Материал: Amy C Kläsener

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Italy

Burden of proof

Under Italian law, as a general rule, the burden of proof lies with both the parties: the claimant has to establish its case by adducing sufficient supporting evidence, while the defendant who wants to establish that the right invoked no longer exists, has to prove this circumstance and to adduce supporting evidence.20

This general rule has different regimes depending on the nature of the liability that the claimant is invoking.

In the case of contractual liability, the claimant is required only to adduce the contractual source and the breach invoked, while the defendant has to deny the claim by saying that he or she was not in breach or that the breach was not ascribable to him or her.21

In the case of liability in tort, the claimant has a more onerous burden of proof, it being required to prove all the elements, namely the fact giving rise to the tort, the damages suffered, and the causal link between the conduct of the defendant and the other elements.

Knowledge sharing

Italian law does not set forth specific statutory rules concerning the pooling of knowledge of sellers with the management; nonetheless, it is possible to outline how this issue is usually dealt with.

In M&A deals, it is usual for the parties to qualify the W&Is provided by the seller; the ‘knowledge qualifiers’ are sought by sellers to minimise their exposure, which buyers, on the contrary, try to widen.

The parties need to define knowledge so that the rules of the game are clear. It is necessary to define first of all what knowledge means and if this definition includes both actual and constructive knowledge.

Second, it is essential to clarify whose knowledge matters for the purposes of determining whether a knowledge-qualified representation has been breached. This is important because, without such a limitation, courts may be willing to impute knowledge to a pool of people that is larger than intended.

For instance, if a representation were simply qualified by the ‘knowledge of the company’, there is a significant risk that a court could impute the knowledge of employees who were not even involved in preparing or reviewing the representations and warranties in the purchase agreement – something that sellers want to avoid. But this generic clause could be detrimental also for buyers: the imputation of knowledge could be denied because, for example, that specific employee was acting within the scope of his or her employment when he or she acquired the knowledge.

For this reason, it is essential to link the definition of knowledge to a list of parties (i.e., a list of persons or specifically identified job titles).

20Article 2697 Italian Civil Code.

21Article 1218 Italian Civil Code.

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Remedies

Italian law would in principle entitle the non-breaching party to exercise several actions and remedies: termination, rescission, nullity, fulfilment, price reduction, the inadimplenti non est adimplendum exception and damages.

However, for M&A deals the spectrum of available remedies is more limited, for at least two different reasons.

The first, as already discussed, is linked to the specific characteristics and nature of these deals (the object being the shares and not the assets of the company).

The second concerns the effects of a clause that is a constant feature of M&A agreements, namely, the sole remedy clause, which limits the scope of the remedies available to the buyer if there is a breach by the seller and identifies – as the sole remedy available – the indemnification right to be exercised through the procedure set forth in the agreement.

According to Italian law, contractual clauses that exclude the right of a party to seek the nullity or rescission of the contract are ineffective and unenforceable;22 scholars hold that the parties to an agreement cannot validly exclude this right.23

Moreover, according to Italian law, any clause excluding or limiting the liability of a party in the case of wilful misconduct or gross negligence is null.24

It has long been debated whether it is possible to exclude the right of termination; that debate may be summarised by saying that the analysis has to be conducted on a case-by- case basis and that the driver must be to consider if – considering the remedies excluded

– the non-breaching party has the option to exercise enough rights to be able to overcome the disadvantage of the waiver of the termination right.

Another interesting problem is linked to the consequences of setting aside an M&A transaction. In principle, the consequence attached to this circumstance would be that the contract is considered as never having existed, with the consequential need for all the parties to give back any good, benefit or price received, since they would no longer be justified by any legal ground.25

If, however, as in the case of an M&A transaction, this is not practically (or legally) feasible, Italian case law – even if not specifically dealing with M&A deals – allows the replacement of these effects with an indemnification right.26

Measure of damages

Under Italian law, as well as under any other law, there are two distinct legal bases for the measure of damages: the first is the legal framework set forth by Italian law and the second is the contractual framework of the M&A deal.

22Article 1462 Italian Civil Code.

23G. De Nova, Il sale and purchase agreement.

24Article 1229 Italian Civil Code. G. De Nova, Il Sale and Purchase Agreement.

25According to article 2033 of the Italian Civil Code this would represent a condictio indebiti.

26Cass. 8 November 2005, n. 21467. Cass. 1 August 2001, n. 10498, 4 February 2000, n. 1252, 18 November 1995, n. 11973, 13 April 1995, n. 1268.

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Italian law traditionally contemplates only compensatory damages, excluding the possibility of punitive damages.27

Within the category of compensatory damages, it is possible to distinguish between positive damages and lost profits.28 Positive damages are the losses really incurred by a party, while lost profits are the gains the non-breaching party would have obtained without the breach of the other party. Lost profits must be an immediate and direct consequence of the breach, and this requires a high standard of proof (it being necessary to prove that the profits would have been obtained by a high degree of probability).

