I INTRODUCTION TO THE CLASS ACTIONS FRAMEWORK
Class actions are currently regulated by the Italian Consumer Code,2 although this is due to change with the entry into force of a major law reform in October 2020 (see below).
In a nutshell, pursuant to Article 140 bis of the Consumer Code, a class action can be brought in favour of consumers only to seek legal relief in cases of breach of (1) contractual rights towards the same professional defendant; (2) rights arising from product liability even in the absence of a direct contractual relationship with the manufacturer; and (3) the right to compensation for damage suffered because of unfair commercial practices and anticompetitive behaviour. These rights are required to be 'homogeneous'.
Consumers who have suffered damage are entitled to bring a class action lawsuit. Such a lawsuit may be brought individually by a consumer as a party of the relevant damaged class or through associations delegated by the consumers (although consumer associations are not entitled to bring class actions on their own).
Other consumers can join a class action that has already been initiated, but they may also decide not to opt in. In this case, the consumer will be entitled to file a separate individual action.
From a procedural point of view, first the court rules on the admissibility of the class action and, if the action is admitted, the court shall specify the requirements that every consumer should fulfil to join the class. During the subsequent phase, the court goes thorough and analyses the merits of the case. Thereafter, if the court finds the defendant to be liable, it shall rule on the amount of damages that each consumer is awarded or indicate general uniform criteria. The parties are granted 90 days to reach an agreement on the amount of damages; failing this the court shall quantify the amounts due. Furthermore, under the opt-in mechanism, consumers who did not join the class are not bound by any agreement.
Moreover, the Consumer Code sets out a collective action for injunctions.3 This action can be brought only by consumer associations registered in a special register managed by the Ministry of Economy and Finance. These associations may ask the court (1) to prohibit conduct that harms the interests of consumers in particular matters; (2) to take appropriate measures against the harmful effects of this conduct; and (3) to order the publication of the measure in several newspapers.
An important reform that should be highlighted is the Italian legislature's approval of a comprehensive new set of rules on class actions, in Law No. 31 of 12 April 2019 (Law No. 31), which transfers governance in this area from the Consumer Code to the Italian Code of Civil Procedure (CCP);4 this Law is expected to enter into force in October 2020.
Finally, Legislative Decree No. 198 of 2009 prescribes a different type of class action, granting consumers the right to protect their interests in cases of misconduct by public bodies or private companies providing public services. This kind of class action is usually known as a 'public class action'5 (as opposed to the 'private class action' set out in the above-mentioned reform).
In this chapter, we will deal with private class actions and collective actions for injunctions only.
II THE YEAR IN REVIEW
The most significant development in the past year consisted of the approval of the new class action rules.
In this respect, pursuant to Article 7 Paragraph 1 of Law No. 31,6 the new provisions shall enter into force 18 months after publication in the Official Gazette. Therefore, the new rules will enter into force on 19 October 2020.
Given the above, the new provisions will apply to unlawful conduct occurring after the date of entry into force of the law reform, meaning that the old rules (i.e., Article 140 bis of the Consumer Code) will continue to apply with reference to unlawful conduct committed before the effective date of the law reform.
Considering that the law reform has not yet entered into force, there is no case law that can be mentioned in this section.
Several aspects differentiate the law reform from the previous regime. The following are the most significant of these changes: (1) a class action can be started by any individual or legal entity, as well as any non-profit organisation or association; (2) the new regime protects any homogeneous individual right, not only consumer rights; and (3) class action proceedings will be divided into three phases.
Basically, the class action law reform confirms the opt-in scheme, according to which a judgment produces effects only in respect of those who have joined the class action.
In addition, the law reform provides a collective action for injunctions aimed at issuing a prohibition order in respect of acts and conduct perpetrated against a number of individuals or bodies by private companies or by bodies providing public services or public utilities in the course of their business. The law reform modifies the former regime, granting anyone entitlement to bring such an action.
i Types of action available
The new class action is aimed at protecting homogeneous individual rights, which have in common the fact that they have been damaged by (1) multi-offence conduct (i.e., a single instance of conduct that affects a number of interests); or (2) a number of similar repeated instances of single-offence conduct.
