The Italian Supreme Court, in its decision No. 25594 of September 1, 2023, returned to the subject of leonine's pacts, clearly specifying their conditions, and confirming an approach that can undoubtedly be considered dominant to date.
In the decision, the judges of the Supreme Court confirmed that the prohibition of a leonine's pact pursuant to Article 2265 of the Italian Civil Code, which can be extended to all types of companies, presupposes the existence of a clause in the bylaws aimed at the total and permanent exclusion of one or more of them from participation in the risks and/or profits of the company; on the contrary, partial or temporary exclusions resulting from circumstances extraneous to the company contract have to be considered irrelevant.
The case arose from the exclusion of a joint stock company from participating, together with other companies, in the commercial risks and profits of the consortium of which it was a member. The exclusion was established by a previous arbitration award on the effects of an agreement concluded between an organ of the consortium and third parties concerning the consortium companies, which had not been authorised or ratified by the joint stock company, which was subsequently excluded.
The appeals against the arbitral award lodged by both parties were rejected by the Court of Appeal of Milan with judgment no. 5630 of December 14, 2018. The case was then referred to the Supreme Court, which was asked to assess, in particular, the legitimacy of the judgment under appeal in so far as it ruled out the nullity of the arbitral award on the ground that it was contrary to the prohibition of the leonine pact. On this point, the counterclaiming consortium stated that the presumed unenforceability of the agreement against the joint stock company entailed a true and proper amendment of the consortium’s articles of association, excluding it from the losses and profits generated by the activity carried out in the period following the award, in contrast to the articles of association clauses which provided for the participation of each consortium member in the benefits and burdens of the consortium’s activity.
The Supreme Court ruled that the exclusion of the joint stock company from participating in the economic results of the management of the consortium was not contrary to the principle deriving from Article 2265 of the Italian Civil Code, since it was not an effect directly linked to an agreement between the consortium members, but to the judgment on the arbitration award previously rendered between the parties, which in turn ruled on the effects of an agreement concluded with third parties by an organ of the consortium, as opposed to the will of a consortium member and not ratified by it.
The Court therefore reiterated the conditions necessary for the application of the prohibition of the leonine pact laid down in Article 2265 of the Italian Civil Code and clarified how it can be extended to all types of company, regardless of the way in which it is rejected, since it aims to "preserve the purity of the causa societatis". Secondly, the judges noted the need for a legal situation to legitimise the pact itself, stressing that the exclusion of profits and/or losses must be absolute and permanent.
With regard to the first requirement, the exclusion of the shareholder must relate to “any participation in profits or losses”. Therefore, the provision of a partial or proportionately lower participation than that of the other shareholders would not constitute a leonine pact. As regards the requirement of permanence, the Court held that the exclusion of a shareholder must not be occasional, since it cannot relate only to a “limited period” but must be such as to bring about a stable and effective change in the status of the shareholder within the company.
Therefore, on the basis of these considerations, the judges of the Supreme Court, in full continuity with the jurisprudence of the last decade, ruled out the existence of the aforementioned conditions in the present case.