## I. THE ITALIAN JUSTICE SYSTEM—A FACTOR BEHIND A DIFFICULT BUSINESS ENVIRONMENT

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### Overview and performance
- An efficient justice system requires decisions taken within a reasonable time, predictability, effective enforcement, and protection of individual rights (including property rights).
- By many metrics, Italy performs well below European and OECD averages:
  - It takes an average of 1,185 days to enforce a contract in Italy.
  - OECD average to complete a civil case up to the Supreme Court level is 788 days, while it is almost 8 years in Italy.
  - Italy had 9.7 million pending cases (end 2012 figures), of which about 5 million are civil cases.
  - Italy has the highest number of violations of the “reasonable time” requirement in Article 6 of the European Convention on Human Rights (ECHR).
  - Fraser Institute rank: Italy 112th in legal enforcement of contracts.
  - World Economic Forum (2013) rank: Italy 139th in efficiency of the legal framework.

### Economic implications and channels to growth
- Macroeconomic context:
  - Growth is projected to average 0.7 percent during 2013–18.
  - In the absence of deeper structural reforms potential growth is estimated at around ½ percent.
- Key channels linking judicial inefficiency to weaker growth:
  - Foreign direct investment (FDI)
    - Inward FDI is positively correlated with legal quality; annual FDI inflows over 2005–11 were about 1/3 of the euro area average as a percent of GDP.
  - Credit markets and cost of credit
    - Weak contract enforcement raises borrowing costs and shortens loan maturities, harming investment and mortgage market depth.
  - Firm size and dynamics
    - SMEs account for nearly 70 percent of value added in Italy.
    - Halving the length of civil proceedings could increase average firm size by 8–12 percent (Giacomelli and Menon, 2012).
    - Court inefficiencies reduce firm creation and destruction rates.
  - Labor market
    - Inefficient labor courts affect employment composition, labor market participation, job reallocation, productivity, and capital intensity.
  - Reinforced vulnerabilities
    - Weak enforcement leads to late payments, liquidity problems, increased insolvency, and higher unemployment.
  - Entrepreneurship and innovation
    - High-technology products account for only 7 percent of manufactured exports, 9 percentage points below the OECD average.

### Diagnostic: main reasons for inefficiency and bottlenecks
- Structural and incentive problems:
  - Large number of courts and low court fees:
    - Italy has 1,231 first instance courts of general jurisdiction.
    - Low court fees lead to larger inflow of cases, higher appeal rates, and higher public expenditure share.
  - High inflow of cases and low clearance rates cause a large stock of pending cases and extended disposition time.
  - Easy access to appellate review and Court of Cassation:
    - Court of Cassation inflow rose from 3,000 per year in the 1960s to nearly 30,000 in recent years.
    - Any lawyer of certain seniority can plead before the Court of Cassation, contributing to incoming caseload.
  - High number of practicing lawyers:
    - About 350 lawyers per 100,000 inhabitants.
  - Unpredictable outcomes, conflicting case law, and frequent legislative changes undermine legal consistency and invite litigation.
  - Complex and lengthy procedures, many interim and interlocutory steps:
    - Foreclosure duration and costs among the highest in Europe; World Bank estimated average length of foreclosure procedures in Italy of 90 months in a 2004 study.
    - Enforcement (execution of decisions) is highly problematic, with low recovery rates and lengthy collection times.
  - High reversal rate at appeal courts, incentivizing more appeals.

