In its rulings nos.2307, 2308 and 2309 of this year, Section VI of the Italian Council of State confirmed the cancellation of the penalties imposed by the Italian Regulatory Authority for Energy, Networks and Environment (ARERA) against a corporate group – advised by our Firm – operating in the natural gas sector, on the grounds of claimed violations with regard to functional and accounting unbundling, finding that the deadlines for the conclusion of the regulatory proceeding – breached in this case by the Authority – are absolute and binding even in the absence of a specific legal provision.
The dispute related to a proceeding for a regulatory violation brought against a Corporate Group by ARERA in December 2011, the concluding measure under which was not adopted until six years later in February 2017, breaching the term for the completion of the proceeding set by the Authority itself. By these rulings, the Sixth Section of the Council of State – which has sole jurisdiction over the disputes regarding ARERA regulatory proceedings – finally brought its jurisprudence into line with that relating to the proceedings for regulatory breaches of the other independent Administrative Authorities (Banca d’Italia, ANAC, IVASS, and AGCOM), thus resolving the conflict which had arisen in the jurisprudence between “two directly opposed lines of interpretation” regarding the nature of the term for the issue of the final measure imposing the penalty. In fact, according to the traditional approach in the jurisprudence, unless otherwise specified by law, the deadline for the conclusion of proceedings for regulatory breaches was considered merely an internal rule, and therefore a measure adopted after this term was never non-valid provided it was within the five-year debarment period envisaged by article 28 of Law no. 689/1981 (see, amongst many others, Council of State section VI – no. 911 of 2018).
However, in recent years the opposite line has increasingly been taken in the jurisprudence, asserting that, given the independent administrative Authorities’ well known lack of democratic legitimation, the term set for the issue of the final measure is absolute “even if this is not specifically stated by the law or regulations under which it is issued, in view of the close correlation between compliance with the said term and the ability of the plaintiff to present an effective defence, as protected by the Italian Constitution (in the combined provisions of articles 24 and 97), as well as the need for certainty in legal relationships and subjective positions”, with the consequence that if this term is exceeded the penalty-imposing measures against which the objection is raised automatically become null and void (see, amongst many others, Council of State section VI – no. 1199 of 2016; id, no. 2289 of 2019).
This approach is based on the jurisprudence of the ordinary courts with regard to penalties imposed under law no. 689 of 1981 which, following the line taken by the Combined Sections of the Court of Cassation (no. 9591 of 27 April 2006) has established that the term set under art. 18 by the competent authority for issue of a ruling-injunction is absolute or debarring, also bearing in mind the particular nature of the penalty-imposing measure in relation to the general paradigm for administrative proceedings established by law no. 241 of 1990 (which, in contrast, specifies that the expiry of the term for measures does not imply the non-validity of any measure adopted after the term).
However, it had previously been considered that the line set out above could not be applied to ARERA’s regulatory measures, the deadline for the issue of which, as stated, was considered purely an internal rule, meaning that any failure to comply with it was simply a breach of a rule of conduct, with no effect on the validity of the final measure adopted.
In spite of these precedents, the Council of State decided to disregard the previous line on ARERA disciplinary measures and to confirm the approach taken in the very recent pronouncement no. 584 of 21 January 2021. It thus embraced the principle contained in the jurisprudence built up for the other Authorities, affirming the “[unacceptability] of discrepancies between the rules adopted in a field of such importance for economic players, enterprises and the public, also considering the increasingly pressing demand for the public good of legal certainty”, and therefore reinforced a principle of good legal practice which will prevent the lengthening of times for the conclusion of proceedings which, under the previous interpretation, could potentially have been completed many years after the events for which by the industry Authority’s penalties were imposed.
The Council of State supported its position on the basis of the principle of “due process” – which includes that of “reasonable length of proceedings” – approved by the European Court of Human Rights in relation to the “punishment-deterrent” nature of penalties, underlining that “the regulatory (almost criminal) proceedings are a form of punishment in themselves”. In particular, the principle of reasonable length of proceedings “is more important in the case of regulatory proceedings under the jurisdiction of the independent administrative Authorities. In this case, the traditional guarantees of due process need to be reinforced by reason of these Authorities’ specific structural-organisational configuration, as they lie outside the political circuit of Government and Parliament and are thus not subject to the political direction of the Executive”.
The Judges’ considerations regarding the specific value of the length of administrative proceedings in case of the penalty-imposing powers awarded to ARERA with the aim of “satisfying interests above and beyond the reporting and proof of the violation itself” thus appear to be decisive.
On the one hand, it is clear that the “dissuasive efficacy” of the penalty imposed is strongly depending on compliance with the procedural deadline, “if the penalty is imposed a long time after the offence and its reporting, it may become worthless”.
On the other hand, adopting a more complex, contemporary vision of the notion of lawful interest, the Council of State notes that in regulatory proceedings the only interest of the economic player “is the avoidance of the imposition of penalties, meaning the swift completion of the proceedings, and with a sentence in its favour”. In fact, the subject of the regulatory proceedings has no interest “in conclusion of the proceedings, regardless of outcome, once the deadline for the issue of a penalty-imposing measure has expired”.
In other words, the time granted to the administration for action is never “absolute”, since (even) cancellation of an unlawful measure can never “restore to the subject of the measure the time taken by the proceeding, meaning the “time wasted by the Authority”.
In conclusion, the Council of State ruled that, for the purposes of declaring a regulatory measure issued after the deadline for conclusion of the proceeding to be unlawful, “what counts is the unreasonable nature of the violation of the self-imposed limit; with regard to regulatory proceedings, which must always be assessed in context, any such violation must always imply non-validity (in the light of the usual general complaint of excessive power, which naturally requires thorough consideration in the field of penalties for regulatory violations)”.
The authors of this note are Claudia Sarrocco and Francesco Alfonso.
For further information or explanations on the topics covered in this article, please contact Claudia Sarrocco via email (firstname.lastname@example.org) or through the Todarello & Partners Milan office.
Todarello & Partners supplies legal advice on all matters relating to the topics covered in this article. The firm’s lawyers have impressive experience in this area, since they regularly advise some of the market’s biggest players, representing them before the courts in all competent jurisdictions.