Review on the merits

The Supreme Court sitting en banc unified the case law on the issue of the review on the merits of an award, rendered pursuant to an arbitration clause stipulated before the 2006 reform of Italian arbitration law, in proceedings commenced after that reform (decisions nos. 9284 – Italian text available here – 9285 – Italian text available here – and 9341 – Italian text available here – of 9 May 2016).

Prior to the reform of 2006 (Legislative Decree 2 February 2006, n. 40), pursuant to Article 829(2) of Italian Code of Civil Procedure, “A request for setting aside may also be filed where the arbitrators did not decide according to rules of law, unless the parties have authorised them to decide ex aequo et bono or they have declared that there may be no recourse against the award.“

Article 829(3) of Italian Code of Civil Procedure currently in force sets forth the opposite rule: “The recourse for violation of the rules of law relating to the merits of the dispute shall be admitted if so expressly provided by the parties or by the law (…).“

What is the applicable rule in the case of a request for setting aside an award, rendered pursuant to an arbitration clause stipulated before the 2006 reform of Italian arbitration law, in proceedings commenced after the entry into force of the reform (2 March 2006)?

According to the transitional provisions of Legislative Decree 40/2006 (and in particular Article 27), “Articles 21, 22, 23, 24 and 25 shall apply to arbitration proceedings, in which the request for arbitration was made after the entry into force of this Decree.” Article 24 of Legislative Decree no. 40/2006 amended, among other things, Article 829 of the Italian Code of Civil Procedure. Therefore, it could be inferred that new Article 829 of the Italian Code of Civil Procedure (with its limitations on the review on the merits) applies to any procedure for setting aside an award issued in proceedings commenced after 2 March 2006 (entry into force of the reform), irrespective of the time of stipulation of the arbitration clause, and the applicable rules at that time.

In fact, this is the result reached by a first line of cases of the Supreme Court, also followed by some lower Courts. That line of cases was mentioned in this post, commenting on a decision of the Court of Appeal of Venice.

A divergent line of cases of the Supreme Court reached the opposite result. This line of cases holds that an award issued under an arbitration clause entered into before the 2006 reform may be reviewed on the merits (unless the Arbitral Tribunal decided ex aequo et bono or the parties excluded any recourse against the award); otherwise, new rules would retrospectively apply. I dealt with that topic in this post.

In December 2015, the Supreme Court sitting en banc was requested to unify the case law: this topic was previously discussed in this post.

The construction offered by the Supreme Court sitting en banc, as well as its grounds, is a proper Columbus’ egg.

According to the Supreme Court, there is no doubt that new Article 829 of Italian Code of Civil Procedure applies to any arbitration commenced after the entry into force of the reform (i.e., after 2 March 2006).

The rules previously in force, however, are anything but irrelevant.

Article 829(2) of Italian Code of Civil Procedure sets forth – as we have seen – that: “The recourse for violation of the rules of law relating to the merits of the dispute shall be admitted if so expressly provided by the parties or by the law (…).” According to the Supreme Court sitting en banc the law to be regarded, to ascertain whether the review on the merits is allowed, is the law in force at the time of stipulation of the arbitration clause.

Therefore, an award issued after the reform pursuant to an arbitration clause stipulated before the reform may be challenged on the merits because, at the time of stipulation of the arbitration clause, the law expressly allowed that review. In fact, old Article 829(2) of Italian Code of Civil Procedure set forth that “A request for setting aside may also be filed where the arbitrators did not decide according to rules of law, unless the parties have authorised them to decide ex aequo et bono or they have declared that there may be no recourse against the award.“

Moreover, the same conclusion is also reached as far as corporate arbitration is concerned. Indeed, the only change refers to the rule of law allowing the review on the merits: instead of old Article 829(2) of Italian Code of Procedure, that rule is Article 36 of Legislative Decree no. 5 of 17 January 2003. That Article mandates the Arbitral Tribunal to decide according to the law (even if the parties have authorised them to decide ex aequo et bono) if the dispute concerns, inter alia, the validity of shareholders’ resolutions. Therefore, according to the Supreme Court sitting en banc, that Article also allows the review on the merits of an award dealing with the validity of shareholders’ resolutions.

To sum up, this is the doctrine set out by the Supreme Court sitting en banc: “Pursuant to the transitional rules laid down by Article 27 of Legislative Decree no. 40 of 2006, Article 829(3) of Italian Code of Civil Procedure, as amended by Article 24 of Legislative Decree no. 40 of 2006, applies to arbitration proceedings commenced after the entry into force of the above-mentioned Decree. Nonetheless, the law referred to in Article 829(3) of Italian Code of Civil Procedure to establish whether the review on the merits of the award is allowed, is the law in force at the time of stipulation of the arbitration clause” (decisions no. 9284 and 9341, concerning common arbitration); “Pursuant to the transitional rules laid down by Article 27 of Legislative Decree no. 40 of 2006, Article 829(3) of Italian Code of Civil Procedure, as amended by Article 24 of Legislative Decree no. 40 of 2006, applies to arbitration proceedings commenced after the entry into force of the above-mentioned Decree. In the case of corporate arbitration, the law referred to in Article 829(3) of Italian Code of Civil Procedure to establish whether the review on the merits of the award is allowed, is Article 36 of Legislative Decree no. 5 of 2003 that explicitly allows the above-mentioned review” (decision no. 9285, concerning corporate arbitration).