Italy: Foreign Arbitration Clauses And Preliminary Rulings On Jurisdiction: A Few Thoughts On Ruling No. 21550 Of 18 September 2017 Issued By The Joint Divisions Of The Italian Supreme Court

Last Updated: 26 January 2018
Article by Angelo Anglani and Claudia Monti

The Italian Supreme Court, acting in the Joint Divisions format, has taken the opportunity to confirm the jurisdictional nature of arbitration.1 It did so while adjudicating on an application for a preliminary ruling on jurisdiction. The Joint Divisions recognise the full applicability of the procedure under Article 41 of the Italian Code of Civil Procedure (i.e. the procedure for obtaining a preliminary ruling on jurisdiction) when dealing with a clause providing for a "foreign" arbitration.2

The ruling is a clear confirmation of the more favourable approach being taken in Italy to domestic and international arbitration. Three passages of the Supreme Court decision confirm this.

The Joint Divisions confirm the admissibility of applications under Article 41 of the Italian Code of Civil Procedure even where the contract contains a clause providing for foreign arbitration. Article 41 of the Italian Code of Civil Procedure allows parties to ask the Supreme Court to resolve questions of jurisdiction, for example, resolving whether a case can be heard by an ordinary judge, an administrative or even a foreign judge (Article 37 of the Italian Code of Civil Procedure and Law 218/1995). Consistent with the most recent case law, the Supreme Court applied the principle that a clause requiring foreign arbitration equates to an ouster of jurisdiction of for the domestic courts in favour of a foreign court. The Court reasons that the jurisdictional aspect of arbitration is now an undisputable fact for both courts and academics.3

It has not always been like this. Over the years, courts and academics had developed different views. The new Supreme Court ruling is the result of a relatively recent revirement.4

The change of approach reflects international trends and, most recently, amendments introduced by Legislative Decree No. 40 of 2006, whereby arbitration awards were recognised as having "the effect of a court judgment" (Article 824-bis of the Italian Code of Civil Procedure).

It can be seen that the Supreme Court decision first addresses the admissibility of an application for a preliminary ruling on jurisdiction where the contact contains a clause providing for foreign arbitration. As said, this examination is carried out in the light, first and foremost, of the jurisdictional nature of arbitration as a substitute for domestic courts. As a consequence, while a dispute on whether competence should be attributed to an Italian panel of arbitrators or to ordinary courts is a question of (internal) competence (and not of jurisdiction), in case of a clause for foreign arbitration, the relevant exceptio amounts to a question of procedure and not of substance or (internal) competence (given that the foreign arbitration is outside the Italian legal system).

The second passage of interest in the judgement is set out in an obiter dictum made while assessing the admissibility of the application. The Joint Divisions take the opportunity to confirm that the distinction between formal and informal arbitration [in Italian, "arbitrato rituale" and "arbitrato irrituale"] is irrelevant in international commercial arbitration, as it should always be classified as formal quoad effectum. The Supreme Court's conclusion is consistent with the system set out in Law No. 25 of 1994 and takes into account that the distinction between formal and informal arbitration does not usually apply at international level (the Joint Divisions cite, inter alia, the earlier decision No. 10800 of 26 May 2015).

The third passage of interest in the ruling relates to the confirmation that, while a clause for foreign arbitration implies the absence of jurisdiction for the ordinary Italian courts to hear a case, a party can require a summary judgment (where not opposed by the other party), since the exceptio compromissi is optional and cannot be raised ex officio.5

For completeness, and to avoid possible misunderstandings in relation to the applicability of Article 1341 of the Italian Civil Code to foreign arbitration clauses, reference to a final passage of the judgement is required. Indeed, the Joint Divisions, while finding that there was no need to consider the application of Article 1341, paragraph 2, of the Italian Civil Code6 in the case before it (since there was insufficient evidence that the terms of the contract were unilaterally drafted and imposed), at the same time, seem to emphasise two arguments that might, at least at a first glance, lead to recognising the applicability of Article 1341, and the consequent need for a second signature for the general terms of contract.7

The Supreme Court has not come to any conclusion and cannot thus be said to have expressed any particular view on the issue. However, it is worth noting that Article 1341 of the Italian Civil Code should not apply to clauses for foreign arbitration (which implies the need of a second signature at the bottom of the contract when a foreign arbitration clause is included in the general terms of contract prepared by one party).

In this respect, it must be noted that, under Article II of the 1958 New York Convention, the validity of such clauses is only subject to the requirement that it is in writing and not to the requirement that a second signature be added. In any event, in the light of the prevalence of supranational sources of law on this matter, the repeal of Article 833 of the Italian Code of Civil Procedure in 2006 should be seen as a mere lack of coordination in adopting reform. In practice Article 833 was only included within the group of rules applicable to "international" arbitration which was repealed incidentally, as the aim had been to have just one set of rules for both domestic and international arbitrations.  However, for the sake of clarity in law it would have been better if this specific rule had been kept, and its repeal does not mean that Article 1341 of the Italian Civil Code now applies to clauses providing for foreign arbitration.8

To conclude (and notwithstanding the unclear and potentially misleading passage cited in the last paragraph above), the decision of the Joint Divisions of the Supreme Court reflects the increasingly favourable attitude being taken in Italy towards both domestic and international arbitration.

