Arbitration reform in Italy: the arbitrator-judge interplay
17 March 2023 | Applicable law: Italy | 5 minute read
The reform of civil proceedings introduced certain novelties aimed at aligning arbitration proceedings with the proceedings before the ordinary courts, regulating certain points of contact between the two proceedings.
In this insight, we will illustrate the novelties in this regard, relating to the hypothesis that an ordinary judgement is transferred to arbitration and vice versa and to the equivalence of judicial and arbitral claims, the challenge of the arbitral award before the judge and the recognition of foreign arbitral awards.
The Claim and Transfer of the Claim from the Judge to the Arbitrator (and vice versa)
The new Article 816-bis provides that a claim made in arbitration has the same "substantive effects" as that made in court.
Attempting to simplify a concept that is by its nature highly technical, when a claim is brought to courts, the law provides for certain 'effects' to occur (e.g., the interruption of the statute of limitations), in order to prevent the time needed for the trial from impacting the rightful party.
Let us take a deep dive to understand this concept better, by way of an example.
The law provides, as a general rule, that the purchaser of goods (e.g. a machine) should complain to the seller of any defects in the goods, within eight days of delivery (or discovery) and is to bring a claim to contest such defects within one year of delivery. Should the buyer fail to comply with the aforementioned one-year time limit, their right is definitively extinguished (in technical language, it 'lapses').
However, the law provides that bringing the claim has the substantive effect of interrupting the limitations period. This rule protects the party who has started the proceedings (the buyer in our example): while the proceedings are pending, the buyer should not worry that their right will become time-barred.
Expressing a conclusion already reached by case-law, the new Article 816-bis now expressly provides that the introduction of an arbitral judgement produces the same substantive effects as when proceedings before a court are brought.
The same article states that the substantive effects remain unchanged even if the proceedings before the court are transferred to arbitration and vice versa.
Such a transfer is not uncommon: arbitration clauses are often hazy and do not make it clear whether the claim (or part of it) is to be decided by a judge or an arbitrator. As a result of such uncertainties, it may therefore happen that, even after months or (in the worst case) years, the judge decides that the case should have been brought before an arbitrator or, conversely, that an arbitrator decides that the case should have been brought before a judge.
The new Article 819-bisis intended to make this passage Judge-Arbitrator or Arbitrator-Judge less burdensome for the party who started the litigation, saving the substantive effects of the claim and providing that the case may be transferred to the Judge or Arbitrator. This is to occur within three months after the decision taken by the judge (or arbitrator) on its lack of jurisdiction becomes final.
Furthermore, the procedural activity carried out before the judge or arbitrator, who is later (partly) found not to have jurisdiction, is not entirely lost. Evidence that is gathered in the court or arbitration proceedings may constitute arguments in the resumed proceedings.
Returning to our example, in the event that the buyer has commenced a lawsuit in court and the judge has been found not to have jurisdiction, the buyer may resume the lawsuit within three months by means of a deed of appointment, by an arbitrator notified to the seller. The proceedings will continue before the arbitrator, who may also evaluate the evidence already acquired.
The time limit for challenging an arbitral award for nullity before the Court of Appeal
The reform has also made a significant change to the point of challenging the 'award', which is the 'judgement' issued by the arbitrator.
The law, unless the parties have stipulated otherwise in the arbitration clause, provides that the award may be challenged solely in a very limited series of hypotheses, i.e. when certain general principles of our legal system are violated (e.g., the principle of due process or public order) and never merely on its merits.
This type of appeal is brought before the Court of Appeal.
Prior to the reform coming into force and in the absence of the service of the arbitral award, the time limit to challenge the award was set at one year from the date of the last signature by the arbitrators.
The new Article 828-bis has reduced this time limit to six months, equating it with the time limit for judgement in ordinary proceedings.
The recognition of foreign arbitral awards before the Court of Appeal
The reform has also intervened on the procedure for the recognition of arbitral awards issued abroad. In fact, a foreign award is not immediately recognised under Italian law and, to give it such effect, a procedure must be introduced, at the end of which the award is recognised in Italian law and becomes equivalent to a judgement issued by an Italian court.
This procedure is governed by Art. 839 of the Code of Civil Procedure and provides for the filing of an appeal before the Court of Appeal. The Court of Appeal, following a mere formal verification of the foreign award, declares its recognition by decree.
Before the reform it was doubtful whether the decision of the Court of Appeal was immediately enforceable. In other words, it was unclear whether it was possible to proceed immediately with, for instance, an attachment of the debtor's assets. This interpretative uncertainty was not insignificant. As a matter of fact, it is very often the case that the losing party does not comply with the award and that the successful party has an immediate interest in triggering the enforcement of the award.
The new Art. 839 leave no shadow of a doubt, since it provides that the decree recognising the award is always immediately enforceable.
However, this is without prejudice to the possibility for the party against whom recognition of the award is sought to appeal against the recognition by the procedure, set out in Article 840 of the Code of Civil Procedure and on such occasion, to apply for the suspension of the enforceability of the decree and the enforcement of the award.
The reform reflects just how aware the legislature is of the increasing use of arbitration to resolve domestic disputes and the growing importance of international arbitration.
This explains why the reform aims to equate arbitration proceedings with ordinary proceedings and to overcome certain interpretative and procedural obstacles in the points of contact between arbitration proceedings and ordinary proceedings, with a view to making the Italian legal system less hostile to arbitration.
The profiles investigated in this insight show that the assistance of an advisor with adequate experience in arbitration is still indispensable, both in the contract-negotiation stage - for example, in drafting the arbitration clause - and in the (pre-litigation) stage, in order to prevent possible litigation or to deal with it in the most effective possible way, while containing costs and time.