Pursuant to CCP Article 840 bis Paragraph 2, the claimant may apply to the competent court to ascertain the liability of whoever has violated the homogeneous right, and the compensation for damage.
The law reform does not provide a definition of homogeneous rights; in this respect, according to a recent statement of the Court of Cassation, it is reasonable to rule out any assessments related to specific personal situations or evaluations that focus on specific emotional effects experienced by particular individuals or on the dynamic relational experience of such individuals.7
In addition, it should be noted that the protection of homogeneous rights includes both the rights deriving from direct contractual relationships and those arising from non-contractual relationships.
The limitation period is the same as for ordinary civil actions (i.e., in principle, five years for torts and 10 years for contractual liability).
With reference to the collective action for injunctions, the purpose is to obtain a general termination and restraining order in favour of an a priori undefined number of individuals.
The adjective 'collective' is misleading because this action has a dual nature: on the one hand, it is individual and can be exercised by anyone who has an interest in obtaining such an order and, on the other hand, it is effectively collective, granting entitlement to organisations and non-profit associations.8
ii Class action
Pursuant to CCP Article 840 bis Paragraph 2, any individual, as well as any non-profit organisation or association, provided it is registered on a public list established at the Ministry of Justice, is entitled to bring class action proceedings. The new regime aims to protect not only consumers, but also professionals, companies, investors, shareholders and, in general, all categories of natural or legal persons who previously did not have the right to bring a class action.9
The law reform's introduction of the entitlement of organisations or associations is a particular novelty since, under the former rules, these associations did not have an independent right to bring class actions (although an individual consumer could be represented in court by such associations); now such associations may bring a class action autonomously without delegation.
As regards the potential defendants, pursuant to CCP Article 840 bis Paragraph 1, private companies or bodies providing public services or public utilities can be sued only with regard to conduct carried out in the course of their own activities.
As regards the collective action for injunctions, pursuant to CCP Article 840 sexiesdecies, the entitlement to bring proceedings is granted to anyone (individuals and associations and organisations registered at the Ministry of Justice) that has an interest in a ruling that inhibits conduct and acts committed in relation to a number of individuals or bodies.
These are two different initiatives: an individual brings proceedings by virtue of an alleged right or interest of his or her own that is independent of legal provisions, while associations or organisations bring proceedings by virtue of law.
As to the potential defendants, CCP Article 840 sexiesdecies Paragraph 2 refers to private companies or bodies providing public services or public utilities.
Class action lawsuits fall under the jurisdiction of the court specialising in companies according to where the company is based. In court, the case is heard by a panel of three judges.
This proceeding is divided into the following three phases.
First phase (eligibility of the application)
After the petition has been filed and published on the website of the Ministry of Justice, the court issues a decision on the eligibility of the application. In particular, the application shall be declared inadmissible if (1) the application is clearly groundless; (2) there is no homogeneity of individual rights; (3) the claimant has a conflict of interest with the defendant; or (4) the claimant is considered inadequate to represent homogeneous individual rights.
Where an application is deemed inadmissible because of its clear groundlessness, the application may be relaunched if new circumstances or factual or legal reasons are alleged.
The court may suspend the first phase if there are ongoing proceedings pending before an independent authority or an administrative judge concerning the facts stated in the petition.
The decision on eligibility can be appealed within 30 days.
Further class actions based on the same facts as those alleged in a pending petition may be brought within 60 days of the pending petition's publication date. Any further class actions brought outside this 60-day period will not be allowed to proceed.
Second phase (merits on causation)
If the application is declared eligible, the court (1) sets a period of between 60 and 150 days for the holders of homogeneous individual rights to exercise the first right to join; and (2) sets out the necessary characteristics of the homogeneous individual rights for the joining party.
Anyone who wishes to join the proceedings must file an application to join; any such application must comply with all the form and content requirements of CCP Article 840 septies (i.e., it must set out the claim, the facts supporting the application, the relevant documentary notice and the written evidence). If the joining applicant fails to comply with the requirements, the application will be deemed inadmissible.
