Class half empty?
8 March 2010 | By James Swift
10 October 2013
17 September 2013
31 January 2014
21 February 2014
6 June 2014
Have the wranglings over the introduction of Italy’s class action law eroded its effectiveness? asks James Swift
Italy has finally got the class action legislation it has been waiting for. After being argued and scrapped over in parliament for more than two years, the law, Article 140-bis, was introduced into the country’s Consumer Code and came into effect on 1 January.
Italy now joins Austria, France, Germany, the Netherlands and Spain as European countries that allow class actions, in one form or another, to be brought in their courts.
At the time of writing, although the law has been in effect for little more than two months, five class actions have already been brought, with three having gained clearance to go to trial. Two of these three cases are against two of the largest banks in Italy, Unicredit and Intesa Sanpaolo, and relate to overdraft charges, while the third is against a medical equipment supplier.
For a civil law jurisdiction such as Italy the new law is groundbreaking, and how the courts interpret the legislation in these cases has the potential to transform not only litigation in Italy, but also the landscape for litigation-focused law firms.
But will the law have the impact to make Italy a haven for litigation tourism, or has the political tug-of-war behind the article’s belated entry robbed it of its bite?
Tough or toothless?
Article 140-bis was first drafted in December 2007 (although it has been debated for as long as 15 years, according to one partner) as part of the Budget Law 2008, which was scheduled to come into force in July 2008. But the law’s potential impact meant that industry lobbyists and consumer organisations have fought hard over its content, with the former trying to make it as toothless as possible and the latter pushing to take it closer to the US model.
“The main reason [for the delay in the legislation being enacted] was that evidently this piece of legislation touches very relevant interests and is very innovative for a civil law country,” says Riccardo Buizza, a litigation partner in Withers Worldwide’s Milan office. “The second reason was that the first draft of the law was unclear, and so if you couple this with very delicate issues, this explains why it took so long.
“The introduction of collective actions is very much in favour of consumers and presents large corporations and financial institutions with a challenge.”
But not everyone is so sure that the class action law is a triumph for consumers.
“We’re all wondering about class actions and most litigators are interested, and are trying to guess, how many class actions will come and how the rules on class actions will develop,” says Ferdinando Emanuele, a litigation partner in Cleary Gottlieb Steen & Hamilton’s Rome office. “But the law isn’t as strong as it appears. It is very far from US class actions and I don’t think the protection afforded by the rules is as strong as the traditional procedures.
“The more I read the rules the more I think it will not be extremely difficult for a company to defend itself.”
The legislation is no doubt a compromise. One example is the law’s retroactivity, which goes back only as far as 15 August 2009 - an arbitrary date that shows the kind of middle ground that the law has been forced to occupy since interested parties on both sides fought tooth and nail over every provision.
It also gives plenty of scope for judicial discretion. Actions can be dismissed if they are thought to be unfounded, where there is a conflict of interest, where the rights of the parties are not identical (an ambiguous provision that is predicted to be the subject of much debate) and where the claimant is unable to protect adequately the interest of the class.
No punitiveness intended
The law bears little resemblance to the US model, probably the most notorious for group litigations.
“It’s going to be an opt-in procedure [meaning claimants must apply to be part of the case],” says Buizza, “so it’s not going to be as aggressive as in the US, mainly due to the fact that in Italy, and all civil law countries, the concept of punitive damages doesn’t exist. In the US punitive damages is the real fear for corporations.”
Although it is quite clear, even at these early stages, that the law will not have the earth-shattering ramifications on big business prophesied by the Italian media, it is still a big step for the country and has forced banks and companies to take notice, particularly with Italy’s consumer associations quickly taking advantage of the act (consumer association Codacons is behind all three class actions now in the courts).