### Measures taken by the authorities
- Measures implemented to reduce inflow, improve processing, and promote out-of-court settlement:
  - Increased court fees for some cases; a 43 percent decline in inflow of small claims following fee increases.
  - Measures to rationalize appeals (Law 83/2012), including exclusion from appeal “if it does not have a reasonable chance of being accepted” (with exceptions).
  - Mandatory mediation introduced in 2010 (Decree-Law 28/2010), scope extended in 2011; later declared unconstitutional in October 2012 (see reinstatement discussion).
  - Streamlined first-instance procedures, online civil case management pilots, “backlog-reduction teams,” and civil procedure reforms in pilot courts (Torino, Bolzano).
  - EU structural funds supported roll-out of best practices since 2004.
- Effects and outcomes:
  - Pinto Law (Law No. 89/2001) intended to compensate litigants for excessive delays but failed to create incentives for judicial reform; it generated additional litigation and budgetary costs.
    - By 2011, about 50,000 Pinto Law cases were filed before Italian Courts of Appeal.
    - Compensation awarded under Pinto Law was significant: €200 million by 2011.
    - Pinto-related applications contributed to backlog before the European Court of Human Rights.
  - Mediation uptake reportedly increased:
    - Number of mediation procedures increased from 1,000 to 250,000 over 2009–10 (International Institute for Conflict Prevention & Resolution).
  - Appellate case filings (second semester 2012 to first semester 2013):
    - New cases fell from 15,300 to 5,700 in courts of appeal for Pinto-related filings.
- Decreto del Fare (Law 98/2013, August 2013) measures include:
  - Law-clerk apprenticeships to support judges.
  - A task force of 400 magistrates to clear backlog in courts of appeal.
  - Compulsory mediation (subject to constitutional developments).
  - New associate judges in the Court of Cassation.
  - Mandatory scheduling of the first hearing within 30 days and expectation of settlement at first hearing in most cases.
- “Destination Italy” initiative (September 2013) proposals:
  - Extend competences of commercial courts to all commercial litigation.
  - Introduce restrictions to appeals.
  - Allow parties in mediation to proceed without a lawyer.
  - Extend competences of judges of the peace.
  - Ensure full operation of the “e-civil process” (“Processo Telematico Civile”) as of June 2014.
  - Complete the “data warehouse” project (database of judicial proceedings for each court).
  - Monitor and propose improvements to the Administrative Procedure Code.

### Mediation uptake, obstacles, and recent trends
- Mediation introduced in Italy three years ago; uptake has not been widespread or consistent.
- Reasons for limited use:
  - Lack of strong incentives for all parties.
  - Limited knowledge among the general public about the “mediation avenue.”
  - The inefficiency of the justice system itself is a key obstacle: where the justice system is inefficient, parties (notably, a party that expects to lose the case) may prefer to take advantage of the lengthy judicial process rather than settle early through mediation.
- Authorities’ data indicate mediation is starting to pick up; it remains to be seen whether this trend will continue as a result of the adoption of the new mediation legislation.
- The compulsory presence of lawyers in all mediation proceedings:
  - May create an unnecessary reserved area for lawyers, increase costs, hamper competition, and reduce the ability of other professionals to intervene in mediation.
  - The new legislation requires lawyers to be trained in mediation; this will take time and pose complications since compulsory mediation has been introduced for an initial period of four years only.
- Policy suggestions to strengthen out-of-court dispute settlement and mediation:
  - Allowing mediation to take place without the compulsory presence of lawyers;
  - Developing standards for the selection, responsibilities, training and qualification of mediators;
  - Informing market participants and the public at large about which procedures are subject to mediation (mandatory or otherwise) and about the time, process, and costs of mediation;
  - Creating expedited procedures for mediation decisions which are challenged in court.

### Improving court management — data systems and performance accountability
- Effective court organization and management reforms could enable courts to actively manage case processes and drive them forward; elements include:
  - Reorganization of courts (notably consolidation aiming for professionalization of management and specialization of judicial functions);
  - Simplification of administrative procedures;
  - Digitalizing processes;
  - Proactive case management;
  - Improved budgetary mechanisms;
  - Performance accountability.
- Measures already taken by the authorities:
  - A court retrenchment program;
  - The development of a “data warehouse” of litigation in all courts;
  - Court work-plans based on individual caseload assessments.
- Importance of swift implementation: these measures enable a cost-effective and rational use of court resources and maximize output while preserving quality.
- Need for performance indicators and accountability:
  - The “data warehouse” aligns Italian practice with other countries and recommendations by international institutions such as the CEPEJ.
  - Challenge lies in processing those data and translating them into policy and institutional accountability.
  - Initiatives such as the “Strasbourg Program” by the Turin Court could be used as examples and considered for extension to other courts.
  - Authorities are encouraged to set performance targets for judges, with the performance of (each chamber of) judges being tracked for internal monitoring and publication purposes.

