Consumers And Small Investors Get New Means Of Redress In Italy

Article by Serenella Rossi, Alessandra Stabilini and Luigi Cominelli

New alternative dispute resolution procedures in Italy aimed at protecting consumers may result in a more cumbersome litigation process. Serenella Rossi, Alessandra Stabilini and Luigi Cominelli report.

After a long-lasting debate, collective redress for consumer litigation has been introduced in Italy this summer and will come into force on 1 January 2010. Over the last few years, however, the Italian legislator has introduced a number of alternative dispute resolution (ADR) instruments for business-consumer litigation.

Although the introduction of these instruments is generally to be welcomed as promoting an effective protection for consumers and clients in general, the proliferation of different redress mechanisms, some of which overlap to a certain extent, has created a complex system that risks causing confusion.

Mediation and conciliation in consumer and financial litigation

Promoting mediation has always been one of the main aims of Italian consumer laws. Today, according to the Consumer Code (Legislative Decree 206/05), registered associations may begin mediation before the local Chamber of Commerce on behalf of consumers, in order to inhibit actions damaging to the interests of consumers or to obtain measures to eliminate the damaging effects of any breaches. The resulting settlement agreement is judicially enforceable in court.

In recent years, consumers of financial products have been empowered by a number of new means of redress. The Consolidated Law on Finance (Legislative Decree 58/98) provides for out-of-court settlements of disputes between non-professional investors and authorised persons relating to "the provision of investment services and activities, accessory services and collective asset management services".

A Chamber of Conciliation and Arbitration has been created within Consob (the supervisory authority for the Italian financial products market) by Legislative Decree 179/07, with the task of mediating or arbitrating disputes arising from the violation of duties of correctness, transparency and information on the part of financial intermediaries.

Disputes brought to Consob arbitration are adjudicated by a board of arbitrators according to the Italian civil procedure rules. Through this arbitration proceeding, even when awarded a compensation, non-professional investors will able to go to court for further indemnification. The arbitration clause is only binding for financial intermediaries.

A simplified and faster arbitration proceeding is available for investor claims originating from any pecuniary damages caused by the infringement of the duties of information, transparency and correctness. In this latter case, the decision is taken by a sole arbitrator on the basis of one exchange of briefs, following the 'documents-only' arbitration model.

The Consob conciliation procedure is modelled upon state-sponsored out-of-court commercial mediation (Legislative Decree 3/2005). Benefits of the procedure include the judicial enforceability of the settlement agreement and exemption from stamp duty. Confidentiality is strictly protected, and the mediator can meet the parties separately. If the parties agree in advance, the mediator can make a final settlement proposal on which both the investor and the financial intermediary have to take a stance, also stating under what conditions they could sign an agreement. This last proposal, together with the parties' positions, is recorded in the minutes, and could be taken subsequently into account by a judge in order to rule on the costs of judgment.

Bank-client litigation

In the banking sector, a different - albeit similar in several respects - procedure has been introduced by article 128-bis of the Italian Consolidated Banking Law (Legislative Decree 385/1993, as amended), introduced in 2005 in the aftermath of the financial scandals of 2002-03.

Article 128-bis provides for a special ADR procedure (the Arbitro Bancario Finanziario, or ABF) applicable to all disputes arising between banks (and financial intermediaries) and clients in the context of banking and financial services (with the exclusion of investment services). The procedure applies to all bank-client litigation whether or not the client qualifies as a 'consumer'; only clients that are financial intermediaries themselves are excluded. The procedure applies to all disputes relating to rights and obligations regardless of the monetary value of the underlying contractual relationship. However, if the litigated matter includes a request for money, the procedure only applies if the requested sum does not exceed E100,000 (£90,000).

Access to the procedure is voluntary for clients but mandatory for intermediaries. The procedure is managed by an Arbitration Tribunal which comprises five arbitrators appointed as follows: one each by intermediaries' and consumers' associations respectively, and three (including the President) by the Bank of Italy. At the moment, three tribunals have been constituted, whose jurisdiction is defined on a territorial basis, in Milan, Rome and Naples.

