Construction of arbitration clause

The wording of the arbitration clause should be carefully selected, as it constitutes the basis of the jurisdiction of the Arbitral Tribunal.  A possible wrong wording will not always be emended, once the dispute has arisen.

Nevertheless, it is commonplace that due attention is not devoted to this clause, either because it is inserted at the last minute in an agreement (known as the “midnight clause” effect), or because the agreement is reached after long negotiation on its commercial terms, underestimating the risk of a possible dispute.

The Court of first instance of Milan, in its order of 19/22 of January 2015 (Italian text available here), construed a strange arbitration clause.

The Court of first instance was requested to issue an interim measure: an order to stay the effects of a resolution approved by the shareholders of a company.

The defendant appeared in the interim proceedings and, among other things, it raised an objection based on the existence of an arbitration clause.

The arbitration clause, stipulated in the Articles of association of the company, reads as follows: “any dispute arising between the shareholders and the company, including those relating to the validity of the resolutions approved by the shareholders (…) concerning negotiable rights regarding the corporate relationship, may be referred to a sole arbitrator.” 

The Court of first instance of Milan held that “the clause gives the shareholders the right to commence arbitration proceedings, without imposing on them an obligation to do so.” In other words, “the parties have the right to commence arbitration proceedings, but if a party disagrees with that choice, the dispute shall be referred to the Court.” In this respect, the Court found that “the use of the verb ‘may’ is unusual in arbitration clauses, where a mandatory referral to an Arbitral Tribunal is expressed, either with the use of the auxiliary ‘shall’, or with the verb ‘refer’ in its future tense (will be referred).” In fact, the model clause for corporate arbitration drafted  by the Chamber of Arbitration of Milan reads as follows: “all the disputes concerning company relations, including those related to the validity of general meeting’s resolutions, brought by or against shareholders, by or against the company, by or against the directors, by or against auditors, by or against liquidators, shall be settled by arbitration under the Rules of the Chamber of National and International Arbitration of Milan (the Rules). The Arbitral Tribunal shall be composed by a sole arbitrator/three arbitrators, appointed by the Chamber of Arbitration. The arbitration shall be “rituale” and the arbitrators shall decide in accordance with the law.” 

I believe that the conclusion attained by the Court of first instance of Milan, whereby the jurisdiction rests with it, is correct. Nonetheless, I do not agree with certain reasons of the ruling. First of all, the existence and scope of the arbitration clause were, in this very case, an irrelevant issue. Indeed, it is a well-established principle that the Court has jurisdiction to issue interim measures until the Arbitral Tribunal has been constituted. This principle, in fact, is also referred to by the Court of first instance of Milan in the ruling at hand.

Moreover, it seems to me that the conclusion reached by the Court is wrong and it is maybe the result of a negative attitude towards arbitration. According to the Court, “the parties have the right to commence arbitration proceedings, but if a party disagrees with that choice, the dispute shall be referred to the Court.” In my view, the clause at hand should be construed as follows: it allows the claimant to choose the dispute resolution mechanism (Court or Arbitral Tribunal). This provision, in fact, provides for the right (the mere right and not an obligation) to refer the dispute to an Arbitral Tribunal, so that it is not necessary to obtain a new consent by the respondent to refer the dispute to arbitration. Such consent is, in fact, already contained in the arbitration clause.

A very similar case was decided by the Court of first instance of Bari in its decision no. 2379 of 5 July 2011 (decision referred to by the Court of first instance Milan). On that occasion, the auxiliary verb “may” led the Court to rule that “the parties stipulated the mere right to refer a dispute to an Arbitral Tribunal. However, the parties retained the right to refer the dispute to the Court.”