### Strengthening and streamlining civil procedure and enforcement — the appeal system
- Objectives to ensure a smooth process of cases in court include:
  - An effective regime of pre-trial disclosure and of interim measures;
  - An enhanced role for judges in managing cases and an increased number of single judge processes;
  - A simplification of the decision-format for lower courts;
  - A review of the appeal system (in line with international recommendations), including to the Court of Cassation;
  - A stronger IT-based processing;
  - Effective enforcement.
- Priority recommendation: a comprehensive review of the appeal system (both at court of appeals and court of cassation levels).
- Authorities are taking measures to rationalize the appeal system and tackle the large number of cases pending in the Court of Cassation, but reforms have not always produced expected results.
- Possible approaches used in other European supreme courts to reduce case inflow:
  - Filters including regimes of summary dismissals and pre-selection;
  - Some countries do not allow appeals to the Supreme Court if courts of appeal have upheld the first instance decision.
- Specific reform ideas:
  - Undertake a comprehensive review of the appeal system in light of Council of Europe Recommendation R(95)5 and European Judicial Network recommendations;
  - Allow the court of appeal flexibility in the types of decisions it issues, e.g., a new appeal judgment that fully re-discusses and replaces the 1st instance decision or a much shorter rejection of the appeal with a combined request to the 1st instance court to re-discuss the substance of the case.

### Additional reforms recommended and further actions
- Key reform areas to accelerate enforcement while preserving access to justice:
  - Comprehensive assessment and possible recalibration of court fees for civil, commercial, and tax cases to better balance taxpayer burden and litigant responsibility while maintaining legal aid for access to justice.
  - Strengthen out-of-court dispute settlement (including mandatory mediation schemes), learning from logistical and institutional challenges.
  - Improve court management and accountability:
    - Greater management role for Chief Judges, case scheduling, and active management of judges’ workload.
  - Reform the appeal system to limit meritless appeals while ensuring procedural fairness.
  - Swift adoption and effective implementation of reforms in the “Destinazione Italia” agenda is emphasized as critical to reducing incoming caseloads and ensuring timely resolution when cases enter the courts.

### Conclusion — impact on growth and next steps
- The performance of Italy’s judicial system is below European averages in many respects.
- Weaknesses in the judicial system contribute to Italy’s poor business environment and low growth.
- Judicial reform should be an integral part of a strategy to lift potential growth and create jobs.
- Authorities have taken steps to improve judicial efficiency but more is needed to support growth; considerations include:
  - Reviewing court fees;
  - Improving the new mandatory mediation scheme;
  - Strengthening court management;
  - Undertaking a comprehensive review of the appeal system.

*Source: _wp1432 - References (IMF PDF).*

### References .............................................................................................................

### I. THE ITALIAN JUSTICE SYSTEM—A FACTOR BEHIND A DIFFICULT BUSINESS ENVIRONMENT

### Overview and performance
- An efficient justice system requires decisions taken within a reasonable time, predictability, effective enforcement, and protection of individual rights (including property rights).
- By many metrics, Italy performs well below European and OECD averages:
  - It takes an average of 1,185 days to enforce a contract in Italy.
  - OECD average to complete a civil case up to the Supreme Court level is 788 days, while it is almost 8 years in Italy.
  - Italy had 9.7 million pending cases (end 2012 figures), of which about 5 million are civil cases.
  - Italy has the highest number of violations of the “reasonable time” requirement in Article 6 of the European Convention on Human Rights (ECHR).
  - Fraser Institute rank: Italy 112th in legal enforcement of contracts.
  - World Economic Forum (2013) rank: Italy 139th in efficiency of the legal framework.

### Economic implications and channels to growth
- Macroeconomic context:
  - Growth is projected to average 0.7 percent during 2013–18.
  - In the absence of deeper structural reforms potential growth is estimated at around ½ percent.
- Key channels linking judicial inefficiency to weaker growth:
  - Foreign direct investment (FDI)
    - Inward FDI is positively correlated with legal quality; annual FDI inflows over 2005–11 were about 1/3 of the euro area average as a percent of GDP.
  - Credit markets and cost of credit
    - Weak contract enforcement raises borrowing costs and shortens loan maturities, harming investment and mortgage market depth.
  - Firm size and dynamics
    - SMEs account for nearly 70 percent of value added in Italy.
    - Halving the length of civil proceedings could increase average firm size by 8–12 percent (Giacomelli and Menon, 2012).
    - Court inefficiencies reduce firm creation and destruction rates.
  - Labor market
    - Inefficient labor courts affect employment composition, labor market participation, job reallocation, productivity, and capital intensity.
  - Reinforced vulnerabilities
    - Weak enforcement leads to late payments, liquidity problems, increased insolvency, and higher unemployment.
  - Entrepreneurship and innovation
    - High-technology products account for only 7 percent of manufactured exports, 9 percentage points below the OECD average.

