Challenges to awards

The Court of Appeal of Milan issued a very interesting decision in proceedings aimed at setting aside an ICC award (decision No. 3123 of 12 July 2019, Italian text available here).

The case was significantly complex, as demonstrated, among other things, by the stature of the members of the Arbitral Tribunal and the involved practitioners.

In a nutshell, with some degree of approximation, the case concerned the fulfilment of some IRU and O&M contracts.

As the fee due in 2014 under the O&M contract was not paid, the O&M operator (Interoute) obtained from State Court an order for payment. The (alleged) debtor (Clouditalia) filed an appeal to the said order, objecting to the State Court’s jurisdiction in the light of the arbitration clause stipulated in the contract, providing for ICC arbitration in Milan. As a consequence, Interoute withdrew from the State Court proceedings.

Clouditalia thereafter commenced arbitration proceedings claiming, among other things, the breach on the part of Interoute of its obligations arising out of the O&M contract, and also requesting the Arbitral Tribunal to ascertain its right to renegotiate the terms of the said contract.

Interoute, in turn, requested to dismiss Clouditalia’s claims and counterclaimed the payment of the overdue fees under the O&M contract.

The Arbitral Tribunal ascertained the existence of the obligation to renegotiate the O&M contract, and the breach of this obligation on the part of Interoute.  Moreover, the Arbitral Tribunal also re-characterised Clouditalia’s claims in terms of withholding performance, and as a consequence stated that only a part of Interoute’s receivables was actually due and payable.

Interoute challenged the award on several grounds: in particular, two of these grounds seem interesting.

Interoute claimed that the Arbitral Tribunal misapplied the law rules concerning the merits of the dispute. Since the arbitration was commenced on the basis of an arbitration clause entered into before the 2006 reform of Italian arbitration law (see, with respect to this issue, this post), the said ground of appeal would be in theory allowed. However, the Court of Appeal held that it was not. In fact, it considered (and in my opinion it was right) that the parties waived their right to any form of recourse they can validly waive – therefore to claim that the Arbitral Tribunal misapplied the law rules concerning the merits – as in the arbitration clause they referred to the ICC Rules, which set forth that “Every award shall be binding on the parties. By submitting the dispute to arbitration under the Rules, the parties undertake to carry out any award without delay and shall be deemed to have waived their right to any form of recourse insofar as such waiver can validly be made” (Article 34.6 of the 2012 ICC Rules, which applied to the arbitration proceedings, available here). The same provision was contained in the ICC Rules in force at the time of the stipulation of the arbitration clause (article 28.6 of the 1998 ICC Rules, available here): as a consequence, the Court of Appeal did not dwell on the issue of the nature of the relationship between the arbitral institution, its rules and the parties.

Another interesting issue addressed by the Court of Appeal was that concerning the recharacterisation by the Arbitral Tribunal of Clouditalia’s claims. The award was challenged also because of this recharacterisation, which allegedly amounted, inter alia, to a violation of due process. The Court of Appeal took a different approach, and upheld its own case-law, according to which the award may be challenged if the Arbitral Tribunal based its decision on not pleaded facts, while it cannot be challenged if the Arbitral Tribunal only re-characterised pleaded facts from a legal point of view (a similar decision  was issued by the Court of Appeal of Milan a year ago, on 16 August 2018, and it is published on Giurisprudenza Arbitrale, with a comment of Prof. Villa).

The Court of Appeal, in any case, indicated that the issue of the relationship between Interoute’s breach of its obligation to renegotiate the O&M contract and Clouditalia’s refusal to fulfil its payment obligation had been dealt with during the arbitration proceedings: this circumstance excluded a violation of due process. In other words: the case heard by the Court of Appeal of Milan is very different from the recent English case P v D [2019] EWHC 1277 (Comm) (available here), where the English High Court set aside an arbitral award on the basis, among other things, that the Arbitral Tribunal had based its decision on a case not properly argued by the parties. It is therefore clear that Italian case-law does not deviate from foreign case-law and practice concerning due process and the parties’ right to present their case.