2022-05-11

Introduction

Sustainable financing, with an emphasis on "green" financing, reveals the growing concern with new environmental, social and governance (ESG) challenges.

Sustainability has a tangible financial dimension that has been growing at an exponential rate. According to Refinitiv, in 2021 sustainable bonds reached a global value of $1 trillion, which represents 10% of the global debt market.

Because we believe that sustainability is an essential aspect of company’s business purpose and will become a pre-condition for accessing financial markets in the future, MACEDO VITORINO has created a Green Finance Team dedicated to the development and financing of green projects.

Our Green Finance Team has deep knowledge of the energy sector and the key regulatory and financial issues in preparing and structuring up green finance transactions.

The pace of development of the green debt and equity markets means that green finance will become dominant in the medium term. In the long term, companies that do not meet sustainability requirements will face increasing difficulties in accessing the financial markets.

Background

According to McKinsey, to prevent a rise of more than 1.5°C, no more than 400 gigatons can be emitted, which means cutting present emissions levels by two-thirds over the course of the decade.

In 2019, the European Union (EU) approved the "European Green Deal" with the aim of transforming Europe’s economy and set the following objectives:

  • Neutral greenhouse gas emissions by 2050; and 
  • Reduction of greenhouse gas emissions by at least 55% (compared to 1990) by 2030. 

The Portuguese National Plan for Energy and Climate (PNEC) establishes the following goals for 2030:

  • Reduce greenhouse gas emissions by 45-55% compared to 2005; 
  • Increase to 47% the share of energy from renewable sources in gross final energy consumption; and 
  • Reduce primary energy consumption by 35% compared to 2005. 

Green Finance: The New Framework

McKinsey estimates that to reach a net-zero transition between 2021 and 2050, requires a capital spending on physical assets for energy and land-use systems of about $275 trillion, an average of $9.2 trillion per year.

Investors are increasingly interested in green finance. According to Refinitiv, in 2021 "sustainable" bond issuance will exceed the $1 trillion mark for the first time, representing a 45% increase in debt when compared to 2020.

Sustainable bonds accounted for 10% of overall global debt market activity, which exceeds the 6.6% of 2020 by large.

The global value of green bonds reached $488.8 billion, almost doubling the 2020 levels. In number of issues, green bonds have increased by 54% compared to 2020.

Europe accounted for 54% of the sustainable bond market, compared to 22% for America and 18% for the Asia Pacific region.

The ICMA Principles

  • Use of proceeds. Bond proceeds should be utilised in eligible green projects (i.e. projects with clear environmental benefits that should be assessed and, if possible, quantified by the issuer).
  • Project evaluation and selection. The issuer should communicate to investors the environmental sustainability objectives, the process for determining the eligibility of projects and the complementary procedures by which it identifies and manages the environmental and social risks associated with the project.
  • Management of proceeds. Bond proceeds should be credited to sub-accounts or accounts controlled by a formal internal process to ensure that the proceeds are utilised in eligible green projects and can be audited by the issuer and external auditors.
  • Reporting. Issuers should disclose, and keep available information about, the use of proceeds, projects and their impact, on an annual basis or whenever there is a material change, including qualitative and, where possible, quantitative performance indicators.

Eligible Investments

The main types of 'green' investments identified by ICMA are, among others:

  • Renewable energy, including production, transmission, appliances and products;
  • Energy efficiency, such as in new and refurbished buildings, energy storage, district heating, smart grids, appliances and products;
  • Pollution prevention and control;
  • Clean transportation, such as electric, hybrid, public, rail, infrastructure for clean energy vehicles and reduction of harmful emissions;
  • Sustainable water and wastewater management;
  • Climate change adaptation, including information support systems such as climate observation and early warning systems; and
  • Green buildings.

The EU taxonomy regulation

Regulation (EU) 2020/852 on the establishment of a regime for the promotion of sustainable investment (referred to as the "Taxonomy Regulation") qualifies an economic activity as environmentally sustainable if that economic activity:

  • Contribute substantially to one or more environmental objectives, i.e. (i) climate change mitigation, (ii) adaptation to climate change, (iii) sustainable use, (iv) protection of water and marine resources, (v) transition to a circular economy, (vi) prevention and control of pollution and (v) protection and restoration of biodiversity and ecosystems;
  • Not significantly impair any of the environmental objectives listed in Article 17 of the Taxonomy Regulation;
  • It is developed in accordance with certain minimum safeguards; and
  • Satisfy the technical assessment criteria set by the Commission in Delegated Regulation (EU) 2021/2139.

Requirements of the taxonomy regulation

The Taxonomy Regulation requires projects to comply with the following requirements:

  • Identify the most relevant potential contributions to the environmental objective and the minimum requirements that must be met to avoid significant harm to any relevant environmental objectives;
  • Be quantifiable or, when this is not possible, use sustainability indicators;
  • Be based on conclusive scientific evidence and the precautionary principle;
  • Take life-cycle considerations into account by considering the environmental impact of the economic activity and the environmental impact of products and services resulting from that activity, the nature and scale of the economic activity, and the potential market impact of the transition to a more sustainable economy; and
  • Covering all relevant economic activities in a specific sector and ensuring that these activities are treated equally.

The future Green Bond regulation

The European Commission's proposed Green Bond Regulation sets out the following requirements for bonds to receive the designation "European Green Bond“ or “EuGB”:

  • The proceeds of the bonds should be allocated to activities that comply with the Taxonomy Regulation (Regulation (EU) 2020/852)
  • Before issuing EuGB, issuers must complete a factsheet in accordance with the model attached to the Regulation, obtain external certification and publish both documents;
  • Issuers must prepare an annual report on the allocation of the proceeds until they are fully used and a report on the environmental impact of the use of the proceeds at least once during the lifetime of the bonds; and
  • Issuers should obtain a post-issuance verification of the report regarding the allocation of revenues by an external entity.

What we can do

We can help funders and promoters with all legal aspects of funding, including:

  • Identify eligible projects against the European Taxonomy and the ICMA Principles;
  • Strategic advice on the definition of project eligibility criteria;
  • Define "green" commitments regarding the application of funds and the project;
  • Preparation of the technical file and financial documentation required for financing;
  • Collaborate with technical advisors in the certification and auditing of the project; and 
  • Monitor and verify compliance with "green" commitments throughout the life of the contract. 

If you wish to learn more, please download our PDF down below. 

2022-05-09

Data is everywhere. Information assets are highly valued by companies. Nowadays, businesses depend more frequently on information technologies and data than a few years ago, mainly before the entry into force and application of the European General Data Protection Regulation (GDPR).

In M&A transactions, data is the key for the evaluation of the target company and the risks associated with the deal. Transactions rely on cybersecurity to protect sensitive and confidential information. However, as insurance coverage over information assets is still not widely sought for, risks are greater for companies that may be more vulnerable during M&A transactions.

But if not the risk of an information breach, or the risk of mispricing the transaction, then the risk of being held legally liable for such breach, including personal data violation, must be of alarming to businesses during M&A transactions.

Within the context of a transaction, there are two key points regarding data protection compliance to be considered: whether personal data can be transferred from the target to the acquiror; and whether the parties comply with privacy laws.
In general, asset deals may be more exposed to data protection compliance risks than share deals or corporate reorganizations, since, in these latest two cases, there is no change in the position of the parties to contracts with employees, customers, and suppliers; that is, there is no transfer of the data controller position, which, even though a shareholders’ change, will remain the same entity. However, there are still significant compliance risks associated with share deals. The differences stages of a M&A transaction require different measures to ensure proper data protection compliance.

With this paper, we intend to provide you with the main points of interest that should concern the parties to a transaction, and to outline potential solutions to minimize or eliminate compliance risks.

Pre-signing

The typical M&A transaction kicks off with a due diligence on the acquiror, the target, or both. The due diligence is essentially an analytical review of data disclosed by the relevant party to a transaction. And the disclosure of data poses a significant compliance risk for those attributed the duty off keeping it safe.
Usually, access to data in a due diligence is assured via a data room, from which the reviewing party will obtain the contents that are object of the due diligence, including personal data, e.g., information on employees, customers. For this purpose, it may be advisable that data rooms disable save and print options, which is already common practice in many transactions.

Even before the transaction agreement is done, the parties are already obliged to comply with applicable data protection rules, as the pieces of information reviewed during a due diligence will most likely include personal data. And because data rooms usually host personal data, the parties to a transaction must execute data processing agreements with data room providers.
Personal data includes any information relating to an identified or identifiable natural person, as defined by the GDPR.
Deal structure and industry-specific due diligence is of great relevance, too. On one hand, personal data cannot always be transferred in asset deals, and, on the other, for businesses which are data-intensive, handling great amounts of personal data, it is advisable to conduct further compliance due diligence focusing on data protection.

When extra care is advisable, because e.g., the target company handles sensitive data, there are at least three main areas of play:

  • The transferability of data and, when applicable, the consent of data subjects on data transfer;
  • Whether the original purposes of the data processing (and for which, for example, data subjects gave their consent) are compatible with the acquiror’s business and data processing purposes in connection with the M&A transaction; and
  • The security standards in place at both target and acquiror to keep data safe.

Either for valuation or risk assessment, the acquiror should hence understand what the target’s liabilities on privacy matters are, as the acquiror may take on the target’s liabilities at completion.

What you should watch for:

  • Access to the data room should be restricted and information disclosed in the data room should be the necessary (data minimization principle). The employees or customers should not be identified or identifiable. For this purpose, and so that the information keeps meaningful value to the due diligence, the disclosing party can anonymize/pseudonymize information;
  • Alternatively, employees or customers should be informed that their information will be processed for the purpose of a due diligence and the disclosing party should obtain their consent. Not only this is impractical in large transactions, but also the parties should consider the fact that consent is only an appropriate lawful basis for data processing if it is genuine, which is not likely in an employment context, and thus the parties should rely on a different lawful basis for transferring data of employees;
  • The information disclosed should be limited to that that is strictly necessary to perform the due diligence. For this purpose, e.g., employment agreements can be sampled, or the information can be aggregated, or only key information can be disclosed, or the disclosure of sensitive data should be avoided;
  • The valuation of the target company should take into consideration that there may be restrictions to the use of personal data by the acquiror post-closing;
  • Whenever the target is processing data on behalf of a third party, data sharing agreements will likely include change of control or change of ownership clauses, which should be accounted for by the acquiror;
  • Both deal structure and the industry of the target are relevant for the purpose of assessing price, exposure to risk and steps required for a compliant M&A transaction.

Signing

If it were not for the comprehensive set of privacy rules, the assumption would be that the target company owned (and could freely exploit) the personal data it acquired over the years. But that is not the case.
Once the due diligence is complete, the transaction documents should safeguard the party’s position in view of any potential data breaches or infringement of data protection rules.

