- Some thoughts on the reform of Italian arbitration law - 16 May 2023
- Arbitration law reform and new CAM rules - 2 March 2023
- Italian arbitration in 2022 - 31 December 2022
Much has been written, and much will still be written, about the recent reform of Italian arbitration law. The undeniable merit of this reform is that it brings the Italian system closer to that of other jurisdictions sharing the same civilizational perspective. The changes that have (finally) allowed arbitrators to issue interim and precautionary measures, as well as those concerning the disclosure and disqualification of arbitrators, should indeed be interpreted in this sense. Italy is now among the most advanced jurisdictions, with changes that include the choice of applicable law, allowing parties and arbitrators to apply non-state rules such as lex mercatoria.
In this context of general satisfaction, however, we cannot overlook the limitations of the reform, which result from the unfortunate drafting of some new rules, a consequence of their hasty approval and premature entry into force. Firstly, regarding disclosure, the law now stipulates that it must be made under penalty of nullity of the acceptance (Art. 813 of the Italian Code of Civil Procedure). The law further specifies that in case of omitted or incomplete disclosure, it is possible to request the court to disqualify or replace the arbitrator.
Thus, three potential remedies are available. In the event of an omitted declaration, it could be possible to have the award set aside due to a defect in the constitution of the Arbitral tribunal, as defined in Article 829 of the Italian Code of Civil Procedure. Additionally, the arbitrator could be disqualified under Article 815 of the Italian Code of Civil Procedure. Finally, the interested party could apply to have the arbitrator replaced according to Article 813-bis of the Italian Code of Civil Procedure.
Scholars who have addressed this issue have attempted to narrow down the range of admissible remedies. For the most part, they have concluded that the nullity of the acceptance would not necessarily have consequences on the award and that the interested party has the burden of applying for the disqualification or replacement of the arbitrator, apparently at its discretion. This is in light of significant differences between disqualification and replacement, and taking into account the party’s case theory and strategy.
However, this solution does not appear satisfactory for a straightforward reason: it does not resolve the issue the reform intended to address. Consider the case of BEG v. Italy, where an arbitrator failed to disclose circumstances that seriously compromised their independence and impartiality. These circumstances were only discovered by the interested party after the award had been signed. Under the old provisions, this had no consequences on the award because the arbitrator could only be challenged during the proceedings, a principle seemingly unaffected by the reform. Nevertheless, this conclusion was deemed a violation of the European Convention on Human Rights.
Therefore, it is preferable to interpret the new rules in a way that excludes, rather than reiterates, a violation of the Convention in cases similar to those already examined by the European Court of Human Rights. To achieve this objective, the barriers to challenging the award must be removed, thus affirming the lawmakers’ choice to expressly provide for the nullity of the acceptance made by the arbitrator in the absence of disclosure.
Another issue concerns the interim measures issued by arbitral tribunals. Two doubts have arisen: the types of measures that an arbitral tribunal may grant and whether parties can deviate from the exclusive jurisdiction of the arbitral tribunal after its constitution.
Regarding the first aspect (measures that may be granted), it is worth mentioning that the reform aimed to bridge “a gap that differentiated our system from that of jurisdictions geographically and culturally closer to us.” To achieve this, arbitral tribunals should be allowed to issue all interim and provisional measures, which the law appropriately did not specify, that are known in the arbitration practice of jurisdictions geographically and culturally closer to Italy. In this regard, a comprehensive list of provisional measures can be found in The Secretariat’s Guide to ICC Arbitration, especially considering that the French system governing ICC arbitration does not define the content of interim and provisional measures issued by arbitral tribunals (see Art. 1468 of the French Code of Civil Procedure). However, if a supporting legal rule is deemed necessary, such as referring not to the interim and precautionary measures known in the practice of international commercial arbitration, but to those measures provided for and governed by the Italian Code of Civil Procedure, Article 700 of the Italian Code of Civil Procedure and established case law can serve as the supporting legal rule.
In this context, particular attention deserves a specific interim measure commonly referred to as security for costs in common law jurisdictions and as “cautio pro expensis” in civil law (continental) jurisdictions. This measure was known in Italy until it was declared constitutionally illegitimate by the Constitutional Court in decision No. 67/1960. However, the reasoning of the Constitutional Court’s decision does not seem to apply to arbitration proceedings. The Constitutional Court concluded that “cautio pro expensis” represents a disincentive to bring litigation to court under Article 24 of the Italian Constitution and, therefore, an obstacle to implementing the principle of equality under Article 3 of the Italian Constitution. However, it is widely recognized (and accepted) that the costs of arbitration proceedings themselves serve as a disincentive to initiating such proceedings. This occurs in a context where the parties have voluntarily chosen arbitration, bearing the relevant costs, over resorting to state courts where the majority of costs are funded by taxes. Nevertheless, one issue that requires careful examination is the consequences of non-payment of security for costs/cautio pro expensis. These consequences would likely not include the (partial) dismissal of the relevant claim based on procedural grounds or a stay of the proceedings, especially if the arbitral agreement or the applicable arbitration rules do not provide for such measures.
Another issue to consider is the possibility of derogating from the exclusive jurisdiction of the arbitral tribunal. Some scholars have argued that the objection to the jurisdiction of the state court can only be examined if timely raised by the interested party. Consequently, the jurisdiction of the arbitral tribunal can be waived through specific behavior in court proceedings. According to these scholars, there is no reason to prevent parties from waiving the jurisdiction of the arbitral tribunal by agreement, allowing the arbitral tribunal to issue only specific interim and precautionary measures while granting the state courts the power to issue other measures.
This reasoning, however, seems flawed. Granting the power to issue specific interim and precautionary measures to the arbitral tribunal and other measures to the state courts would openly contradict Article 818 of the Italian Code of Civil Procedure, which states that “the arbitral tribunal has exclusive jurisdiction to issue interim and precautionary measures.” Furthermore, it would lead to potential overlaps in assessing fumus boni iuris and periculum in mora, precisely the issue that the lawmakers intended to avoid.
Ultimately, the overall positive assessment of the reform of Italian arbitration law must be tempered considering the uncertainties arising from doubts about the interpretation of some of the new rules. While it would be advantageous for lawmakers to address these issues, it is unlikely to happen. Therefore, we must await clear guidance from the case law of Italian courts.