Alert | Third Party Litigation Funding. Another relevant decision of the Italian Supreme Court
Litigation Funding: another relevant decision of the Italian Supreme Court
Providing financing services to the public in the absence of enrolment in the register provided for in Article 106 of the Italian Banking Act (”TUB”) may certainly be relevant in terms of the relationship with the supervisory authority or for possible criminal liability profiles. However, from a civil law standpoint, it is necessary to ask what the effect of the omitted registration on the validity of the contract of assignment of a credit is.
In decree No. 13749 of 17 May 2024, First President Margherita Cassano reiterated that a credit assignment transaction is not necessarily subject to the TUB rules when it is not financial in nature. The ruling concerns a block assignment transaction of receivables, in respect of which the First President clarified ‘the fact that the transaction cannot be attributed to the activity of financing, since the payment of the consideration for the assignment is merely eventual insofar as it is conditional on the successful collection of the assigned receivable’.
The decree points out how, under the heading ‘Register of Financial Intermediaries’, Article TUB provides that the exercise vis-à-vis the public of the activity of granting financing in any form whatsoever is reserved to authorised financial intermediaries, registered in a special register kept by the Bank of Italy. In addition to this activity,” the provision continues, “financial intermediaries may: issue electronic money and provide payment services, provide investment services, and engage in any other activities permitted to them by law, as well as related or instrumental activities, in compliance with the provisions dictated by the Bank of Italy, provided that they are authorised to do so and enrolled in the relevant registers.
The definition of “lending activities” includes the granting of credit, including the issue of guarantees in lieu of credit and commitments”. In particular, “the activity includes, inter alia, any type of financing provided in the form of: a) leasing; b) purchase of credit for consideration; c) consumer credit; d) mortgage credit; e) pledge loans; f) issuance of guarantees, endorsement, documentary credit opening, acceptance, endorsement, commitment to grant credit, as well as any other form of issuance of guarantees and commitments to sign”.
On the basis of these assumptions, the First President recalled the principle already affirmed by the order of the Third Section of the Supreme Court, dated 20 February 2024, no. 4427, according to which in order to qualify the assignment of credit as a financing activity, subject to the regulation of Article 106 of the Consolidated Banking Act, it is not sufficient that the assignee acts towards third parties in a professional manner, but it is necessary that the assignment integrates the provision of financing, i.e. that it entails the advance of money or other utility.
Similarly, it may be argued that the purchase of a disputed claim – a typical activity of third-party litigation funding operators – is legitimate from both a civil and a regulatory point of view whether there is no advance payment to the assignor.
This order was issued following a preliminary reference, pursuant to Article 363-bis of the Italian civil procedure code, raised by the Court of Brindisi, in order to ask the Supreme Court to “rule on the validity or otherwise of the assignment contract, entered into with a party not registered in the register pursuant to Article 106 TUB, in light of the anti-money laundering regulations of domestic and EU source, as well as the general principle of transparency”, “in relation to the hypothesis in which the assignment takes place between two parties who are both not registered and not qualified, and therefore neither supervised nor conformed in their organisational structure”. More specifically, the judge in Brindisi had asked for clarification as to what remedies the legal system provides for the possible invalidity (nullity or ineffectiveness or only administrative relief of the breach) of the credit assignment agreement. The Italian Supreme Court held that the reference for a preliminary ruling proposed by the Court of Brindisi was inadmissible, pointing out that there was no novelty on this legal issue, given “the presence of pronouncements capable of representing guiding lines for the judge of merit in the solution of concrete cases, not bearing in mind that the judge a quo had indicated that he did not agree with such pronouncements. The institution of preventive nomofilachy cannot turn into a means aimed at improperly soliciting a reconsideration of the jurisprudence of the Supreme Court”..
The Italian Supreme Court has already ruled on the matter of litigation funding, we already discussed this in a previous article. Click here to read it.
