ITALY - Italy is close to introducing 'class action' lawsuits in its legal system for the first time, as the country's higher parliament house last week approved the much-discussed Italy's 2008 budget law.
The law for collective law suits, included in the centre-left government's draft of the 2008 budget law, will now pass to the lower house. But, if approved, it will mean Italian consumers will in six months' time be able to use collective 'class action' lawsuits to defend themselves against corporate wrongdoing.
It still has to be decided, however, whether companies' stock and bondholders will be able to file collective lawsuits against companies which misreport earnings and balance sheets' movements. Italy's lawmakers and pundits are still debating the scope of the law and whether all types of consumers - including investors in listed securities - will be able to launch 'class actions'.
As far as the newly-approved law goes, the only groups of citizens that will initially be allowed to file collective law suits are members of the country's 16 consumer associations, part of the national consumers' council. The law is being examined by the lower house's justice commission, and on the basis of its findings the justice ministry and the ministry for economic development will decide which groups of citizens the law will be expanded to.
If stock and bondholders will be entitled to use collective lawsuits, life for Italian pension funds could change significantly as they will be able to file legal cases within the European Union to claim back assets lost as a result of companies' financial misbehaviour.
Earlier in July, the first legal settlement was made over the collapse of Parmalat, the Italian company that in 2003 collapsed under €14bn of debt, making its bonds and shares worth nothing, after misreporting its balance sheet.
Plaintiffs in the case had to set up a class action litigation against Credit Suisse Group and Banca Nazionale del Lavoro (BNL) in a Manhattan court in the US, as no standardised legislation supporting class actions currently exists in Europe.
Some experts and politicians argue the new law could have some undesired effects, as Italy's already famously slow judicial system may not be able to sustain the pressure of large 'class action' lawsuits. The reaction of Italy's corporate sector was immediate, as the Italian employers' association, Confindustria, expressed its utter disapproval of the law.
A statement by the association said the law represented a "serious act of hostility against enterprise," further arguing, "it will be a new heavy disincentive towards investing in [Italy]".
Confindustria also said the approved text "will put companies at risk of being blackmailed in any way" and has already raised doubts about whether the law is in line with constitutional principles, as it claimed Italy's constitution gives the right to act against an offence only to the victim of the offence.