There are plentiful ways to ensure one’s position during negotiations and at signing: contract negotiations should entail an adequate level of protection against the findings resulting from the due diligence, whether this is reflected on the price or in contractual provisions; the share and purchase agreement should include representations and warranties that are tailored for data protection compliance and/or transferring the risk of violation; the counterparty should be able to warrant that it is compliant with privacy laws and has put in place adequate security standards, etc.
The target should warrant the acquiror, e.g., that there are not any pending proceedings related with data security breaches, that it has adequate security standards in place, or that it is compliant with the applicable privacy laws. Indemnification clauses and limitations of liability are also relevant in view of any potential breaches and/or liability resulting from the target’s business up until the completion date.
Insomuch as some transactions may be of greater complexity as regards data, data sharing and data integration, it may be cost-effective and legally advisable to include ancillary services agreements for the specific purpose of ensuring data protection compliance in the transaction documents.
There should be extra care in international M&A transactions due to potential international data transfers.
If data is transferred to a country outside of the EU-EEA, an assessment of the level of adequacy of the jurisdiction, to which the data will be transferred, has to be carried out. Alternatively, mechanisms such as standard contractual clauses, binding corporate rules, approved codes of conduct, approved certifications or a combination thereof have to be included in the transaction documents.
At signing, if the target processes or controls data, the acquiror should have obtained a comprehensive catalogue of data and respective consents, Records of Processing Activities (RoPAs), Data Protection Impact Assessments (DPIAs), if applicable, and Legitimate Interests Assessments (LIAs).

What you should watch for:

  • Data breaches and infringements of privacy laws are costly. Whenever appropriate, privacy-related risks should be accounted for with remediation and indemnification clauses;
  • If deemed adequate, it may be advisable that the parties agree to conditions precedent and covenants in respect to data processing;
  • Non-disclosure agreements (NDAs) should include data protection clauses and contractual penalties in case of failure to keep information confidential. We should note that NDAs executed by the parties for the purpose of ensuring confidentiality during the transaction process will most likely expire at signing of the asset purchase agreement (APA) or share purchase agreement (SPA), so it may be relevant to execute a new NDA at signing or include a non-disclosure provision in the purchase agreement;
  • If the target does not warrant that it is legally authorised to share the data with the acquiror, the acquiror risks exposure to liability for unauthorised processing of data;
  • Insurance on cyber risks is valuable and may even be a solution to a deadlock where the target is reluctant to be exposed to such a relevant liability.

Pre and post-closing

The day the share and purchase agreement are executed by the parties does not always match the closing of the transaction. The period between signing and the closing date could, in fact, take months. During this period, the transaction parties may also exchange information.
The parties should take into consideration that while the transaction is not closed, the acquiror is a third party and sharing information can result in responsibility before the competition authorities.

Some deals require a level of confidentiality that is sometimes conflicting with the interests of privacy laws. The timing for transfer of liability is key, then. When possible, and to avoid unnecessary exposure to compliance risks, the acquiror can be provided with statistical information instead of actual data, even if it is pseudonymized.

After the deal is closed, it is likely that the acquiror might have to face limitations on the use of data.

The acquiror should mind that the consent provided to the target by data subjects sometime in the past may both enable and limit the data processing by the acquiror. And even in a share deal, where the controller of data does not change, privacy policies will need to be updated, should the purpose or use of personal data change after completion.

What you should watch for:

  • Data sharing before the closing date should be limited to that strictly necessary for data integration purposes, and those handling data should be limited to the minimum;
  • Should the transaction not occur, the parties must be able to adequately eliminate and dispose of any data obtained during negotiations and before closing date;
  • Consent is not transferable in the context of an M&A transaction unless the data subject was informed of such a possibility when providing his consent, so this should be considered by the acquiror;
  • Data sharing before the closing date should be limited to that strictly necessary for data integration purposes, and those handling data should be limited to the minimum;
  • Where the purpose or use of data does change after completion, the acquiror will need to obtain the consent of the data subjects for their data to be processed under the revised privacy policies.

How does the GDPR impact M&A?

In the context of an M&A transaction, personal data of many sorts is handled and/or transferred from target to acquiror. This will include employees’ information, applicants’ CVs, IP addresses, suppliers’ information, etc..
The right to data privacy is not an absolute right. It is relative to its function in society. Throughout the transaction process, it is crucial that the parties weigh their legitimate interests against the fundamental rights and freedoms of data subjects.
The assessment of an adequate balance between the right to protection of individual data and freedom of enterprise adds a layer of complexity to M&A that is novel to the market.

During negotiations, the acquiror is a third party as it is neither the data subject, nor the controller, processor, or an entity who, under the direct authority of the controller or processor, are authorized to process personal data. This puts the parties in a very delicate position as to what information can be shared at a stage where trust and disclosure is key to the success of the transaction:

  • On one side, the logistics are seriously impacted as parties must go on tiptoe through each stage of negotiations and even after executing the agreement, bearing in mind that sharing information means exposure to a compliance risk.
  • On the other, data privacy influences both valuation and deal structure. As we explored, the price may be adjusted by exposure to compliance risks, and the structure of the deal must be compatible with the transfer of data from the target to the acquiror.
  • On the third, where transactions are negotiated behind closed doors, the current data protection framework, compliance obligations, and recent history of sanctions motivated by infringements during negotiations, suggest that even though the door is closed, it is not locked, and personal data protection concerns may not be neglected.

If you wish to find out more, please download our PDF down below.

2022-05-04

Like the rest of the world, Portugal has been suffering from the devasting impact of the coronavirus pandemic. The measures adopted to prevent the spread of COVID-19 had a significant impact on the country´s economy.

Despite this, Portugal is currently the country with the highest percentage of people fully vaccinated, with 83,5% of the population fully vaccinated, as of September 2021, which is already encouraging the Government to open the economy and will decrease the numbers of the setback caused by the crisis.

Portuguese GDP fell 7.7% in 2020 and is expected to recover by 4.8% in 2021. Exports are also expected to recover 9.2% in 2021 after falling 20.1% in 2020. As expected, tourism, textile and footwear sectors, which are highly dependent on export markets, were severely hit.

However, investment in tourism, real estate, renewable energy and other longer-term projects in Portugal maintain their course. Despite the present difficulties, local and international investors remain confident in longer term prospects and in the resurge of tourism when the Covid-19 pandemic is behind us.

More importantly, against a backdrop of social unrest in many other developed countries in recent years, Portugal offers security, little social unrest and an inclusive and open society with low levels of racism, religious tensions and sex biases. According to Institute for Economics & Peace’s “Global Peace Index 2021”, Portugal ranks 4th in the most peaceful countries in the world, 3rd amongst European countries. Portugal also ranks 9th in Societal Safety and Security domain amongst the countries in the world.

Other opportunities will arise from the recently announced National Investment Program (Programa Nacional de Investments) with investments in 85 infrastructure projects over the next 10 years, supported by the European Union, with EUR. 21,660 million to be invested in the transportation sector, mainly in upgrading or building new railroads and subway infrastructure, EUR. 13,060 million in renewable energy and EUR. 7,418 million in environment related investments.

This guide reviews the main aspects to be considered by foreign investors looking at Portugal as a place to invest, such as how to set up of a business, government incentives, employment rules, tax system, intellectual property protection, investing in real estate and judicial system.

For more information go to www.macedovitorino.com/en/why-portugal.

2022-05-02
Introduction

Competition is not only necessary to achieve economic efficiency, but it is one of the essential conditions of a market economy as well. Companies committed to the preservation of fair competition should develop and foster a competitive culture and help its directors and employees ensure the company complies with competition laws.

The purpose of a competition guide is to explain the basic provisions of European and national competition laws to make companies (executive bodies and employees) aware of the basic competition rules and how these rules may affect their business.

A competition guide does not cover all circumstances/ issues companies can run into, but it provides enough information regarding competition law, which helps companies recognizing patterns and specific situations and require legal advice if needed.

Competition guides make it easier for companies (especially the ones operating in several different countries) to develop a consistent approach wherever the company is operating so that its employees may apply business practices in line with the company’s global standards.

A training program is required to implement a competition guide, which is essential to keep companies regularly aware of competition issues. This would include training sessions, information on antitrust developments, updates of the competition guide, etc.

Companies should encourage their employees and business partners to feel personally responsible for the strict application of competition rules set out in competition guides. Otherwise, the development of a competitive culture may be at risk.

Overview

The main provisions on anti-competition practices of the European Union Competition Law are outlined in Articles 101 and 102 of the Treaty on the Functioning of the EU (“TFEU”).

EU Competition Law applies to all companies doing business within the Member States or which can affect trade between the Member States of the European Economic Area (“EEA”) regardless of whether these companies are established in one of those countries or not.

On the other hand, the Portuguese Competition Law, which was approved by Law 19/2012, of 8 May 2012 (the “Competition Law”), applies to restrictions of competition in Portugal.

The rules on anti-competitive practices laid down in Articles 9 to 11 of the Competition Law are similar to those of Articles 101 and 102 of TFEU as developed by the European case law. Between TFEU and the Competition Law, there could be differences resulting from:

  • Adaptation to Portuguese legal concepts;
  • Particular features of the Portuguese markets;
  • Portuguese culture and experience; and
  • Interpretation by the Portuguese lawmakers and the Competition Authority of European case law.

There are, however, practices forbidden by both:

  • Cartels. All agreements intended to prevent, restrict, or distort competition are prohibited. Does not matter the form of agreement. There are two types of agreements: horizontal agreements (the ones between companies acting on the same marketing stage, e.g. agreements with competitors) and vertical agreements (the ones between companies acting on different marketing stages, e.g. agreements with suppliers and customers; and
  • Abuse of dominant position. Competition law forbids undertakings from abusing their dominant position to prevent, distort, or restrict competition in the market or a substantial part of it.
Horizontal and vertical agreements

Agreements between competitors (horizontal agreements)

Under Competition Law, the term “agreement” has a very broad meaning and includes all kinds of agreements between two or more competitors, i.e., two or more companies operating at the same level(s) in the market, like levels of production or distribution.

But not all agreements with competitors are illegal. Agreements with competitors that do not restrict competition are legal but sometimes must be notified to the relevant competition authorities.

In what concerns dealings with competitors, there are some general principles to be considered:

  • Prices and conditions of supply. To agree or co-operate in any way with competitors to fix prices is prohibited. Competitors cannot, specifically: (i) jointly determine selling or purchase prices, price increases, and specific minimum or maximum prices or price ranges, and (ii) jointly agree to rebates, discounts, and other supply conditions.
  • Market sharing. It is forbidden to share or allocate markets in any form. More specifically, competitors cannot, specifically: (i) share or allocate markets regarding specific territories, products, customers, or sources of supply, and (ii) fix production, buying, and selling quotas between competitors;
  • Boycotts. It is forbidden to refuse to deal with one or more customers or suppliers to hinder such customers or suppliers to do business in a market. It is however possible to have a competitor as a supplier or customer at an arm’s length basis, as long as all other antitrust rules are observed; and
  • Joint ventures. Joint venture agreements between competitors can be beneficial, e.g., by facilitating technological advances (efficiencies), but can also affect or restrain competition. Because of that, these agreements should not be closed without legal advice.
Agreements with suppliers and customers (vertical agreemnts) 

Unlike agreements between competitors, many agreements with suppliers and customers are necessary for companies to develop their business activity and entirely appropriate.

