So, it's been confirmed: the Italian Supreme Court, acting in the Joint Divisions format, has followed the suggestion of the First Civil Division (see ruling No. 9978 of 16 May 2016)1, to allow recognition in Italy of foreign judgments that include "punitive damages".2 The Supreme Court ruling reflects and confirms a new approach being taken in Italy, both in the Courts and by the legislator, recognising that compensation can include elements that have essentially a punitive purpose.
The judgment of the Joint Divisions of the Supreme Court basically retraces the arguments made in ruling No. 9987 of 16 May 2016, and confirms its conclusions.3
The Joint Divisions trace the new approach back to a 2015 case on the liability of directors. In judgment No. 9100/2015 the same Joint Division recognised that the punitive function of damages is no longer "incompatible with the principles of our system". This new approach was in recognition of a number of legislative changes "aimed at recognising a (latu sensu) sanctioning trait in damages". But in the 2015 ruling, the Supreme Court came to the conclusion that the punitive nature of compensation would have to be clearly set out in a statutory provision, taking constitutional and EU law into consideration.4
The Joint Divisions link the earlier approach of not allowing punitive damages to the need to stop extending classes of damage to cases not covered by statute. However, now the Joint Divisions consider that this need can still be met without, at the same time, denying the possibility of enforcing foreign judgments awarding punitive damages. They conclude that the past approach could not be used "to deny the developments in the field of civil responsibility in the last decade".
It is clear that the primary function of civil liability is compensation and the reparation of damage. In certain identified cases, it can also serve, besides a preventive-and-deterrent function, a sanctioning and punishing function (so-called "multi-functional nature of civil liability").
The ruling of the Joint Divisions lists a series of laws which show that the legislator already recognises, in practice and in reality, the punitive nature of damages.5 In addition, the ruling makes reference to the Supreme Court's own judgment in No. 7613/2015 which had emphasised the commonalities between astreintes and punitive damages. Furthermore, the Joint Divisions recognise the sanctioning nature of certain further provisions such as Article 28 of Legislative Decree 81 of 2015 (in the context of labour contracts), which provides for lump-sum compensation to be paid when a fixed-term contract is converted into a contract of indefinite duration on account of the unlawful insertion of a fixed-term clause.6
Finally, the Joint Divisions make reference to judgment No. 152/2016 of the Italian Constitutional Court which ruled that Article 96 of the Italian Code of Civil Procedure was not merely a compensation mechanism but also had a punitive function.7
After confirming the need for "legislative intervention" to "provide for when damages can be increased [for punitive purposes]", the judgment examines the evolution of jurisprudence on the concept of international public order, commencing with the examination already set out in the ruling of the referring Court.8
The Joint Divisions underline that there has been a move from a concept of purely-domestic public order to a concept of the public order of the European Union. 9 However, this new concept cannot be used to allow the introduction of foreign provisions or judgments capable of "undermining the inner consistency of the legal system". Hence, "any foreign judgment being applied in an area not regulated by domestic law, albeit not banned under EU law, should be assessed in the light of the Constitution and the laws that [....] embody our constitutional system".
Consequently, any verification for the purposes of recognition of foreign judgments should be limited to verifying whether there is conflict between a given foreign institution and the set of rules and values relevant to the assessment at issue. According to the Supreme Court, some obvious conclusions follow from all this.
The idea of punitive damages does not seem "per se incompatible with the Italian legal system" and, therefore, with Italian public policy. However, its admissibility should be assessed on a case by case basis, by carefully looking at the impact of the recognition, so as to ensure its consistency with public policy.
To that end, the Court should first assess compliance with the principle of typicality, by verifying that a punishment arises from a recognisable source of law, at least in the jurisdiction of the original judgement. Furthermore, that law must clearly set out the boundaries of the fact situations that can give rise to damages and any limits thereto, based on the principle of predictability.
Finally, as part of the process of recognition of a foreign judgement, the Italian courts should verify the proportionality between ordinary damages and punitive damages, as well as between punitive damages and the wrongful conduct, in order to be able to clearly identify the sanctioning and punishing function (in compliance with the principle of proportionality).10
The clear evolution of the approach taken in Italy as set out in the judgement of the Supreme Court examined here, is evidence of the fact that Italian courts are increasingly paying attention to legal developments in other countries and, while still reaffirming their role as guardians of the integrity of the Italian legal system and public order, are keen to ensure that there should be no formal obstacles to the effectiveness of the protection afforded in other jurisdictions.
Clearly, improving the circulation of foreign judgments will foster trade, thereby benefiting the overall Italian economy.
Footnotes
1 See "Compatibility of punitive damages with Italian public order? Maybe. Last word to the Joint Divisions of the Supreme Court", International Litigation Newsletter, September 2016, 53 et seq. (English version) and http://www.lexology.com/library/detail.aspx?g=815dfc39-2982-46a7-945b-2e7b826c93cb
2 A decision of the Joint Divisions of the Italian Supreme Court – which has inter alia the function to provide a uniform interpretation of the law – represents a forceful precedent, which lower courts and subsequent judgments are likely to abide by.
3 For completeness, it is worth noting that the Joint Divisions start with analysing the opposite view, enshrined in judgment No. 1183 of 2007 of the Supreme Court, according to which the only object of compensation is to remove the consequences of damage caused, with no afflictive and punitive concept of damage categories, typically alien to the Italian legal system. The 2007 judgment was at first "immediately disputed by the most well-established legal literature" – as recalled by the Court itself – but subsequently in fact confirmed by judgment No. 1781/2012. That 2012 ruling, in denying the admissibility or enforcement of punitive damages in Italy, referred to the prohibition to make financial transfers from one person to another, in the absence of legal reason, as a principle inherent in the Italian legal system.
