A proposal for Italian arbitration

In order to access the Recovery Fund, EU member States are required to draft a “National Recovery and Resilience Plan”, consistent with the specific recommendations the Europen Commission addressed them.

In that perspective, Italian government recently made available a preliminary document, headed “Guidelines for the definition of the national recovery and resilience plan” (Italian text available here). A short, forty-page document, with two pages only on Italian judicial system.

In fact, the said guidelines contain vague indications with respect to Italian judicial system and Italian justice: they only claim a number of nebulous, undefined proposed goals (shortening the duration of Court proceedings; reforming codes of civil, criminal and tax proceedings; planning interventions on the Italian judiciary organisation). Nothing else.

Following the publication of these guidelines, Unione Nazionale delle Camere Civili, that is to say, the association representing Italian civil lawyers, published its proposal for an extraordinary plan for civil justice (Italian text available here). It took an admirable initiative, as it triggers (or it could be able to trigger) a broad debate on possible specific, practical measures.

Unione Nazionale delle Camere Civili submitted two proposals with respect to arbitration in Italy.

The first proposal is to “introduce mandatory arbitration (possibly in the form of the sole arbitrator), in some matters and with value limits, (…) providing (in order to avoid possible violations of art. 102 of Italian Constitution) that the award would be capable to be enforced, without having res judicata effect (as it is currently the case of proceedings under Article 700 of Italian Code of Civil Procedure)“.

The second proposal is that of “providing arbitrators, at least in some matters, with the powers to issue precautionary and/or urgent measures“.

At first sight, the purpose of both proposals seems that of employing arbitration as a tool to deflate litigation proceedings in Courts.

It is not the question if this purpose brings justice to the potential of arbitration. However, it is necessary to question whether these proposals serve to their seeming purpose.

First of all, the issue of mandatory arbitration. This kind of arbitration is not allowed in Italy and, in this respect, Italian Constitutional Court laid down clear principles in its decision No. 127 of 14 July 1977 (Italian text available here), later upheld in decision No. 221 of 8 June 2005 (Italian text available here). The reason is simple: arbitration is a dispute resolution mechanism based on consent. And this consent cannot be replaced by an obligation arising out of an act of Parliament.

The drafters of the said proposal are aware of the above issue and they suggest to overcome it by transforming the award into a decision capable of being enforced, but not capable to have res judicata effect.

It is not clear how this mechanism could actually operate; in any case, it is obvious that, if the award does not have res judicata effect, that mandatory arbitration would not be able to deflate litigation proceedings in Courts (as the so-called deflationary arbitration was unable to reach that purpose  under Law Decree No. 132 of 12 September 2014).

The second proposal made by Unione Nazionale delle Camere Civili is that of granting Italian Arbitral Tribunals with powers to issue interim orders, as they are allowed to do in corporate matters (under Article 34 of Legislative Decree No. 5 of 17 January 2003) or could essentially do by using particular mechanisms (as those provided for by the Arbitration Rules of the Arbitration Chamber of Milan, which entered into force in March 2019; it is however worth noting that until now the mechanism provided for by the said Arbitration Rules has not been applied).

This reform was widely requested and it could finally align Italian arbitration law to the laws enacted in other similar jurisdictions, thus abandoning the restricted club of jurisdictions reserving interim powers to State Courts.

However, a third proposal, which should be the main proposal, is missing. A proposal aimed at encouraging the use of arbitration.

There are two issues that severely limit the spread of arbitration in Italy.

The first issue, thoroughly analysed in a recent study (available here), is that of the lack of trust in arbitration. This is a matter of considerable importance and, in order to properly address it, many efforts are required on the part of Italian practitioners.

The second issue concerns the costs of arbitration. Costs of State Courts are almost exclusively borne by Italian taxpayers, while costs of Arbitral Tribunals are entirely borne by the parties. It is clear that effective action should be taken to address this issue. First of all, that issue could be addressed by exempting from stamp duty all written submissions filed in arbitration proceedings (they are now taxed at the rate of Euro 16 every four pages). In addition, that issue could also be addressed by exempting the award from registration tax (it is now subject at the same rate as decisions issued by State Court). Lastly, if arbitration has to be deemed as a positive externality, in that it could be used as a tool to deflate proceedings in Courts, proper incentives have to be provided. In that perspective, a suitable incentive could be that of granting the parties with a tax credit, proportionate to the costs they incurred in the arbitration proceedings (excluding attorneys’ fees).

 

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