### Diagnostic: main reasons for inefficiency and bottlenecks
- Structural and incentive problems:
  - Large number of courts and low court fees:
    - Italy has 1,231 first instance courts of general jurisdiction.
    - Low court fees lead to larger inflow of cases, higher appeal rates, and higher public expenditure share.
  - High inflow of cases and low clearance rates cause a large stock of pending cases and extended disposition time.
  - Easy access to appellate review and Court of Cassation:
    - Court of Cassation inflow rose from 3,000 per year in the 1960s to nearly 30,000 in recent years.
    - Any lawyer of certain seniority can plead before the Court of Cassation, contributing to incoming caseload.
  - High number of practicing lawyers:
    - About 350 lawyers per 100,000 inhabitants.
  - Unpredictable outcomes, conflicting case law, and frequent legislative changes undermine legal consistency and invite litigation.
  - Complex and lengthy procedures, many interim and interlocutory steps:
    - Foreclosure duration and costs among the highest in Europe; World Bank estimated average length of foreclosure procedures in Italy of 90 months in a 2004 study.
    - Enforcement (execution of decisions) is highly problematic, with low recovery rates and lengthy collection times.
  - High reversal rate at appeal courts, incentivizing more appeals.

### Measures taken by the authorities
- Measures implemented to reduce inflow, improve processing, and promote out-of-court settlement:
  - Increased court fees for some cases; a 43 percent decline in inflow of small claims following fee increases.
  - Measures to rationalize appeals (Law 83/2012), including exclusion from appeal “if it does not have a reasonable chance of being accepted” (with exceptions).
  - Mandatory mediation introduced in 2010 (Decree-Law 28/2010), scope extended in 2011; later declared unconstitutional in October 2012 (see reinstatement discussion).
  - Streamlined first-instance procedures, online civil case management pilots, “backlog-reduction teams,” and civil procedure reforms in pilot courts (Torino, Bolzano).
  - EU structural funds supported roll-out of best practices since 2004.
- Effects and outcomes:
  - Pinto Law (Law No. 89/2001) intended to compensate litigants for excessive delays but failed to create incentives for judicial reform; it generated additional litigation and budgetary costs.
    - By 2011, about 50,000 Pinto Law cases were filed before Italian Courts of Appeal.
    - Compensation awarded under Pinto Law was significant: €200 million by 2011.
    - Pinto-related applications contributed to backlog before the European Court of Human Rights.
  - Mediation uptake reportedly increased:
    - Number of mediation procedures increased from 1,000 to 250,000 over 2009–10 (International Institute for Conflict Prevention & Resolution).
  - Appellate case filings (second semester 2012 to first semester 2013):
    - New cases fell from 15,300 to 5,700 in courts of appeal for Pinto-related filings.
- Decreto del Fare (Law 98/2013, August 2013) measures include:
  - Law-clerk apprenticeships to support judges.
  - A task force of 400 magistrates to clear backlog in courts of appeal.
  - Compulsory mediation (subject to constitutional developments).
  - New associate judges in the Court of Cassation.
  - Mandatory scheduling of the first hearing within 30 days and expectation of settlement at first hearing in most cases.
- “Destination Italy” initiative (September 2013) proposals:
  - Extend competences of commercial courts to all commercial litigation.
  - Introduce restrictions to appeals.
  - Allow parties in mediation to proceed without a lawyer.
  - Extend competences of judges of the peace.
  - Ensure full operation of the “e-civil process” (“Processo Telematico Civile”) as of June 2014.
  - Complete the “data warehouse” project (database of judicial proceedings for each court).
  - Monitor and propose improvements to the Administrative Procedure Code.

### Additional reforms recommended and further actions
- Key reform areas to accelerate enforcement while preserving access to justice:
  - Comprehensive assessment and possible recalibration of court fees for civil, commercial, and tax cases to better balance taxpayer burden and litigant responsibility while maintaining legal aid for access to justice.
  - Strengthen out-of-court dispute settlement (including mandatory mediation schemes), learning from logistical and institutional challenges.
  - Improve court management and accountability:
    - Greater management role for Chief Judges, case scheduling, and active management of judges’ workload.
  - Reform the appeal system to limit meritless appeals while ensuring procedural fairness.
  - Swift adoption and effective implementation of reforms in the “Destinazione Italia” agenda is emphasized as critical to reducing incoming caseloads and ensuring timely resolution when cases enter the courts.