It is common, however, for the parties to an M&A deal to intervene to modify this framework, by inserting the sole remedy clause that limits any remedy available to the buyer to an indemnification right to be claimed through an agreed procedure and with strict indemnity clauses.29

Furthermore, it is customary for the parties to further limit the range of the damages actually indemnifiable by the seller by excluding any indirect or consequential damage and calculating the indemnity by a multiple implicit in the negotiation of the sale price.30

Special substantive issues

There are numerous substantive issues that deserve to be considered as they represent a constant feature in arbitration proceedings in Italy. Needless to say that the limited scope of this chapter does not allow a thorough discussion of all of these issues, and therefore we will just mention some of the most relevant topics.

The object of an M&A deal and W&Is under Italian law

We have already seen that in Italy the object of an M&A deal and the nature of the W&Is has widely engaged scholars, arbitral tribunals and – to a certain, limited extent – Italian courts.We also know that the outcome of this debate is that the object of an M&A deal is represented by the shares and not by the company and its assets, though this is the real core of the agreed sale in the parties’ intentions.

As discussed above, this causes issues relating to the remedies available to the buyer if the assets sold (through the sale of the shares) do not have the promised and agreed qualities and characteristics. It is commonly held that the rules set forth by the Italian Civil Code concerning in general sale and purchase agreements and the guarantees available to buyers for the defects of the goods sold,31 are not applicable for defects of the assets of the goods sold.

27Recently, the Supreme Court seems to be opening the way to acknowledge punitive damages in the Italian legal system (Supreme Court Full Bench, 5 July 2017, n. 16601), even if this seems a long way and punitive damages are not customarily awarded by Italian courts or arbitral tribunals.

28Article 1223 Italian Civil Code.

29We mainly make reference to clauses concerning the amounts (de minimis, maximum amounts, etc.).

30It is usual for the parties to an M&A deal to calculate the price of the target by making reference to a specific multiple that changes depending on the specific industry; this multiple may be explicit in the agreement or, more often, may remain implicit.

31Article 1490 Italian Civil Code.

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In addition to the consequences already dealt with under the sections ‘Fraud and failure to disclose’ and ‘Remedies’, owing to their distinctive nature as specifically provided guarantees,32 W&Is are not subject to the strict limitation periods set forth by the Italian Civil Code for sale agreements (one year) but could benefit from the longer, ordinary limitation period (10 years).33

W&I policies

These policies are becoming increasingly common in Italy and they are interesting as they cover breaches in W&Is given in the sale of a business and allow buyers to be sure that warranties have real value even if the seller is unable to pay a warranty claim that arises in the future.These policies basically shift the burden of a breach from sellers to insurers and owing to this ‘derived’ nature, they have to make full reference to the due diligence and the W&Is in the share purchase agreement.34

Special procedural issues

There are numerous special procedural issues.

In the first place, under Italian law, the arbitral tribunals are not empowered to issue precautionary and interim measures,35 although there are some nuances that are worthy of consideration.

A recent reform seems to have opened a narrow way through this ban, by excluding from the ban cases in which this is allowed by statutory rules.36

Furthermore, it is now commonly held that this ban would not exclude the possibility of the arbitration clauses providing a limited power for the arbitral tribunals to issue such measures – even by making reference to the arbitration rules of the arbitral chambers – bearing in mind, however, that they do not have any enforceable nature and are only provided with a sort of contractual nature; in other words, these measures cannot be enforced through state bodies.37

32This is a necessarily concise recap of decades of debate that involved and – is still involving – scholars, arbitral tribunals and – to a certain extent – Italian courts.Arbitral tribunals have always qualified W&I as specific guarantees, different from the guarantee provided by the Italian Civil Code for the defects of the goods sold (Article 1490).As emphasised, however, M&A agreements almost always provide for an arbitration clause, which substantially prevents the Italian Supreme Court from deciding this issue. However, on the few occasions that the Supreme Court has had to examine these issues, it did not lose the chance to give its view on this topic; in one of the most recent decisions (Supreme Court, 24 July 2014, n. 16963), it seems to have definitively approved the theory always endorsed by arbitral tribunals.

33A Tina, Il contratto di acquisizioni di partecipazioni societaria, page 225.

34The author is currently acting as counsel in an M&A international arbitration against an insurer that issued a W&I policy, which is possibly one of the first arbitrations on this issue.

35Article 818 Italian Civil Procedure Code.This principle is traditionally justified by the fact that arbitrators lack ius imperii, which is only in the hands of the judges.

36This power is partially granted in case of corporate arbitrations by Article 35, Paragraph 5 of Legislative Decree 5/2003 and concerns the power to stay the effectiveness of the company resolutions (provided the arbitration clause expressly provided this power).

37This is what can be found in some provisions of the Arbitral Chambers active in Italy (e.g.,Article 26 of the newly issued Arbitration Rules of the Milan Arbitral Chamber).

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Another relevant issue regards the intervention and joinder of third parties. A recent reform of the statutory rules concerning arbitrations introduced some provisions in an attempt to answer the many unresolved questions.

Article 816 quinquies of the Italian Code of Civil Procedure states that the intervention and joinder of third parties is permitted only with the agreement of the third party and the parties to the arbitration, and the approval of the arbitral tribunal.The evident rationale of this provision lies in the need to safeguard the third party in case it was not party to the agreement including the arbitration clause.38

38This provision, though useful, does not provide an answer to all the issues emerged and leaves open some matters that could trigger some criticalities.

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