Investing in Italy: Litigation

Italy offers a wide range of opportunities for foreign investors, especially those interested in acquiring Italian technologies, brands and distribution channels to secure a gateway to Europe.

In recent years the Italian Government has undertaken additional economic and legal reforms in a variety of areas in order to increase the country’s long-term growth, foster competitiveness worldwide and harmonise its domestic legal system with the rest of Europe.

This fifth and final article in a series of five delves into what investors such as private equity and venture capital firms need to know about the Italian litigation environment.

*****

The Italian legal system is a civil law system based on written rules. Unlike the common law system, no strict rule of precedent applies, therefore Italian court opinions are not necessarily binding but may just have persuasive effect.

All proceedings are managed by the ordinary courts within which – in addition to the ordinary ones – there are some specialised sections (e.g., Company section, Intellectual Property section, Labour section).

1. Procedural issues Starting proceedings

The first introductory writ of summons is called “atto di citazione”. By means of the writ of summons, the plaintiff brings its claim, stating the facts and the elements of law upon which the claim is based, as well as the evidence and documents that the plaintiff will use and submit to the court during the trial.

The writ of summons already contains the date of the first hearing and it has to be served on the defendant – at the plaintiff’s request – with a notice provided by law in order to make the defendant aware of the claim.

After the writ of summons is served on the defendant, the plaintiff has to file it with the clerk’s office of the court. Between the date of the notification and the date of the first hearing there must elapse at least 120 days if the defendant is residing in Italy or at least 150 days if he is residing abroad.

Once the defendant has been duly served with the writ of summons, he must file with the court offices, at least 70 days before the hearing date, a statement of defence called “comparsa di costituzione e risposta”, in which he indicates his version of the facts alleged by the plaintiff, states his defence and identifies the evidence and documents that he will rely upon to prove his case and produce during the trial.

By means of this statement, the defendant may seek to join third parties to the proceedings in order to be allowed to make claims against them.

2. First hearing

After the service and the filing of the “atto di citazione” and the filing of the “comparsa di costituzione e risposta” a first hearing before the Judge is held.

During the first hearing the Judge has the duty to check all the formal requirements and question the parties, requesting the necessary clarifications on the basis of the facts submitted. The judge can also attempt a settlement.

The judge also decides on the preliminary enquiries and prepares the timetable for further procedural hearings and trial hearing until the one in which the case is to be submitted for decision, indicating the tasks to be performed at each of them, taking into account the nature, urgency and complexity of the case.

Moreover, if the facts of the case are not in dispute, or the claim is based on documentary evidence or requires no complex investigation, the Judge may order the claim to proceed to trial according to a simpler and quicker procedural scheme (“rito semplificato di cognizione”).

3. Evidence and disclosure

During the first hearing the Judge may:

1. decide on the preliminary investigation requests; or
2. reserve his decision and issue a subsequent order.

If the proof of the facts constituting the claim has been established and when the defendant’s defence is manifestly unfounded, the Judge may grant the application. Similarly, if the plaintiff’s claim is manifestly unfounded the Judge may reject the application. In the absence of such special circumstances, at the conclusion of the first appearance hearing, the judge shall schedule a hearing in which evidence will be taken.

As a general principle, each party bears the burden of proof on the facts upon which his claim and/or objection is based. The Judge may appoint an expert if the subject matter of the case involves specialized knowledge, in which case each party is entitled to proffer their own expert.

Once the preliminary investigation has been completed, the decision phase begins.

4. Referral of the proceedings to the decision phase

When the Judge deems the case ready to be decided he schedules a hearing to be held in writing for the case to be submitted for decision and assigns the parties three peremptory deadlines for the filing of:

1. written notes containing only clarifications of the form of order sought,
2. closing arguments,
3. reply briefs.

As an alternative to the written procedure, the ICPC provides for two schemes: the mixed procedure (without the exchange of reply brief) and the oral procedure.

5. Judgment

After the submission of the final pleadings and reply, the Judge issues his decision.

6. Mediation procedure and assisted negotiation

It may be necessary to carry out a preliminary phase called “mediazione” (mediation procedure).

Mediation is compulsory before starting any proceedings relating to certain matters such as lease agreements, franchising agreements, banking and financial agreements, leases of business concerns, insurance disputes, etc. and must end within 3 months.

