Navigating the waters of class action: Exploring Italy’s Implementation of EU Directive 2020/1828 introducing representative actions

Previous framework

Prior to the implementation of the Representative Action Directive, class-action legislation in Italy faced challenges in terms of use and effectiveness. Even after the Law 31/2019 reform (the “General Class Action”—discussed in our article here), class actions in Italy failed to gain significant traction.

The limited use of class action in Italy can be attributed to several factors, including complex procedural requirements and the absence of punitive damages in Italian legislation. Implementation of the Representative Action Directive creates a new representative action regime in Italy (hereinafter the “Representative Action”) that is intended to complement, rather than replace, the General Class Action.

What’s new?

• Legitimate plaintiffs – Differently from the General Class Action, the Representative Action cannot be brought by individual consumers but only by EU representative associations included on the list held by the EU Commission[1] or domestic associations on the list held by the Ministry of Enterprises and Made in Italy and the independent public bodies named in EU Regulation 2017/2394. They need not have power of attorney from interested consumers.[2]
• Legitimate defendants – While the General Class Action can only be filed against companies and entities managing public services or public utilities,[3] the Representative Action can be directed against any natural person or legal entity, public or private, including one acting through another entity, for purposes relating to its commercial, entrepreneurial, craft, or professional business activity.[4]
• Material scope – The associations allowed to do so can initiate the Representative Action in the event of infringement of collective interests, i.e., those arising from violations of the EU Regulations and domestic laws set out in Annex II-septies of Legislative Decree 28/2023 (e.g., product liability, unfair terms in consumer contracts, consumer price indications, e-commerce, personal data protection, unfair commercial practices, and misleading advertising).[5]
• Territorial scope – Associations from other EU countries may bring the Representative Action in Italy, and Italian consumer organizations and the independent public bodies in EU Regulation 2017/2394 may do the same in other EU countries, potentially jointly with legitimate plaintiffs from other Member States.
• Remedies – The remedies are injunctive[6] or compensatory.[7] Injunctive remedies are (i) cessation or prohibition to repeat the omissive or commissive conduct; or (ii) publication of the court’s decision in the press. Compensatory remedies are (i) payment of an amount of money; (ii) repair\replacement of the goods; (iii) termination of the contract; or (iv) reduction or refund of the price.
• Third-party funding – Although the legislature did not seek to regulate third-party litigation funding directly,[8] the Representative Action paves the way for it. This type of funding will allow a third party to finance litigation in exchange for remuneration calculated based on the damage compensation awarded. The legitimate plaintiffs shall indicate in the petition whether funds were received or promised from a third party.
• Penalties for non-compliance – In its decision granting injunctive remedies, the court may set a penalty in case of non-compliance with the judgment, ranging from EUR 1,000 to 5,000 for each default or day of delay, correlated with the gravity and duration of the breach.[9]
• Limitation period for individual rights – The filing of a petition (if served within the deadline set by the court) interrupts the limitation period for consumer rights.
• Publicity – The entities entitled to bring the Representative Action must indicate on their websites the action they have decided to bring and the status of actions already brought and their outcomes. The entities shall communicate the same information to the Ministry of Enterprises and Made in Italy, which shall publish it on its own website as well.

Potential applicability issues

No legal reform is without its challenges, and implementation of the Representative Action in Italy is no exception.

Firstly, the new discipline has a narrower scope of application than the General Class Action, as it is only applicable to specific subject matter. In contrast, the General Class Action has a broader spirit. Plaintiffs can bring it in both contractual and non-contractual contexts and in addition to associations, individual citizens, businesses, and professionals may initiate class actions.

One major risk is the potential overlap between the two frameworks. Although the Italian legislature has specified that consumer associations can only utilize national actions for the subject matters covered by the Representative Action,[10] there is still a risk that courts may find themselves deciding cases related to the same legal issues but founded on different frameworks. This is because individual citizens will still be able to initiate class actions under Law 31/2019 for the subject matters covered under the Representative Action.

Furthermore, the existence of multiple procedures can result in duplication of efforts and resources for both consumer associations and the courts, slowing down the process and creating a lack of consistency in case handling.

The transnational nature of the Representative Action also creates a risk of forum shopping. EU associations on the European Commission’s list can initiate an action in any EU country. This may lead to strategic selection of jurisdictions with more favorable laws and procedures, potentially creating fragmentation and undermining the overall effectiveness and fairness of the class-action system.

Conclusion

In conclusion, introduction of Representative Action reform in Italy poses new challenges for companies operating across multiple EU countries. The potential overlap between the General Class Action and the Representative Action introduces a layer of complexity and ambiguity, requiring companies to navigate the tricky possibility of facing parallel lawsuits for the same conduct. This, combined with the risk of forum shopping, makes it even more crucial for companies to stay vigilant and proactively manage associated risks.

Prevention is often the best defense. By taking proactive steps, such as implementing robust compliance policies, conducting comprehensive risks assessments to identify potential areas of exposure, investigating the EU jurisdictions to identify where the Representative Action may be more likely (e.g., due to lower costs for plaintiffs to bring the action and/or greater potential for substantial compensation), companies can mitigate legal risks and be prepared to navigate the challenges of the new class action framework.

[1] The qualified EU associations are those on the list cited in Art. 5, para. 1 of the Representative Action Directive. Italian associations can bring Representative Action in another Member State if qualified under Article 140-quinquies of Legislative Decree 206/2005 (hereinafter the “Consumer Code”), potentially jointly with other qualified entities from different Member States.

[2] See Art. 137 of the Consumer Code, as modified by Legislative Decree 28/2023.

[3] See Art. 840-bis, para. 3 of the Italian Civil Procedural Code.

[4] See Art. 140-ter, para. 1 lett. b) of the Consumer Code, as modified by Legislative Decree 28/2023.

[5] See Art. 140-ter, para. 2 of the Consumer Code, as modified by Legislative Decree 28/2023.

[6] See Art. 140-octies of the Consumer Code, as modified by Legislative Decree 28/2023.

[7] See Art. 140-novies of the Consumer Code, as modified by Legislative Decree 28/2023.

[8] See Art. 140-septies, para. 5 of the Consumer Code, as modified by Legislative Decree 28/2023.

[9] See Art. 140-terdecies, para. 1 of the Consumer Code, as modified by Legislative Decree 28/2023.

[10] See Art. 140-ter, para. 2 of the Consumer Code, as modified by Legislative Decree 28/2023.