Multi-party trials are increasingly being used across Europe. In Italy, where class action rules were enacted in January 2010, Parliament recently passed a new bill which will have a material impact on Italian class action law.
The new bill is aimed at broadening the scope of class actions and the range of possible claimants.
The Italian class action is based on an opt-in system which distinguishes it from class action for example in the United States where all possible claimants are automatically included in the class unless they exclude themselves, or “opt out”. An opt-in system means that potential claimants have to take active steps to become party to the proceedings. An opt-in system often makes the process of assembling claimants a long and difficult one, and often results in classes which are much smaller than classes in jurisdiction using an opt-out system. Moreover, US-style class-actions allow individuals to aggregate claims into one lawsuit, thus providing consumers or shareholders an incentive to pursue compensation even for small sums that they would otherwise not have pursued because it would have been too expensive or time-consuming. Under Italian class action law, each claimant has to file his or her own lawsuit in order to join the proceedings and has to bear a significant burden in terms of legal costs.
Claims and Claimants
Only individuals representing a class of consumers or consumer associations can bring class actions to claim damages deriving either from breach of contract or tort. The claims which are the subject of a class action must be similar.
Previously, class actions based on tort were limited to product liability or unfair competition claims.
Now as a result of the new bill anyone, irrespective of being a consumer or not, is entitled to initiate class action proceedings to claim compensation for damages incurred as a result of either a breach of contract or a tortious act of whatever nature (i.e., not limited to product liability or unfair competition practices).
This will entail quite a significant change to a barrier that excluded many potential claimants from taking advantage of the benefit of class actions. For instance, under the previous law, shareholders could not bring a class action for damages against a company alleging that they had suffered loss as a consequence of misrepresentations in financial statements. In the future, as a result of the new provisions, securities class actions, a category of claims which fuels multimillion dollar class action litigation in the US, will be possible in Italy.
Publicity of the claim
A class action claim must be filed with the corporate division of the district court where the defendant has its registered office. In order to ensure publicity of the class action, the claim is published on the website of the Ministry of Justice to ensure quick access to the lawsuit and relevant supporting documents.
Class action claims based on the same facts and against the same defendant can be filed within the following sixty days.
Screening of the claim
In order to avoid frivolous actions, the first stage of the proceedings involves a ruling by the court on whether the class action is admissible. The court will declare a class action inadmissible where
- the claim is clearly without merit;
- there is a conflict of interest of claimant;
- there is no collective interest worthy of protection; or
- the claimant is not able to ensure the protection of the class members.
If a class action is declared inadmissible, the court may award legal costs against the claimant and order that damages in an amount which the court deems equitable/appropriate have to be paid.
The court shall issue a decision on the admissibility within thirty days from the hearing date.
Opting in to the class action
If the claim is declared admissible the court will
- order the publication of the opening of the class action proceedings on the Ministry of Justice website;
- identify the nature of the individual rights subject to the proceedings;
- specify the criteria for a claim to be either excluded from or included in the class action;
- specify a time-limit of up to 150 days from the publication of the class action to opt in;
- give any suitable/appropriate direction to ensure the quickest and most efficient course for the proceedings and the evidence gathering phase.
Individuals who opt in to the class action will be prevented from making any other claim against the defendant based on the same rights, or causes of action.
Disclosure and evidence gathering
The new class action provisions also give the court wide powers in terms of evidence gathering. The court may:
- rely on statistical data and on presumptions to ascertain the liability of the defendant;
- order the defendant to disclose all evidence in its possession which is needed to review the claim, even if such evidence includes confidential information (the “Disclosure Order“);
- levy a fine of up to Euro 100,000.00 against the defendant who does not comply with the Disclosure Order without justified reason;
- levy a fine of up to Euro 100,000.00 against the defendant who destroys evidence which is relevant to the proceedings;
- consider that the claimants have satisfied their burden of proof if the defendant does not comply with the Disclosure Order or destroys evidence which is relevant to the proceedings.
If the class action is successful, the court will award damages to all individuals who opted in.
According to the new provisions, the judgment is immediately enforceable notwithstanding a possible appeal. Failure by the defendant to voluntarily comply with the judgment entitles the class representative to start enforcement proceedings on behalf of all class members who opted in.
Another important amendment by the new draft bill is the provision for contingency fees to be paid by the defendant to the claimant’s counsel. Contingency fees will be awarded by the court and calculated as a percentage of the amount to be paid by the defendant to all class members who opted in. The percentage shall vary depending on the number of the class members: the more members the class has, the lower the percentage will be.
Effects of Italian Class Action Law
Mass shareholder actions in Europe are growing in frequency.
Consumer associations are preparing to bring several claims under the new legislation and many sectors of business could be affected by a potentially massive stream of class actions.
In most cases, large companies will be defendants in class actions brought by consumer associations which will use this “weapon” to force these companies to compensate consumers for loss suffered.
Financial institutions (e.g., banks, insurance companies, asset management companies, private equity funds), product manufacturers, utility service providers (e.g., telecommunication companies, energy companies), public and private transport companies (e.g., airline carriers, etc.) need to be prepared to deal effectively with this new litigation tool.
Areas of interest for class action in Italy and new trends
Payment Protection Insurance (PPI), bank charges, credit card fees, misselling of credit linked products, insurance policies and banking loans, are just a few of the issues which are likely to become the subject of class action proceedings in Italy.
A good example of this trend is provided by Italian consumer associations which announced to bring class actions against Italian banks for their alleged misuse of a certain type of compound interest on loans. Other industry sectors are also heavily exposed to class actions. In particular, transport service providers and product manufacturers (e.g., car manufacturers and dealers) will increasingly be under the threat of class action proceedings.
One may expect that class actions will also be filed to pursue cartel damage claims after a decision of the Antitrust Authority has been issued. In these cases, the claimant is entitled to use the evidence collected by the Antitrust Authority in the class action proceedings. For example, on January 9, 2019, the Italian Antitrust Authority sanctioned leading car manufacturers and/or their captive banks and imposed fines totalling Euro 678 million against them. The basis for the fine was the alleged implementation between 2003 and 2017 of an agreement restricting competition in the market of car sales through financing issued by the captive banks of the car manufacturers.
Based on this decision, the Italian consumer associations are preparing follow on class actions to claim reimbursement of the aggregate amount of interest paid by car purchasers on the financing granted. According to consumer associations, the amount of interest which can be claimed back by each class member could be in the range of Euro 500.00 to Euro 1,500.00 and such a class action may potentially involve thousands of claimants.
It has yet to be seen whether the class action will be filed and whether the court will deem it admissible.
The new class action law will become effective after twelve months from its publication in the Official Law Gazette and will be applicable only to illicit conduct committed after the new law has entered into force, whilst illicit conduct committed prior to such date will still be subject to the previous class action law. The new class action provisions will most certainly trigger an increase of class action proceedings in Italy. It may be expected that most consumer associations will file such class actions and that the proceedings will relate to consumer agreements, product liability, financial services and shareholders’/investors’ claims.