- Introduction to the Italian Legal Framework and Market Potential
Italy is progressively becoming more attractive for its legal framework and vibrant financial sector, offering fertile ground for litigation financing—a niche yet rapidly expanding market. The Italian legal system, characterized by a comprehensive regulatory environment, permits third-party litigation funding (TPLF) and the assignment or purchase of claims model, supported by the robust case law of the Italian Supreme Court. This flexibility in litigation financing is further enhanced by recent legislative advancements, including the implementation of Directive 2020/1828/EU, which aligns with the Italian government’s initiative under Law No. 28 of 10 March 2023. These legal provisions make Italy an attractive jurisdiction for investment in litigation finance, particularly as the market evolves with increased involvement from both local and international entities. The absence of prohibitive regulations against TPLF and the assignment model, coupled with the enforcement mechanisms outlined by the Italian legislature, provide a secure and transparent investment landscape. This is especially pertinent in light of the Italian Arbitral Institution’s recognition of TPLF, which mandates disclosure in arbitral proceedings, further solidifying the legal foundation for funders and investors. Italy’s strategic positioning as the third-largest economy in the European Union and its integration within the EU legal framework offer unique advantages for litigation funders and financial intermediaries. The regulatory environment, guided by the Bank of Italy and various EU supervisory authorities, ensures that activities such as the recurring purchase of claims are reserved for duly registered financial entities, including banks and alternative investment funds. This regulation not only maintains the integrity of financial transactions but also protects investors from potential legal challenges regarding the validity of claim acquisitions. Moreover, the Italian Consumer Code and the Italian Financial Act provide a layered protection mechanism, preventing conflicts of interest and ensuring the fairness of litigation funding agreements. These elements, when combined with Italy’s proactive adaptations to EU directives, notably in consumer protection and market competition (e.g., the recent actions of the Italian Antitrust Authority), underscore the secure and investor-friendly climate that aligns with European standards. Furthermore, the adaptation to include collective actions for compensation, particularly in antitrust, environmental, and consumer domains, positions Italy as a potential new appealing hub for such claims, supporting the comprehensive ecosystem for litigation finance.
Italy’s legal framework is designed to ensure transparency and fairness, which are crucial for maintaining investor confidence. The comprehensive regulations governing financial intermediaries and alternative investment funds are particularly noteworthy. These regulations stipulate that entities involved in the professional purchase of claims must be duly registered and supervised by the Bank of Italy or other EU supervisory authorities. This oversight ensures that all transactions are conducted within a legal and ethical framework, minimizing the risk of fraud and other malpractices. Furthermore, the Italian Supreme Court has consistently upheld the validity and enforceability of contracts involving the purchase of claims, providing further legal certainty for investors. These judicial precedents reinforce the robustness of the Italian legal system and its ability to support complex financial arrangements such as litigation funding. The Italian Consumer Code also plays a vital role in safeguarding the interests of all parties involved in litigation funding agreements. It mandates strict disclosure requirements and prohibits unfair terms that could create an imbalance between the rights and obligations of the parties. This regulatory framework is particularly relevant for consumer-related claims, ensuring that litigation funding agreements do not exploit vulnerable parties. In the context of collective actions, the Italian legislature has introduced specific provisions to prevent conflicts of interest and ensure the integrity of the litigation process. For instance, any settlement reached in a representative action must be approved by the tribunal, which must verify that the settlement is fair and not unduly influenced by the litigation funder. These measures are designed to protect the collective interests of consumers and maintain the credibility of the litigation funding industry.
The general permissibility of litigation funding under Italian law has been implicitly confirmed by the Italian legislature in implementing Directive 2020/1828/EU on representative actions for the protection of the collective interests of the consumer. This Directive requires member states to introduce certain rules on litigation funding only to the extent that TPLF is allowed by national law. By introducing these TPLF rules in Law No. 28 of 10 March 2023, which implements the Directive, the Italian legislature implicitly acknowledged that TPLF is generally admissible under Italian law. Under Italian law, the litigation funder may also elect to perform its activity through the assignment of claims model—i.e., by purchasing the claim (so-called res litigiosa). Indeed, according to settled case law of the Italian Supreme Court, the purchase of a claim for compensation of damages is a perfectly valid and enforceable contract, both for pecuniary and non-pecuniary damages. In order to make the purchase of claim effective and enforceable against the defendant, it is sufficient to inform him/her by any means (e.g., by registered mail or email) of the purchase. On the other hand, in order to make the purchase effective against other third parties (e.g., other purchasers of the same claim or creditors of the seller of the claim), it is necessary to serve the purchase to the defendant either by introducing the proceedings (so-called litis contestatio) or by extrajudicial means through a bailiff. If claims are purchased by a securitisation company “in block” (e.g., the claims of a certain number of victims of a cartel), it is sufficient to publish a notice of the purchase on the Italian Official Journal (IOJ) to make the purchase effective against the defendant and any other third party. Publication of the notice of purchase on the IOJ produces its effects only within the Italian territory. Therefore, if the claim purchased in Italy will be enforced in another jurisdiction (e.g., Germany), it may be necessary to notify the defendant of the purchase by other means that produce the same effects under the relevant national law.