In addition, a number of preliminary activities can be carried out at this stage, including the rights (1) to arrange a technical assessment, with expenses being borne by the defendant as a general rule (unless there are specific reasons why the general rule should not apply); (2) to use statistical data; and (3) to order the disclosure of documents and data, at the claimant's request, subject to the same requirements regulating disclosure in compensatory proceedings for violations of competition law.10
The second phase of the proceedings ends with a second decision, granting or rejecting the application on the merits. Any appeal against this decision must be lodged with the court of appeal within six months of the date of the ruling.
Third phase (merits on quantum)
In issuing the above-mentioned second decision granting the application, the court also (1) awards damages or the compensation sought by the claimant (where the claim was brought by a party other than an association or a committee); (2) determines that the defendant violated homogeneous individual rights; (3) sets a period of between 60 and 150 days for the holders of the homogeneous individual rights to exercise the second right to join; (4) sets out the necessary characteristics of the homogeneous individual rights; and (5) appoints the judge in charge and the joining parties' common representative, who is a public official and who must satisfy the same requirements as for the appointment of a trustee in bankruptcy.
Given the above, within 120 days of the expiry of the period in which the second right to join can be exercised, the defendant may file a defensive brief addressing all the facts claimed by the joining parties. The reform introduced by Law No. 31 stipulates the application of the non-challenge principle, pursuant to which facts not specifically challenged by the defendant are considered proved.
During the following 90 days, the joining parties' common representative drafts the joining parties' homogeneous individual rights plan.
During the following 30 days, the joining parties and the defendant may file written observations and additional documents replying to the aforementioned plan.
During the following 60 days, the common representative can vary and modify the contents of the plan.
Once these deadlines have expired, the court rejects or grants the joinder application by means of a decree.
Damages and costs
If during the third phase of the class action proceedings the decree issued by the court grants the joinder application, the court also orders the defendant to pay (1) the amount or to deliver the goods as compensation for damage or reimbursement; (2) the expenses of the common representative in proportion to the amount paid in favour of the joining parties; (3) the litigation costs of each joining party's legal representatives; and (4) an award in favour of the claimant's legal representatives.11
It has been noted that pursuant to CCP Article 840 quinquies, the defendant is obliged to advance the costs and the down payment to the technical consultant who may be appointed.12 This provision has given rise to some criticism because the technical consultancy is carried out in the common interest of the parties and it is therefore fair to consider that the relevant costs be borne by all parties concerned.13
The decree rejecting or granting the joinder application may be appealed within 30 days of its publication (although new proof or new documents are not allowed in the appeal proceedings) and the court may confirm, modify or revoke the challenged provision.
Pursuant to CCP Article 840 undecies, if the joinder application is revoked, a joining party can start individual proceedings before the decree issued by the court against him or her becomes final.
In the collective action for injunctions, pursuant to CCP Article 840 sexiesdecies, the court can, by means of a specific decree, order the defendant to (1) cease the harmful conduct; (2) pay a daily penalty payment, at the party's request; (3) adequately disclose the ruling; and (4) take appropriate measures to eliminate or reduce the effects of the established violations.
The law reform does not provide for punitive damages. In this regard, although when ruling on the recognition of US judgments the Court of Cassation has stated that punitive damages are not incompatible with Italian law,14 the Italian legislature has currently excluded the possibility of imposing punitive damages by means of class actions.
In this respect, the choice of the Italian legislature to exclude compensation in the form of punitive damages was probably influenced by Recommendation No. 2013/396 of the European Union, which suggests prohibiting punitive damages, as they can result in overcompensation in favour of the claimant.
Pursuant to CCP Article 840 bis, in the event that all the claimants waive their requests as a result of a settlement agreement between the parties, the court shall grant the joining parties a period of not less than 60 days and not more than 90 days for the prosecution of the lawsuit. Once this deadline has expired, the court shall dismiss the proceedings.
In addition, until the oral discussion phase of the case, the court shall make a settlement or conciliation proposal wherever possible and with regard both to the value of the dispute and to easy and prompt resolution of the matter in law.
