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The European Arbitration Review 2017

Italy

Massimo Benedettelli

ArbLit

14 October 2016

Over the past 40 years, the Italian legislature has enacted three different reforms of the Italian law of arbitration, showing an ongoing interest in updating the regulation given to this means of settling disputes. Nevertheless, some commentators are still wary about the efficiency of the Italian law of arbitration and especially of its ability to compete on an international level with the arbitration systems of other countries, such as France and Switzerland, where frequently international commercial arbitrations are seated.

It is suggested that this reflects a certain misconception about Italian arbitration law. While it is true that, as for any other legal instrument, the regulation given in Italy to international arbitration may still be improved, there is also no doubt that Italy offers to companies a pro-arbitration legal framework that bears substantial, sometimes unknown, qualities. This can be demonstrated by benchmarking it with the Model Law of Arbitration promoted in the context of the United Nations Convention on International Trade Law (the UNCITRAL Model Law).

The sources of the Italian law of arbitration

Arbitration in Italy is mainly governed by the provisions set forth in articles 806-840 of the Code of Civil Procedure (CCP) as amended on different occasions over the years. These provisions lay out a general regulation of arbitration and are supplemented by other provisions in the CCP that refer to arbitration-related court proceedings (eg, article 669 quinquies, octies, novies and decies CCP on interim measures).

Other provisions that may be relevant for international arbitrations having a link to Italy can be found in the Italian Private International Law Act (Law No. 218 of 31 May 1995 (PIL)). They include article 4.2, according to which the jurisdiction of Italian courts may be validly derogated in favour of an arbitration seated abroad as long as the arbitration agreement is in writing, the dispute relates to rights of which the parties can dispose and the arbitral tribunal has acknowledged its competence.

It is worth noting that Italy is a party not only to the 1958 New York Convention (in force from 1 May 1969 and ratified without reservations) but also to numerous bilateral and multilateral conventions that supplement or, as lex specialis, amend the regime set out by the CCP. Among them one may signal the 1961 Geneva Convention on international commercial arbitration, the 1965 Washington Convention on the settlement of investment disputes between states and national of other States, the Energy Charter Treaty (from which, however, Italy has recently withdrawn), as well as more than 80 bilateral investment treaties contemplating arbitration as a means for the settlement of investments disputes.

The Italian law of arbitration is consistent with the inspiring principles of the UNCITRAL Model Law

The UNCITRAL Model Law, adopted by the UN General Assembly with Resolution No. 40/72 of 11 December 1985, is an archetypical arbitration law that states may freely adopt or use as a basis on which to model their national arbitration laws. Its main purpose is to promote the harmonisation of the different legal systems while respecting their peculiarities.

In the Explanatory Note attached to the 2006 amended UNCITRAL Model Law, the secretariat explains that: ‘The need for improvement and harmonization was based on findings that national laws were often particularly inappropriate for international cases.'

In particular, the rationale behind the Model Law is to avoid that states, through their national laws:

  • ‘equate the arbitral process with court litigation';
  • provide for an intrusive role of the state courts; and
  • apply indifferently the regime set forth for domestic arbitration to international commercial arbitration.

The Italian legislature seems to have complied with the UNCITRAL directives. It is true that Italy follows a ‘monistic' approach whereby domestic and international arbitrations are mostly governed by the same rules. However, such rules are generally ‘arbitration friendly' and in line with the most advanced legislations.

The foundation is article 816 bis CCP, according to which the parties in the arbitration agreement, and the arbitral tribunal after its constitution, are free to set such rules for the conduct of the arbitration as they suit them best. By so doing, they may derogate from all the rules applicable to Italian court proceedings, as long as the principles of due process and equality of the parties are both fulfilled.

Moreover, awards, in principle, cannot be reviewed on their merits and challenged for errors in the application of the law, unless the parties have expressly agreed to such a remedy or the same is contemplated by special provisions of law (eg, article 36 of Legislative Decree No. 5 of 17 January 2003 on company law arbitration). Of course, awards can always be set aside if they conflict with public policy, but this ground is only rarely applied by Italian courts.