Footnotes 

1 On the same day, the same Supreme Court, in a related case, filed by the same applicant against another company which allegedly was the assignee of the debt under the same contract, confirmed the admissibility of an application for a preliminary ruling on jurisdiction under Article 41 of the Italian Code of Civil Procedure in relation to an arbitration clause requiring a foreign arbitration (Supreme Court, Joint Divisions' decision No. 21551 of 18 September 2017, in Diritto & Giustizia, 19 September 2017). In this second ruling, however, the Supreme Court dismissed the application on the ground that the acquisition of the entire shareholding in a company does not involve an assignment of contract allowing for the use of the arbitration clause contained therein.

2 It should be noted that the term "international" arbitration under Articles 831 et seq. of the Italian Code of Civil Procedure, before the changes introduced by Legislative Decree No. 40 of 2006, meant a formal Italian arbitration (having its seat in Italy within the terms of the now-repealed Article 816 of the Italian Code of Civil Procedure) but with certain transnational elements. "International" arbitration was therefore different from "foreign" arbitration.  Foreign arbitration meant a non-Italian arbitration in a different country. See E. PICOZZA, L'arbitrato interno: arbitrati interni sottotipo internazionale, in M. RUBINO-SAMMARTANO, Arbitrato, ADR conciliazione, Bologna, 2009, page 937 et seq. and, in particular, notes 2 and 3.

3 According to earlier Supreme Court's decision cited by the applicant and referred to in the Supreme Court decision itself, "A preliminary ruling on jurisdiction as per Article 41 of the Italian Code of Civil Procedure may also be applied-for in relation to an arbitration clause providing for foreign arbitration, as the exceptio compromissi  has a procedural nature and, therefore, constitutes a question of jurisdiction and not one regarding merits of the case" (Supreme Court, Joint Divisions' decision No. 24153 of 25 October 2013); see also Supreme Court, Joint Divisions' decision No. 10800 of 26 May 2015, whereby the Supreme Court recognised the jurisdictional nature of foreign arbitration having regard to the combined provisions of Articles 4 and 11 of Law No. 218 of 31 May 1995, which equates a clause for foreign arbitration ousting jurisdiction of domestic courts to an ouster of jurisdiction in favour of a foreign court.

4 The first sign of change is found in the decision of the joint divisions of the Supreme Court in decision No. 24153 of 25 October 2013. The 2013 decision examines the oscillating case law on the nature of arbitration and the exceptio compromissi that have developed over time.

The earlier approach was to allow applications for a preliminary ruling on jurisdiction where foreign arbitration was provided for in the contract (see Supreme Court, Joint Divisions' judgment No. 5397 of 17 May 1995). It was also held that the inclusion of an Italian arbitration clause involved a question of the division or allocation of competence within the same jurisdictional system, with the consequent inadmissibility of any preliminary ruling on jurisdiction (Supreme Court, Joint Divisions' judgment No. 2149 of 2 April 1984). This approach was consistent with recognising the jurisdictional nature of formal arbitration as a substitute for ordinary courts (Supreme Court, Joint Divisions' judgment No. 4360 of 4 July 1981). Subsequently, by judgment No. 527 of 3 August 2000, the Supreme Court, upholding the prevailing view of scholars and reversing the earlier trend of the case law, held that arbitral awards are private acts, thus considering an exceptio compromissi as a question of substance, preventing the filing of an application for a preliminary ruling on jurisdiction, even in case of foreign arbitration.

5 See, ex multis, Supreme Court, Joint Divisions' ruling No. 19473 of 30 September 2016.

In other words, it is only in case of an opposition to a summary judgement that a dispute becomes adversarial and therefore, when the exceptio compromissi is raised by the opponent, the relevant ordinary court shall necessarily have to recognise its lack of jurisdiction.

6 Article 1341 of the Italian Civil Code applies to general terms of a contract drafted by one of the parties or contracts concluded by way of signing forms or templates prepared by one party for the purpose of regulating in a uniform manner certain contractual relationships, by virtue of the reference in Article 1342, paragraph 2, of the Italian Civil Code.

7 The two arguments at issue relate to (i) the reference to Article II(3) of the 1958 New York Convention, which requires courts to assess the invalidity of arbitral clauses, and (ii) the repeal by Legislative Decree No. 40 of 2006 of Article 833 of the Italian Code of Civil Procedure, the first paragraph of which provided that "Arbitral clauses contained in general terms of contract or in forms  or templates  shall not be subject to specific approval as per Articles 1341 and 1342 of the Italian Civil Code".

8 For more details on the 2006 reform of international arbitration and its purposes, see L. RADICATI DI BROZOLO, Requiem per il regime dualista dell'arbitrato internazionale in Italia? Riflessioni sull'ultima riforma, in Riv. Dir. Proc., 2010, pp. 1268 et seq.

This Article was first published on www.nctm.it

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