Moreover, pursuant to CCP Article 840 quaterdecies Paragraph 2, it is possible to produce a draft agreement that (1) is arranged by the common representative of the joining party; (2) does not require the acceptance of the claimant; (3) may be proposed after the expiry of the deadline for joining, allowing the defendant to better assess its convenience; and (4) may affect all those who have not promptly challenged the draft agreement.
iii Collective action
Applications for collective actions for injunctions are filed according to the chamber proceedings prescribed by CCP Article 737 et seq. (these are simplified proceedings) before the court specialising in companies where the defendant is based. The preliminary activities that can be carried out are the same as those that can be carried out in a class action.
An application for a collective action must be notified to the public prosecutor's office.
CCP Article 840 sexiesdecies Paragraph 9 expresses clearly the intention of the Italian legislature to keep collective actions for injunctions separate from class actions. In fact, in the event that a collective action for an injunction and class action proceedings are brought jointly, the judge must formally declare their separation, so that each case proceeds autonomously.
In this context, the law reform has been criticised for not allowing a class action to be added to a collective action for an injunction, and particularly where the claimant is an individual. The non-overlap between the two proceedings made sense under the previous regime, with collective actions for injunctions being brought exclusively by organisations or associations representing a collective interest, while the purpose of the class action was to protect individual rights. But given that the law reform enables individuals to proceed with both injunctive and compensatory protection (the latter can be obtained with the class action), it may be useful to allow the combination of the two proceedings in the same trial, so that individuals can claim both for cessation of the harmful conduct and compensation for damage suffered.
IV CROSS-BORDER ISSUES
The class action law reform does not expressly provide for the possibility of overseas claimants joining the class, or for class actions being brought against foreign companies, therefore ordinary provisions on jurisdiction and applicable law apply.
In this respect, it is relevant to mention the EU proposal for a directive on class actions,15 the scope of which would cover other horizontal and sector-specific EU instruments aimed at protecting the collective interests of consumers in different economic sectors, such as financial services, energy, telecommunications, health and the environment. The proposed amendment would make procedures more responsive to the broad spectrum of infringements in economic sectors, where illegal practices by traders may affect large numbers of consumers.
In particular, subject to the necessary measures being taken by Member States, qualified entities16 on the list of one Member State may bring a representative action before a court or administrative body of another Member State.
If the infringement affects or is likely to affect consumers in different Member States, the representative action may be brought before the competent court or administrative body of a Member State by qualified entities from different Member States to protect the collective interest of these EU consumers.
The proposed directive will enable qualified entities to bring representative actions seeking different types of measures as appropriate, depending on the circumstances of the case. These include interim or definitive measures to stop and prohibit a trader's practice if it is considered an infringement of the law, and measures eliminating the continuing effects of the infringement. The latter could include redress orders and declaratory decisions establishing the trader's liability towards the consumers harmed by the infringements.
As a rule, qualified entities should be entitled to bring representative actions seeking a redress order that obligates the trader to provide for, inter alia, compensation, repair, replacement, price reduction, contract termination or reimbursement of the price paid, as appropriate.
The proposal17 takes into account the Commission Recommendation of 11 June 2013 on common principles for injunctive and compensatory collective redress mechanisms in Member States concerning violations of rights granted under EU law.18 The Recommendation lays down a set of common principles for collective redress mechanisms, including representative actions for injunctive and compensatory relief that should apply to all breaches of EU law across all policy fields. The principles in the Recommendation are self-standing and the proposal does not reproduce all procedural elements addressed by the principles. The proposal only regulates certain key aspects necessary for the establishment of a framework, which must be complemented by specific procedural rules on the national level. Some procedural elements from the Recommendation are not mentioned in the proposal because of its more targeted scope, which is limited to infringements that may affect the collective interests of consumers, and the pre-existing features of the representative action model in the current EU Injunctions Directive.19
V OUTLOOK AND CONCLUSIONS
There are some critical issues regarding class actions in the law reform that have already been pointed out by commentators. One key issue is the risk that defendants will be sued in multiple class actions without (or perhaps only with great difficulty) being able to estimate costs and the number of potential claimants.
