, the burden is on the plaintiff to obtain copies of them and attach them to its claim at the time of filing.

The Supreme Court has recently clarified the limits that the courts must observe when deciding on claims for damages. The court held that the civil courts are not allowed to award damages in excess of what has been requested by the claimant, as this would jeopardize the right to defence.

The Supreme Court has issued a judgment in an unusual case where the plaintiff was a minor. It upheld the court of appeal decision ordering the defendants to pay a sum of money to the plaintiff, on the grounds that the defendants had failed to raise the issue of her age on appeal and the appearance in court of her parents overrode her lack of capacity.

The Madrid Court of Appeal has ruled on whether non-compliance by a judge of first instance with the term established by law during which a defendant may appear in court from the day of summons violated the constitutional right to due process. The court declared the process null and void on the grounds that the defendant had been deprived of its right to due process.

The Supreme Court has settled the issue of which legal criteria qualify a case for appeal before it. The court distinguished between two types of case: where the amount at stake has been determined, the right to appeal is conditional on this amount being in excess of €150,000; where the amount has not been determined, the right to appeal is conditional on the case having a special interest.

The Supreme Court has revisited the conflicting relationship between the 'pro actione' principle and the principle of extinction of the right of action due to expiration of the term for filing a brief of appeal. The court found that the filing of an inadmissible appeal against a judgment cannot be deemed a valid reason for extending the period of time to file an appeal established by law.

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White Collar Crime

Portugal

The Criminal Procedure Law imposes limits on searches and seizures in places subject to professional secrecy, such as law offices, medical offices and banks. However, these searches have become routine in too many criminal investigations and are being used as an easy means of gathering evidence.

The Council of Ministers has announced the approval of two proposals to amend both the Penal and Criminal Procedural Codes. The proposals will now be submitted to Parliament for discussion and approval. The most significant – and also most controversial – proposed change to the Penal Code relates to the duration of the suspension of the statute of limitations, which has been greatly increased.

Plans to introduce a new crime of illegitimate wealth into the Penal Code have been delayed by the Constitutional Court. Among other things, it held that the proposed amendment to the code would violate the principle of the presumption of innocence, as a discrepancy between a person's wealth and that person's legitimate income and assets would be presumed to be illicit.

A new amendment to the Penal Code may provide a crucial mechanism for preventing corruption, targeting all assets in Portugal or abroad and forcing individuals and companies to provide a full picture of their accounts to the tax authorities. However, doubts remain over whether the new provisions are constitutional.