Arbitrability of disputes

I find interesting a recent ruling of the Italian Supreme Court (order no. 1119 of 21 January 2016, VI Civil Chamber, Italian text available here), which dealt with the issue of arbitrability. In fact, the Supreme Court’s reasoning in that case (concerning the extent of disputes which may be referred to common arbitration) differs from the reasoning of Supreme Court in cases of corporate arbitration.

The case at hand may be summarised as follows.

A company, lessee under a leasing agreement, filed a lawsuit against the lessor (a financial institution) alleging that the interest rates stipulated in the leasing agreement were abusive. Therefore, the claimant asked the Court to order the refund of the unduly paid amounts, and compensation for damages.

The lessor appeared in Court and objected to its jurisdiction, since the parties had agreed to refer their disputes to arbitration. In fact, according to the leasing agreement, all disputes have to be settled by arbitration, as per Article 806 of the Italian Code of Civil Procedure. This provision states that: “The parties may have disputes which have arisen between them decided by arbitrators provided the subject matter does not concern rights which may not be disposed of, except in case of express prohibition by law.”

The order, whereby the Court of first instance declared the jurisdiction of the Arbitral Tribunal, has been appealed by the lessee. In the opinion of the lessee, the Court of first instance should have applied the “old” Article 806 of the Italian Code of Civil Procedure (that is, the provision in force before its amendment as per Legislative Decree no. 40 of 2 February 2006), since the agreement containing the arbitration clause was entered into in January 2001. According to this “old” provision, the dispute at hand cannot be settled by arbitration, as it could not be subject of a settlement. Indeed, “old” Article 806 holds that: “The parties may have the disputes arising between them decided by arbitrators, except for the disputes (…) which may not be the subject of a settlement.”

The Supreme Court stated that the Court of first instance was mistaken when applying the current version of Article 806 of the Italian Code of Civil Procedure, as modified by Article 20 of Legislative Decree no. 40/2006. Article 27 of this Decree explicitly states that its Article 20 shall only apply to arbitration clauses entered into after its entry into force on 2 March 2006. It is therefore clear that “new” Article 806 of the Italian Code of Civil Procedure cannot be applied to an arbitration clause entered into in January 2001.

Nevertheless, the different wording of “new” and “old” Article 806 of the Italian Code of Civil Procedure does not substantially change the meaning of the provision. It states that disputes, involving rights that, due to their nature or due to legal prohibition may not be negotiated by the parties, may not be referred to arbitration.

The Supreme Court noted that, in determining the nature of these non-negotiable rights, “the existence of imperative rules is not crucial, as there are several matters governed by imperative rules, in which the parties are recognised some autonomy in disposing of their rights, under certain conditions or in accordance with the procedures prescribed by law.” In other words, the concept of the non negotiability of rights should not be mistaken with the imperative nature of the relevant law rules. These findings are the settled case-law of the Supreme Court, but they are sometimes forgotten (with respect to that issue, the order at hand refers to a precedent of the Supreme Court: decision no. 3975 of 27 February, I Civil Chamber, Italian text available here).

In the case at hand, the Supreme Court stated that the imperative nature of the law rules that govern the applicable interest rates (establishing the conditions and limits to the agreement concerning interest rates, and setting the criminal sanctions for those imposing abusive interest rates) determines the nullity of any agreement in breach of such rules, but does not entail the non-negotiable nature of the subsequent disputes. It is, therefore, the role of Arbitral Tribunal to rule on the alleged nullity and/or illegality of the interest rates.