- Strategic Advantages and Regulatory Insights
Italy’s new market for the litigation finance and large collective actions, is characterized by a growing interest from both domestic and international stakeholders, signifies a potent economic opportunity. Recent years have seen a noticeable increase in the engagement of litigation funders, claimant law firms, and service providers, driven by the reforms under the National Recovery and Resilience Plan (PNRR) and the gradual sophistication of legal proceedings. These reforms have notably reduced the duration of civil processes and introduced specialized courts for antitrust and collective claims, thereby enhancing the efficiency and appeal of the Italian legal landscape. The Italian market, with its vast and still largely untapped potential, presents lucrative opportunities for investments that promise higher returns compared to more mature markets like the US and the UK. The strategic reforms and increasing sophistication in handling complex and collective litigations offer a promising horizon for investors looking to capitalize on the evolving dynamics of Italy’s legal framework. The Italian Competition and Market Authority (Autorità Garante della Concorrenza e del Mercato, or AGCM), has received widespread acclaim at the European level for its proactive measures. This regulatory body has distinguished itself through numerous investigative initiatives, robust inquiries, and significant decisions such as the EUR 1.128 billion sanction imposed on Amazon in 2021 for abuse of dominant position. Such decisive actions create highly attractive scenarios for investors interested in litigation finance, especially follow-on actions based on binding decisions. Campaigns for book building related to collective claims based on antitrust authority decisions have already been initiated or are in the process of initiation, indicating a vibrant and dynamic market landscape. Significant inquiries by AGCM are underway or will soon commence, which upon conclusively identifying market-distorting conduct, will give rise to enormous follow-on private enforcement cases. Moreover, Italy’s adoption of accelerated civil procedures is a significant regulatory improvement. These new procedures foresee a 40% reduction in the duration of processes, contributing to the efficiency and attractiveness of the Italian legal system for litigation funding. The creation of specialized courts and expedited procedures for cases of antitrust private enforcement further solidify Italy’s commitment to fostering a favorable environment for legal and financial investments. The increasing awareness and understanding of collective damage compensation tools among legal professionals and the judiciary are pivotal in this transformative phase. The assignment of claims model, particularly in consumer cases, is emerging as a more attractive option due to its compatibility with Italian legal principles and the reduced risk associated with litigation funding.
The purchase of claims on a professional (i.e., recurring) basis is an activity reserved for banks or other financial intermediaries duly registered and supervised by the Bank of Italy. This activity may also be performed by alternative investment funds directly or indirectly supervised by the Bank of Italy or another EU supervisory authority, or by securitisation companies. Any purchase of claims contract concluded by a subject not duly authorized, which performs its activity on a professional basis, is null and void. As a consequence thereof, the defendant may successfully challenge the legitimacy of the assignee on the grounds that it did not validly acquire the property of the claim. In addition, purchasing claims on a professional basis without being duly authorized represents an illegal activity that exposes the assignee to administrative and criminal sanctions. Some argue that engaging in litigation funding on a professional (i.e., recurring) basis may be an activity exclusively reserved for financial intermediaries, alternative investment funds (AIFs), or securitisation companies. This view is based on the argument that when the consideration of the litigation funder is a share of the judicial award (e.g., 30% of the award), the litigation funding is equivalent to the purchase of a share of the claim under the condition that the case is successful. Therefore, if performed on a recurring basis, it falls under the activities reserved for these entities (financial intermediaries, AIFs, or securitisation companies). The Bank of Italy has not yet taken an official position on this issue. However, it may be advisable that any future litigation funding agreements (LFAs), especially where the funder is remunerated through a share of the judicial award, are entered into by entities—whether financial intermediaries, AIFs, or securitisation companies—which are directly or indirectly supervised by the Bank of Italy or other EU supervisory authorities. In Italy, as in all other EU member states, special provisions apply to funding of representative actions brought by qualified entities (e.g., consumer associations) on behalf of consumers. In particular, the qualified entity that brings the action is obliged to disclose to the Tribunal the fact that the action is financed by a third-party funder and its identity. Before admitting the action, the Tribunal must verify, also by its own motion, that there is no conflict of interest between the third-party funder and the interests of the consumers represented in the action, and in particular that the funder is not a competitor of the defendant or does not depend on him/her. Any settlement between the qualified entity and the defendant must be approved by the Tribunal, which will also verify that the funder did not unduly influence the terms of the settlement in a manner that would be detrimental to the collective interests of the consumers concerned. However, it should be noted that, at least for the time being, representative actions are not attractive for funders. This is due to the fact that Italian law foresees that only the lawyer of the qualified entity and the so-called “representative of the class” are remunerated through a share of the award in case of success. While the funder may not share in the share of the award of the “representative of the class,” which is appointed by the tribunal and has the role of verifying the claims and documentation of the consumers that opted in, there are no obstacles for the funder to share in the share of the award of the lawyer. However, the share of the lawyer is too little because it ranges from 0.5% to 9% of the total award, depending on the number of consumers opting in. Therefore, it seems that at least until the Italian representative action regime is made more effective, the assignment of claims model is more attractive to funders in consumer cases too.