When it comes to vertical agreements, companies should respect the following principles:

  • Resale prices. The producer must not set the resale prices charged by the distributor. It is not allowed to, specifically: (i) fix or set resale prices to distributors or dealers for any product, (ii) require the distributor to stick to the recommended resale prices, (iii) terminate the agreement with a distributor due to their refusal to stick to the recommended resale prices, (iv) coordinate the price policy with the distributor according to the market situation, (v) forbid the distributor from granting any discounts, etc.;
  • Exclusivity. While closing exclusive distribution, purchase, franchise, or license agreements, companies must comply with certain rules. For instance, it is forbidden to (i) prevent from making passive sales to customers outside its exclusive customer group or territory prescribe not to passively supply customers from outside the territory, (ii) forbid a distributor from accepting a customer’s inquiry from outside the territory, (iii) forbid a distributor from supplying products to other distribution channels upon corresponding orders, (iv) refuse orders from distributors exporting products due to territory restrictions;
  • Parallel trade. Parallel trade is a consequence of free trade within a market. It is not allowed to: (i) impose export bans, (ii) prevent from exporting to customers from outside the territory, (iii) refuse orders from partners exporting products due to territory restrictions;
  • Tying. Tying clauses that make a product supply subject to the acceptance of supplementary obligations to buy other goods and/or services which, either by their nature or according to commercial usage, have no connection with the contract subject, generally should not be used, especially when companies have a significant market share in the first product;
  • Competition clause. Under certain circumstances, it is possible to forbid a distributor or licensee to sell or manufacture competing products. It is allowed to do so to extend the prohibition beyond the duration of the agreement;
  • Patent, trademark, copyright. When licensing patents, copyrights, know-how, or trademarks, it is not allowed to (i) forbid the partner from contesting the secrecy of the licensed know-how or the licensed trademarks and patents, (ii) forbid the partner from contesting the validity of the licensed patent, (iii) fix the price that the licensee charges for its product, (iv) reach agreements with other patent owners regarding royalties to be charged for competing patents; and
  • Improvements and new applications. In patent licensing and know-how licensing agreements, either party should generally be free to compete with its developed products, improvements, or new applications of the technology in so far as these are severable from the licensee’s initial know-how. However, it is not allowed to restrict either party from competing with the other party when it comes to research and development, manufacture, use, or sale of any own developed product, improvement, and a new application of the technology.
Abuse of dominant position

An undertaking has a dominant position when it has a position of economic strength (and market power) that enables it to prevent effective competition and to behave independently from its competitors, customers, and consumers to an appreciable extent.

Although several factors should be considered in the assessment of a company’s position, the market share of the product is the main factor. Market shares are calculated based on geographical and product markets.

Dominant companies have a special responsibility to behave fairly having to comply with special rules to protect competitors, customers, and market structure from abusive behaviour. Many of the commercial policies and tools that are legal for a non-dominant company may be abusive if carried out by a dominant company. As a result, companies in a dominant position (unilateral or collective) should act carefully so to avoid any abuse of such a dominant position.

The following are examples of abuse:

  • Discrimination/Different terms of sale. A company with a dominant position must not discriminate in its terms of sale when dealing with similar customers under comparable circumstances. It is however possible to (i) grant different terms of sale (rebates) to distributors providing special services that are not met by other distributors, (ii) grant different terms of sale to distributors of another stage in the distribution channel (wholesalers/retailers) since such distributors are providing different services;
  • Hindrance of competitors. Market-dominant companies are not allowed to substantially restrict the access of competitors to customers or dealers by imposing (i) exclusive purchase commitments on customers, (ii) fidelity rebates, (iii) rebates with similar effects, and (iv) unfair or predatory price (method in which a seller sets a price so low that other suppliers cannot compete and are forced to exit the market); and
  • Refusal to supply. A refusal to sell to distributors or customers might constitute an abuse of a dominant position. It is not allowed, specifically, to (i) refuse to sell to a customer which meets the same requirements as other customers which are supplied, and (ii) reduce supplies to comparable customers in different ways without an unbiased justification.
Consequences of breaching competition rules

Not complying with competition laws can seriously negatively impact companies. These are the main risks companies might face are:

  • Fines. Companies that breach antitrust rules might be subject to significant fines and compulsory penalties. The European Commission and national competition authorities, including the Portuguese one, can impose fines of up to 10% of the consolidated total turnover of companies. Competition Authorities might take into account the company size, the seriousness of the illegal business practices at stake, the duration of the illegal practices, and the existence of repeat offenses to increase the discouraging effect of fines;
  • Civil liability. A company can be sued for damages by those who can demonstrate that they have sustained losses caused by anti-competitive practices carried on by that company. Although actions for damages resulting from breach of competition rules are not a common solution in Portugal, a set of measures has been implemented recently, so it is expected that damages actions will be used more frequently by injured parties soon;
  • Contractual risk. Any contractual provision infringing antitrust laws is generally void, which means it cannot be enforced before local courts. The entire contract could also be void in certain circumstances.
  • Reputation risk. Violation of antitrust laws is more and more perceived by the stakeholders as unethical behaviour that can seriously impact the image and reputation of a company and make it look like it does not observe/regard the highest corporate governance standards. Share price can also be significantly affected. Recent studies tend to show a correlation between cartel investigations and a decrease in the share price.

A competition guide is of the utmost importance for companies’ executive bodies, employees, and business partners to understand fully that any breach of applicable competition laws might seriously damage a company’s business activity.

Recommendations

Practical recommendations

Undertakings usually are part of professional associations. These professional associations may be subject to monitoring by the Competition Authority, as professional associations might lead to collusion between competitors.

Because of what was said above, undertakings’ employees should comply with specific rules when dealing with these professional associations, particularly regarding membership, meetings, and information exchange.

In most cases, it is not possible to notify the Competition Authority to get a clearance on specific matters. An individual assessment could be more easily made based on a set of rules on competition and, of course, companies can always require external legal opinion in sensitive cases.

Companies can follow some guidelines when dealing with professional associations:

  • Do not exchange nor accept receiving sensitive information;
  • Declare that the company does not want to receive any sensitive information, and protest in writing in case it happens;
  • Do not attend professional associations meetings without written minutes attesting to the agenda and those resolutions are taken under the law;
  • Make sure informal conversations before, during or after such meetings are not about anticompetitive subjects and be properly aware of what could be the content of those discussions;
  • Require professional associations to have a confidential collection system, the so-called “black box system”; and
  • In case the professional association your company is part of does not have a competition guide, suggest/ recommend it adopts one.
How to communicate with clients and competitors 

Communications between companies, their clients, and their competitors are fundamental for the development of their business activities. Companies should use care in their written and oral communications.

The use of inappropriate words in internal or external communications could be misinterpreted as indicative of anticompetitive behaviour. Companies should be conscious that any documents, as a rule, may be subject to seizure by the competition authorities.

To prevent these situations, undertakings should define a set of rules on how to communicate with their clients and competitors. For instance:

  • Do not use expressions that have ambiguous or controversial meaning, especially when it relates to their competitors or competitive behaviour;
  • Do not suggest that their marketing or pricing decisions (based on the company strategy, such as market status, competitor behaviour, customer threats, etc.) should be founded on grounds other than those;
  • Indicate the source of any sensitive information, such as market shares, prices, production capacities; and
  • Write carefully and clearly in memoranda, letters and emails and keep in mind that everything written may be disclosed publicly in an adversarial proceeding.
How to handle documentation

Competition Law requires undertakings to cooperate with the Competition Authority, which implies that they should disclose all information/documentation relating to an investigation procedure in course.

Regardless of specific rules on keeping documentation (for instance, accounting and tax documentation), companies should be aware that some documents could be relevant in an investigation procedure since they could have an important role as evidence or negotiating tool in the scope of settlements or leniency/reduction of fines program.

Once an investigation/litigation is initiated, documents of any kind which directly or indirectly related to the subject of the proceedings must be immediately retained and never destroyed or concealed. Destruction of sensitive documents (even as part of a general retention/destruction policy) or the appearance of a cover-up in the context of an investigation procedure or lawsuit could result in very high fines.

How to react to competition authorities' dawn-raids

Competition authorities have wide investigative powers, which include the power to make inquiries, do searches in companies’ premises, examine, copy, and seize documents as well as seal the premises if necessary.

To react against the so-called “dawn-raids” of competition authorities, companies should define a set of guidelines.

For example, in what concerns the access to documents in the possession of attorneys, the Portuguese Competition Authority, in line with European case law, understands that the client/attorney secrecy privilege only applies to outside counsel and not to in-house lawyers. However, the Lisbon Commerce Court has ruled, in a recent decision, which may be followed by other Portuguese courts, that communications with in-house lawyers should be deemed privileged.

Employees should be aware of the investigative powers of these authorities and know the measures that they can adopt in these circumstances.

All employees, who are likely to be confronted with dawn-raids, for instance, receptionists, managers, lawyers, should be well trained to adopt the right behaviour, as a good relationship with the competition authorities is in the best interest of companies.

Refusal to cooperate could create an incorrect impression, as if the company had something to hide.

Undertakings and/or their employees can be fined by competition authorities.

Final remarks

To avoid risks, companies should be aware of the risks that their employees’ daily informal behaviours can lead to anti-competitive practices and seriously harm the company business even when such conduct was not intended by the company’s management.

The best approach is to:

  • Ensure cooperation with the authorities;
  • Grant access to information that is duly requested by the authorities;
  • Keep documentation;
  • Get legal advice on what is allowed and what is not; and
  • Develop internal proceedings that promote a competition compliance culture.

To learn more, please download our PDF.

2022-02-16
Introduction

A whistleblower program, if well-designed, is an adequate tool to build a culture of good communication and corporate social responsibility, where reporting persons are considered to contribute to self-correction and excellence within the organisation significantly.

The most significant risks typically occur in a work-related environment, such as theft or fraud, bribery/corruption, environmental misconducts, health and safety concerns, privacy issues, employer’s policy breaches.

Employees are the ones to which it is easier to detect a breach. Still, they do not often report violations, mainly because they either believe that the breach cannot be effectively addressed or that there is a risk of retaliation.

As part of compliance programmes, reporting channels can be used as a risk management tool, giving organisations the chance to become aware of concerns/misconducts at earlier stages and prevent or mitigate financial and reputational risks.

Reporting channels allow building a confident and secure environment. Employees are encouraged to openly speak about their concerns with the management as their first preferred course of action. Confidentiality, response times, and follow-up must be ensured. Otherwise, a reporting channel will quickly fail its credibility and trust before its primary recipients – the employees.
This paper explains the main steps organisations need to take to comply with the Directive (EU) 2019/1937 (the ‘EU Whistleblowing Directive’ or the ‘Directive’) and Law 93/2021 of 20 December 2021, which implemented the Directive in Portugal.

The time to act is now for those who have not yet taken steps to ensure that a whistleblowing programme with effective report channels is in place. The Portuguese Whistleblowing Law requires ongoing internal reporting channels by 18 June 2022.

 

The EU Whistleblowing Directive

Currently, whistle-blower protection provided in the EU is fragmented across its Member States. This situation is due to different reasons, including cultural ones.

The purpose of the EU Whistleblowing Directive is to create a harmonised legal framework, which will introduce substantial changes in approach to whistleblowing in the many Member States, including Portugal, and with effects for employers with EU cross border operations.

The Directive affects all legal entities in the private and public sector with 50 or more employees and, regardless of the number of employees, entities within the scope of some EU acts, including Anti-Money Laundering (AML) rules. These organisations must provide means for employees to report misconducts that occurred in a work-related environment, including, but not limited to, the following: public procurement; prevention of money laundering; environment; personal privacy data.

The definition of “employees” has a broad range, comprising those with the employee’s status and freelance employees, contractors, subcontractors, suppliers, shareholders, management roles, former and prospective employees.

The deadlines to incorporate the minimum standards of the Directive into local laws are as follows:

  • Businesses and government organisations with or more than 250 employees, entities falling into the scope of EU some acts (such as AML rules), and municipalities serving 10,000 inhabitants must implement an internal reporting system by 17 December 2021; and
  • Businesses and government organisations with 50 to 249 employees must have their internal reporting system by 17 December 2023.