The following, we would argue, are among the most significant problems of the law reform: (1) the possibility of rebringing class action proceedings, if these are granted simply on the basis of new circumstances or factual or legal reasons, or on a combination of these; (2) the possibility of multiple (and simultaneous) class actions when these are not based on the same factual circumstances; (3) the provision of a second joinder of parties, subsequent to the judgment accepting the application on the merits on causation, which clearly does not allow the defendant to know from the outset the number of counterparties and therefore to define the amount of risk to which it is exposed; (4) the provision that allows a party joining the class action also to propose an individual action, where the joining part has withdrawn its application to join the class action before the decree (theoretically) rejecting its joining application has become final, with the consequent serious risk that the class action will be used merely for opportunistic purposes; (5) the application of the non-challenge principle in proceedings involving potentially large numbers of parties; (6) the conflict of interest inherent in the fact that the compensation of the common representative of the members (who acts as a public official) is proportional to the compensation paid to the members of the class; and (7) the award in favour of the claimant's lawyer paid by the defendant, even though the defendant clearly has no connection to, or lawyer–client relationship with, that lawyer.
We will just have to wait for the concrete application of the new legal regime, in the awareness that the new class action is unlikely to result in a fast and effective remedy, but instead could cause a lot of uncertainty and potentially become a way of exerting unfair pressure on companies.
1 Sara Biglieri is a partner at Dentons Europe – Studio Legale Tributario.
2 Legislative Decree No. 206 of 6 September 2005.
3 Consumer Code Articles 139 and 140.
4 CCP Article 840 bis–Article 840 sexiesdecies.
5 See Court of Cassation 30 September 2015 No. 19453, Giustizia Civile Massimario 2015, according to which the public class action is used to achieve a result that benefits, indiscriminately, all the co-owners of the widespread interest in restoring the correct performance of the administrative function or the correct provision of the service.
6 As further modified pursuant to Decree Law No. 162 of 30 December 2019, which was definitively converted into law in February 2020.
7 See Court of Cassation 31 May 2019, No. 14886, Giustizia Civile Massimario 2019.
8 SASSANI, Class action Commento sistematico alla legge 12 aprile 2019, No. 31, 2019, p. 231.
9 See SASSANI, reference quote p. 7.
10 See Article 3 Legislative Decree No. 3/2017.
11 In this respect, the suggestions provided by European Union Commission Recommendation 2013/396 EU seem to have been disregarded by the Italian legislature. The Recommendation, for the application of principles common to Member States, censures those legal systems that, through the choice of a certain method of calculation of lawyers' fees, incentivise initiating unnecessary class actions.
12 It has been noted that as an alternative to having the defendant party advance the costs of the technical consultancy, it could be possible to introduce a different way to provide the funding necessary to bear the costs of the lawsuit to the claimant and parties who have joined; for instance, by means of third-party funding.
At the end of the lawsuit, if the claim proposed by the party that received the financing is upheld, the funder that has borne the costs is entitled to obtain a part of the total amount paid according to the terms previously agreed in the 'financial contract'; on the other hand, if the claim is rejected, the funder is not entitled to obtain anything and, on the contrary, depending on the financial contract, it may have to bear the expenses incurred by the other parties.
13 See Court of Cassation 13 May 2015 No. 9813.
14 See Court of Cassation 5 July 2017 No. 16601 Riv. Dir. Proc., 2018, 4-5, 1356. In particular, the Court of Cassation stated that punitive damages were compatible provided that the foreign judgment had been issued in the foreign legal system pursuant to laws that guaranteed that defendants were only punished according to the details of the case and the requirements of the law, and guaranteed the predictability of these conditions and their quantitative limits, as the Italian court would have regard during its deliberation only to the effects of the foreign judgment and their compatibility with the principles of Italian public order.
15 Proposal for a directive of the European Parliament and of the Council on representative actions for the protection of the collective interests of consumers, and repealing Directive 2009/22/EC (COM/2018/0184 final – 2018/089 (COD)). See https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52018PC0184&from=EN.
16 To bring representative actions, qualified representative entities must be properly established, not for profit and have a legitimate interest in ensuring compliance with the relevant EU law.
17 See footnote 15.
18 Commission Recommendation of 11 June 2013 on common principles for injunctive and compensatory collective redress mechanisms in the Member States concerning violations of rights granted under Union Law (2013/396/EU).
19 Directive 2009/22/EC of the European Parliament and of the Council of 23 April 2009 on injunctions for the protection of consumers' interests.