Extended effects or separability doctrine?

Two virtually simultaneous decisions, issued by two different lower Courts, reached opposite conclusions (Court of Catania, decision No. 1020 of 13 March 2020, Italian text available here; and Court of Milan, decision No. 2091 of 11 March 2020, Italian text available here).  The legal grounds of both these decisions are indicated under Article 118, para. 1, of the Implementing Provisions of Italian Code of Civil Procedure.  In other words, they merely refer to judicial precedents.

In its decision of 11 March 2020, the Court of Milan held that an arbitration clause contained in a company’s articles of association may be enforced towards a former shareholder, provided that the relevant dispute refers to the corporate relationship, regardless of when it has been brought.

In its decision of 13 March 2020, the Court of Catania reached the opposite conclusion: the arbitration clause cannot be enforced towards a former shareholder.

The case heard by the Court of Milan concerned the member’s obligation to contribute to a consortium company, while the case heard by the Court of Catania concerned the repayment of a shareholder loan, but the opposite outcomes of the decisions do not arise of these details.

The Court of Catania refers to the authority of Italian Supreme Court, VI Civil Chamber, decision No. 21036 of 11 September 2017.  In that case, the Supreme Court held that the arbitration clause contained in the articles of association of the company, which in the meantime had transformed into a limited liability company, was not enforceable against the member who had withdrawn from the company, when it was a general partnership.  The reason is clear: given that the withdrawal immediately produces its effects, the former member “is (…) no longer part of the corporate relationship that continues in the different form resulting from the transformation.  Therefore, the clauses of the articles of association, governing the company in its new form, cannot be enforced against her”.

The case heard by the Court of Catania was completely different.  As far as it can be understood in the light of the content of the decision, the arbitration clause was included in the articles of association also before the shareholder dismissed her shares.

As a consequence, the mere reference to the said judicial precedent amounts to a proper lack of grounds of decision: not only in the light of the fact that the precedent referred to a different situation, but because it is precisely based on the peculiarities of that different situation.

The decision of the Court of Milan appears more grounded, in that it is more appropriate in relation to the specific case the Court heard.

The Court of Milan first of all refers to the authority of another decision issued by Italian Supreme Court: Italian Supreme Court, I Civil Chamber, decision No. 565 of 22 January 1999.  That decision concerned a quite different case, concerning a contractual dispute.  However, a principle laid down by the Supreme Court is also relevant in the case heard by the Court of Milan: “all disputes concerning the contract are referred to arbitration, under the relevant clause, including the disputes concerning the contract very existence, its validity, termination, and fulfilment, even if they arise after the termination of the contractual relationship between the parties, as long as they concern the contractual relationship”.

Previous decisions issued by the same Court of Milan (issued on 15 July 2017 and 23 January 2017) upheld this principle, laid down with respect to contractual disputes, taking account of the peculiarities of corporate disputes.

Both these decisions underline a crucial aspect: also in corporate matters, “arbitral agreements (…) concerning certain disputes have to be construed in accordance with separability doctrine, so that they will survive the termination of the relevant contract (…) and are not affected by the unenforceability of (other) contractual provisions”(2014 decision) . In other words, “the issue of enforceability of the clause (…) has to be addressed in the light of separability doctrine, which is now expressly provided for by the law in force” (2017 decision).

Separability doctrine means that the arbitration clause is enforceable even though the relevant contract is unenforceable or terminated.  There is no reason, on a logical or legal basis, why the separability doctrine should not apply to arbitration clauses contained in companies’ articles of association.  As a consequence, in the event of termination of the said articles – complete termination (as in the case heard by the Court of Milan in 2017) or limited to a sole shareholder (as in the other cases) – the arbitration clause is enforceable.  This is not a consequence of the clause having extended effects, but a correct application of separability doctrine.

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