Separability of the arbitration clause

The arbitration clause, in Italian jurisdiction as well as in a number of other jurisdictions, does not constitute an ancillary clause of the underlying contract. On the contrary, it constitutes a separate contract with procedural effects. This principle is usually referred to as separability doctrine.

Under Italian law, this doctrine, based on Article 808 of the Italian Code of Civil Procedure (whereby “The validity of the arbitration clause must be evaluated independently of the underlying contract“), is only derogated in bankruptcy matters (under Article 83-bis of Italian bankruptcy law: I have examined the issue in this post).

This doctrine must also be taken into account if an agreement to agree (which is valid and enforceable under Italian law, and it is quite common in construction and conveyancing) is entered into, containing an arbitration clause, and the subsequent agreement does not contain the arbitration clause. I have already examined this topic a few years ago (in this post). Nonetheless, in the light of its relevance, also from a practical point of view, I consider that it is appropriate to examine it again. The opportunity to do so is offered by a recent decision issued by the Court of Appeal of Brescia (decision No. 1474 of 10 October 2019, Italian text available here).

The case concerned a dispute on a building under construction. The claimant (buyer) and the respondent (seller) entered into an agreement to agree that set forth that the building had to be completed and delivered by a certain date and that the seller had to pay liquidated damages in case of delay. The agreement to agree contained an arbitration clause. The building was delivered late and the final agreement did not contain an arbitration clause.

The claimant commenced the arbitration proceeding provided for by the arbitration clause contained in the agreement to agree, and his claim was only partially granted.

The award was challenged by both the claimant and the respondent: the claimant alleged some violations of due process (which the Court of Appeal rejected); the respondent objected to the jurisdiction of the Arbitral Tribunal, due to the fact that the arbitration clause was contained in the agreement to agree but was not included in the final contract.

The decision of the Court of Appeal does not specify if the respondent contested the jurisdiction of the Arbitral Tribunal during the arbitration proceedings. This is the duty of the parties, pursuant to Article 817 of the Italian Code of Civil Procedure, whereby “The party that does not object in the first statement of defence subsequent to the arbitrators’ acceptance that they lack jurisdiction by reason of the non-existence, invalidity or ineffectiveness of the arbitration agreement, may not challenge the award on this ground, except in case of a non-arbitrable dispute“. Nevertheless, the Court analysed this ground and rejected it. Therefore, I assume that the objection was timely raised during the arbitration proceedings.

As said, the Court of Appeal of Brescia rejected the challenge. The Court upheld the principle laid down by the Italian Supreme Court, whereby “the validity and enforceability of an arbitration clause must be evaluated separately from the underlying agreement. Consequently, the clause is valid, despite not being included in the final contract. The reason is that the agreement to agree is other than the final contract and has different purposes” (decision No. 8868 of 16 April 2014 of I Civil Chamber of the Supreme Court, Italian text available here; and decision No. 22608 of 31 October 2011 of I Civil Chamber of the Supreme Court, Italian text available here).

The Court of Appeal also added that, in the case it heard, the final contract did not concern all the obligations the parties undertook under the agreement to agree. Indeed, the parties also stipulated a liquidated damages clause that was the subject matter of the dispute heard by the Arbitral Tribunal.