Organisations must have systems in place to monitor and follow up on reports. They must be prepared to understand the steps to protect whistle-blowers following their reports, safeguard their identity, and ensure that employees will not suffer any retaliation.

The Directive contains the minimum standards for accepting, processing, and reporting information received from whistle-blowers. The EU Member States may impose additional requirements on top of these, so it is recommended to keep track and review the local whistleblowing legislation.

 

Reporting channels

In Portugal, the Whistleblowing Directive was implemented by Law 93/2021, of 20 December 2021.

The Portuguese Whistleblowing Law imposes that local businesses and government organisations with or more than 50 employees, “obliged entities” falling into the scope of the Portuguese Anti-Money Laundering Law (Law 83/2017, of 18 August 2017), and municipalities serving 10,000 inhabitants implement an internal reporting system by 18 June 2022.

Employees must first use internal reporting channels before using external channels. The procedures for internal reporting channels shall include:

  • Setting-up of channels for receiving the reports which need to be designed, established, and to operate in a secure manner that guarantees that the confidentiality of the identity of the reporting person and any third party mentioned in the report is protested, and prevent access thereto by non-authorized staff members;
  • Acknowledgment of receipt of the report within seven days of that receipt;
  • An impartial person or department competent for following-up on the reports and which will maintain communication with the reporting person and, where necessary, ask for further information from and provide feedback to the reporting person;
  • Provision of feedback within a reasonable timeframe, not exceeding three months from the acknowledgement of receipt or, if no acknowledgement was sent to the reporting person, three months from the end of the seven days after the report was made; and
  • Provision of clear and easily accessible information regarding the procedures for reporting externally to competent authorities.

Employees must use external channels in case internal channels cannot reasonably be expected to function correctly. This may occur if employees have valid reasons to believe that:

  • They will suffer retaliation in connection with the reporting, including as a result of a breach of confidentiality, or
  • Competent authorities will be better placed to address the breach effectively.
 
Internal reporting channels

Main features

Employees can address complaints in writing and/or verbally. Complaints can be submitted anonymously.

Internal reporting channels can be operated in-house to receive and follow-up on complaints by persons or services selected for that purpose, or externally, to receive complaints only.

Independence, impartiality, confidentiality, data protection, secrecy, and absence of conflict of interest of the person(s) or entity chosen for this purpose must be safeguarded.

That person or entity will have to act diligently to follow up on the report.

Appropriate actions must be taken to verify the assertions made in the report and, where necessary, to cease the reported violation by opening an internal investigation or informing the competent authority to investigate the breach.

Deadlines for the follow-up of reports

  • Seven days: acknowledge receipt of the report to the reporting person should occur within seven days of that receipt. Within the same deadline, the reporting person must be informed, in a clear and easily accessible way, on relevant procedures and external reporting procedures to relevant competent authorities.
  • Three months: follow-up and feedback should take place within a reasonable timeframe, given the need to promptly address the issue that is the subject of the report and the need to avoid unnecessary public disclosures. This timeframe should not exceed three months but could be extended to six months, if necessary, due to the specific circumstances of the case, in particular the nature and complexity of the subject of the report, which may require a lengthy investigation.

The reporting person can, at any time, request the organisation to disclose the outcome of the review carried out following the report and within 15 days as of its conclusion by the organisation.

 
External reporting channels

Main features

Competent authorities will establish external reporting channels, independent and distinct from other communication channels, to receive and pursue reports. They will also publish information on the reporting procedures in a separate, easily identifiable, and accessible section on their websites.

When there is no competent authority to address the report or in cases where the target of the report is the competent authority itself, the report must be addressed to the Portuguese Anti-Corruption Authority and, if this authority is the target, to the Public Prosecutor's Office.

Reports will be dismissed when the competent authority, by a reasoned decision (to be notified to the reporting person), considers that:

  • The reported offense is of minor seriousness, insignificant or manifestly irrelevant;
  • The complaint is repeated and contains no new elements of fact or law that justify a different follow-up to the first complaint; or
  • The complaint is anonymous and there is no evidence of an infringement.

Deadlines for the follow-up of reports

  • Seven days: acknowledge receipt of the report to the reporting person should take place within seven days of that receipt unless the reporting person explicitly requested otherwise, or the competent authority reasonably believes that acknowledging receipt would jeopardise the protection of the reporting person's identity;
  • Three months: for the organization to notify the whistleblower of the measures envisaged or adopted to follow up the complaint with the relevant grounds.

The reporting person can, at any time, request the competent authority to disclose the outcome of the review carried out following the report and within 15 days as of its conclusion by the competent authority.

Competent authorities will review the procedures for receiving and handling reports every three years, considering their experience and that of other competent authorities.

 
Safeguards

In addition to implementing effective, confidential and secure reporting channels, it is crucial ensuring that reporting persons are protected effectively against retaliation.

Retaliation means any direct or indirect act or omission which occurs in a work-related context, is prompted by internal or external reporting or by public disclosure, and which causes or may cause unjustified detriment to the reporting person.

For instance, employees need specific legal protection to acquire the information they report through their work-related activities. Therefore, employees risk work-related retaliation for breaching the duty of confidentiality or loyalty. Employees may also find themselves in a position of economic vulnerability in the context of their work-related activities.

Protection should be provided against retaliatory measures taken not only directly vis-à-vis employees themselves but also those that can be taken indirectly, including vis-à-vis facilitators, colleagues or relatives of the reporting person who are also in a work-related connection with the reporting person's employer or customer or recipient of services.

Once employees make their report, they should be protected by:

  • Steps are being taken to prevent retaliation, harassment and threats against them by issuing fines to anyone looking to hinder the process in such a manner;
  • Suspension, lay-off, dismissal or equivalent measures;
  • The burden of proof being reversed so that the business or municipality has to provide evidence that it was not trying to retaliate against a whistleblower;
  • Being offered free advice and information on procedures;
  • Understanding that, by exposing wrongdoing, they did not contravene contracts, non-disclosure agreements or similar;
  • Being offered financial assistance;
  • Being offered psychological support.
 
The role of the management

Many organisations make their internal reporting system accessible to their employees but do not actively encourage its use. Only a few seek to instil a sense of obligation by sending the message that persons who perceive misconduct but do not raise the alarm are complicit in their apathy or indifference.

Whistleblowing programmes may fail if the high-level management cannot provide proper assurance that those who report issues will not be ignored, silenced, or punished for the bad news.

In turn, middle-level management must balance supporting the programme and preventing access due to much control. Too much management control over the process can hinder its use.

Doubts about management commitment can still arise if the reporting channel is exclusively handled in-house and without the involvement of an independent and impartial third party.

Ensuring the protection and safety of whistleblowers is necessary for the effectiveness of a whistleblowing programme.

A whistleblowing programme must guarantee confidentiality and allow discreet or anonymous reports. If an individual feels seriously threatened or in a situation where a company has only a few employees, guarantees of confidentiality may not be sufficient to encourage whistleblowing, in which case it would be necessary to offer anonymity.

Any reports must be stored confidentially and securely. Each organisation needs to take steps to protect whistleblowers' identities and comply with the General Data Protection Regulation (GDPR). Having a central tracking system to enter, monitor, and update case details will help ensure this while at the same time simplifying the investigation procedure.

Providing feedback to the reporting person as part of the investigation process will also show that the issue is assessed and taken seriously by the organisation.

The programme still needs to be informed to all employee levels. The announcement must have a clear and strong message and be repeated from time to time. This communication that the programme enjoys support at the highest-level management and that the use is an act of loyalty, not infidelity, is crucial and stresses the message that reporting is the right thing to do.

If you wish to know more, please download our PDF down below. 

2022-01-13
Introduction

Competition is not only necessary to achieve economic efficiency, but it is one of the essential conditions of a market economy as well. Companies committed to the preservation of fair competition should develop and foster a competitive culture and help its directors and employees ensure the company complies with competition laws.

The purpose of a competition guide is to explain the basic provisions of European and national competition laws to make companies (executive bodies and employees) aware of the basic competition rules and how these rules may affect their business.

A competition guide does not cover all circumstances/ issues companies can run into, but it provides enough information regarding competition law, which helps companies recognizing patterns and specific situations and require legal advice if needed.

Competition guides make it easier for companies (especially the ones operating in several different countries) to develop a consistent approach wherever the company is operating so that its employees may apply business practices in line with the company’s global standards.

A training program is required to implement a competition guide, which is essential to keep companies regularly aware of competition issues. This would include training sessions, information on antitrust developments, updates of the competition guide, etc.

Companies should encourage their employees and business partners to feel personally responsible for the strict application of competition rules set out in competition guides. Otherwise, the development of a competitive culture may be at risk.

Overview

The main provisions on anti-competition practices of the European Union Competition Law are outlined in Articles 101 and 102 of the Treaty on the Functioning of the EU (“TFEU”).

EU Competition Law applies to all companies doing business within the Member States or which can affect trade between the Member States of the European Economic Area (“EEA”) regardless of whether these companies are established in one of those countries or not.

On the other hand, the Portuguese Competition Law, which was approved by Law 19/2012, of 8 May 2012 (the “Competition Law”), applies to restrictions of competition in Portugal.

The rules on anti-competitive practices laid down in Articles 9 to 11 of the Competition Law are similar to those of Articles 101 and 102 of TFEU as developed by the European case law. Between TFEU and the Competition Law, there could be differences resulting from:

  • Adaptation to Portuguese legal concepts;
  • Particular features of the Portuguese markets;
  • Portuguese culture and experience; and
  • Interpretation by the Portuguese lawmakers and the Competition Authority of European case law.

There are, however, practices forbidden by both:

  • Cartels. All agreements intended to prevent, restrict, or distort competition are prohibited. Does not matter the form of agreement. There are two types of agreements: horizontal agreements (the ones between companies acting on the same marketing stage, e.g. agreements with competitors) and vertical agreements (the ones between companies acting on different marketing stages, e.g. agreements with suppliers and customers; and
  • Abuse of dominant position. Competition law forbids undertakings from abusing their dominant position to prevent, distort, or restrict competition in the market or a substantial part of it.
Horizontal and vertical agreements

Agreements between competitors (horizontal agreements)

Under Competition Law, the term “agreement” has a very broad meaning and includes all kinds of agreements between two or more competitors, i.e., two or more companies operating at the same level(s) in the market, like levels of production or distribution.

But not all agreements with competitors are illegal. Agreements with competitors that do not restrict competition are legal but sometimes must be notified to the relevant competition authorities.

In what concerns dealings with competitors, there are some general principles to be considered:

  • Prices and conditions of supply. To agree or co-operate in any way with competitors to fix prices is prohibited. Competitors cannot, specifically: (i) jointly determine selling or purchase prices, price increases, and specific minimum or maximum prices or price ranges, and (ii) jointly agree to rebates, discounts, and other supply conditions.
  • Market sharing. It is forbidden to share or allocate markets in any form. More specifically, competitors cannot, specifically: (i) share or allocate markets regarding specific territories, products, customers, or sources of supply, and (ii) fix production, buying, and selling quotas between competitors;
  • Boycotts. It is forbidden to refuse to deal with one or more customers or suppliers to hinder such customers or suppliers to do business in a market. It is however possible to have a competitor as a supplier or customer at an arm’s length basis, as long as all other antitrust rules are observed; and
  • Joint ventures. Joint venture agreements between competitors can be beneficial, e.g., by facilitating technological advances (efficiencies), but can also affect or restrain competition. Because of that, these agreements should not be closed without legal advice.

