The objection of arbitration

A recent ruling of the Court of first instance of Genoa (decision no. 1325 of 14 April 2016, Italian text available here) deals with the issues of the objection of arbitration and its characterisation and construction.

The case heard by the Court of Genoa may be summarised as follows.

The quotaholder (and director) of a limited liability company sued the other director, claiming his liability vis-à-vis the company. The latter raised the objection of arbitration and asked the Court of Genoa to declare that the claimant’s claim was inadmissible, since the company’s Articles of association contained an arbitration clause providing for an “arbitrato irrituale” (that is, an alternative arbitration procedure provided for by Italian law which does not result in an enforceable award).

The arbitration clause at hand is fully quoted by the ruling of the Court of Genoa and it notes that: “Any dispute amongst the quotaholders or amongst the quotaholders and the company, its directors, liquidators or auditors, concerning the negotiable rights concerning the corporate relationship shall be settled by a sole arbitrator. The sole arbitrator shall be appointed by the Chairperson of the Institute of Chartered Accountants of the District where the company has its registered office and the appointment shall occur within thirty days of the written request filed by either party. The appointed arbitrator shall determine the seat of arbitration, provided that in any event it shall be in the province where the company has its registered office. The arbitrator shall conduct the proceedings as an “arbitrato irrituale”, with no formalities or procedural constraints, and shall issue the award, in accordance with the law, within ninety days of the appointment (…).” 

The Court of Genoa considered that this clause provided for a regular arbitration, despite the wording of the arbitration clause (“The arbitrator shall conduct the proceedings as an “arbitrato irrituale”, with no formalities or procedural constraints (…)“). According to the Court, the wording of this clause does not show the intention of the parties to stipulate an “arbitrato irrituale” (that is, arbitration proceedings resulting in a mere contractual determination, whereas the regular arbitration results in an enforceable award). Indeed, the use of the verb “settle” (“Any dispute (…) shall be settled (…)“; in the Italian text, the verb “risolvere” is used) would show the intention of the parties to agree upon a regular arbitration. In the opinion of the Court of Genoa, therefore, even from a semantic point of view the clause referred to an award with the effect of Article 824(bis) of the Italian Code of Civil Procedure, whereby “(…) The award has (…) the effects of a judgment delivered by a judicial authority.” Moreover, according to the Court of Genoa these findings were further confirmed by the fact that the award had to be issued “in accordance with the law.” Therefore, the Court of Genoa ruled that the arbitration procedure referred to by the Articles of association were only “informal” (“irrituale“) with respect to the procedural rules.

As said, the respondent raised the objection of arbitration and asked the State Court to declare the inadmissibility of the claimant’s claim, holding that the dispute should be settled through an “arbitrato irrituale.” However, the Court of Genoa dismissed the objection.

The ruling of the Court of Genoa is valuable for its declared intention to follow the case law of the Italian Supreme Court whereby, if a doubt arises, the arbitration clause should be construed as providing for a regular arbitration (on this point, for instance, see decision no. 6909 of 7 April 2015 of the First Civil Chamber of the Supreme Court, Italian text available here).

However, the ruling of the Court of Genoa may be contested on two points.

First, I do not think that the arbitration clause examined by the Court of Genoa may give rise to doubts as its construction. This clause precisely provides for the referral of any dispute to an “arbitrato irrituale.” And “arbitrato irrituale” is only the one governed by Article 808(ter) of the Italian Code of Civil Procedure. The construction of the State Court, which ruled on the existence of an arbitration “irrituale” only with respect to “the procedural rules of the proceedings“, does not seem convincing enough. It is not even clear how this particular arbitration (“irrituale” only with respect to the procedural rules) differs from an ad hoc arbitration in which the parties – and the arbitrators if the parties do not act – are the only masters of the procedure and its rules (Article 816(bis) of Italian Code of Civil Procedure).

Furthermore, I consider that the Court of Genoa should have accepted the objection of arbitration. The Court rejected that objection because the respondent asked for a declaration of inadmissibility (that is, the consequence of the stipulation of a clause providing for an “arbitrato irrituale“), instead of a declaration of lack of jurisdiction (that is, the consequence of the stipulation of a clause providing for a regular arbitration). Doing so, however, the Court forgot its capacity to characterise the parties’ claims and objections. Indeed, pursuant to the principle “iura novit curia“, the Court – and the Court alone – is responsible for determining which law rule applies to a particular case; and how it applies, considering the facts submitted by the parties. Therefore, in the case at hand, the Court – having found that the arbitration clause provided for a regular arbitration – should have declared the lack of jurisdiction in favour of the Arbitral Tribunal.

Maybe, we will have the chance to read again about this case.