In certain cases, Italian law requires the joinder of certain parties to the proceedings. For instance, as a general rule, the action aimed at setting aside a contract requires the joinder of all parties thereof.
The topic of such compulsory joinder in arbitration proceedings is partly governed by statutory law (Articles 816-quater and 816-quinquies of the Italian Code of Civil Procedure); nonetheless, its implementation gives rise to several turmoils (as it was noted by a learned author).
What happens if the party whose joinder is required by law is not joined to the proceedings? A possible answer to that question is provided by the Court of Appeal of Campobasso, in its recent ruling (No. 367 of November 7, 2019, Italian text available here).
The Court of Appeal heard a case of corporate arbitration.
A shareholder of a limited liability company sued the liquidator of the company claiming its liability under Article 2476 of the Italian Civil Code in the arbitration proceedings provided for by the company’s articles of association.
The action brought by a shareholder under the said Article 2476 of the Italian Civil Code is a derivative action (in some respects, it is quite similar to Part 11 procedure under English Companies Act 2006), requiring the joinder of the company.
In the case at hand, the company was not joined to the arbitration proceedings.
As a consequence, the liquidator seised the Court of Appeal of Campobasso, requesting to set aside the award, due to a violation of due process, consisting in the fact that the company was not joined to the proceedings.
The Court of Appeal rejected the said request. Its reasoning appears wrong in many respect; nonetheless, it could be maintained that the Court reached a conclusion in line with principles recently laid down by the Italian Supreme Court.
First of all, the Court of Appeal noted that the company was a party to the proceedings since the liquidator was sued "in his capacity as liquidator" of the company. At most, this fact could give rise to a conflict of interest; nonetheless, since the said conflict was not pleaded by the parties, the Court was prevented to set aside the award based on it.
In my opinion, the Court was wrong: the liquidator was a party to the proceedings, while the company was not, as it is clearly demonstrated by the fact that the Arbitral Tribunal ascertained the liquidator’s liability and ordered the liquidator to pay damages.
The Court of Appeal also added that the failure to join a party whose joinder is required by law does not constitute a ground for setting aside an arbitration award under Article 829 of the Italian Code of Civil Procedure. In particular, the said failure is not relevant under Article 829 No. 9 ("if the parties were prevented from presenting their case during the arbitration proceedings"), nor under Article 829 No. ("if the award […] has decided the merit of the dispute in all other cases in which the merits could not be decided").
Once again, in my opinion the Court of Campobasso was wrong. Indeed, I maintain that the Court of Appeal of Milan was right in its decision of 1st July 2014 (published on Riv. Arb., 2015, p. 83 ff.), whereby it laid down the principle that "failure to join to the proceedings a party whose joinder is required by the law […] shall be considered as included in the ground – provided for by the second part of No. 4 of Article 829, paragraph 1, of the Italian Code of Civil Procedure – concerning the case in which the Arbitral Tribunal decided the merits despite the failure of a procedural requirement other than those considered in the list of paragraph 1 of Article 829 of the Italian Code of Civil Procedure". Scholars’ opinion agrees.
The Milan Court of Appeal held that in the case it heard, there was no party whose joinder was requested by the law and its decision was later upheld by the Italian Supreme Court in its decision No. 3481 of 23 February 2016 (Italian text available here).
Another argument put forth by the Court of Appeal of Campobasso is that the liquidator’s claim was precluded under Article 829, para. 2, of the Italian Code of Civil Procedure, whereby "the party who […] has not objected to the violation of a rule regulating the course of the arbitral proceedings in the first statement or statement in reply subsequent to the violation, cannot challenge the award on this ground".
Nonetheless, as noted by learned authors, the violation at hand (the failure to join to the proceedings a party whose joinder is requested by the law) is committed when the award is issued; as a consequence, Article 829, para. 2, of the Italian Code of Civil Procedure does not apply.
Notwithstanding the above, it could be argued that the decision of the Court of Appeal of Campobasso reached a conclusion in line with the latest case law of the Italian Supreme Court.
In fact, the Italian Supreme Court recently ruled (in a case where a party whose joinder is required by the law was not joined), that a violation of procedural rules only is relevant (and leads to the setting aside of the judgment under appeal) if it amounts to a violation of due process (Italian Supreme Court, VI Civil Chamber, decision No. 20152 of 25 July 2019, Italian text available here), that is to say, if a party was actually prevented from presenting its case. As a consequence, the appellant has the burden of satisfying the Court that the violation of procedural rules actually prevented a party from presenting its case.
In the case heard by the Court of Appeal of Campobasso, the fact that the company was not joined to the arbitration proceedings apparently did not jeopardise its right to present its case (that was actually presented by its shareholder). As a consequence, in the light of the mentioned recent case law of the Italian Supreme Court, it could be maintained that the Court of Appeal was right in rejecting the request to set aside the award.
In any event, it is highly likely that the decision of the appellate Court would be appealed to the Supreme Court, and we could have the chance to further discuss the matter.