The relationship between arbitration and judicialĀ proceedings was the topic of a rulingĀ of the Italian Supreme Court (orderĀ no. 783 of 19 January 2016 of the III Civil Chamber, Italian text available here). In this ruling, the Supreme Court came to the right conclusion that it is not allowed to order the stay of proceedings pending before a Court while awaiting the decision in proceedings pending before an Arbitral Tribunal. However, the Supreme Court’s reasoning is not entirely correct. This is the reason why I would like to briefly discuss itsĀ ruling.
The case may be summarised as follows. TwoĀ lawsuitsĀ (a case concerning the dissolution of joint ownership and another one concerning the opposition to a payment order) were jointly heard byĀ the Court of first instance. At the same time, other proceedings were pending before an Arbitral Tribunal. The subject matter of the arbitral proceedings cannot be grasped by reading the Supreme Court’s ruling; howeverĀ theĀ Court of first instance stated that the solution of the proceedings pending before it depends on the solution of the case pending before the Arbitral Tribunal. Ā Therefore, the Court of first instance ordered the stay of the judicial proceedings, according to Article 295 of the Italian Code of Civil Procedure.
The stay order has been appealed, pursuant to Article 42 of the Italian Code of Civil Procedure.
The appeal was accepted by the Supreme Court, which brought the parties back to the Court of first instance.
The Supreme Court referred toĀ a precedent on this matter (decision no. 22380 of 1 October 2009, III Civil Chamber of the Italian Supreme Court). Ā The Supreme Court, in that case, ruled that Article 295 of the Italian Code of Civil Procedure does not apply to the relationship between arbitration and judicialĀ proceedings, as per Article 819/terĀ of the Italian Code of Civil Procedure.
Such opinion is right. Article 819/ter(2) of the Italian Code of Civil Procedure states that āthe provisions corresponding to Articles 44, 45, 48, 50 and 295 shall notĀ be applicableĀ to the relations between arbitration and judicialĀ proceedings.ā
The Italian Constitutional Court in its decisionĀ no. 223 of 19 July 2013 (Italian text available here) ruled that the above mentioned provision was constitutionally unlawful. More specifically, the Constitutional Court ruled that it was unlawful to exclude the application of Article 50 of the Italian Code of Civil Procedure to the relationship between arbitration and judicialĀ proceedings. However, the inapplicability of Article 295 of the Italian Code of Civil Procedure (which governsĀ the stay of proceedings)Ā has never been questioned.
The lawmakersĀ explicitly chose that arbitration and judicialĀ proceedings will have to simultaneously continue. If the arbitration proceedings deal with a preliminary issue key to the judicial proceedings (as it happened in the case at hand), the Court may decide this issue without force of res judicata, unless the arbitral award has become final. In that case, which I believe more often happens (taking into account the average duration of Court proceedings in Italy), the Court will be bound by the decision of the Arbitral Tribunal.
The decision of the Supreme Court is right: therefore,Ā where is itsĀ mistake?
The Supreme Court accepted the findings of the State Prosecutor. And the State Prosecutor’s reasoning was wrong.
Indeed, the State Prosecutor in hisĀ written submissions to the Supreme Court statedĀ that: āthe private nature of the arbitration proceedings excludes the possibility of any contrastĀ between CourtĀ decision and arbitral awardĀ and, as a consequence, prevents theĀ stayĀ of proceedings pending before the Court.ā
Nevertheless, Article 824/bisĀ of the Italian Code of Civil Procedure states that āthe award shall have the same effects as aĀ judgment renderedĀ by the judicial authority.” In other words, there is a risk of conflict between the Court decisionĀ and the arbitral award. Therefore, “the private nature of the arbitration proceedings” is not the reason why it is not allowed to stay proceedings pending before aĀ Court awaiting the decision of the Arbitral Tribunal. Ā The reason is the law rule contained in Article 819/ter (2) of the Italian Code of Civil Procedure.