4 The 2015 ruling found that certain inferences of the principle of legality did not allow recognition. These principles are enshrined in Article 25, paragraph 2, of the Italian Constitution ("no one may be punished except on the basis of a law already in force before the offence was committed") and in Article 7 of the European Convention for the Protection of Human Rights and Fundamental Freedoms ("No one shall be held guilty of any criminal offence on account of any act or omission which did not constitute a criminal offence under national or international law at the time when it was committed. Nor shall a heavier penalty be imposed than the one that was applicable at the time the criminal offence was committed"). To clarify the grounds for such view, the Joint Divisions also mentioned Article 23 of the Italian Constitution, according to which no services of a personal or patrimonial nature shall be imposed except on the basis of law.
5 The judgment under examination incorporates the text of Supreme Court's judgment No. 7613/2015, which, first and foremost, lists a number of provisions whereby the decision finding breach fixes the amount payable for each subsequent infringement or breach, or for each day of delay in implementing its operative part. Here below is the list:
– concerning patents and trademarks, Article 86 of Royal Decree No. 1939 of 29 June 1127 and Article 66 of Royal Decree No. 929 of 21 June 1942, repealed by Legislative Decree No. 30 of 10 February 2005, which introduced for that purpose the measures under Article 124, paragraph 2, and Article 131, paragraph 2;
– Article 140, paragraph 7 of Legislative Decree No. 206 of 6 September 2005 ("Consumer Code"), where consideration is given to the "seriousness of the occurrence";
– someone is of the opinion that this list should also include Article 709 ter, paragraphs 2 and 3, of the Italian Code of Civil Procedure, introduced by Law No. 54 of 8 February 2006 on non-performance of child custody obligations;
– Article 614 bis of the Italian Code of Civil Procedure, introduced by Article 49 Law No. 69 of 18 June 2009, which provides for the judge's power to set the amount payable for each further breach or delay in implementing a decision, "based on the value of the controversy, the nature of the services, the quantified or predictable damage and any other useful circumstance";
– Article 114 of Legislative Decree No. 104 of 2 July 2010, drafted along the lines of the above provision, which confers a similar power upon administrative judges in proceedings for implementation of administrative judgments.
There are also cases in which it is the law itself that imposes a punishment on the wrongdoer:
– the provisions of Articles 388 and 650 of the Italian Criminal Code;
– Article 18, paragraph 14, of the Italian Workers' Statute, according to which, against finding of particularly-serious unfair dismissal, failure to reinstate is discouraged by an additional sanction;
– Article 31, paragraph 2, of Law No. 392 of 27 July 1978, according to which the landlord is under an obligation to pay a certain sum of money in the event of its withdrawing for reasons subsequently found false;
– Article 709 ter, paragraph 4, of the Italian Code of Civil Procedure, which gives the judge a power to impose an additional fine for non-performance of child custody obligations;
– Article 4 of Decree Law No. 259 of 22 September 2006, converted into Law No. 281 of 20 November 2006, on illegal publication of wiretapping records, which provides for monetary compensation calculated per each printed copy and based on the area where dissemination through radio, television or electronic media takes place (even if the judge has to take into account any payment made, if an action for damages is brought).
6 Reference is also made to:
– Article 28 of Legislative Decree No. 150/2011 on controversies concerning discrimination, which gives the judge a power to award damages against the defendant, based on the fact that an act or conduct amounts to retaliation against a previous case or an unfair reaction to a previous action undertaken to obtain compliance with the principle of equal treatment;
– Article 18, paragraph 2, of the Italian Workers' Statute, which provides that compensation can in no event be less than five monthly instalments of the global basic salary.
The judgment of the Joint Divisions specifies that "The list of "punishments", for example, in the matter of joint ownership (Article 70 of the Provisions Implementing the Italian Civil Code), subcontracting (Article 3, paragraph 3, of Law No. 192/1998) and late payment in commercial transactions (Articles 2 and 5 of Legislative Decree No. 231/2002), is still long. This is not the place for analysing each single case to resolve the conflict between those who deny the existence of any link between the above punishments and third-party liability and those, such as the Joint Divisions, who see in them an expression of the multi-functional nature of the complex institution under examination".
7 Judgement of Constitutional Court No. 152 of 23 June 2016: "Therefore, the new 2009 provision [.....] does not seem unreasonable but [.....] merely reflects one of the choices lawmakers can make, given their unrestricted discretion, under the Constitution, in identifying the beneficiary of a measure punishing abuse of process and serving as a deterrent against the repetition of such behaviour".
8 Ruling No. 9978 defined international public order as "that set of principles underpinning a national legal system at certain point in time, based however on the need to protect those fundamental human rights which are common to different legal systems and can first be inferred from the systems of protection set up on a level higher than ordinary statutes".
9 According to the Joint Divisions, the notion of public order on which the admissibility of a foreign judgment should be assessed has changed from "that set of fundamental principles characterising the ethical and social structure of the national community at a certain point in time, and that set of imperative principles which are inherent to key legal institutions" (Supreme Civil Court judgment No. 1680/1984) to a kind of "distillation" of "the protections created at a higher level than ordinary statutes, which is why reference should be made to the Constitution and, after the Treaty of Lisbon, to the guarantees provided to the fundamental rights by the Charter of Nice, which under Article 6 TEU has the same legal value as the Treaties establishing the European Union" (Supreme Civil Court judgment No. 1302/2013).
10 With this in mind, the Joint Divisions acknowledge the rapid evolution of punitive damages in the North American legal system, where "grossly excessive" damage awards are now prevented.
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