By order no. 17244 of 27th May 2022 the Joint Sections of the Court of Cassation clarified that the judge cannot declare on his own motion his lack of jurisdiction in the presence of an arbitration clause for foreign arbitration inserted in the contract between the parties, in the event that the contractual counterparty defendant is a defaulting party and, therefore, in the absence of an exception of arbitration raised by the latter.
The dispute at issue had arisen between an Italian company and an Algerian company, which had signed an agreement concerning the sale by the Italian company of a milling plant to the Algerian company. The seller had granted an Italian bank guarantee of good execution. After the delivery and start-up of the plant, the latter had defects and, therefore, the buyer enforced the guarantee. The bank paid the buyer the guaranteed sum and then debited the sum on the seller's account.
Notwithstanding the fact that the sales agreement contained arbitration clause for foreign arbitration, the seller company sued the Algerian purchaser and the bank before the Court of Modena, by requesting to ascertain the proper functioning of the plant and the illegitimacy of the enforcement of the guarantee and to order the bank to return the amount debited and the purchaser to pay damages compensation.
The Algerian defendant did not appear in Court, while the bank, by appearing in the proceedings, raised exception of lack of jurisdiction by virtue of the abovementioned arbitration clause.
The Court of Modena did not take into consideration the exception of arbitration raised by the bank as it was extraneous to the arbitration agreement and, therefore, lacked legitimacy to raise it. However, given that the purchaser was a defaulting party, it declared on its own motion its lack of jurisdiction with reference to the sales relationship between the Italian and Algerian companies pursuant to Article 11 of Law 31st May 1995, no. 218, according to which the lack of jurisdiction “[…] is always declared by the court on its own motion, in any stage and instance of the proceeding, if the defendant is a defaulting party,[….] or if Italian jurisdiction is excluded by virtue of an international rule”.
The decision was confirmed by the Court of Appeal of Bologna.
The seller challenged the decision before the Court of Cassation by objecting, among other things, the unlawfulness of the declaration of lack of jurisdiction made by the Court on its own motion.
The Joint Sections of the Court of Cassation, by reminding first of all that an issue of jurisdiction is integrated when it arises from the presence of a foreign arbitration agreement, reverted the first and second instance courts' decisions and confirmed the jurisdiction of the Italian court, by clarifying that “The lack of jurisdiction of the Italian court by virtue of an arbitration clause for foreign arbitration cannot be declared by the judge on his own motion, given the voluntary nature of arbitration under which the parties, even in the presence of an arbitration clause, may always agree to opt for a decision by the ordinary court and this can occur even tacitly, by initiating the ordinary proceedings in which the exception of arbitration is not raised. Moreover, in the event of default of the defendant, Article 11 of Law no. 218 of 1995 is not applicable, as it does not expressly contemplate the hypothesis where the lack of jurisdiction is based on a foreign arbitration agreement”.
The above ruling has its roots in two case law precedents: the judgment of the Constitutional Court no. 127/1977, which had specified that “the basis of any arbitration is to be found in the free choice of the parties” and that “[the basis of the arbitration] can no longer be sought and placed in a law or, more generally, in an authoritative will”, and the order of the Court of Cassation no. 22748/2015 relating to a case of national arbitration (and not foreign, such as the one at stake), in which it had already been stated that the ordinary judge cannot declare on his own motion his lack of jurisdiction in favor of arbitration and that the declaration of lack of jurisdiction is necessarily subject to the raising of the relevant exception by the defendant in the timely filed statement of defence. However, this was a case in which the defendant had appeared in the proceedings but raised the exception with delay.
By this decision the Joint Sections of the Court of Cassation empathize the voluntary nature of the arbitration and on this ground equate lack of appearance in court by the defendant to expression of revocation of the choice of arbitration and implicit acceptance of jurisdiction of the ordinary judge.
However, it has to be pointed out that problems might arise in the context of recognition and enforcement abroad of the judgment issued by the Italian court pursuant to Regulation (EU) 1215/2012, in the case of a UE dispute, or pursuant to bilateral conventions between States or the rules of private international law applicable in the receiving State, in the case of an extra UE dispute, as the party against whom recognition or enforcement is sought may oppose them by arguing that the dispute should have been referred to arbitration pursuant to the arbitration clause agreed upon by the parties in the contract.
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