The Italian Supreme Court has recently offered important clarification concerning litigation funding in the context of the acquisition of claims. This clarification arose in connection with disputes involving claims filed by passengers against an operating air carrier, facilitated by the European Union’s Air Passengers Rights Regulation, which sets forth uniform rules regarding compensation for passengers in cases of denied boarding, flight cancellations, or significant flight delays.

Following the acquisition of claims from passengers, a funder initiated legal proceedings against the air carrier in the Court of First Instance to seek compensation. The air carrier contested the legitimacy of the assignment agreement made between the passenger and the funder. It contended that the transaction was invalid, asserting that the funder was required to be registered in the Register of Financial Intermediaries as stipulated in Article 106 of the Consolidated Law on Banking which specifies that the provision of financing in any form is exclusively reserved for authorized financial intermediaries, which must be registered in this special register maintained by the Bank of Italy.

The Court of First Instance concurred with the airline, determining that the agreement contravened Article 106. The funder then filed an appeal against this ruling. The appellate court ruled in favor of the funder, ordering the air carrier to provide compensation for the damages originally suffered by the passengers.

The air carrier then contested this ruling before the Italian Supreme Court, which dismissed the objections. The Supreme Court held that an assignment is governed by Article 106 of the Consolidated Law on Banking if the contract explicitly states that the underlying reason is financing. This implies that the assignee must be required to provide immediate payment or another form of benefit as stipulated in the contract. Conversely, the reason cannot be classified as financing if the contract indicates that payment will occur at a later date, contingent upon the successful enforcement of the claim.

The agreed-upon price for the acquisition of the claim would be paid at a later date, contingent upon the plaintiff’s successful enforcement of the claim; therefore, the passenger did not receive any immediate payment or another form of benefit.