Assignment of the arbitration agreement

Italian Courts set forth peculiar rules concerning the assignment of the arbitration agreement in case of assignment of credit. In this respect, a recent decision issued by the Court of first instance of Milan (Court of first instance of Milan, VII Civil Chamber, decision no. 8379 of 5 July 2016, Italian text available here) is worth a mention.

The case decided by the Court of Milan is particularly complex.  Therefore, the following outline is only focused on certain issues of the case; that is to say, those concerning the assignment of the arbitration agreement.

Two companies set up a joint-venture, won a tender for works and eventually set up a special purpose vehicle (a limited liability consortium).

The consortium bought certain goods to be used for the works. The purchase agreement contained an arbitration clause, which reads as follows: “Any dispute concerning the construction and/or performance of this contract shall be settled by an Arbitration Tribunal, whose decision shall be issued according to the law (…).” The obligations of the purchaser (the consortium) were secured by a guarantee issued by one of its members. Thereafter, a third party – the claimant – issued a further guarantee.

The purchaser (the consortium) breached its obligations, and the seller demanded the claimant to pay the guaranteed amount. The claimant did so and was eventually subrogated to the seller’s rights vis-à-vis the purchaser.

In the meantime, the purchaser went bankrupt. Therefore, the claimant brought proceedings against the parent company of the consortium, which in fact under Italian law is jointly and severally liable with it (Article 13(2) of Law no. 109 of 11 February 1994 and Article 96 of Presidential Decree no. 554 of 21 December 1999). 

The claimant was granted a payment order (which under Italian law is an ex parte order). The defendant appealed to the payment order and objected, among other things, to the jurisdiction of the State Courts because of the stipulation of the above-mentioned arbitration clause.

Italian Courts, as said, set forth peculiar rules concerning the assignment of the arbitration clause in case of assignment of credit. The assignee is not entitled to enforce the arbitration clause (that is to say, he cannot commence arbitration proceedings against the obligor); however, the obligor may object to the jurisdiction of State Courts, if the assignee commences litigation in Court.

In other words, any procedural choice made by the assignee would face a procedural objection raised by the obligor.

The Supreme Court sitting en banc, on the one hand, ruled that the assignee of a credit arising out of a contract containing an arbitration clause cannot object to the jurisdiction of State Courts: “Since (…) the assignment of contract under Articles 1406 ff. of Italian Civil Code does not entail (according to the prevailing case law) the assignment of the arbitration clause contained therein, a fortiori the arbitration clause is not assigned in the case of assignment of a credit arising out of a contract containing it. Indeed, the assignment of credit, which could be agreed even without the consent of the obligor (Article 1260(1) of Italian Civil Code), has narrower effects than the assignment of contract, as it only concerns the assignor’s credit under the contract and does not entail the assignment of the whole contract nor of other contractual rights and obligations (…) Accordingly, in case of assignment of a credit arising out of a contract including an arbitration clause, the assignee does not become a party to that clause, which in fact stands as a separate contract, and therefore it cannot enforce the arbitration clause against the obligor” (Supreme Court sitting en banc, decision no. 12616 of 17 December 1998, n. 12616, Italian text available here). 

On the other hand, the Supreme Court sitting en banc stated that the obligor may object to the jurisdiction of State Courts: “The above-mentioned doctrine is not disputed by the case law of this Court, whereby in case of assignment of a credit arising out of a contract containing an arbitration clause, the obligor is entitled to object to the jurisdiction of State Courts (…). Indeed, that case law does not deal with the case of the assignee: it deals with the case of the obligor, and its aim is not to deprive the obligor of its right to arbitrate. In fact, that case law found that: ‘otherwise, the obligor would be deprived of his right to arbitrate by virtue of an agreement to which he is not a party, that is to say, the assignment agreement entered into by the assignee and the assignor.’ The arbitration agreement is not assigned to the assignee: as already stated, he cannot enforce the arbitration clause, due to the fact that it stands as a separate contract. Nonetheless, it is settled case law (and the scholars agree) that the assignment cannot deprive the obligor of his objections. Therefore, he is entitled to raise vis-à-vis the assignee all the objection he could have raised vis-à-vis the assignor. (…) As a consequence, the obligor may object to the jurisdiction of State Courts due to the stipulation of an arbitration clause in the contract he entered into with the assignor” (Supreme Court sitting en banc, decision no. 12616 of 17 December 1998; that doctrine was subsequently upheld by the Supreme Court in a number of decisions: Supreme Court, II Civil Chamber, decision no. 24681 of 21 November 2006, Italian text available here; Supreme Court, VI Civil Chamber, decision no. 29261 of 28 December 2011, Italian text available here; Supreme Court, I Civil Chamber, decision no. 13893 of 19 September 2003, n. 13893, Italian text available here; and Supreme Court, I Civil Chamber, decision no. 6809 of 21 March 2007, Italian text available here).

The Court of Milan also confirmed that doctrine, since in the decision at hand it ruled that: “although the assignee of a credit arising out of a contract containing an arbitration clause does not become a party to that clause and therefore cannot enforce the arbitration clause against the obligor, the latter may enforce that clause against the former.” 

The objection raised by the obligor was therefore upheld by the Court of Milan which stated that the jurisdiction rested with the Arbitral Tribunal.

