Roberto Oliva

A recent decision issued by the Court of Appeal of Milan (No. 1946 of 23 June 2021, Italian text available here) deals with a topic of great interest and practical relevance. This topic concerns the relationship between arbitration proceedings and parallel proceedings in a Court of law (which in that particular case were criminal proceedings).

The facts of the case heard by the Court can be summarized as follows.

In July 2014, two overseas companies entered into a contract for the sale of some special purpose vehicles in the photovoltaic business.

Profits in that business primarily derive from the contribution (s.c. feed-in tariff or FIT) granted by the State through GSE S.p.A., a private company owned by the Italian Treasury.

Shortly after the conclusion of said contract, and following investigations conducted by Italian financial police (“Guardia di Finanza”), GSE S.p.A. stayed the payment of the just purchased companies’ contribution, and even requested the return of the previously paid amounts.

The facts discovered by Italian financial police led to the indictment of certain officers of the seller.

The purchaser brought a civil claim towards these officers and the seller in the criminal proceedings. It is worth noting that the claim towards the seller concerned its vicarious liability under Article 2049 of Italian Civil Code for the wrongs committed by its officers.

The criminal Court granted the purchaser’s claim and ordered the defendants to pay a provisional sum of Euro 5,000,000.

In the meantime, the purchaser also commenced the arbitration proceedings provided for by the contract it entered into with the seller. In these proceedings, it requested the Arbitral Tribunal to cancel the contract for willful misconduct, declare that some clauses of the contract are null and void, terminate the contract for the seller’s breach, order the seller to return the (part of the) price already paid, and compensation for damage.

The Arbitral Tribunal partially granted the said claims: it did not cancel the contract, terminated it, nor declared its clauses null and void, but ordered the seller to pay compensation for damage within limits set by a specific contractual clause.

In addition, the Arbitral Tribunal pointed out that it had no jurisdiction over the claims (or part thereof) raised by the claimant in the arbitration proceedings corresponding to identical claims it raised in the criminal proceedings.

The purchaser challenged the award based on twelve grounds, all of which were rejected. The Court of Appeal held that they constituted a surreptitious attempt to request a (non-admissible) new assessment of the merits, or in any case, they were ungrounded.

In particular, the Court of Appeal stated that the delimitation mentioned above of the Arbitral Tribunal’s jurisdiction would consist in a mere selection of the factual elements to be examined for issuing the decision on the merits and that the Court is not allowed to review such an activity carried out by an Arbitral Tribunal.

Although the conclusion reached by the Court of Appeal appears to be appropriate (the award cannot be set aside), the underlying reasoning does not seem entirely correct.

The reasoning of the Arbitral Tribunal concerning the relationship between arbitral and criminal proceedings is contained in a procedural order, which was recently reported (on Giur. it., 2020, p. 1453 ff.).

In this order, the Arbitral Tribunal noted that “in order to assess the identity of the questions simultaneously pending in different courts, it is necessary to consider the material facts underlying these questions; when the material facts are the same in both proceedings and are pleaded by the claimant to ground its specific claims for damages against the same person, the claimant’s claims must be considered the same; this, regardless of whether the material facts underlying the claims are legally attributable to direct or vicarious liability since the claims in question pursue the same result of obtaining a specific Lebensvorgang (good of life)”.

In the light of the above, the Arbitral Tribunal concluded that “when (i) an Arbitral Tribunal is requested to assess a claim that is the same (in the above-specified meaning) as the claim brought before a different judicial authority and (ii) the conditions provided for by Articles 817 and 819-ter of the Italian Code of Civil Procedure are met (in the sense that no reservations have been made before the judicial authority in favour of the arbitral jurisdiction), the Tribunal, on its own initiative, has to refrain from deciding since it is in the public interest to avoid conflicts between decisions”.

The Tribunal also held that Article 75, para. 3, of Italian Code of Criminal Procedure did not apply (since the same claim was not raised towards the same person, but towards two different entities), and therefore it did not stay the arbitration proceedings. Eventually, it stated that it had jurisdiction “over all the claims raised by the claimant (…), where and to the extent that such claims are not based on the same facts pleaded in the criminal proceedings in connection with the vicarious liability” of the seller.

The issue could be simplified as follows: what happens if a claim, subject to arbitral jurisdiction, is raised in State Courts, the respondent does not object to the Court’s jurisdiction, and after that, the claimant raises the same claim in arbitration proceedings?