*Source: _wp1432 - References (IMF PDF).*

### 2013. This is a positive development. However, thus far, mediation has not been widely and

### _wp1432 - 2013. This is a positive development. However, thus far, mediation has not been widely and

### Mediation uptake, obstacles, and recent trends
- Mediation introduced in Italy three years ago; uptake has not been widespread or consistent.
- Reasons for limited use:
  - Lack of strong incentives for all parties.
  - Limited knowledge among the general public about the “mediation avenue.”
  - The inefficiency of the justice system itself is a key obstacle: where the justice system is inefficient, parties (notably, a party that expects to lose the case) may prefer to take advantage of the lengthy judicial process rather than settle early through mediation.
- Authorities’ data indicate mediation is starting to pick up; it remains to be seen whether this trend will continue as a result of the adoption of the new mediation legislation.
- The compulsory presence of lawyers in all mediation proceedings:
  - May create an unnecessary reserved area for lawyers, increase costs, hamper competition, and reduce the ability of other professionals to intervene in mediation.
  - The new legislation requires lawyers to be trained in mediation; this will take time and pose complications since compulsory mediation has been introduced for an initial period of four years only.
- Policy suggestions to strengthen out-of-court dispute settlement and mediation:
  - Allowing mediation to take place without the compulsory presence of lawyers;
  - Developing standards for the selection, responsibilities, training and qualification of mediators;
  - Informing market participants and the public at large about which procedures are subject to mediation (mandatory or otherwise) and about the time, process, and costs of mediation;
  - Creating expedited procedures for mediation decisions which are challenged in court.

### Improving court management — data systems and performance accountability
- Effective court organization and management reforms could enable courts to actively manage case processes and drive them forward; elements include:
  - Reorganization of courts (notably consolidation aiming for professionalization of management and specialization of judicial functions);
  - Simplification of administrative procedures;
  - Digitalizing processes;
  - Proactive case management;
  - Improved budgetary mechanisms;
  - Performance accountability.
- Measures already taken by the authorities:
  - A court retrenchment program;
  - The development of a “data warehouse” of litigation in all courts;
  - Court work-plans based on individual caseload assessments.
- Importance of swift implementation: these measures enable a cost-effective and rational use of court resources and maximize output while preserving quality.
- Need for performance indicators and accountability:
  - The “data warehouse” aligns Italian practice with other countries and recommendations by international institutions such as the CEPEJ.
  - Challenge lies in processing those data and translating them into policy and institutional accountability.
  - Initiatives such as the “Strasbourg Program” by the Turin Court could be used as examples and considered for extension to other courts.
  - Authorities are encouraged to set performance targets for judges, with the performance of (each chamber of) judges being tracked for internal monitoring and publication purposes.

### Strengthening and streamlining civil procedure and enforcement — the appeal system
- Objectives to ensure a smooth process of cases in court include:
  - An effective regime of pre-trial disclosure and of interim measures;
  - An enhanced role for judges in managing cases and an increased number of single judge processes;
  - A simplification of the decision-format for lower courts;
  - A review of the appeal system (in line with international recommendations), including to the Court of Cassation;
  - A stronger IT-based processing;
  - Effective enforcement.
- Priority recommendation: a comprehensive review of the appeal system (both at court of appeals and court of cassation levels).
- Authorities are taking measures to rationalize the appeal system and tackle the large number of cases pending in the Court of Cassation, but reforms have not always produced expected results.
- Possible approaches used in other European supreme courts to reduce case inflow:
  - Filters including regimes of summary dismissals and pre-selection;
  - Some countries do not allow appeals to the Supreme Court if courts of appeal have upheld the first instance decision.
- Specific reform ideas:
  - Undertake a comprehensive review of the appeal system in light of Council of Europe Recommendation R(95)5 and European Judicial Network recommendations;
  - Allow the court of appeal flexibility in the types of decisions it issues, e.g., a new appeal judgment that fully re-discusses and replaces the 1st instance decision or a much shorter rejection of the appeal with a combined request to the 1st instance court to re-discuss the substance of the case.

### Conclusion — impact on growth and next steps
- The performance of Italy’s judicial system is below European averages in many respects.
- Weaknesses in the judicial system contribute to Italy’s poor business environment and low growth.
- Judicial reform should be an integral part of a strategy to lift potential growth and create jobs.
- Authorities have taken steps to improve judicial efficiency but more is needed to support growth; considerations include:
  - Reviewing court fees;
  - Improving the new mandatory mediation scheme;
  - Strengthening court management;
  - Undertaking a comprehensive review of the appeal system.

*Source: _wp1432 - 2013. This is a positive development. However, thus far, mediation has not been widely and*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2014/_wp1432.pdf_