Arbitrability of corporate disputes

A recent decision of the Court of Appeal of Catanzaro (no. 1478 of 22 September 2016, Italian text available here) sums up the current doctrine of arbitrability of corporate disputes.

The case heard by the Court of Appeal was pretty simple.

The claimant, a quotaholder of a limited liability company, sued the director of the company, claiming his liability, and commenced arbitration proceedings as provided for by the company’s Articles of association. Besides claiming damages on behalf of the company, the claimant also requested the Arbitral Tribunal to remove the director under Article 2476(3) of Italian Civil Code.

The defendant objected to the jurisdiction of the Arbitral Tribunal, the locus standi on the part of the claimant, and the merits of the claim.

The Arbitral Tribunal found not to have jurisdiction to remove the director and to have jurisdiction over the claim for damages, which was upheld.

The defendant requested the Court of Appeal of Catanzaro to set aside the award. He insisted that the Arbitral Tribunal did not have jurisdiction over the claim, since it concerned a collective interest which is not capable of arbitration  (an old and superseded doctrine of the Supreme Court maintained that disputes concerning a so-called “collective interest” were not capable of arbitration: Supreme Court, I Civil Chamber, 25 May 1965, no. 999). Moreover, the defendant also alleged that he was prevented from presenting his case in the arbitration proceedings.

The Court of Appeal dismissed both the grounds for the setting aside.  The most interesting one is that concerning the arbitrability of the dispute.

The Court of Appeal referred to the case law whereby “the disputes between the company and the directors, although concerning the director’s activity and the rights arising thereof (as the right to remuneration), are capable of arbitration, if so provided by the Articles of association” (Supreme Court, I Civil Chamber, 11 February 2016, no. 2759, Italian text available here; the topic was specifically discussed with respect to a claim for damages against a director by Supreme Court, I Civil Chamber, 19 February 2014, no. 3887, Italian text available here, which the Court of Appeal did not mention).

From a general point of view, the Court of Appeal referred to the doctrine of the Supreme Court whereby the area of non negotiable rights, which are not capable of arbitration, only concerns the rights arising out of “imperative rules, the violation of which triggers the Court’s intervention without the need of any initiative by the parties” (Supreme Court, I Civil Chamber, 12 September 2011, no. 18600, Italian text available here).  This is the doctrine the Supreme Court relies on to rule that disputes concerning resolutions approving the company’s financial statements are not capable of arbitration, if the claim refers to the content of the financial statements.

We have already commented on that doctrine (for instance, in this post), which I do not find persuasive, as another doctrine, which is sometimes stated by Supreme Court, appears more persuasive: “the disputes concerning resolutions passed by the General Meeting having an unlawful or impossible subject are the sole disputes concerning non negotiable rights and which therefore are not capable of arbitration under Article 806 of Italian Code of Civil Procedure” (Supreme Court, VI Civil Chamber, 27 June 2013, no. 16265, Italian text available here).

Claims against a company’s directors may be waived or may be the subject matter of a settlement agreement (Article 2394 of Italian Civil Code). Therefore, it is clear that the relevant right is negotiable and the jurisdiction over the case heard by the Court of Appeal of Catanzaro lied with the Arbitral Tribunal.

An interesting issue was not analysed by the Court of Appeal (apparently, it was only analysed in the arbitration proceedings): the issue concerning the request to remove the director under Article 2476(3) of Italian Civil Code.

The Arbitral Tribunal found that it did not have jurisdiction over that request. I believe these findings are right. Indeed, under Italian law such a request amounts to a request for an interim order (although it is disputed whether it is also possible to seek a pre-trial interim order). In the matter of corporate arbitration, Arbitral Tribunals do have interim jurisdiction, but only to stay resolutions passed by the General Meeting (Article 35(5) of Legislative Decree no. 5 of 17 January 2013).

The reasons supporting such a limitation of the interim jurisdiction of Arbitral Tribunals are unclear. A new reform of Italian arbitration law has been proposed since a number of years and it appears that, at last, the Parliament is willing to enact it. Let’s hope that this (possible) new piece of legislation will reconsider the matter.