Agreements with suppliers and customers (vertical agreemnts) 

Unlike agreements between competitors, many agreements with suppliers and customers are necessary for companies to develop their business activity and entirely appropriate.

When it comes to vertical agreements, companies should respect the following principles:

  • Resale prices. The producer must not set the resale prices charged by the distributor. It is not allowed to, specifically: (i) fix or set resale prices to distributors or dealers for any product, (ii) require the distributor to stick to the recommended resale prices, (iii) terminate the agreement with a distributor due to their refusal to stick to the recommended resale prices, (iv) coordinate the price policy with the distributor according to the market situation, (v) forbid the distributor from granting any discounts, etc.;
  • Exclusivity. While closing exclusive distribution, purchase, franchise, or license agreements, companies must comply with certain rules. For instance, it is forbidden to (i) prevent from making passive sales to customers outside its exclusive customer group or territory prescribe not to passively supply customers from outside the territory, (ii) forbid a distributor from accepting a customer’s inquiry from outside the territory, (iii) forbid a distributor from supplying products to other distribution channels upon corresponding orders, (iv) refuse orders from distributors exporting products due to territory restrictions;
  • Parallel trade. Parallel trade is a consequence of free trade within a market. It is not allowed to: (i) impose export bans, (ii) prevent from exporting to customers from outside the territory, (iii) refuse orders from partners exporting products due to territory restrictions;
  • Tying. Tying clauses that make a product supply subject to the acceptance of supplementary obligations to buy other goods and/or services which, either by their nature or according to commercial usage, have no connection with the contract subject, generally should not be used, especially when companies have a significant market share in the first product;
  • Competition clause. Under certain circumstances, it is possible to forbid a distributor or licensee to sell or manufacture competing products. It is allowed to do so to extend the prohibition beyond the duration of the agreement;
  • Patent, trademark, copyright. When licensing patents, copyrights, know-how, or trademarks, it is not allowed to (i) forbid the partner from contesting the secrecy of the licensed know-how or the licensed trademarks and patents, (ii) forbid the partner from contesting the validity of the licensed patent, (iii) fix the price that the licensee charges for its product, (iv) reach agreements with other patent owners regarding royalties to be charged for competing patents; and
  • Improvements and new applications. In patent licensing and know-how licensing agreements, either party should generally be free to compete with its developed products, improvements, or new applications of the technology in so far as these are severable from the licensee’s initial know-how. However, it is not allowed to restrict either party from competing with the other party when it comes to research and development, manufacture, use, or sale of any own developed product, improvement, and a new application of the technology.
Abuse of dominant position

An undertaking has a dominant position when it has a position of economic strength (and market power) that enables it to prevent effective competition and to behave independently from its competitors, customers, and consumers to an appreciable extent.

Although several factors should be considered in the assessment of a company’s position, the market share of the product is the main factor. Market shares are calculated based on geographical and product markets.

Dominant companies have a special responsibility to behave fairly having to comply with special rules to protect competitors, customers, and market structure from abusive behaviour. Many of the commercial policies and tools that are legal for a non-dominant company may be abusive if carried out by a dominant company. As a result, companies in a dominant position (unilateral or collective) should act carefully so to avoid any abuse of such a dominant position.

The following are examples of abuse:

  • Discrimination/Different terms of sale. A company with a dominant position must not discriminate in its terms of sale when dealing with similar customers under comparable circumstances. It is however possible to (i) grant different terms of sale (rebates) to distributors providing special services that are not met by other distributors, (ii) grant different terms of sale to distributors of another stage in the distribution channel (wholesalers/retailers) since such distributors are providing different services;
  • Hindrance of competitors. Market-dominant companies are not allowed to substantially restrict the access of competitors to customers or dealers by imposing (i) exclusive purchase commitments on customers, (ii) fidelity rebates, (iii) rebates with similar effects, and (iv) unfair or predatory price (method in which a seller sets a price so low that other suppliers cannot compete and are forced to exit the market); and
  • Refusal to supply. A refusal to sell to distributors or customers might constitute an abuse of a dominant position. It is not allowed, specifically, to (i) refuse to sell to a customer which meets the same requirements as other customers which are supplied, and (ii) reduce supplies to comparable customers in different ways without an unbiased justification.
Consequences of breaching competition rules

Not complying with competition laws can seriously negatively impact companies. These are the main risks companies might face are:

  • Fines. Companies that breach antitrust rules might be subject to significant fines and compulsory penalties. The European Commission and national competition authorities, including the Portuguese one, can impose fines of up to 10% of the consolidated total turnover of companies. Competition Authorities might take into account the company size, the seriousness of the illegal business practices at stake, the duration of the illegal practices, and the existence of repeat offenses to increase the discouraging effect of fines;
  • Civil liability. A company can be sued for damages by those who can demonstrate that they have sustained losses caused by anti-competitive practices carried on by that company. Although actions for damages resulting from breach of competition rules are not a common solution in Portugal, a set of measures has been implemented recently, so it is expected that damages actions will be used more frequently by injured parties soon;
  • Contractual risk. Any contractual provision infringing antitrust laws is generally void, which means it cannot be enforced before local courts. The entire contract could also be void in certain circumstances.
  • Reputation risk. Violation of antitrust laws is more and more perceived by the stakeholders as unethical behaviour that can seriously impact the image and reputation of a company and make it look like it does not observe/regard the highest corporate governance standards. Share price can also be significantly affected. Recent studies tend to show a correlation between cartel investigations and a decrease in the share price.

A competition guide is of the utmost importance for companies’ executive bodies, employees, and business partners to understand fully that any breach of applicable competition laws might seriously damage a company’s business activity.

Recommendations

Practical recommendations

Undertakings usually are part of professional associations. These professional associations may be subject to monitoring by the Competition Authority, as professional associations might lead to collusion between competitors.

Because of what was said above, undertakings’ employees should comply with specific rules when dealing with these professional associations, particularly regarding membership, meetings, and information exchange.

In most cases, it is not possible to notify the Competition Authority to get a clearance on specific matters. An individual assessment could be more easily made based on a set of rules on competition and, of course, companies can always require external legal opinion in sensitive cases.

Companies can follow some guidelines when dealing with professional associations:

  • Do not exchange nor accept receiving sensitive information;
  • Declare that the company does not want to receive any sensitive information, and protest in writing in case it happens;
  • Do not attend professional associations meetings without written minutes attesting to the agenda and those resolutions are taken under the law;
  • Make sure informal conversations before, during or after such meetings are not about anticompetitive subjects and be properly aware of what could be the content of those discussions;
  • Require professional associations to have a confidential collection system, the so-called “black box system”; and
  • In case the professional association your company is part of does not have a competition guide, suggest/ recommend it adopts one.

How to communicate with clients and competitors 

Communications between companies, their clients, and their competitors are fundamental for the development of their business activities. Companies should use care in their written and oral communications.

The use of inappropriate words in internal or external communications could be misinterpreted as indicative of anticompetitive behaviour. Companies should be conscious that any documents, as a rule, may be subject to seizure by the competition authorities.

To prevent these situations, undertakings should define a set of rules on how to communicate with their clients and competitors. For instance:

  • Do not use expressions that have ambiguous or controversial meaning, especially when it relates to their competitors or competitive behaviour;
  • Do not suggest that their marketing or pricing decisions (based on the company strategy, such as market status, competitor behaviour, customer threats, etc.) should be founded on grounds other than those;
  • Indicate the source of any sensitive information, such as market shares, prices, production capacities; and
  • Write carefully and clearly in memoranda, letters and emails and keep in mind that everything written may be disclosed publicly in an adversarial proceeding.

How to handle documentation

Competition Law requires undertakings to cooperate with the Competition Authority, which implies that they should disclose all information/documentation relating to an investigation procedure in course.

Regardless of specific rules on keeping documentation (for instance, accounting and tax documentation), companies should be aware that some documents could be relevant in an investigation procedure since they could have an important role as evidence or negotiating tool in the scope of settlements or leniency/reduction of fines program.

Once an investigation/litigation is initiated, documents of any kind which directly or indirectly related to the subject of the proceedings must be immediately retained and never destroyed or concealed. Destruction of sensitive documents (even as part of a general retention/destruction policy) or the appearance of a cover-up in the context of an investigation procedure or lawsuit could result in very high fines.

How to react to competition authorities' dawn-raids

Competition authorities have wide investigative powers, which include the power to make inquiries, do searches in companies’ premises, examine, copy, and seize documents as well as seal the premises if necessary.

To react against the so-called “dawn-raids” of competition authorities, companies should define a set of guidelines.

For example, in what concerns the access to documents in the possession of attorneys, the Portuguese Competition Authority, in line with European case law, understands that the client/attorney secrecy privilege only applies to outside counsel and not to in-house lawyers. However, the Lisbon Commerce Court has ruled, in a recent decision, which may be followed by other Portuguese courts, that communications with in-house lawyers should be deemed privileged.

Employees should be aware of the investigative powers of these authorities and know the measures that they can adopt in these circumstances.

All employees, who are likely to be confronted with dawn-raids, for instance, receptionists, managers, lawyers, should be well trained to adopt the right behaviour, as a good relationship with the competition authorities is in the best interest of companies.

Refusal to cooperate could create an incorrect impression, as if the company had something to hide.

Undertakings and/or their employees can be fined by competition authorities.

Final remarks

To avoid risks, companies should be aware of the risks that their employees’ daily informal behaviours can lead to anti-competitive practices and seriously harm the company business even when such conduct was not intended by the company’s management.

The best approach is to:

  • Ensure cooperation with the authorities;
  • Grant access to information that is duly requested by the authorities;
  • Keep documentation;
  • Get legal advice on what is allowed and what is not; and
  • Develop internal proceedings that promote a competition compliance culture.

To learn more, please download our PDF.

2022-01-06
Foreword

Arbitration is often regarded as providing advantages over national court litigation for resolving disputes.

IBA Rules on the Taking of Evidence in International Arbitration (“IBA Rules”) were first published in 1999 as a resource to parties and to arbitrators to provide an efficient, economical and fair process for the taking of evidence in international arbitration. IBA Rules have been revised in 2010 and in late 2020, having gained wide acceptance within the international arbitral community.

However, due to complaints raised by the arbitration community regarding arbitral proceedings inefficiency in terms of time and costs, another working group drafted Prague Rules on the Efficient Conduct of Proceedings in International Arbitration (“Prague Rules”), which were released in December 2018.

In this paper, we intend to provide an overview on the main differences and similarities between IBA Rules and Prague Rules.

Generalities about IBA Rules and Prague Rules

IBA Rules

In international arbitration, it is common for litigants to come from very different legal systems.

As such, IBA Rules are a comprehensive set of rules which are intended to provide an efficient, economical and fair process for the taking of evidence in international arbitrations, particularly those between Parties from different legal traditions (Preamble 1).

The main goal of IBA Rules is to fill the gap between all different legal systems rules on the taking of evidence, and more specifically to minimize the differences and find the balance between “common law” and “civil law” origin practitioners, particularly relating to evidentiary matters.

IBA Rules have often been adopted by parties and arbitral tribunals, more as guidance in determining evidential matters rather than as mandatory rules.