When the mediation procedure is not mandatory, the Judge may order the parties to conduct a mediation attempt at any stage of the proceedings (but before the specification of conclusions).

If an agreement is reached during the mediation procedure, the mediation report is enforceable.

Similarly, for different kind of matters (i.e., compensation for damage caused by the use of vehicles and debt collection proceedings with a value less then EUR 50,000.00) it is mandatory to carry out a “negoziazione assistita” – assisted negotiation, which is a negotiation procedure aimed at reaching a settlement agreement that is carried out with the assistance of legal counsel.

The resulting settlement agreement can be enforced through enforcement proceedings (see below). If a party fails to answer a negotiation proposal, the Judge may take this into account in apportioning costs (see below).

7. Legal costs and timing

With regards to the apportioning of legal costs, as a general principle the Judge orders the losing party to reimburse the fees and costs incurred by the successful party. If both parties are partially successful, the issues involved are novel or there has been a recent change in the case-law, the Judge may divide the costs between the parties or decide to allow set off.

Moreover, in a mediation, if a proposal made by a party during the mediation is refused by the other party without justification, and the final judgment coincides with that proposal, the Judge can order the winning party who refused the proposal to bear all the legal costs.

The fees payable in civil proceedings (such as, the filing fee) are connected to the value of the claim. Furthermore, if a proposal for assisted negotiation is not answered, the Judge may take this behaviour into consideration for the purposes of ordering the non-answering party to bear the legal costs.

It must be highlighted that, if the Judge finds that the claims and/or the objections raised by the parties are particularly ungrounded (and uncompliant with the good faith rule), he can order the party in question to pay damages/compensation to the other on a punitive basis (so-called damages for “lite temeraria”).

The average duration of a civil trial before a Tribunal ranges from one to three years. It could be longer when the preliminary phase is particularly complex and depending on the workload of the competent court.

According to the law, the reasonable timetable for the procedure to trial is 6 years (3 years for the first tier, 2 years for the second tier, 1 year for the last tier before the Corte di Cassazione).

If the court does not adjudicate the case within this timetable, the parties are entitled to receive, from the State, damages for compensation ranging from EUR 400 to 800 for each year of delay.

It is always possible to provide for a higher or lower amount.

8. Challenging first and second degree judgements

In general terms the losing party may challenge – for specific reasons to be analytically listed – the decision of the Court before the Corte di Appello or the decision of the Giudice di Pace before the Court. Both the procedures are referred to as to ordinary appeals.

As a general rule, during the appeal the parties are not allowed to raise new claims and cannot file new evidence or documentation.

As regards time limits for appealing a first instance judgment, the Code of Civil Procedure provides for a short time limit of 30 days starting from the service of the judgment and a long time limit of 6 months, in the absence of service of the judgment, starting from the publication of the judgment.

With regard to the challenge of a second instance judgment before the Corte di Cassazione, if the judgment is served by a party on the other party the time limit to appeal it is 60 days from the service of the second degree decision. If the judgment is not served on the counterparty the time limit is 6 months starting from the date of the publication of the judgement. The Corte di Cassazione, save for limited exceptions, rules exclusively on issues related to the application/ interpretation of the law and not on matters of fact.

9. Enforcement proceedings

As a general principle, save for the exceptions provided by law or ordered by the Judge, court’s rulings are immediately enforceable, even if still appealable.

When an order of the court is enforceable, enforcement proceedings can be started by the party who is entitled to relief. This kind of proceedings have different and detailed rules under the ICPC , depending on the content of the judgment.

Before starting enforcement proceedings, the winning party must serve the losing party with the judgment and an order to comply with the content of the judgment within a term of not less than 10 days (“precetto”).

Enforcement proceedings cannot begin before the expiry of the 10-day term and no later than 90 days from the service of the order to comply. In very general terms, the most common enforcement procedure for amounts of money is the compulsory enforcement procedure (“esecuzione forzata”), which consists of the seizure and subsequent forced sale of the debtor’s property and the distribution of the proceeds among the creditors. The procedure is subject to different rules depending on whether the debtor’s assets are movable or immovable. Enforcement proceedings can take around 270 days.

10. Special proceedings

The ICPC also provides for some special proceedings aimed at faster dispute resolution, including the injunctive decree (“decreto ingiuntivo”) and other interim remedies.

