Preliminary agreement and arbitration clause

An arbitration clause stipulated in the preliminary agreement (that is, a kind of agreement to agree, which is enforceable under Italian law) was not included in the final agreement. In any case, the disputes concerning the later have to be referred to the Arbitral Tribunal. This was the ruling of the Court of Appeal of Venice (decision no. 2361 of 12 October 2015 of the I Civil Chamber of the Appeals Court of Venice, Italian text available here).

The case concerned a sale of shares agreement. A dispute arose when the parties had to determine the price that the buyer had to pay the seller.

The seller referred the dispute to arbitration pursuant to article 7 of the preliminary agreement. The Arbitral Tribunal ruled that the buyer had to pay the full price of the shares, as determined by the Arbitral Tribunal.

The buyer challenged the arbitration award on several grounds: lack of jurisdiction of the Arbitral Tribunal, contradictions of the reasoning, ultra petita and, as a consequence thereof, breach of adversarial principle.

However, the most interesting issue concerns the lack of jurisdiction of the Arbitral Tribunal. Such lack of jurisdiction would be the result of the absence of an arbitration clause in the final agreement. This clause was stipulated in the preliminary agreement, but was not stipulated again in the final agreement.

The Court of Appeal analyses this issue in depth.

The ruling of the Court of Appeal does not clarify if the claimant contested the jurisdiction of the Arbitral Tribunal during the arbitration proceedings. This is the duty of the parties, pursuant to 817(2) of the Italian Code of Civil Procedure. This provision states that: “The party that does not object in the first statement of defense subsequent to the arbitrators’ acceptance that they lack jurisdiction by reason of the non-existence, invalidity or ineffectiveness of the arbitration agreement, may not challenge the award on this ground, except in case of a non-arbitrable dispute.” Nevertheless, the Court analysed this ground and rejected the challenge. Therefore, I assume that objection was timely raised during the arbitration proceedings.

As said, the Court of Appeal of Venice rejected the challenge. The Court followed the argumentative line of the Supreme Court, whereby “the validity and efficacy of any arbitration clause must be evaluated separately from the agreement in which it is stipulated. Consequently the clause will be valid, despite not being included in the final agreement. The reason is that the preliminary agreement is separated from the final agreement and serves different purposes” (decision no. 22608 of 31 October 2011, of the I Civil Chamber of the Supreme Court, Italian text available here).

Once excluded that the arbitration clause is unenforceable because it was not stipulated again in the final agreement, the Supreme Court also ascertained that, in the case it decided, the jurisdiction to settle the dispute rested with the Arbitral Tribunal. On the contrary, the Court of Appeal of Venice did not examine this issue in its ruling. In any case, this issue could be deemed as redundant.  Indeed, article 808/quarter of the Italian Code of Civil Procedure states: “in case of doubt, any arbitration agreement shall be interpreted as covering all disputes arising from the agreement or the dispute to which the agreement refers.

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