Furthermore, arbitral tribunals are deemed to perform a jurisdictional function (as recently confirmed by the Italian Supreme Court in its landmark decision 24153/2013 of 25 October 2013). Indeed, article 824 bis CCP expressly states that awards have the same effects as judgments.

In addition, the role of the Italian state courts is tailored in such way as to assist the parties and arbitral tribunals in the organisation of the proceedings, their intervention being limited to cases of stalemate that the arbitral tribunal may not overcome. For instance, the last paragraph of article 832 CCP - which is dedicated to administered arbitration - calls for the intervention of national courts in the only case where the relevant arbitral institution refuses to administer the procedure.

Similarities and differences between the UNCITRAL Model Law and the Italian law of arbitration

While the Model Law regulates arbitral proceedings related to ‘matters arising from all relationship of a commercial nature, contractual or not' (article 1), Italian law does not make any distinction between commercial and non-commercial matters and, as expressly stated at article 808 bis CCP, applies as well to arbitration related to the settlement of non-contractual disputes.

Both laws require that, to be valid, an arbitration agreement must be in writing (article 7.2 of the Model Law and articles 807.1 and 808.1 CCP). Pursuant to article 4.2 of the PIL, where the parties have excluded the jurisdiction of Italian courts to vest it with a foreign-seated arbitral tribunal, the written form is only required for evidentiary purposes.

The Model Law and Italian law are slightly different also as to the regime applicable to the challenge of the arbitrators. According to article 13 of the Model Law, if the parties do not indicate what the relevant procedure is, it is for the arbitral tribunal to decide. In this latter case, the parties may challenge the decision of the arbitral tribunal before the national courts. To the contrary, the CCP provides that it is always for the national courts to decide on the challenge of an arbitrator (article 815). Such rule does not apply whenever the parties opted for an administered arbitration. In that case, according to article 832 CCP, the institutional rules prevail.

The difference between the Model Law and Italian law is more evident as to the recognition of the Kompetenz-Kompetenz principle, which the Model Law expressly recognises in both its ‘positive' and ‘negative' dimensions. Under article 16 of the Model Law, the arbitral tribunal may rule on its own jurisdiction, including any objections related to the existence and validity of the arbitration agreement, either as a preliminary question (in which case its decision may be appealed within 30 days from its notice) or in an award on the merits. Under article 8 of the Model Law, a state court is under the obligation to refer the parties to arbitration unless it finds that the arbitration agreement is null and void, inoperative or incapable of being performed.

Article 817.1 CCP of the Italian law of arbitration is consistent with the Model Law when it provides that it is for the arbitral tribunal to rule on the validity, content and scope of the arbitration agreement. However, with respect to the negative effect of the Kompetenz-Kompetenz principle, the Italian regime is more complex. Pursuant to article 819 ter paragraph 3 CCP, if arbitration has not yet commenced, national courts may rule on the validity, content and scope of an arbitration agreement. It should be pointed out, though, that the decision of the national courts is based on a prima facie analysis, does not have res judicata effects and, most importantly, is not binding on the arbitral tribunal. Moreover, whenever an Italian court is seized with a dispute that falls within the scope of an arbitration agreement, the respondent is entitled to challenge its jurisdiction, provided that this is done in its first defensive brief under penalty of forfeiture. The decision on jurisdiction of a court can be directly appealed before the Italian Supreme Court through a particular, and pretty fast, procedure (articles 819 ter, 42 and 43 of the CCP).

Another discrepancy between the Model Law and Italian law concerns interim measures. Article 17 of the Model Law grants to the arbitral tribunal the right to issue interim measures enforceable by the national courts, or preliminary orders ex parte which are directed only to the parties and do not require the intervention of the national courts, while under Italian law the power to grant interim measures is reserved to state courts. Indeed, according to article 818 CCP, an arbitral tribunal cannot grant seizures and other provisional measures. This restriction is predicated on the fact that arbitrators, as opposed to national courts, cannot exercise coercive powers on the parties and therefore cannot enforce provisional measures.