IBA Rules have the advantage of allowing a more transnational approach and avoiding discussions about the applicability of evidential rules.

Prague Rules

Prague Rules were drafted by a working group predominantly formed by representatives of civil law jurisdictions.

As such, Prague Rules seek to promote procedural efficiency in international arbitration by adopting procedures more akin to a civil law inquisitorial litigation style.

The distinction between the inquisitorial approach and the adversarial approach rests on the distribution of burdens and powers between parties and arbitrators.

An inquisitorial proceeding relies on an active role of the arbitrator, who may take initiative both in fact-finding (production of evidence) and in the ascertainment of the law.

In turn, the adversarial approach burdens the parties with those activities and confers upon the arbitrator a more passive stance.

Prague Rules consist of 12 articles, which deal with the arbitral tribunal’s proactive role, fact finding, documentary evidence, fact witnesses, experts and assistance in amicable settlements.

Main differences and similarities

Proactive Approach and Case Management. Prague Rules expressly state that the arbitral tribunal is entitled and encouraged to take a proactive role in establishing the facts of the case which it considers relevant for the resolution of the dispute (Article 3.1.).

The arbitral tribunal is given the power to indicate, at the case management conference, its preliminary views on the issues in dispute, the relief sought and the evidence submitted (Article 2.4(e)).

Although IBA Rules have no mandatory rule for the arbitral tribunal to adopt an active role, Article 2.3. of IBA Rules also authorizes the arbitral tribunal to unveil to the parties the issues it deems relevant, as well as the factual and evidential material it considers necessary to the resolution of the dispute.

Hearings. Prague Rules even suggest not having a hearing, and when possible resolving the dispute on a document basis only (Article 8.1).

Parties must request a hearing, but the rules are silent on whether the tribunal retains discretion over the decision to hold a hearing following such a request or whether any request must be automatically granted (Article 8.2).

In turn, the IBA Rules contain detailed provisions for conducting the final evidentiary hearing (Article 8).

Document Production. Prague Rules limit document production, with the arbitral tribunal and the parties being "encouraged to avoid any form of document production, including e-discovery" (Article 4.2).

Under IBA Rules (Article 3.2.) parties shall submit all documents available and relevant to the dispute.

Number of Witnesses. Under Prague Rules, the arbitral tribunal will have the final say regarding the number of witnesses to be heard throughout the proceedings (Article 5). After having read the witness’s written statements and considered the facts of the case, the arbitral tribunal may reject calling certain witnesses for examination, if it deems their testimony irrelevant or unnecessary to the resolution of the dispute.

Similarly, under Article 8.2. of IBA Rules, the arbitral tribunal may limit or exclude any question to, answer by or appearance of a witness, if it considers such question, answer or appearance to be irrelevant, immaterial, unreasonably burdensome, duplicative or otherwise covered by a reason for objection set forth in Article 9.2.

Examination of Witnesses and Witness Statements. Under Prague Rules, examination of witnesses is made through a cross-examination process, which shall be conducted under the direction and control of the arbitral tribunal (Article 5.9.).

IBA Rules follow the same cross-examination approach, as set forth in Article 8.3.

Prague Rules do not stipulate the content of witness statements nor admit their additional submission or revision, contrarily to Articles 4.5. and 4.6. of IBA Rules.

Experts. Under Prague Rules, the arbitral tribunal may appoint an expert or a joint expert commission, at its own initiative or at request, after hearing the parties (Article 6.1.).

Under the IBA Rules, tribunal-appointed experts are a possibility, but party-appointed experts are more common (Article 5).

Settlement. Under Prague Rules, the arbitral tribunal may assist the parties in reaching an amicable settlement of the dispute at any stage of the proceedings, unless the parties object (Article 9). Further, upon the prior written consent of all parties, any arbitrator may act as a mediator to assist in the amicable settlement of the dispute.

If a settlement is not achieved, the arbitrator who acted as a mediator requires the written consent of all parties in order to continue to act as an arbitrator in the proceedings.

IBA Rules make no provision for members of the arbitral tribunal to act as mediators of the parties.

Iura Novit Curia. Under Prague Rules, the arbitral tribunal may determine the applicable law on its own initiative and apply legal provisions that were not set out by the parties (Article 7). Notwithstanding, the arbitral tribunal is obliged to hear the parties on the legal provisions it intends to apply.

IBA Rules do not include this principle.

Conclusions

Arbitration is very often a preferred type of dispute resolution because of its flexibility and openness to the parties’ choices regarding most procedural issues.

Despite its differences, Prague Rules are not wildly different from IBA Rules, because they have some procedural aspects in common.

The underlying difference between the two is that IBA Rules are more aligned with common law, and offer an adversarial approach to arbitration when compared to Prague Rules.

Prague Rules, on the other hand, openly adopt a more inquisitorial approach more in line with the civil law tradition.

Whether or not to adopt IBA Rules or Prague Rules in whole or in part in an arbitration proceeding mainly depends on what the parties deem most practical according to their own legal traditions.

IBA Rules intend to harmonize the arbitration practice by finding a compromise between civil law and common law, whereas Prague Rules are relatively new and are more exclusively tailored for civil law.

IBA Rules might be more suitable to a party domiciled in a common law country. In turn, Prague Rules offer a more comprehensive approach to arbitration for civil law parties.

The choice of the applicable rules can have an impact on the costs and duration of the proceedings but also on the parties’ right to be heard, so these factors must be taken into consideration by the parties when choosing the procedural rules for their dispute.

2021-12-15

The Portuguese Energy Transition goals

The National Hydrogen Strategy (EN?H2), of 14 August 2020, sets commitment to ensure the neutrality of Portugal's carbon emissions by the end of 2050:

  • Greenhouse gas (GHG) emissions to be reduced by 85% to 90% in relation to 2005 levels.
  • Carbon sequestration to reach levels of 9 to 13 million tons of CO2 in 2050.
  • A 55% reduction in GHG emissions and a 47% share of renewable energy in gross final energy consumption is expected to be achieved by 2030.

All this is aligned with the 2050 Carbon Neutral Roadmap (RNC2050) and the 2030 National Energy and Climate Plan (PNEC 2030).

Green hydrogen arises as an efficient solution to promote the energy transition in various sectors, particularly with the decarbonizing of transport and industrial sectors while strengthening the national economy and promote scientific development. It is an energy carrier with high energy density, which makes it the ideal solution for energy-intensive industrial processes, for the storage of energy produced through renewable sources and for the emergence of other renewable based fuels.

To achieve this transition, EN-H2 assumes as main goals for 2030:

  • 5% green hydrogen in final energy consumption, road transport and industry;
  • 15% green hydrogen injected into natural gas networks;
  • 50 to 100 hydrogen refuelling stations; and
  • Between 2 and 2.5 GW of installed production capacity.

Although EN?H2 sets out the intent to carry out a large production of green hydrogen in Sines with a capacity of 1 GW by 2030, support measures for decentralized hydrogen production projects of different scales, spread throughout the Portuguese territory are also expected.

Green H2 production and usages in the en-h2

Although hydrogen exists in great abundance, it almost always appears in combination with other chemical elements, and their combination constitutes other elements, such as water. As a result, the production of hydrogen requires the use of processes to separate it from the compounds in which it appears.

Hydrogen production can be accomplished using a wide variety of technologies, which always require energy in the form of heat, light or electricity. One of this technologies is water electrolysis, which is a simple process of breaking down water into its two components (splitting the hydrogen and oxygen atoms) using electric power.

For the purposes of EN-H2, green hydrogen is defined as hydrogen produced exclusively from processes using energy from renewable sources and whose GHG emissions throughout its production life cycle are zero or very close to zero.

EN-H2 foresees that Portugal can benefit from the following uses of green hydrogen:

  • Fuel for various types of transport, with particular potential for heavy road transport, maritime or even rail and air transport through the use of fuel cells (which can store hydrogen and use it to produce electricity in a controlled way);
  • Replacing natural gas as a fuel in the industrial sector, which contributes to reducing GHG emissions;
  • Decarbonize and replace fuel production with synthetic fuels produced from mixtures of hydrogen and carbon dioxide;
  • Conversion of excess renewable electricity into hydrogen, stored and then reconverted back into electricity using fuel cells; or
  • Injected into the natural gas network or by converting hydrogen into synthetic methane to be used directly by residential and industrial consumers.

Starting with the Prior Registration

Production of hydrogen through renewable origin is ruled by Decree-Law No. 62/2020, of 28 August (the “National Gas Law”) and it is only accessible to legal persons that display relevant technical, financial and management capacity.

Performance of green hydrogen production activity is subject to prior registration at the Directorate of Energy and Geology (Direção Geral de Energia e GeologiaDGEG) to start construction and operating of the generating facilities.

Promotors must submit their requests to DGEG through e.Portugal with several documents, including: (i) proof of the land rights for the project, (ii) execution project of the generating facility, (iii) project plan and timeline deadline for entry into operation, and (iv) evidence of the technical, economic and financial capacity and experience of the promoter to ensure the development of the project.

The file is then forwarded to the licensing platform of the Portuguese Environment Agency (APA) (SILAIMB) where an environmental assessment will be conducted.

After registration application, the TSO, in Portugal REN GASODUTOS, SA, or the DSOs (Beiragás, Lisboagás, Lusitaniagás, RENPortgás, Setgás and Tagusgás each one with its exclusive distribution area) (as applicable), on a first come first served basis depending on the grid capacity proposed conditions, accepts or not the project as proposed by the promoter and sets the conditions for its connection to the grid.

DGEG shall confirm the prior registration (subject to payment of a €600 fee) within 30 days as from grid operator’s decision.

After the prior registration, the promoter must start operating the hydrogen plant within a maximum period of two years subject to an additional extension of one year when its insufficiency is due to unavoidable reasons not attributable to the promoter.

The promoter has then the right to inject the hydrogen into the grid and to sell the plant’s production: (i) in organized market or through bilateral contracting, at a price previously agreed between the parties, or (ii) through the last resort supplier against payment of fixed remuneration.

Environmental requirements

Hydrogen plants are subject not only to a prior registration, but they are also subject to environmental regulations. Hence, H2 plants must go through:

  • Environmental Impact Assessment: According to Decree-Law no. 151-B/2013, of 31 October, should be made (i) directly, if the project reaches the thresholds set out in Annexes I and II; or (ii) indirectly, If the project does not meet the thresholds of Annexes I or II but is likely to have significant effects on the environment, according to Annex III.
  • Major Accident Prevention: As hydrogen is a dangerous substance, whenever in quantities of 5 tons and 50 tons or more, producers are subject to a set of obligations, namely the communication and evaluation of compatibility of location where the production plant will be installed, as well as in the definition of a Policy for the prevention of major accidents.
  • Integrated Pollution Prevention and Control Regime: To produce hydrogen on an industrial scale, by chemical or biological transformation, whose commercialization is in bulk and/or by injection into the gas or transport networks, is necessary an environmental licensing permit (TUA) issued by APA, which must be requested by operators through the SILIAMB Platform.
  • European Emissions Trading Framework: green hydrogen projects that are based on the electrolysis of water using renewable energy are not covered by this regime, but other types of production may be, namely in case production is based on fuel combustion with thermal input exceeding 20 MW and that generate greenhouse gas emissions being subject to obtain greenhouse gas permit to be issued by APA and to register in the Portuguese Emission Allowances Registry.
  • Air Emissions Permit: If there are sources of air pollution associated with the production process, obtaining an Emission Permit to be issued by APA or by competent Regional Coordination and Development Commission (CCDR) is mandatory. 
  • Water Resources Use Regime: Water abstraction and wastewater discharge for hydrogen production are subject to obtain a Water Use Title (TURH). The use of sea water is subject to obtaining a title for occupation of the maritime space (TUPEM).

