Litigation funding companies do not need to be registered (under Article 106 TUB), the Italian Supreme Court rules

A few days ago, the Supreme Court answered a question of central interest in the emerging Italian world of litigation funding, namely: shall companies that purchase litigation claims be registered under Article 106 of Legislative Decree No. 385/1993 (‘Testo Unico Bancario’ “TUB”)?

The case examined by the Supreme Court originates from a proceeding before the Justice of Peace in Busto Arsizio; the purchaser of the claim claimed the payment of a compensation from an airline for two passengers whose flights had been delayed and who, prior to the lawsuit, had assigned their claim to the claimant.

The Justice of the Peace dismissed the claim, holding that the assignment of the right to compensation, entered into between the passengers and the claimant, was null and void due to the fact that the claimant was not registered under Article 106 TUB.

The claimant appealed the judgment to the Court of Busto Arsizio, which upheld the appeal and thus overruled the Justice of the Peace’s decision.

Below is the reasoning adopted by the Court, in a nutshell:

• the assignment of credit is a contractual performance with a fluctuating or variable cause, that is, it can be animated by the most disparate functions (donating, selling, fulfilling a previous obligation and even financing);
• the assignment of credit can only constitute financing pursuant to Article 106 TUB (and its implementing regulation) if the cause of the credit assignment is financing, as upheld by the jurisprudence of Supreme Court and by the logical and systematic interpretation of Article 106 TUB;
• the financing cause can exist only when the assignee immediately pays, in view of the assignment, money or other benefits and not when the money is paid only later and under condition that the claim is successfully enforced;
• in the case at hand, the agreement on the assignment of the claim to compensation had no financing cause, since, as a consideration for the assignment of the claim, the individuals received no immediate benefit and the price of the assignment would be paid only at a later stage, i.e. at the positive outcome of the enforcement of the claim.

For these reasons, in the judgment published on July 16, 2021, no. 5296, the Court upheld the appeal and condemned the airline to pay the claimant the requested compensation.

The airline then promoted challenged the appeal decision before the Supreme Court. Among its various criticisms of the Court of Appeal’s ruling, the company upheld that the lower court had violated Article 106 TUB, as it had rejected the plea of invalidity of the assignment of the claim, holding that the same was valid despite the fact that the assignee was not registered in the register pursuant to Article 106 TUB.

Rejecting the challenge, the Supreme Court by its recent order of March 19, 2024, No. 7375, upheld the reasoning adopted by the Court of Appeal, evaluating it as “coherent and adequate,” and held that “the Court of Appeal, in solving this case, was compliant with what this Court has already affirmed in the different hypothesis of the assignment of the credit for compensation for road accident damages, namely that it is possible to assign such credit pursuant to Articles 1260 et seq. of the Italian Civil Code; and that the assignment of said credit, between the injured party/victim and an assignee, allows the latter to take legal action against the insurance company inasmuch as the assignee can, on the basis of said title, also judicially demand payment […] and said transaction does not even imply any financial activity subject to authorization pursuant to Article 106 TUB“.

In conclusion, the case analysed offers important insights into the area of litigation funding, which is rapidly evolving in Italy.