11. Injunctive decree

The injunctive decree is a special court order issued following a request filed by the creditor with the Judge to order the defendant to:

1. make a payment of a fixed amount that is already due and payable (e., not subject to terms and conditions), and of which the creditor has written evidence; or
2. deliver up some specific moveable goods/assets. The order to pay the amount of money or to deliver a specific movable asset is decided after a fast-track judicial procedure, with no reply by the defendant, and with a limited amount of information being provided.

Preliminarily there is only a summary cognitive phase (“cognizione sommaria”) but if the defendant opposes the injunction there will be a full cognitive proceeding (“cognizione piena”) since the rules of the ordinary procedure are followed.

The defendant has 40 days starting from service of the injunctive decree to comply with the received order or to appeal it. The mediation procedure is mandatory in the case of opposition to an injunction order.

The injunctive decree issued by the Judge could be immediately enforceable (i.e., it will entitle the creditor to start enforcement proceedings against the debtor) only if the plaintiff provides evidence of the objective reasons for the urgency or documents signed by the debtor proving the existing of the credit.

Where the injunctive decree is not immediately enforceable from the beginning, it can become enforceable if the defendant does not appeal the decree, or – by order of the court – when the defendant’s appeal is not based on written evidence.

12. Interim remedies

Special proceedings are also provided for preliminary or interim measures such as attachments, preliminary investigation proceedings, and urgent measures.

These remedies are issued by the court before the judgment on the merits of the claim and can be granted at a party’s request based on two different assumptions:

1. the rights claimed by the plaintiff appear to be well- founded (fumus boni iuris); and
2. the applicant’s rights may be jeopardized by the time the judgment on the merits is issued (periculum in mora).
3. Italian courts’ jurisdiction over foreign defendants

The main circumstances under which Italian courts may exercise jurisdiction over foreign defendants include the following:

1. when the defendant is domiciled or resident in Italy or has appointed a representative authorized to act on his/her behalf according to the rules of the ICPC and other cases expressly provided by the law (foreign companies that operate directly in Italy by means of a representative office);
2. when the parties agree in writing to submit to the jurisdiction of the Italian courts;
3. in relation to contracts, when the claimed obligation was performed or will be performed in Italy;
4. in relation to torts, when the harmful event occurred or will occur in Italy.

Some additional criteria are provided with reference to special matters and proceedings. For example, as with preliminary remedies, the Italian courts have jurisdiction if the measure is to be implemented in Italy or the Italian courts have jurisdiction over the merits of the case.

The parties may waive Italian jurisdiction by means of exclusive jurisdiction clauses.

14. Arbitration

Foreign and domestic investors may also waive the Italian court’s jurisdiction over disputes in arbitration proceedings.

The procedural rules, save for those mandatorily provided for under the ICPC or by law, can be agreed by the parties before starting the arbitration or decided by the arbitrators.

When the arbitration is conducted before an arbitration institution, the rules are set out by the institution itself.

Arbitration proceedings may cover many types of disputes apart from matters which, by law, fall under the jurisdiction of the court system.

One of the main advantages of arbitration proceedings is that they are quick – 240 days – which start running as of the arbitrators’ acceptance of the proceedings. In some circumstances the term may be extended.

The award may be challenged before the Corte di Appello in limited cases as expressly provided by law. Some civil proceedings may be “transferred” to an Arbitration Panel made up of attorneys who will adjudicate the dispute. Regarding the recognition and enforcement of the arbitral awards, different rules apply with reference to Italian awards and foreign awards.

With respect to Italian awards, enforcement is subject to the filing of the award with the competent Court, which must verify that the formal requirements for the recognition and enforcement of the award have been met before declaring the award enforceable.

A special proceeding is provided for the recognition and enforcement of foreign awards. The application must be filed with the President of the Corte di Appello.

The President, after verifying that certain requirements have been met, will declare the award effective in Italy and immediately enforceable.

The decision made by the President can be appealed within 30 days starting from the communication (if the award’s enforceability is denied) or from the notification (if the enforceability is granted).

Italy is a party to the 1958 New York Convention on the recognition and enforcement of foreign arbitral awards and the 1961 Geneva Convention on International Commercial Arbitration.

**********

Fabio Ilacqua is a Partner at Gianni & Origoni. Connect with him on LinkedIn here.