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A recent decision issued by the Court of Appeal of Genoa (decision No. 1215 of 27 August 2019, Italian text available here) addresses a topic of great interest: the application of iura novit Curia principle in arbitration proceedings.
The case heard by the Court can be summarised as follows.
The claimant, an individual, had entered into an agreement with the respondent, a local health authority, providing for the payment to the respondent of the amount of (then) ITL 1,500,000,000, to be used to build a hospital dedicated to the memory of the claimant’s father.
At a later time, the claimant sued the local health authority claiming the return of the paid amount under the said agreement.
The dispute was referred to an arbitral tribunal.
In the claimant’s case, the payment of ITL 1,500,000,000 to the local health authority would be a donation, which was null and void since under Italian law a donation has to be made by notarial deed in the presence of two witnesses and the agreement at hand was a private contract.
The respondent objected that the donation was valid, as it was of low value having regard to the claimant’s assets and income (under Italian law, the formal requirements are lifted in case of low-value donations).
The Arbitral Tribunal did not accept either of these arguments. In fact, it considered that the contract was not a donation (under Article 769 of the Italian Civil Code). In the Tribunal’s opinion, the contract was an indirect donation under Article 809 of the Italian Civil Code, since the donor’s intent concerned the realisation of the hospital (and not the giving of a sum of money).
The formal requirements required for a donation are not required for an indirect donation; as a consequence, the characterisation of the contract made by the Arbitral Tribunal resulted in the rejection of the claimant’s claims.
The claimant requested the Court of appeal of Genoa to set aside the award, in particular claiming that the characterisation of the contract, made by the Arbitral Tribunal without accepting any of the parties’ views, would constitute a decision outside the scope of the arbitration agreement, a violation of Article 112 of Italian Code of Civil Procedure and a failure to issue a decision on the parties’ requests.
The Court of Appeal rejected this claim.
The appellate judges referred to the principles laid down by the Italian Supreme Court with reference to proceedings in Courts, which they considered also applicable to arbitration proceedings. According to these principles, the Court is allowed to freely characterise the case facts and the relevant relationship, seek the applicable law rules and apply rules different from those indicated by the parties. On the contrary, the Court cannot issue a decision on requests, issues and objections not raised by the parties nor examine non-pleaded facts (see for instance Italian Supreme Court, VI Civil Chamber, decision No. 8647 of 9 April 2018, No. 8647, available Italian text available here).
Since in the case at hand the Arbitral Tribunal did not examine non-pleaded facts and only characterised the contract, the Court of Appeal considered that it had correctly applied the iura novit Curia principle, and therefore rejected the ground of appeal.
The Court also rejected another ground of appeal, whereby the claimant claimed a violation of due process, alleging arising out of the fact that the Tribunal chose a characterisation of the contract different from those indicated by the parties, without hearing them on the point.
First of all, the Court of Appeal found that the parties were well aware of the fact that the Tribunal would have addressed the characterisation issue in order to issue its decision on the merits. In addition, the Court referred to the Italian Supreme Court case law, whereby a so-called “third way” decision can only be challenged: (i) if the Judge misapplied the law (if the decision only concerns matter of law); or (ii) if the parties were prevented from presenting their case (if the decision concerns matter of facts and law): for instance, if a party was prevented from raising objections or bringing evidence to counter the characterisation chosen by the Judge (see for instance Italian Supreme Court, I Civil Chamber, decision No. 2984 of 16 February 2016, Italian text available here). In the case at hand, the claimant did not even indicate how and why he was prevented from presenting his case: therefore, the appeal was rejected.
In my opinion, the decision of the Court of Appeal represents a good balance between the application of iura novit Curia principle, on the one hand, and due process and parties’ right to present their case, on the other hand. In effect, not surprisingly similar principles are also followed in other civil law jurisdictions: for instance, in Switzerland, where Arbitral Tribunals may rely on legal arguments or characterisations the parties did not plead, as long as the parties are not “caught by surprise”; otherwise, they shall inform the parties and hear them (in this regard, the leading case is the Tvornica decision of 30 September 2003 of the Swiss Federal Court).