Corporate arbitration: and yet it moves!

A recent decision by the Court of first instance of Florence (decision no. 1129 of 21 March 2016 of III Civil Chamber of the Court of first instance of Florence, Italian text available here) re-opens the debate on the topic of arbitrability of corporate disputes, and it is particularly notable for the clarity of its reasoning.

We previously talked about this topic on several occasions (for instance, on this post, on this one and this one as well).

The case decided by the Court of Florence may be summarised as follows.

A member of a cooperative company of taxi drivers was excluded from the company (firstly by a resolution passed by the company’s General Meeting and thereafter by another resolution passed by the company’s Board of Directors), due to his alleged improper behaviour (hoarding of clients damaging his colleagues).

The taxi driver challenged before the Court both the resolutions above mentioned (the General Meeting resolution and the Board of Directors one).

The cooperative company appeared in Court and objected to its jurisdiction. Indeed, the company’s Articles of association contain an arbitration clause (Articles 44 and 45) whereby any dispute concerning the corporate relations (apart from those for which the law provides for the intervention of the Public Prosecutor) shall be referred to a sole arbitrator.

The Court of Florence checked whether the dispute at hand was capable of arbitration and ruled that it was.

First, Article 2533(3) of the Italian Civil Code (whereby the excluded member of a cooperative company is entitled to challenge the company’s resolution “before the Court“) does not exclude the jurisdiction of the Arbitral tribunal.

In fact – and this is the most interesting point in the ruling of the Court of Florence – “The sole disputes which are not capable of settlement by arbitration are those disputes concerning non-negotiable rights, that is, the disputes concerning an (alleged) incurable nullity.” In other words, “A non-negotiable right (…) is other than a right provided for by a mandatory law rule. Indeed, only a non-negotiable right is enforceable and actually enforced regardless of the conduct of the parties, in order to protect the public interest; moreover, the violation of a non-negotiable right entails an incurable nullity.” 

Therefore, the Court of Florence ruled that, if a resolution of the company’s General Meeting is challenged due to an alleged lack of notice, the lack of the minutes and even if its object is not possible or unlawful, the relevant dispute is capable of arbitration. In fact, the invalidity at hand is cured if no challenge is filed within three years (counting from the registration or filing of the resolution with the Companies’ Register or its transcription in the Book of General Meetings, as the case may be: Article 2379(1) and Article 2479.ter(3) of the Italian Civil Code).

On the other hand, a resolution modifying the corporate purpose by providing illegal or impossible activities is null and void and may not be cured (in fact, it may be challenged without time limit).  As a consequence, the disputes concerning that resolution are not capable of settlement by arbitration.

Therefore, the disputes concerning the resolutions passed by the Annual General Meeting, whereby the company’s financial statements are approved, are always capable of arbitration, irrespective of the reasons of their challenge. The Court of Florence did not explicitly make that statement, but it is a clear and obvious consequence of its reasoning. In fact, the invalidity of the above mentioned resolutions is cured if no challenge is filed before the approval of the following financial statements (Article 2434.bis of the Italian Civil Code).

In other words, the Court of first instance of Florence superseded the case law of the Supreme Court, which I have analysed before (for instance, on this post). According to the Supreme Court case law, a dispute concerning resolutions approving financial statements is not capable of arbitration if the claimant claims that the content of the financial statements is inaccurate.  That case law is now reversed by a statement of the same Supreme Court: “The sole disputes which are not capable of settlement by arbitration are those disputes concerning non-negotiable rights, that is, the disputes concerning an (alleged) incurable nullity.” (decision no. 15890 of 20 September 2012 of the VI Civil Chamber of the Supreme Court, Italian text available here).

And yet it moves!

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