Settlement Agreements in Italy: A Quickguide

By entering into a settlement agreement parties have an opportunity to quickly set aside a dispute and avoid long and expensive court proceedings.

This Quickguide will provide an overview on:

How and when can I settle a dispute in Italy?

There are a number of ways in which parties can settle a dispute in Italy. Indeed, a settlement can not only be reached before a court action has been taken, but also before a judge when the judicial proceeding has already started.

In-court settlement

At any time during a judicial proceeding parties may submit a joint request to appear before the judge to settle the dispute. In this case, the judge is required to set a dedicated hearing where all involved parties have to appear in person.

At the hearing, having regard to the specifics of the case at hand the judge attempts to settle the dispute and submits a proposal that can either be accepted or rejected by the parties. If an agreement is reached, its content is conveyed in the minute which becomes binding and immediately enforceable between the parties.

Out-of-court settlement options

An out-of-court settlement can be reached either by:

• starting a mediation proceeding which in certain cases is considered mandatory to bring an action to court (to learn more on this topic, read our article on Compulsory ADR in Italy), or

• privately entering into a settlement agreement.

The Italian Civil Code defines the settlement agreement as a contract by which parties make mutual concessions to put an end to a dispute or to prevent a dispute from arising (Article 1965 of the Italian Civil Code).

Italian law allows the parties entering into a settlement agreement not only to resolve the dispute that has arisen (also known as plain settlement agreement – transazione pura), but also to create, modify, or terminate a different arrangement from the one that that gave rise to the dispute (commonly referred to as mixed settlement agreement – transazione mista).

Example

A dispute arises between Agent and Principal over the Agent’s remuneration. Parties can put an end to the dispute by making mutual concessions (plain settlement agreement). Alternatively, parties can decide for the Agent to abandon the claim against the transfer of ownership of the Principal’s stock (mixed settlement agreement). In the latter case, the agency agreement remains the same and in addition to settling the dispute, parties arrange for the transfer of property.

What are the legal requirements of a settlement agreement in Italy?

Settlement agreements in Italy are subject to the general provisions prescribed for all contracts. In addition, Italian law specifically requires parties to have capacity to enter into a settlement agreement. This requirement is twofold and refers to both the legal capacity of the parties involved (i.e., a person’s ability to autonomously make legally binding decisions) and the legal power to dispose of the rights which are the subject of the dispute.

Another requirement pertains to the contract’s form. To this regard, the Italian Civil Code provides that the settlement agreement can only be proved in writing. Additionally, in Italy for certain rights the law explicitly requires the settlement agreement to take the form of a public or private deed (e.g., if the dispute involves a right in immovable propriety, the settlement agreement should take the form of a public deed).

Can a settlement agreement be declared invalid?

All general provisions dealing with contract invalidity will apply to the settlement agreement as well (to learn more on contract invalidity, check our articles on Void and Voidable Contracts). There are also certain provisions under Italian law which specifically address the invalidity of a settlement agreement. To this regard a settlement agreement is voidable:

• if it was based on documents that were later discovered to be forged;

• if new discovered documents prove that one of the parties did not have any claims on the matter at dispute;

• if parties agreed to put an end to all disputes relating to any previous agreement and one party becomes aware of the existence of documents which were illicitly concealed by the other;

• if the matter was already decided by a judgement which was unknown to either one of the contracting parties.

In all cases mentioned above, the voidability of the settlement agreement can be invoked by the party that wasn’t aware of the cause of invalidity.

Lastly, the Italian Civil Code provides that the settlement agreement is to be considered void if the dispute that later was settled arose from an illicit contract.

How can I enforce a settlement agreement in Italy?

In case of a default on the settlement agreement the non-defaulting party has the right seek enforcement.

Unlike the in-court settlement which is a title of execution and therefore immediately actionable towards the enforcement proceeding, the non-defaulting party of a privately entered settlement agreement must initiate a judicial proceeding.

The judgement will then be title of execution that can be used to start the enforcement proceeding against the defaulting party.