- Market Dynamics and Economic Potential
The Italian litigation finance market is poised for significant growth, driven by structural reforms and increasing recognition of the benefits of litigation funding. Italy, with its large population and complex economy, stands as the third-largest economy in Europe, contributing to a combined GDP of 54% of the European GDP, along with France and Germany. Historical barriers to the spread of litigation funding have been progressively eliminated or reduced, and today Italy is attracting an ever-growing number of investors and industry operators, joined by local next-generation legal firms and companies. The introduction of new accelerated civil procedures, which foresee a 40% reduction in the duration of processes, and the creation of specialized courts for antitrust private enforcement are fundamental innovations that have already been implemented or are in the process of being perfected. In addition to the regulatory and procedural improvements, there is a growing interest from private and institutional investors in the Italian market. Several investment operations have been completed in 2023, not only by Anglo-Saxon and Northern European litigation funds but also by Italian club deals and resident speculative funds. The market’s potential remains enormous, with current operations covering only a minimal part of the overall opportunities. This underexplored market offers high returns on investment, thanks to lower litigation costs compared to more developed markets. The presence of significant social, political, and economic differences among the regions adds to the complexity and richness of the Italian market, making it essential for investors to have a deep understanding of local business practices and cultural nuances. Additionally, the proactive measures taken by the Italian Antitrust Authority have set a precedent for robust market regulation. The AGCM’s rigorous enforcement of competition laws and its significant decisions, such as the high-profile sanction on Amazon, have created a conducive environment for follow-on private enforcement actions. These actions, based on binding decisions, present lucrative opportunities for litigation funders. The involvement of international litigation funds and the increasing participation of Italian speculative funds indicate a growing confidence in the Italian market’s potential. The establishment of specialized law firms and integrated service providers, including aggregators, book builders, and economists, is crucial for the efficient management of collective and mass tort claims, further enhancing the market’s appeal. The development of companies offering integrated services for mass tort cases, such as aggregators, book builders, economists, and service providers, is also expected to proliferate. Some companies dedicated exclusively to litigation finance or related services have already been established in Italy, including the formation of the first alternative investment fund dedicated to litigation finance, the launch of the first plaintiff/mass tort law firm, and the introduction of the first structured aggregator. The presence of foreign funds and book builders, particularly from England, America, the Netherlands, and Germany, indicates a growing international interest in the Italian market. The unique conditions of the Italian market, including the need for a well-structured physical sales network to support book building efforts, present both challenges and opportunities for investors. The Italian market is currently one of the most closely monitored, especially in terms of its still untapped potential for litigation finance. On the other hand, Italy, with a population of 60 million and a complex and structurally renewing economy, stands as the third-largest economy in Europe. Together with France and Germany, it is among the top three European countries in terms of the value of litigation, contributing to a combined GDP of 54% of the European GDP.
