Italy’s parliament is close to passing ambitious reforms to its notoriously slow justice system, which the government hopes will reassure foreign investors put off by the prospect of lengthy court battles. 

The changes aim to reduce the number of mandatory steps in litigation and provide more avenues for out-of-court settlement to speed up dispute resolution, tackling a key gripe of foreign firms. It would be yet another boost for the EU’s third-biggest economy, which has recently been buoyed by a successful vaccination campaign, the forecasted 2021 growth of 6%, and increased confidence in Mario Draghi’s government after years of political instability. 

The reforms, which are needed to unlock €205bn of EU recovery funds, have been passed by the senate and are soon expected to be approved by the lower house. But some question whether changing procedures and encouraging alternative dispute resolution is enough to meet the government’s goal of cutting the length of civil trials by 40% within five years.

“Is it a matter of changing the rules … or is it more a matter of reinforcing the justice system in terms of more judges and staff for the judges? To me, that remains a question mark,” says Mario Roli, partner of Italian law firm BonelliErede.

The EU Justice Scoreboard consistently ranks Italy’s court system as one of the bloc’s slowest, with civil disputes often taking up to seven years to resolve. It is blamed for hindering foreign investment and slowing an economy which has failed to post annual growth of more than 2% in a decade. 

In a July 2021 survey by EY and Rome-based Luiss Business School, business professionals ranked civil justice reform as the second most important part of Rome’s national recovery plan in attracting foreign investment. In surveys conducted by Kearney and the American Chamber of Commerce between 2017 and 2019, US businesses operating in Italy consistently cited legal and regulatory efficiencies as the biggest barrier to investment. 

Regulations or resources

The reforms’ key changes include mandatory mediation for disputes involving the likes of subcontractors and construction works, and encouraging arbitration and pre-trial agreement. Rome-based Oliver Wyman partner Roberto Scaramella believes this could help push smaller disputes to other forums. “There is a huge number of cases stuck in court because, despite being pretty irrelevant economically, from a paperwork standpoint they have the same level of complexity as large cases,” he says. 

Stronger obligations will be imposed on parties to exchange pleas and memos before the first court appearance, making hearings more efficient. Trial judges will be able to request the Supreme Court’s opinion on thorny legal issues which should cut down on lengthy appeals.  

The reforms envisage temporarily hiring more workers to help judicial offices reduce the courts’ case backlog, but the changes predominantly relate to legal procedures. Mr Roli queries the extent to which this can improve a lethargic justice system. “It’s not just a case of changing the rules and then reducing the length of the proceedings by 40% within five years,” he says. “That will never happen unless it is accompanied by something more material and practical like more staff, resources and digitalisation.” 

Change in mood music

The Minister of Justice has named the attraction of foreign investment as one of the reforms’ principal aims. But there is debate over whether more efficient justice will lead to more foreign investment. 

Mr Roli, who heads BonelliErede’s infrastructure focus team, says investors “always raise the point” of slow courts but “no-one seems to be really scared off by this”. 

Milan-based Kearney partner Ettore Pastore, however, believes concerns over the length and costs of disputes has hindered investment. Local businesses are also attuned to the difficulties it poses for potential backers. “It comes up in conversation with international investors interested in the Italian market, but also a lot with Italian companies that want to attract capital,” says Mr Scaramella.

The consensus is that the government tackling such a longstanding structural issue will be perceived well. “Confidence is usually a ‘door opener’ for actual investment,” says Mr Pastore. The prospect of quicker justice would be another boost to foreign firms’ faith in Italy, which has improved thanks to a new and stable government, reforms to cut red tape and simplify the tax system, and the arrival of significant EU funds which Rome is pushing into infrastructure and digital investments.

Mr Scaramella says this is prompting a much-needed uptick in interest by foreign funds. Data collected by AIFI, the national private capital association, shows that last year Germany attracted almost twice as much private capital investment as Italy, and France 3.5 times more. But, he says, “the frequency of meetings we have now with private equity and capital players is much higher than it was a year or two ago. That is a sign they are looking at Italian investment opportunities much more consistently than before.” He also expects large private capital players to open Italian offices after serving the market from abroad.