The above outlined doctrine of circulation of the arbitration agreement has been subject to criticism, both in terms of its theoretical foundations and in terms of its consequences. Nevertheless, such a doctrine do exist, and it is upheld by the Supreme Court as well as by lower Courts (for instance, by the Court of first instance of Modena, in its decision no. 807 of 23 May 2013, Italian text available here on the website of Giurisprudenza Modenese; and by the Court of Rimini, in its decision of 17 December 2015, Italian text available here on the website of Il Caso). Moreover, it is unlikely that it would be repealed, also because the (sporadic) divergent case law does not state an alternative doctrine (in this respect, for instance, see Supreme Court, I Civil Chamber, decision no. 17531 of 1 September 2004, Italian text available here).

In this framework, might the Court of Milan have reached a different solution? There is an issue with which the decision does not deal. Indeed, the defendant was not the obligor. It was a third party, jointly and severally liable with the obligor. Is that third party allowed to object to the jurisdiction of State Courts, because of the stipulation of an arbitration clause in the contract entered into by the assignor and the obligor?

Leave a Reply

Your email address will not be published.

 

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Browsing this website you accept the use of cookies. more info

PRIVACY POLICY
The following information is provided in accordance with Article 13 of Regulation (EU) 679/2018 ("GDPR"), to users who access the services available at https://www.arbitratoinitalia.it (“Site”). When consulting the Site, information concerning users may be collected that constitutes personal data under the Privacy Code. This information is provided exclusively for the Site and does not affect any other web sites accessible by the user through links provided on the same.
DATA CONTROLLER AND DATA PROCESSOR
Data Controller (Titolare del trattamento) is Arbitration in Italy Ltd, a company incorporated under English law, registered at No. 12459814, with registered office in 61 Bridge Street, Kington, HR5 3DJ, UK ("Company"). Data Processor (Responsabile del trattamento) is the Company's present legal representative.
PLACE OF DATA PROCESSING
The processing of data related to the web services on this Site is carried out at the premises of the Company set out above and is performed by internal personnel duly appointed as Persons in charge of processing (Incaricati del trattamento).
TYPES OF DATA PROCESSED
Surfing Data
During the normal operation, the computer systems and software procedures used to operate the Site acquire some personal data whose transmission is implicit in the communication protocols of the Internet. This information is not collected to be associated with identified persons, but by its very nature could, through processing and association with data held by third parties, allow identification of users. This category of data includes IP addresses or domain names of computers used by users who connect to the Site, URI (Uniform Resource Identifier) of requested resources, the time of the request, the method used to submit the request to the server, the size of the file obtained in reply, the numerical code indicating the status of the response from the server (successful, error, etc.) and other parameters regarding the operating system and computer environment. These data are used only to obtain statistical information about the site and its use and to check its correct functioning and are deleted immediately after processing. The data could be used to ascertain responsibility in the event of possible computer crimes committed against the Site: except in this case, the data on web contacts are kept for a maximum period of seven days.
Data provided voluntarily by the user
The sending of optional, explicit and voluntary e-mails to addresses shown on this Site, and the filling in of forms specifically provided involve the subsequent acquisition of the sender’s e-mail address and the additional personal data provided in the electronic communication, together with the sender/user’s data necessary to respond to requests as well as to provide the service. Specific summary information will be provided in relation to specific services.
COOKIES
Cookies are data files which some websites, while visited, can send to the user with the scope of tracing its path inside the site and collect data in anonymous form, in order to enhance the offer and the use of the site. The Company does not use information technology for the direct acquisition of personal data by which the user can be identified. Cookies for the transmission of personal information or systems for the tracing of users are not used. The Company uses so-called technical cookies only with the scope of rendering browsing the Site possible and to make it possible for the user to use its functions. Some technical cookies are necessary in order to optimize the use and have the user accredit itself with the Site, for example in order to enter a restricted area (so-called browser cookie). The browsing cookies are session cookies and are deactivated automatically once the browser is closed. For the installation of these cookies it is not necessary to collect the consent of the user. The Company uses furthermore analytic cookies of thirds parties by which information on the interaction of the visitor with the content of the Site is obtained (most frequently used pages, time of use, etc.) and which thereby provide statistic information which makes it possible to optimize the Site and to enhance its use.
OPTIONAL DISCLOSURE OF DATA
Unless specified for surfing data, the user is free to provide personal information in the application forms or otherwise indicate them in order to request any information packs or other communications. Failure to provide personal information may, however, make it impossible to fulfill the request.
MODALITY OF PROCESSING
Personal data are processed by automated tools for the time necessary to achieve the purposes for which they were collected. Specific security measures have been taken to prevent loss of data, unlawful or incorrect use and unauthorized access.
PURPOSE OF PROCESSING - COMMUNICATION AND DISSEMINATION OF DATA
The personal information provided by users who request dispatch of information packs or rendering of services is used only to provide the service requested and may be disclosed to Company’s employees and consultants, duly appointed as Persons in charge of processing, as well as third parties that render ancillary or instrumental services to the activity of the Company and which are appointed as Data Controllers. There will not be any other communication of data to third parties, except upon request of public authorities. The data collected will not be disseminated.
RIGHTS OF DATA SUBJECTS
Data subjects are entitled, pursuant to Article 12 of the GDPR, to obtain, at any time, confirmation of the existence of the data and to know their origin, verify their accuracy or request their integration, updating or correction. Pursuant to this article data subjects shall have the right to request cancellation, anonymization or blocking of data processed in violation of the law, and in any case, to object on legitimate grounds to their processing. Requests should be sent to the Data Processor, at the above address or by email to privacy@arbitratoinitalia.it.

Close