“Consumer associations have been very aggressive in the past few years - there’s certainly a possible threat to large companies,” says Fabrizio Arossa, a partner at Freshfields Bruckhaus Deringer’s Rome office. “We have an international taskforce monitoring the application of the law […] We’re advising large corporate clients and running seminars. It’s being taken seriously, but we don’t know if [the class action law] will be a significant threat or a flop because the scope of the application of the law is limited to breach of contract, product liability [and] competition.”
The law has certainly come at an auspicious time. Post-downturn, feelings of anger and resentment pervade among consumers as large banks and corporations come to represent the greed and excess that are thought to have fuelled the credit crisis.
Also, class action cases can be complex and labour-intensive, particularly when the legislation is untested. So for the country’s law firms it could be a lucrative avenue of work and one that is most welcome at a time when transaction work is still slow and the number of firms competing for work is so high.
“Italy’s legal market is crowded on the supply side,” says Arossa. “There are 240,000 registered lawyers here. That’s twice as many as in the UK, with an equivalent population but a smaller financial centre in Italy. It’s more than Germany too, which has 180,000 lawyers and a much stronger economy.
“Italy’s overcrowded on the supply side while the demand side is somewhat shrinking because the economy’s lagging behind other economies. Even before the current recession Italy was growing at a very slow pace - 1 per cent or so. And in the past 10 years there’s been an increasing trend for companies to in-source legal work, which was not the case when I started 26 years ago. Back then a lot of large and mid-sized companies didn’t even have legal departments, but now companies are outsourcing much less than they used to, and this has created an imbalance that gives rise to an issue for lawyers.”
Razing the bar
The issue surrounding Italy’s glut of lawyers is not new and the question of capping entry to the Italian bar has been debated for a number of years. Perversely, though, there is also debate among politicians about removing the need to pass the bar as a means of sidestepping the problem of Italian lawyers going to practise in Spain, where there are no bar exams, before returning to Italy under the EU principles of free movement of workers. It is not a popular proposal among Italy’s lawyers.
The effect of the cramped market has been to force firms to expand into new areas such as labour law, administrative law and in particular litigation.
“There’s been a reconsideration in our profession and many law firms are reorganising their departments in a number of areas, but particularly dispute resolution,” says Paolo Pototschnig, a corporate and litigation partner in NCTM’s Milan office.
The bigger they come…
According to some partners it is the international firms that have suffered the most from the altered market, having come to Italy to focus on one practice area.
“The crisis has hit international and US firms more because they weren’t geared to give a full 360° service,” says Chiomenti partner Carlo Croff. “They don’t want to invest in these areas, whereas we’ve become active in litigation, labour and administrative law. I think the crisis has consolidated the leadership of the Italian firms.”
But it could still be that the international firms are best suited to take on class action lawsuits.
“The Anglo-Saxon mentality could be more prepared for these cases than the Italian mentality, because most of the cases in these actions are very complicated and you have to examine a huge amount of documentation and have experts in various areas of the law,” says Italy-based Dewey & LeBoeuf corporate partner Davide Contini. “It’s a culture that comes from the US and in my opinion will be followed in Italy according to the same organisational model. In five to seven years we’ll see in the Italian market who’ll be a player.”
The issue of who will emerge as the main players in class action litigations is especially pertinent when looking at the claimant side. None of the large firms, domestic or international, will represent claimants at the expense of upsetting or conflicting with their large corporate and banking clients, and the alternative is using the smaller, academically minded boutiques, which lack the resources to take on the big cases.
“We have smart lawyers, but I’m afraid that in the end intelligence will not be enough because you need manpower, and if you don’t have the resources then you can’t handle the cases,” says Francesco Gianni, senior partner at Gianni Origoni Grippo & Partners. “We could see mergers between smaller litigation firms and bigger corporate firms, so the corporates can use the smaller firms’ litigation expertise and litigation boutiques can utilise the manpower of the larger corporate firms.”
Some even think they could see new US firms moving into the Italian market.
“We’re probably going to see something similar to the US,” says Buizza. “I know certain US plaintiffs’ firms that have already sounded the ground in Italy to either make an alliance or to try to see if they can enter this type of market.”