The procedure belongs to the arbitration rather than to the conciliation type: the action - which can only be initiated by clients - starts with a complaint and then follows a typical litigation path. The possible outcomes of the procedure, however, are peculiar in several respects. The litigated matter is limited to the claims brought about by the client; the intermediary can defend itself but, it seems, cannot advance counterclaims. If the tribunal upholds the client's complaint, it orders the intermediary to comply with its decision within a fixed date; in case of non-compliance, the law provides for a peculiar reputational sanction consisting in the public disclosure of the failure to comply with the tribunal's decision, both through the ABF's website and through two national newspapers, at the intermediary's own expense.

The law does not expressly provide for any appeal against the ABF's decisions. It does provide, however, that the decision does not prevent either party from returning to court or any other applicable dispute resolution system. This, together with the general, constitutionally granted right to justice, seems to imply that the intermediaries may request the redress of damages caused by the publication of their non-compliance to a decision if they can make a successful case that it was wrong on the merits.

Class actions under the Italian Consumers' Code

Law 244/07 has introduced and regulated in Italy collective actions for damages for the protection of the rights of consumers and users, regulating them under Article 140 bis of the Italian Consumers' Code. That legislation was amended by Law 99/09, by introducing the new definition of 'class actions' for the actions regulated therein.

The action in question allows the enforcement of "the individual homogeneous rights of consumers and users", on the initiative of any member of a class or of associations or committees delegated by him or in which he takes part, in order to obtain a judgement determining the liability of the enterprise concerned and awarding compensation of damage and/or redress.

The rights in question are individual rights that arise from a single breach or from illegal behaviours having the same nature or occurring at the same time, the ascertainment of which is based on the assessment of a single issue having a collective relevance.

If the court finds for the plaintiff, after recognising the liability of the enterprise concerned, it will set the amount of damages or set out the criteria for its determination to be adopted in individual proceedings.

Such protection applies to the identical contractual rights enforceable by a plurality of consumers or users against the same enterprise, including those arising out of contracts entered into in accordance with articles 1341 and 1342 of the Italian Civil Code, for instance, subscription contracts or contracts entered into by filling in forms; the (identical) rights enforceable by the final consumers of a same product against its manufacturer, also in the absence of a direct contractual relationship; and the (identical) contractual rights to damages arising out of unfair trade practices or antitrust violations.

With these provisions, Italian lawmakers have tried to address the need for easier access to justice. They are also trying to strengthen the aim of preventing damage to diffuse interests by appealing to the deterrent effect that the threat of a class action might have.

The class action does not cover all the violations that may give rise to mass torts or collective damages, however. In fact, the rule does not mention torts tout court among those entitled to compensation, so excluding, for example, the rights to compensation for environmental damage. The only torts falling within the scope of the regulation are those connected with product liability and antitrust violations. In the latter case, however, the regulation applies only to actions for damages brought by consumers, while excluding those brought by competing entrepreneurs.

Consumers or users willing to take part in a class action must join the action by giving notice to that effect (opt-in system). In this respect, the action under Article 140 bis of the Italian Consumers' Code is very different from the class action of the North American system, the outcome of which is to the benefit of all the members of the class per se. In the Italian system, those not joining the class action may always start their own lawsuit.

The proceedings before the court start by the latter assessing the admissibility of the action. This preliminary investigation seems to be justified if one considers that, as a result of the recent amendment of Article 140 bis of the Italian Consumers' Code, standing to sue in class actions is also granted to individual consumers or users.

This might extend the number of actions brought without the involvement of associations or bodies and, at the same time, stimulate attorneys to engage more with this type of actions, if attracted by prospective fees calculated according to the possible results (which would now be feasible, as the prohibition of contingent fee arrangements has been repealed in our system).

The introduction of different ADR procedures has produced a complex and somewhat incoherent flow of new sectorial procedures, consisting mainly of non-binding arbitrations or mediations with a strong evaluative flair. So far, the benefits of a more complex system of remedies are yet to be seen.

Investors/consumers, even after receiving compensation through an award, may still want to litigate in court, while financial intermediaries might take strategic advantage of the multiple fora available and render the process more cumbersome.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.