Admittedly, in this respect Italian law deviates from the trends prevailing in international arbitration and lags behind the most advanced jurisdictions. The importance of this provision, however, should not be overestimated. First, article 818 CCP does not mean that arbitrators cannot grant provisional measures at all. The best view is that the only effect of article 818 CCP is to exclude that provisional measures granted by an arbitral tribunal are enforceable by an Italian court. Indeed, an arbitral tribunal sitting in Italy may order provisional measures, and these measures may still be of use to the parties to the extent that they can be spontaneously complied with or enforced by a foreign court.

Second, the prohibition set out by article 818 CCP applies ‘except if otherwise provided by the law'. One such exception is contained in the special rules applicable to company law arbitration when they authorise arbitral tribunals to suspend the effects of shareholders' meeting resolutions (article 35.5 Legislative Decree No. 5 of 17 January 2003). Another exception can be drawn from article 832 CCP, according to which if the parties have submitted their dispute to an administered arbitration the relevant institutional rules prevail over any conflicting provisions of the CCP. If, as often happens, the institutional rules grant to the arbitral tribunal the power to issue interim measures, then such power can be exercised also when the seat of the arbitration is in Italy.

The Model Law (articles 18 and 19) and Italian law (article 816 bis CCP) are consistent in providing that the rules of the procedure can be freely fixed by the parties or, failing them reaching an agreement, by the arbitral tribunal, with the only limit of the respect of the principles of equality of arms and contradictoire. A peculiarity of Italian law, however, is that the parties enjoy such freedom until the time in which the arbitral tribunal is constituted. Afterwards, it is for the tribunal to decide in its discretion which rules apply to the procedure (even though in the practice of Italian arbitrations arbitral tribunals rarely disregard the parties' joint indications, if any).

Furthermore, the Model Law and Italian law partly differ in relation to the means of recourse against the awards and to their recognition. As regards the setting aside of an award, article 829.1 CCP parallels article 34.2 of the Model Law but for the fact that it provides for certain additional grounds on the basis of which the validity of the award can be challenged. In fact, under Italian law an award can be set aside also if:

  • it does not include a brief statement of the reasons, the decision on the disputed issues, the signature of the arbitrators;
  • it has been rendered after the expiry of the time limit by which the arbitral tribunal is required to render the award;
  • during the proceedings the formalities prescribed by the parties under express sanction of nullity have not been observed and the nullity has not been cured;
  • the award is contrary to a previous award which is no longer subject to recourse or to a previous judgment having the force of res judicata between the parties, provided that such award or such judgment has been filed in the arbitral proceedings;
  • the award terminates the arbitral proceedings without deciding the merits of the dispute when such decision was due; or
  • the award contains contradictory provisions.

It should be noted, however, that Italy is party to the 1961 Geneva Convention, which limits the scope of article 829.1 CCP. In fact, when the Convention applies, pursuant to its article IX, awards cannot be set aside on grounds other than those specifically listed in article V of the 1958 New York Convention.

Pursuant to article 831 CCP, awards can also be challenged through two other mechanisms: ‘revocation' and ‘opposition by a third party'. Revocation is an extraordinary means for challenging awards that are affected by serious ‘vices' (as set out in article 395 CCP), such as fraud of a party, forgery or discovery of unknown documents, fraud of an arbitrator. As to the opposition by a third party, this remedy can be used in those exceptional cases in which a third party can prove that the award prejudices its rights, as it may be the case for creditors when the award is the result of fraud carried out to their damage (article 404.2 CCP).

Beyond the Model Law: the (often unknown) qualities of the Italian law of arbitration

The Italian law of arbitration regulates in an ‘arbitration friendly' way various issues which are simply not addressed by the Model Law.