Connecting to the grid

After the prior registration, promotors shall enter into an agreement with the relevant grid operator setting forth the technical and commercial conditions for connecting the hydrogen plant to the grid.

Promoters will have to bear the costs of the construction of the necessary connection infrastructures to the public gas grid under the conditions established in the agreement executed with the grid operator, including the costs related to the occupation of the land which may be necessary for the installation of said infrastructures. In addition, promoter is also subject to the payment of a grid contribution fee, which is calculated pursuant to a formula published by the Portuguese Energy Services Regulator (ERSE).

However, in case a connection branch becomes used by a new producer, the promoters that have borne the costs of its construction shall be reimbursed by that producer, under terms defined by ERSE.

For the execution of the infrastructures necessary for connection and injection into the grid, promoters may constitute easements and request expropriation for public utility of the necessary real estate under the same terms and conditions as the concessionaires of the public gas grid.

Investments in the grid (namely to accommodate the injection of hydrogen) are made by the relevant transmission and distribution operators, according to their development and investment plans, which, in general terms, end up being supported by the consumers through network access tariffs.

Connection infrastructures shall become part of the grid and integrated in the concession of the relevant grid operator after construction and as soon as they are in technical operating condition.

The grid operator may request the promoter to provide a guarantee, valid for a period of two years, corresponding to a maximum of 10% of the value of the connection elements in order to make up for any construction deficiencies.

Prior to the start of operation of the hydrogen plant, a contract for the use of the grid infrastructures shall be entered into between the promotor and the relevant grid operator for the purpose to establish the conditions related to the use of the grid and interconnections, as well as the technical conditions for injection and the terms under which injection may be stopped or limited.

Construction permit

The construction of a hydrogen plant requires a construction license to build the plant and related infrastructure. The promotor may obtain prior information about the feasibility of carrying out the construction of the project, as well as on the respective legal or regulatory conditions, by submitting in the municipality of the plant’s location a pedido de informação prévia (“PIP”).

A positive PIP binds the municipality for a period of one year to the issuance of the construction license, in the exact terms in which the PIP was granted.

The request for a construction permit can be submitted online (at the municipalities’ website).

Within 45 days from the date of receipt of the last of the opinions the municipality must obtain from other authorities, the municipality will grant a construction license and issue an alvará de construcção (a construction permit certificate) at the request of the promotor.

Issuing of the construction permit is subject to the provision of a deposit by the promoter to the Municipality as well as a valid insurance policy covering work accidents.

The construction of the hydrogen plant must start within one year after the issuing of the permit, under penalty of expiration of the relevant construction license.

After completion of the construction works, the promoter needs a license of use for the plant issued again by the Municipality following submission of (i) the final blueprints, and (ii) a term of responsibility subscribed by the director of the works, in which they declare that the work is completed and that it has been executed in accordance with the architectural and specialty projects, as well as with the legal and regulatory rules that apply to it.

The license of use is granted within 10 days of receipt of the application, unless a survey to the work is decided by the President of the Municipality.

Support Mechanisms

EN-H2 provides for serval support mechanisms to encourage new investments in green hydrogen. These are still subject to the publication of specific regulations:

  • The injection of hydrogen into natural gas networks may benefit from a partial or total exemption from network access tariffs for an initial period.
  • A public allowance to hydrogen production, through a premium that covers the difference between the production price of green hydrogen and the price of natural gas in the Iberian natural gas market (MIBGAS).
  • Fiscal mechanisms to encourage replacement of natural gas by green hydrogen, adjusting the relative prices between the two alternatives, penalizing natural gas and reducing the cost of hydrogen. Tax benefits and positive discriminations in applicable taxes shall be established based on the advantages of green hydrogen.

Renewable gases are covered by the system of guarantees of origin (GO), granting producers access to the GO market.

The Recovery and Resilience Plan (PRR) includes a first call for 62 million euros launched for projects that aim to produce renewable gases for self-consumption and/or injection into the grid. Projects for developing and testing new technologies, or tested technologies that are not sufficiently disseminated in Portugal, are eligible.

The program applies to all public or private companies that: (i) requested prior registration to produce renewable gases; and (ii) obtained a prior assessment from DGEG that it is an eligible operation. Funding per beneficiary and per project will have a maximum amount of support of 5 million Euros, although this may rise to 10 million Euros if projects cover more elements of the value chain (i.e. that include the integration of production, distribution and the final consumer). The maximum co-financing rate is 100% of the total expenditure considered eligible.

As European support instruments, we highlight (i) Horizon Europe: which aims to finance projects linked to the transition to a low-carbon economy, with a budget of €5 billion; (ii) the Innovation Fund: which focuses on low-carbon projects in carbon-intensive industries; and (iii) the InnovFin Energy Demonstration Projects: which is designed to provide loans, typically between €7.5 and €75 million, for innovative renewable energy projects.

The market reaction

There are currently 37 PRR approved projects involving public and private companies, universities, municipality organizations and other institutions, related to the production of green hydrogen, which include, namely the following players: The Navigator Company, Altri, Bondalti Chemicals, Dourogás, Turbogás, Tejo Energia, Prio, CaetanoBus, and Grupo Águas de Portugal.

EDP plans to install about 250 MW of electrolysers over the next four years, which will represent an additional investment in 0.5 to 1 GW of new renewable capacity in green hydrogen production.

The company Fusion Welcome announced a fusion fuel production project, aiming to achieve a production capacity of 27,000 tons of green hydrogen per year. The consortium formed by AkuoEnergy and Solarbelt has also received approval to build a hydrogen jet fuel plant.

"Green Pipeline Project" in Seixal is the first project in Portugal that will inject green hydrogen into the gas grid, targeting 80 residential, commercial, and industrial customers who, as of January 2022, will start receiving a mixture of natural gas and hydrogen.

The mega consortium "H2 Sines“ has already received a first permission from Brussels to move forward with the production of green hydrogen. The next step is reaching an agreement with the European Commission regarding funding for this project. This project aims to produce green hydrogen using an electrolyzer with a capacity of 10 MW.

This technology already exists in Évora and Benavente and is expected to be extended to more regions of Portugal during the course of 2022 to produce green hydrogen through photovoltaic plants, which capture and concentrate solar radiation and then perform electrolysis to produce green hydrogen with high efficiency and low cost.

More recently the European Clean Hydrogen Alliance published a list of projects that European industry is committed to creating the European hydrogen economy at a large scale. With more than 750 projects, the list includes projects ranging from clean hydrogen production (446) to its use in industry (172), mobility (240), energy (143), and buildings (77). Portugal appears with 23 projects listed in the northern region, 67 in the center, 23 in the Lisbon Metropolitan Area and 18 in the Alentejo. The aim of the alliance is to facilitate investments in clean hydrogen by promoting sustainable projects and contact with investors being its membership open to all entities with activities in the renewable or low-carbon hydrogen.

2021-11-24
The issue with contaminated soil

The issue with contaminated soil is, from time to time, discussed in Portugal. It is mainly associated with the conversion of old industrial areas: when old contamination is detected in the soil during the execution of construction works.
Directive 2004/35/EC, of 21 April, on environmental liability regarding prevention and remedying of environmental damage was transposed in Portugal through Decree-Law 147/2008, of 29 July, which approved the legal framework of liability for environmental damage (‘RJRDA).

However, this regime fell short of what was expected, and the issue with contaminated soils and environmental liabilities remained largely unsolved. The RJRDA even excluded administrative responsibility for the prevention and repair of environmental damage caused by harmful occurrences:

  • Prior to 1August 2008, the date of its entry into force; and
  • Occurred after 1 August 2008, but which resulted from an activity carried out and concluded before that date.

That same legal framework also states that damages caused by any emissions, events or incidents that have occurred more than 30 years before the damage occurred are time-barred.

In 2015, the Portuguese Environment Agency ("APA") placed under public discussion the draft decree-law on the prevention of contamination and remediation of contaminated soils ("Prosolos Project"), an initiative considered globally positive by the participants in the consultation even though it has not been implemented to date.

In May 2021 the Portuguese Parliament approved a resolution recommending its publication to the Government.

When recent news indicated that Prosolos Project will finally see the light of day, we gathered the main aspects of the legal framework in force as well as some of the most relevant known features of the Prosolos Project and wrote this article.

Liability for environmental damage

In general terms, RJRDA:

  • Applies to environmental damage caused as a result of the exercise of any activity developed within the scope of an economic activity, no matter its public or private nature or if it generates profit or not;
  • It also applies when there is an imminent threat of such damage, that is, a sufficient probability of environmental damage occurring in the near future;
  • It is based on the polluter pays principle established by Directive 2004/35/EC of 21 April;
  • Determines that the causal link between the fact and the damage is based on a criterion of likelihood and probability;
  • Establishes two types of liability: the civil liability of whoever causes damage to people and property through an offence against the environment and the administrative liability for the prevention and remedying of environmental damage aimed at repairing the environmental damage itself, caused to society as a whole;
  • Establishes that, in any activity, the operator is responsible for environmental damage when he has acted with intent or negligence;
  • Establishes that, when the activities indicated in Annex III of RJRDA are in question, the responsibility - civil and administrative - is objective, in other words, it exists regardless of the fault of the agent (operator) because they are especially dangerous activities;
  • Foresees joint liability in various situations, namely of the members of the administrative body when the operator is a legal person and of the parent company and controlling company when the operator is a company in a group or dominion relationship and there is abusive use of the legal personality or fraud against the law; and 
  • Obliges operators who carry out the activities listed in Annex III of RJRDA to provide a financial guarantee to cover the environmental liability that comes with the activity developed.
Liability for environmental damage, in particular, to soil (I)

Regarding administrative liability, environmental soil damage is "any soil contamination which creates a significant risk to human health as a result of the direct or indirect introduction, in or on the soil, of substances, preparations, organisms or micro-organisms".

The reference concept for soil damage is thus human health.

If the operator causes environmental damage, or an imminent threat of damage, to soil (including surface and subsoil):

  • Through an activity listed in Annex III of RJRDA, he/ she must implement measures to prevent and remedy the damage or threats caused regardless of the existence of fault or intent;
  • Through an activity not covered by Annex III of RJRDA he/ she must implement measures to prevent and repair the damage or threats caused if he/ she has acted with intent or negligence.

When damage has already occurred, the operator shall adopt measures to prevent further damage from occurring, whether or not the operator is obliged to repair the damage.

When there is an imminent threat of damage, the preventive measures shall be adopted immediately and without the need for any notification or act by the competent authority.

Soil remediation operations are subject to licensing with the competent Regional Coordination and Development Commission ("CCDR"), and the General Regime of Waste Management approved by Decree-Law no. 102-D/2020, of 10 December, amended by Law no. 52/2021, of 10 August, applies to them.


Liability for environmental damage, in particular, to soil (II)

As mentioned, RJRDA excludes administrative responsibility for the prevention and repair of environmental damage to the soil caused by harmful occurrences:

  • Prior to 1 August 2008, the date of its entry into force; and
  • Occurred after 1 August 2008, but which result from an activity carried out and concluded before that date.

