A contract provides that one party handles design costs for subdividing property whilst the other proceeds with purchase, then transfers a portion to the first contractor. A dispute arises over performance and the arbitral tribunal is seised, which awards reduced damages by applying Article 1227 of the Civil Code ex officio for contributory fault of the creditor. Nevertheless, the unsuccessful party complains of adversarial principle violation for a “third way decision”.

Under what conditions can the adversarial principle be considered violated in arbitration?

A recent judgment from Bologna Court of Appeal (no. 724 of 22nd April 2025, Italian text available here) provides an opportunity to revisit this delicate question.

The case originates from a November 2021 agreement containing an arbitration clause, concerning the “separate” purchase of two property portions. The contract provided for reciprocal obligations: one party was to handle design and fiscal burdens for property declassification and subdivision (consideration €45,000), whilst the other was to purchase the entire property from the owners then transfer one of the two units resulting from subdivision.

The arbitral tribunal, whilst recognising formal performance by the prospective purchaser, awarded reduced compensation of only €19,000, applying Article 1227 of the Civil Code ex officio for contributory fault of the creditor, noting “poor transparency regarding quantum” concerning expenses incurred and documentation “lacking certain date”.

The appellant challenged the award on multiple grounds, the principal being alleged violation of the adversarial principle under Article 829(1)(9) of the Civil Procedure Code, complaining that the tribunal’s solution did not derive “from different interpretation and qualification of the claims” but from “an issue raised ex officio only in the decision phase and, as such, never discussed nor addressed in pleadings”.

The Court of Appeal rejected this complaint, recalling the established principle that nullity for adversarial principle violation must be examined “not from a formal perspective, but within research aimed at ascertaining actual prejudice to the possibility of pleading and contradicting”. In this case, facts relating to non-performance had been “extensively addressed during arbitration” and subject to “witness evidence”, so that applying Article 1227 of the Civil Code as “legal qualification of facts” had not violated the adversarial principle.

As is well known, our legal system provides that challenges for nullity of arbitral awards constitute “proceedings with bound criticism proposable only for certain specifically provided errores in procedendo” under Article 829 of the Civil Procedure Code. Violation of the adversarial principle, governed by paragraph 9 of the provision, represents one of the most frequently invoked but also most difficult defects to prove.

The Bologna Court based its decision on established principles. First, it reiterated that the distinction between fact and law in applying norms maintains relevance even in arbitral proceedings: if facts were subject to adversarial procedure, their different legal qualification does not entail principle violation.
Second, it specified that adversarial principle violation must be “specifically alleged”, not being able to limit itself to “merely formal denunciation” but must indicate “the specific prejudice it caused to the right of defence”.

The Court also confirmed the approach whereby grounds for award nullity are exhaustively provided by Article 829 of the Civil Procedure Code, rejecting complaints regarding “nullity of surprise decision” as not subsumable “under exhaustively provided cases” by the provision.

The judgment under comment offers some points for reflection on arbitral practice.

From arbitrators’ perspective, the importance emerges of adequately motivating application of legal principles not specifically invoked by parties, whilst being able to rely on the fact that mere legal qualification of facts subject to adversarial procedure does not constitute principle violation.

For defence counsel of parties in arbitration, the judgment confirms the necessity of an articulated defensive strategy in nullity challenges, having to demonstrate not only abstract defect but also concrete prejudice to the right of defence. Generic denunciation of “third way decision” appears insufficient if relevant facts were subject to discussion.

The question remains open regarding limits within which arbitrators may apply legal institutes ex officio not expressly invoked. Whilst for the first paragraph of Article 1227 of the Civil Code jurisprudence appears settled in the sense of legitimacy (being a damage assessment criterion), greater doubts might arise for applying other institutes, including the second paragraph of the same Article 1227 of the Civil Code.