Among others, one can refer to the following provisions:

  • Article 808.2 CCP states that the authority to enter into a contract includes the authority to enter into the relevant arbitration clause. This avoids that the principle of ‘separability' - which is expressly recognised in article 808.1 CCP - may work also as a ground to challenge the validity of the arbitration agreement, when the signatory of the relevant contract had not been expressly granted the relevant powers.
  • Article 808 quater CCP lays out a principle in dubio pro arbitris, according to which in case of doubts over the scope of the arbitration agreement, this must be interpreted in the sense that it includes all disputes arising out from the relevant contract or legal relationship to which the parties have made reference.
  • Article 816 quater CCP deals with the complex issue of multi­party proceedings, regulating the procedure for initiating an arbitral proceeding, and more importantly, for the appointment of the arbitral tribunal.
  • Article 817 bis CCP, in line with the principle of procedural economy, grants the arbitral tribunal the power to decide on offset defences within the limits of the value of the main claim. This is so even if the offset defence is predicated on a legal relationship which does not fall within the scope of the arbitration agreement.
  • Article 819 bis No. 3 CCP entitles the arbitral tribunal to submit to the Italian Constitutional Court issues as to the consistency with the Italian Constitution of laws that it has to apply.
  • Article 819 CCP grants to the arbitral tribunal the power to decide incidenter tantum all issues that are relevant for the decision of the dispute, even if they relate to matters that are not arbitrable, with the only exception of issues which the law requires to be decided with res judicata effect.
  • Article 830.2 CCP provides that in the event an award is set aside by the competent Court of Appeal and one of the parties to the arbitration agreement is resident or has its effective seat abroad, such Court is competent to decide on the merits of the dispute only if the parties have so agreed in the arbitration agreement or in another instrument.

Conclusions

To evaluate the quality of the Italian law of arbitration, one must first consider what parties engaged in international business normally look for when they decide to settle their disputes through this special instrument.

Parties choose arbitration instead of national courts for its well-known advantages: a neutral court; the specialisation of the arbitrators compared to that of national judges; and the opportunity to obtain a final and binding decision in a short time. This does not mean, however, that by choosing arbitration the parties wish to completely opt out from state jurisdiction. In fact, parties want the award to be not only binding but also enforceable. And the enforcement of the award, as the enforcement of the arbitration agreement, often requires recourse to the cooperation of one or more states. In particular, courts of the state where the arbitration is seated and of other states may assist the parties in: putting the arbitration process in motion; gathering evidence; granting interim protection to their interests; checking that the arbitral proceedings are conducted in compliance with principles of due process and fair trial. Most importantly, the intervention of state courts is needed when the award is not spontaneously complied with and recourse to the state power of coercion is required to achieve its enforcement.

So, to be ‘good', an arbitration law must, inter alia, manage to strike a fair balance between the autonomy of the parties (and therefore of the arbitral tribunal in governing the proceedings) and the control on arbitration - whatever its latitude - state courts have to perform.

The comparison between the Model Law and the Italian law of arbitration carried out above shows that Italian law recognises and promotes party autonomy (and arbitral tribunals' autonomy). It also recognises that arbitration has a jurisdictional nature. Arbitration is not treated as a purely private business that concerns only the parties and the arbitrators. This results in granting to the arbitral tribunal powers similar to those enjoyed by national courts (eg, the power to trigger the constitutional review of legislation), but also requires arbitral tribunals to follow certain patterns that are typical of judicial decision-making in modern legal systems governed by the rule of law (eg, by requiring awards to spell out the reasons of the decision, by mandating that the rules applicable to the proceedings be always consistent with principles of due process and fair trial).

Certainly, the Italian law of arbitration is not perfect and can be improved. However, the intersection between party autonomy, powers of the arbitral tribunal and supervision of national courts, seems to offer the parties involved in international business an efficient system - similar and in certain aspects better than the one set up by the Model Law - through which they may efficiently resolve their disputes.

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Massimo Benedettelli
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