Historical barriers to the spread of litigation funding have been progressively eliminated or reduced, and today Italy has started to attract an ever-growing number of investors and industry operators, joined by local next-generation legal firms and companies. Contributing to this interesting phase of development are the reforms of civil proceedings stimulated by the National Recovery and Resilience Plan (il Piano Nazionale di Ripresa e Resilienza or PNRR) and the increased awareness and understanding of collective damage compensation tools and the investment operations associated with them. Some fundamental innovations have already been implemented or are in the process of being perfected, such as the introduction of the new accelerated civil procedure, which foresees a 40% reduction in the duration of processes, or the creation of specialized courts and accelerated special procedures for cases of antitrust private enforcement. On the capital side, there is a growing interest from private and institutional investors, and the development of a great sensitivity to the asset class. In the course of 2023, several investment operations have been completed, not only by Anglo-Saxon and Northern European litigation funds but also by Italian club deals and resident speculative funds. However, the growth space is still enormous. The operations and activities initiated so far cover only a minimal part of the potential of this market, which has all the characteristics to be considered a true “Blue Ocean.” There is also widespread information asymmetry, determined by the relative novelty of litigation finance activities in Italy and the incomplete knowledge, sometimes even on the part of Italian operators, regarding the novelties and improvements that have occurred in the judicial system. This situation allows the structuring of operations with extremely appealing returns, much higher than more developed markets such as the US and the UK, also thanks to lower litigation costs.
- Future Outlook and Strategic Development
Looking forward, Italy is poised to solidify its position as a key player in the European litigation finance and collective actions landscape. The market shows immense growth potential, driven by structural government reforms and a comprehensive ecosystem encompassing specialized law firms and integrated service providers. The development of dedicated law firms and the entry of major global firms specializing in complex and collective litigation will further enhance the market’s appeal. The ongoing consolidation of smaller firms into larger, more specialized entities will align the Italian legal market with Anglo-Saxon and Northern European standards, creating a more cohesive and efficient framework for managing large-scale litigations and mass tort cases. In conclusion, the Italian litigation finance market offers a promising and dynamic investment landscape, characterized by regulatory advancements, economic potential, and strategic development. The combination of Italy’s robust legal framework, proactive regulatory measures, and growing interest from both domestic and international stakeholders creates an attractive environment for litigation funders and financial intermediaries. As the market continues to evolve, Italy is set to become a leading destination for investment in litigation finance, offering high returns and significant growth opportunities for investors and industry operators alike.
The establishment of specialized courts and expedited procedures for antitrust private enforcement is a testament to Italy’s commitment to creating a favorable environment for litigation finance. These courts are equipped with the expertise and resources necessary to handle complex litigation efficiently, ensuring timely and fair outcomes for all parties involved. The introduction of new accelerated civil procedures, which foresee a significant reduction in the duration of processes, further enhances the attractiveness of the Italian legal system for litigation funders.
In addition to regulatory and procedural improvements, there is a growing interest from private and institutional investors in the Italian market. Several investment operations have been completed in 2023, not only by Anglo-Saxon and Northern European litigation funds but also by Italian club deals and resident speculative funds. The market’s potential remains enormous, with current operations covering only a minimal part of the overall opportunities. This underexplored market offers high returns on investment, thanks to lower litigation costs compared to more developed markets. The presence of significant social, political, and economic differences among the regions adds to the complexity and richness of the Italian market, making it essential for investors to have a deep understanding of local business practices and cultural nuances. Furthermore, the proactive measures taken by the Italian Antitrust Authority have set a precedent for robust market regulation. The AGCM’s rigorous enforcement of competition laws and its significant decisions, such as the high-profile sanction on Amazon, have created a conducive environment for follow-on private enforcement actions. These actions, based on binding decisions, present lucrative opportunities for litigation funders. The involvement of international litigation funds and the increasing participation of Italian speculative funds indicate a growing confidence in the Italian market’s potential. The establishment of specialized law firms and integrated service providers, including aggregators, book builders, and economists, is crucial for the efficient management of collective and mass tort claims, further enhancing the market’s appeal. The development of companies offering integrated services for mass tort cases, such as aggregators, book builders, economists, and service providers, is also expected to proliferate. Some companies dedicated exclusively to litigation finance or related services have already been established in Italy, including the formation of the first alternative investment fund dedicated to litigation finance, the launch of the first plaintiff/mass tort law firm, and the introduction of the first structured aggregator. The presence of foreign funds and book builders, particularly from England, America, the Netherlands, and Germany, indicates a growing international interest in the Italian market. The unique conditions of the Italian market, including the need for a well-structured physical sales network to support book building efforts, present both challenges and opportunities for investors.
In summary, the Italian litigation finance market is now ripe with opportunities for investment. The combination of a robust legal framework, comprehensive regulatory environment, and proactive measures by regulatory authorities creates a secure and attractive landscape for litigation funders. The ongoing structural reforms and increasing sophistication of the legal system further enhance the market’s potential, offering significant growth opportunities for investors and industry operators alike. As Italy continues to evolve as a key player in the European litigation finance landscape, it presents a promising and dynamic investment opportunity for those looking to capitalize on the benefits of litigation funding in a well-regulated and supportive environment.