Corporate arbitration: the twin-track approach is wrong

Decision no. 22008 of 28 October 2015 of the I Civil Chamber of the Supreme Court (Italian text available here) followed the line of cases opposing the so-called “twin-track approach” to corporate arbitration. This judgment ruled that the only arbitration clause that may be stipulated in the Articles of association of an Italian unlisted company is the one pursuant to Article 34 of Legislative Decree no. 5 of 17 January 2003.

After the reform made by Legislative Decrees nos. 5 and 6 of 2003, that amended Italian corporate law, a new approach arose among scholars and Courts. According to this view, two different types of corporate arbitration proceedings were possible: on the one hand, corporate arbitration pursuant to article 34(2) of Legislative Decree 5/2003, which states that “the arbitration clause shall specify the number of the arbitrators and how to appoint them.  In any case, the arbitrators shall be appointed by a third party unrelated to the company; otherwise, the clause shall be deemed as null and void  (…).”; on the other hand,  common arbitration pursuant to Article 808 of the Italian Code of Civil Procedure.

According to the Supreme Court, the only arbitration clause that may be validly stipulated in the Articles of association is a clause pursuant to Article 34 of Legislative Decree no. 5/2003. Indeed, in the decision no. 21202 of the VI Civil Chamber (Italian text available here), the Supreme Court ruled that “the liability of the Notary subsists, as per Article 28(1) of Law no. 89 of 26 February 1913, for having drafted a deed that is explicitly prohibited by law, if after 1 September 2011 the Notary drafted Articles of association providing for a common arbitration and, therefore, containing an arbitration clause not in compliance with Article 34 of Legislative Decree no. 5/2003. Indeed, starting from 1 September 2011 it is undisputed that such clause is null and void.” 

The decision I am commenting confirms the approach of the Supreme Court. According to this ruling: “article 34 of Legislative Decree no. 5 of 17 January 2003 provides for the only arbitration clause that may be stipulated in the Articles of association of  a company, other than a listed company as per Article 2325/bis of the Italian Civil Code. Any alternative or additional common arbitration clause pursuant to 808 Code of Civil Procedure (…) is, thus, not allowed. Therefore, a clause of the Articles of association, which is not in compliance with Article 34 of Legislative Decree 5 of 17 January 2003, is null and void. In the case at hand, the clause does not set forth that the appointment of the arbitrators has to be done by a third party. Such clause would also be void even if it set forth that the arbitrators shall settle the dispute trough a contractual determination. The consequence of the above is that the arbitration clause at hand is null and void and, thus, the jurisdiction on this dispute only rests with the Court.”

Another interesting issue concerns the available means of challenge against the decision of the Court, which states the jurisdiction of an Arbitral Tribunal. Indeed in the case heard by the Supreme Court, an appeal was filed with the Court of Appeal against the decision of the Court of first instance that ruled that the jurisdiction rests with the Arbitral Tribunal. However, the Court of Appeal ruled that the appeal was not allowed, according to the most recent case law of the Supreme Court. This case law states that “the appeal before a Court of Appeal against the decision of the Court of first instance whereby it declared the jurisdiction of the Arbitral Tribunal is not allowed. The jurisdiction of the Arbitral Tribunal is the same as the jurisdiction of the Court. Therefore, it is only on the Supreme Court to decide on the jurisdiction issue” (decision no. 17908 of 13 August 2014 of the I Civil Chamber of the Supreme Court, Italian text available here).

The Supreme Court recently started a new line of cases on this matter. Indeed, the Supreme Court used to rule that the decision concerning the jurisdiction on a dispute (whether it rests with the Court or with the Arbitral Tribunal) is a decision on the merits (decision no. 9289 of 25 June 2002 of the Supreme Court sitting en banc, Italian text available here) and therefore a decision to be challenged by an appeal filed with the Court of Appeal.

Consequently, being aware of that change in case law, the Supreme Court ruled that, in the case at hand, it was not wrong to challenge the decision of the Court of first instance by an appeal filed with the Court of Appeal.