It should be noted, however, that Directive 2004/35/EC of 21 April establishes 30 April 2007 as the reference date for application of the environmental liability framework.

In Guidelines establishing a common understanding of the concept of 'environmental damage' within the meaning of Article 2 of that Directive, published on 7 April 2021, the Commission further considered that the Directive's requirements on environmental liability must, as a minimum, be met in every respect.

APA makes available on its website several technical guides and recommendations on soil contamination prevention and remediation.

In particular, in the event of transfer of ownership rights of a soil where a potentially contaminating activity is or has been carried out, or where there are indications or evidence of contamination, APA recommends that a soil quality assessment be carried out.

Prosolos Project: outlines

Prosolos Project:

  • It is based on 3 cornerstones: assessment of soil quality, remediation and accountability for contamination;
  • It applies to operators who develop one of the activities listed in Annex I and to those responsible for contamination or potential contamination of the soil when one of these activities has been developed or when hazardous waste has been abandoned or when accidents have occurred, among other situations;
  • Provides for the preparation of a Soil Quality Atlas, bringing together information available on contaminated and remediated sites and aggregate information on potentially contaminating activities, types of contamination and remediation techniques;
  • Regulates situations of environmental liabilities, establishing the State's responsibility for the assessment of soil quality and possible remediation if such liabilities constitute imminent danger to public health and/or the environment and it is not possible to identify the polluter or to apply the principle of liability;
  • Defines who is responsible for carrying out the soil quality assessment and its remediation;
  • Establishes the soil quality assessment process, the reference values and criteria to be considered in the different assessments that are part of it and the issue of the Soil Contamination Risk Statement and Soil Quality Certificate;
  • It relates soil quality assessment to the licensing of the activities covered by the regime (the activities cannot begin without the operator carrying out a soil quality assessment and, where appropriate, soil remediation) and with changes of soil use to a more restrictive use (a Soil Quality Certificate is required in the case of a change from industrial use to urban or agricultural use or from urban to agricultural use);
  • Establishes, in an innovative way, restrictions to the transfer of the right of ownership of the soil and land registry requirements, also relating them to the assessment of soil quality.
Prosolos Project: liability and transfer of ownership

The operator carrying out at least one of the activities listed in Annex I shall be presumed responsible for conducting the soil quality assessment and for its possible remediation.
This liability may be waived when it is proven that the contamination predates the beginning of its activity or that it does not originate from the activity it carries out. If one of these situations occurs, the responsibility for carrying out the soil quality assessment and its possible remediation lies with:

  • The previous operator of the activity carried out on the site or a third party, provided that it is proven that it was the activity that contaminated the soil; or
  • The current owner of the soil, if it is impossible to identify the operator or if the person causing the potential contamination no longer exists.

Exceptions to this rule are situations where it is proven that the contamination resulted from compliance with an order or instruction issued by a public authority.

The transfer of the right of ownership of a soil:

  • Where one of the activities referred to in Annex I is carried out must be preceded by a preliminary or exploratory assessment and is subject to the presentation by the transferor, for the purposes of land registration, of the Soil Contamination Risk Declaration or the Soil Quality Certificate as the case may be;
  • Where any of the activities referred to in Appendix I have been carried out, or where hazardous waste has been abandoned, or where accidents have occurred, among other situations, is subject to the presentation by the transferor, for the purposes of land registration, of the Soil Quality Certificate.

The presentation of the Declaration or Certificate referred to above may be dispensed with if the buyer declares, at the time of the deed, that he/ she takes responsibility for the possible contamination of the soil.

The acquirer may also declare, at the moment of the deed, that he/ she assumes the responsibility for the evaluation of the soil quality and its eventual remediation, according to the Soil Contamination Risk Declaration or Soil Quality Certificate delivered by the transferor.

For more, please download our PDF down below. 

2021-11-10

Law 19/2012, of May 8, 2012 (the “Competition Law”), which entered into in force on July 8, 2012 and repealed the former competition law, Law 18/2003, of June 11, 2003, establishes merger control rules applicable to concentrations having effects in Portugal.

The Competition Law brought relevant changes on merger control rules, particularly by (i) putting the merger substantive test in line with the Significant Impediment of Effective Competition (“SIEC”) test of the European merger rules; (ii) changing the turnover thresholds required for the notification to the Portuguese competition authority (Autoridade da Concorrência – the “Competition Authority”), including adding a new de minimis market share notification threshold, (iii) deleting the previous notification deadline, and (iv) amending some deadlines applicable to the merger procedure.

In order to prevent the risk of competition restrictions, the Competition Authority exercises control over planned concentrations with effects in the national market.

A concentration is the legal combination of two or more undertakings, by the merger between two or more undertakings or by the control acquisition, directly or indirectly, of the whole or parts of one or several other undertakings.
Following an assessment phase, the Competition Authority may approve the concentration, including upon the application of remedies to be carried out by the undertakings, or prohibit the transaction insofar as it creates significant impediments to effective competition in the national market, particularly in case of creation or reinforcement of a dominant position in the national market.

Undertakings that execute concentrations which have been suspended or prohibited by the Competition Authority may be subject to fines and the legal acts related to the transaction could be declared null and void. The maximum amount of the fine could be 10% of the aggregate annual turnover of the associated undertakings that have engaged in the prohibited behavior.

This paper reviews some of the most important legal aspects regarding merger control rules in Portugal.

Powers of the Competition Authority

The Competition Authority is an independent authority with financial autonomy, which was created in 2003 by Decree-Law 10/2003, of January 18, 2003. The role of the Competition Authority is to conduct the enforcement of the competition rules in Portugal with a view to ensuring an efficient market performance and a fair division of the resources and to protect the interests of the consumers under the market economy and free competition principles.

In contrast to antitrust practices, for which the Competition Authority is empowered to apply the Competition Law in parallel with European competition rules whenever an impact on trade between Member States exists; in merger control, the Competition Authority may only take action against concentrations to the extent that the relevant merger thresholds, as set out in Council Regulation (EU) 139/2004, of January 20, 2004 (the EU Merger Regulation), are not met. There is however a referral mechanism that allows the Competition Authority and the European Commission to transfer the case between themselves, both at the request of the involved undertakings and of the Competition Authority, in order for the undertakings to benefit from a one-stop-shop review.

The powers of the Competition Authority include:

  • The power to investigate any practices that may infringe the national and the European Union competition rules, to conduct the required procedures and to decide on the applicable sanctions, if any;
  • The power to decide on the compatibility of undertakings’ agreements with the competition rules and to conduct the applicable administrative procedures;
  • The power to review and decide on merger transactions and to conduct the applicable administrative procedures; and
  • The power to approve regulations on competition issues as well as codes of conduct and manuals of corporate good practices.
Notification thresholds

The Competition Law does not establish a specific deadline for the filing of a notification. Transactions subject to notification may not be however completed before clearance from the Competition Authority.

The notification is required to the extent one of the following thresholds is fulfilled:

  • Turnover threshold: the aggregate net turnover obtained in Portugal by the undertakings involved in the transaction (“Participating Undertakings”) exceeds €100 million in the preceding financial year (after deduction of taxes directly related to turnover), provided that the turnover individually obtained in Portugal by at least two of the Participating Undertakings exceeds €5 million; or
  • Standard market share threshold: the transaction leads to the acquisition, creation or reinforcement of a market share of equal to or above 50% of the national relevant market, or in a substantial part thereof; or
  • “De minimis” market share threshold: the transaction leads to the acquisition, creation or reinforcement of a market share equal to or above 30% and less than 50% of the national relevant market, or in a substantial part thereof, provided that the net turnover individually obtained in Portugal by at least two of the Participating Undertakings exceeds €5 million in the previous financial year.

Merger transactions may be subject to a preliminary assessment within at least fifteen working days prior to the notification of the transaction to the Competition Authority. This preliminary procedure aims to promote informal and confidential discussions on any proposed transaction with the Competition Authority. Typically, this preliminary procedure is made through one or more meetings with the Competition Authority and subsequent additional information requests. The preliminary procedure may, in practice, entail a reduction in time for the assessment of the transaction by the Competition Authority, as it may prevent that the notification form includes incomplete information and it may reduce any additional information requests by the Competition Authority. The preliminary procedure does not, however, imply the taking of a decision by the Competition Authority concerning the compliance of any transaction with the competition rules.

Merger control procedure

The merger control procedure is very similar to the review procedure set out in the EU Merger Regulation and relevant implementing regulation.

After the filing of the notification, which becomes effective after the Competition Authority receives payment of the relevant fees and insofar as the notification is complete, the Competition Authority publishes a summary of the notification on its website and in two national newspapers within five days, so that any interested third parties may present their comments or objections to the proposed transaction.

Within thirty working days from the date the notification becomes effective, the Competition Authority must complete the evidence taking proceeding and decide (Phase 1):

  • That the concentration is not subject to mandatory notification;
  • Not to oppose to the transaction; or
  • To initiate an in-depth investigation, if it considers that from the transaction, taking into account the evidence gathered, may result significant impediments to effective competition.

The in-depth investigation phase (Phase 2) may not exceed ninety working days from the notification date, which means that the deadline of Phase 2 already comprises the deadline of Phase 1 and, in practice, is of sixty working days.

In Phase 2, the Competition Authority must decide:

  • To authorize the transaction unconditionally;
  • To authorize the transaction subject to the fulfilment of certain commitments by the parties; or
  • To prohibit the transaction, in case it creates significant impediments to effective competition in the national market or in a substantial part of it – the so-called “Significant Impediment to Effective Competition”, SIEC test.

In case the Competition Authority fails to adopt a decision within ninety days from the filing date of the notification, the transaction will be deemed as approved.

Both clearance or prohibition decisions may be subject to appeal to the Competition, Supervision and Regulation Court (Tribunal da Concorrência, Regulação e Supervisão) created in 2011. The Competition Authority’s decision that prohibits the transaction may be also subject to an extraordinary appeal to the Minister of Economy.

Consequences for breach of merger control rules

The Competition Authority will prohibit any operations that create significant impediments to effective competition in the national market or in a substantial part of it – the SIEC test –, particularly whether the impediments result from the creation or the reinforcement of a dominant position in the internal market. The Competition Authority will be responsible for defining the criteria for the existence of a dominant position based on the precedents set by the European case law.

In general terms, an undertaking will be deemed to have a dominant position in the relevant market if it dominates the market and has no relevant competitors. Two or more undertakings operating jointly in the relevant market and having no relevant competitors will be also deemed to hold a dominant position in such market. Conversely, concentrations, which do not create a SIEC in the national market (or in a substantial part of it), are allowed and will be approved by the Competition Authority.

Failure to notify the Competition Authority (whenever the notification thresholds are met) or the completion of a transaction in breach of a decision issued by the Competition Authority refusing to approve the transaction or approving the transaction with remedies, may entail the parties to severe consequences, as follows:

  • A fine up to 10% of the previous year’s turnover for each of the involved undertakings;
  • Periodic penalty payments, in an amount not exceeding 5% of the average daily aggregate turnover of the undertakings in the preceding year to the Competition Authority’s decision for each day of failure; and
  • All legal acts related to the transaction are null and void to the extent that they are in breach of the Competition Authority’s decision. If the transaction has already been completed, the Competition Authority may order to perform the measures required for the re-establishment of effective competition in the market including, but not limited to, the splitting of the merged undertakings or the transfer of control over the acquired undertaking or business units thereof.

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