Assignment of credit and arbitration clause

The Italian Supreme Court has recently upheld its doctrine on the circulation of the arbitration clause in case of credit assignment (Italian Supreme Court, First Civil Chamber, decision No. 16127 of 14 June 2019, Italian text available here).

I have already examined this topic (in this post); nonetheless, in the light of its relevance, I believe that it is worth re-examining it.

The Italian case law laid down a peculiar doctrine that applies in case of assignment of a credit arising out of a contract containing an arbitration clause.  In a few words, this doctrine entitles the obligor to raise procedural objections regardless of the procedural choices made by the assignee.

In fact, the assignee is not entitled to enforce the arbitration clause (it is not entitled to commence arbitration proceedings against the obligor); nonetheless, the obligor is entitled to object to the jurisdiction of State Courts if the assignee commences proceedings in Court.

This is a well established doctrine (see the decision of the Italian Supreme Court sitting en banc, No. 12616 of 17 December 1998, Italian text available here) that, as mentioned, was recently upheld by the Supreme Court.

The case heard by the Supreme Court was extremely complex from a factual point of view. In a nutshell, it concerned the relationship between a municipality and a private company and the credits of the latter arising out of a contract for works concerning a public housing project containing an arbitration clause. The contractor went bankrupt and, as a consequence, the contract was terminated by law (Art. 81 of Italian bankruptcy law); thereafter, the contractor sold to a third party a business branch also including (in its opinion) the contract for works; later, the credits arising out of the contract were also assigned to the same third party. The assignee commenced the arbitration proceedings provided for by the arbitration clause contained in the contract for works. The arbitration award granted the requests of the assignee and the municipality seised the Court of Appeal requesting to set it aside. The Court of Appeal granted this request, stating that the assignee was not entitled to enforce the arbitration clause, and its decision was appealed before the Supreme Court. The Supreme Court upheld its doctrine: “according to the principle laid down by said case law, which this Court deems right, the assignee, which merely bought the credit, without the debtor’s consent, does not become a party to the arbitration agreement, which continues to apply between the original parties, so that it cannot enforce the arbitration agreement, with respect to which it is a third party“.

In this intricate context, an extremely interesting issue was submitted to the Supreme Court: if the entity that bought a business branch including a contract from which a credit arose (but not the credit) and, thereafter, the same entity becomes assignee of that credit, is it entitled to enforce the arbitration clause provided for by the contract? Unfortunately, we have no answer since, in the case heard by the Supreme Court, the contract containing the arbitration clause was not assigned under the sale of the business branch. We have to wait (and hope) that the Supreme Court (or a lower Court) will examine the issue in the (hopefully, near) future.