This issue could be examined from three different points of view, namely those concerning: the identity of claims; the consequences of the failure to object to State Court’s jurisdiction; the possible objection to the Tribunal’s jurisdiction raised by the same Tribunal of its own motion.

The Arbitral Tribunal clearly and explicitly addressed the first question: two claims are the same when, on the basis of the same facts, they aim to achieve the same tangible purpose (e.g., a sum of money). Consequently, different legal constructions cannot differentiate claims that are the same concerning the points mentioned above.

The Arbitral Tribunal only implicitly dealt with the second question, or at least it so appears in the reported extract of its order. However, it seems that the conclusion reached by the Tribunal is the same reached by Italian case law: if a party commences litigation in Court and the other party does not object to the Court’s jurisdiction, they waive the arbitral jurisdiction.

Concerning the last question, it appears that the respondent in the arbitration proceedings did not object to the Tribunal’s jurisdiction based on the claimant’s claims in the criminal proceedings.

This is “a truly anomalous hypothesis, in which both authorities [State Court and Arbitral Tribunal] would have jurisdiction based on the failure of the concerned party to object to it”. In this regard, Italian scholars have held that, in such cases, “the Court’s jurisdiction should prevail”, adding that “the Tribunal could not of its own motion find that it does not have jurisdiction; as a consequence, the two authorities are in a situation of coexistence of jurisdiction. Despite the peculiarity of the case, however, once again, the solution would be that of later coordination, probably to be made on the light of which decision would firstly become final”.

Notwithstanding the opinion of the learned author quoted above, the solution reached by the Arbitral Tribunal appears more persuasive.

First of all, under Article 819-ter, para. 1, last sentence, of Italian Code of Civil Procedure, “If such objection [to the Court’s jurisdiction] is not raised, arbitral jurisdiction shall be excluded in respect of the dispute decided in that proceedings”.

The proper construction of this provision is quite debated, but it seems that the preferable option is to construe it as a coordination mechanism between arbitration proceedings and proceedings in a Court of law. Other possible constructions have the effect of practically repealing the said provision and thus betray their purpose, which is to give meaning to the text enacted by the Parliament and not to deprive it of any practical scope.

As a consequence of the above, and based on the preferable interpretative option, failure to object to State Court’s jurisdiction would lead on the one hand to the (partial) unenforceability of the arbitration clause and, on the other hand, on the Tribunal’s duty not to issue its decision on the merits.

That Tribunal’s duty is connected to fundamental principles of Italian procedural system. As noted by the Arbitral Tribunal in its order, “it is in the public interest to avoid conflicts between decisions”. Indeed, several law provisions enacted by the Parliament are aimed at avoiding this risk, and the Italian procedural system shall be construed in light of this purpose.

As a matter of fact, if the Arbitral Tribunal would be prevented from objecting to its own jurisdiction in such cases, undesirable results and procedural complications would arise. As the State Court’s decision is not final, the award cannot be set aside under Article 829, para. 1, No. 8, of Italian Code of Civil Procedure. Simultaneously, the proceedings in the State Court cannot be stopped due to the issuance of the award, as this is precluded by Article 819-ter of Italian Code of Civil Procedure. Possible conflicts and/or overlaps between payment orders may be solved in the enforcement phase, while a solution appears more complex with respect to other possible contents of the decisions on the merits (e.g., concerning the termination of the contract). In this respect, the second decision should prevail (according to the principles laid down by the Italian Supreme Court in its decision No. 13804 of 31 May 2018, which upheld the same principles previously laid down by the Italian Supreme Court in its decision No. 5311 of 26 August 1986). Such an unpredictable solution is poorly coordinated with the said Article 819-ter of Italian Code of Civil Procedure.

In the light of the above, it could be concluded that the Arbitral Tribunal’s reasoning, where it appears less secure because it lacks the support of specific precedents, actually proves to be more solid on the basis of crucial principles of civil procedural law.

One Comment

  1. Hi,

    Interesting perspectives! The further developments in the case in question is now that the criminal court appeal first revoked the original ruling and then the supreme court again revoked the appeal courts decision in its entirety and sent it back to a different chamber at court of appeals..

    According to the latest new the arbitration appeal proceedings will now again be concluded before the final decision is made for the criminal case.

    How should the arbitrators at this stage look at the case? ‘
    Should they reject any jurisdiction for the question of fraud as the criminal case is not final? Should they take into account the original judgement of the case as the supreme court revoked the appeal decision or should they also in their case include the supreme courts decision in detail? It was highly detailed and non-ambiguous in it’s decision to revoke the former ruling.

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