Italy Tries to Fix a Chronic Problem: Slow Courts

Italy Tries to Fix a Chronic Problem: Slow Courts

Draghi’s government is pushing through overhauls to speed up slow judicial proceedings that have weighed on Italy’s economy for years

In 2009, Italian prosecutors began investigating Bank of America Merrill Lynch and one of its employees after a regional authority suffered losses on a derivative contract it had signed with the bank.

A full decade later, after spending years in court under the threat of heavy fines and long jail terms, everyone accused was acquitted, with judges ruling that no crime had taken place.

“Having to wait for such a long time is just unacceptable,” said Marco Calleri, Merrill Lynch’s lawyer in the case.

Italy’s justice system is famously one of the slowest in the developed world. Even simple contractual disputes can take years to resolve. For Italians, the risks of ending up in a quagmire of litigation are a deterrent to doing business with anyone but well-known customers or suppliers. For foreign investors, the dysfunctional court system is one of the minefields—along with complex bureaucracy and regulations—that often make doing business in Italy unappealing.

The government of Prime Minister Mario Draghi has made streamlining the justice system one of its priority overhauls, in a bid to end the country’s economic stagnation. Italy’s economy has barely grown in the past 20 years.

Mr. Draghi, a widely respected former head of the European Central Bank, has a short term in office of between one and two years in charge of a bipartisan coalition government. His main mandate is to steer Italy out of the Covid-19 pandemic and its associated economic slump. But beyond that, he is seeking to make a few big changes to clear away longstanding problems that have held Italy back, including slow courts, excessive bureaucracy and the persistence of struggling companies that depend on taxpayer bailouts.

“Draghi’s government has taken these problems very seriously. I am convinced this is the right occasion to reform the system so that Italy can start attracting investors rather than making them run away,” said Mr. Calleri.

Previous Italian governments have made piecemeal reforms to the justice system, including changes to the statute of limitations and efforts to digitize some paperwork, but no recent government has attempted such a thorough overhaul.

Getting a verdict from a court of first instance in civil or commercial litigation takes more than 500 days in Italy, compared with 217 days in Germany, according to European Union estimates. Appealing a ruling in Italy takes even longer: an average of 800 days for a first appeal and 1,300 for a second appeal to Italy’s supreme court.

Italy is the slowest of all major European economies when it comes to criminal cases too, according to the Council of Europe, an international organization monitoring human rights and democracy across the continent.

Italy’s Parliament is now debating a set of justice reforms aimed at cutting the length of criminal proceedings by a quarter and of civil proceedings by 40%. The government has also adopted measures to speed up notoriously slow bankruptcy proceedings.

Martino Ebner, a lawyer at the supreme court in Rome, said it took him two years and three months to obtain a ruling on whether a civil dispute between an Italian cosmetics producer and an Israeli buyer should be settled in Italy or Israel, as both companies had filed claims in their own countries. The Italian court eventually decided the case should be heard in Israel. Mr. Ebner said that under Italian law such rulings should be issued in no more than 40 days.

“Such an excessive duration damages both parties,” Mr. Ebner said. He added that he is still waiting for hearings to be scheduled regarding all other cases where he has filed an appeal since 2016.

Lawyers and judges say a combination of lack of resources and well-trained personnel, red tape, lack of digitization and excessively easy and widespread recourse to courts to settle civil disputes have led to an unmanageable backlog of cases.

“The biggest reason for concern for international investors in Italy, and for Italians alike, is Italy’s justice system,” said Marco Gubitosi, a partner at Italian law firm Legance Avvocati who also advises U.S. investors.

Over the past decade, total business investment in Italy declined on average by 0.3% every year, whereas it grew 1.7% annually in the rest of the eurozone and 3.5% a year in the U.S., according to research firm Oxford Economics.

“A deep reform of the entire justice system is necessary,” Italian Justice Minister Marta Cartabia said at an investors’ conference in early September. “The status quo is not an option.”

The proposed overhauls, drafted by Ms. Cartabia, would set strict limits on the duration of appeals in criminal cases, after which courts must drop the case. The changes would also incentivize the use of arbitration and other out-of-court settlements to keep civil cases away from courtrooms. New rules would also make it more difficult to appeal a first-instance ruling, to rein in a widespread habit that clogs up appeals courts.

The government also plans to hire more judges, as well as 16,000 clerks and 5,400 administrative assistants to relieve some of the workload on judges, who often receive little help at all in examining cases and documentation. The overhauls also include investments in digital technology, a potential revolution in Italy’s paper-based justice system.

“The reforms contain many good ideas, especially on the civil side, although I think that overall the government’s target is very ambitious unless it simplifies civil procedures even further,” said Giuseppe Santalucia, president of the National Association of Magistrates.

Mr. Santalucia said he fears that limiting by law the duration of appeals in criminal cases is a step too far. The result could be hundreds of trials being nullified because the appeal wasn’t concluded within a set time, which would be two years for a first appeal and one further year for appeals to the supreme court. This, in turn, could lead to many criminals going free because appeals courts missed a deadline, he said.

The government says it will phase in the new time limits to give courts time to adapt. For serious crimes such as rape or drug trafficking, appeals can take longer and deadlines won’t apply in cases involving crimes that carry a life sentence.

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