Separability presumption

Separability presumption is universally applied, as the relevant doctrine spread all over the world during the first half of XX century.

In the words of Italian lawmakers, “The validity of the arbitration clause must be evaluated independently of the underlying contract” (Article 808, para. 2, of the Italian Code of Civil Procedure).

The oldest decisions laying down the doctrine of separability were issued by German Courts at the turn of XIX century: for example, German Supreme Court, in its decision 30 April 1890, stated that invalidity of the underlying contract does not entail, as an inevitable consequence, invalidity of the arbitration clause; applying this principle, Nuremberg Court of Appeal affirmed the jurisdiction of an Arbitral Tribunal to assess the validity of a contract (decision of 24 May 1909), and a similar decision was issued by Dresden Court of Appeal (decision of 11 January 1912). German Courts were nevertheless reluctant to apply separability presumption in cases of invalidity of the underlying contract due to its illegality (as in the case of some gambling contracts: see German Supreme Court, decision of 18 May 1904).

Meanwhile, separability presumption was also gaining ground in Switzerland and the relevant doctrine was affirmed by Swiss Federal Court in its decisions of 22 October 1881, 3 October 1913 and 5 March 1915. That doctrine is clearly stated as early as 1933: “The invalidity of the main contract does not render immediately the arbitration clause contained therein invalid; the clause according to which disputes arising under the main contract shall be submitted to arbitration encompasses, in cases of doubt, also disputes relating to the validity and the objection of simulation” (Swiss Federal Court, decision of 7 October 1933).

After Second World War and more recently, separability doctrine became widespread. For example, it was recognised by 1958 New York Convention, 1976 UNCITRAL Model Law, 1980 reform of French Code of Civil Procedure (although the said reform enacted principles already laid down by French case law) and 1996 English Arbitration Act.

As far as Italian jurisdiction is concerned, at the beginning of XX century preponderant scholars’ opinion and case law was that Arbitral Tribunals did not have jurisdiction over disputes concerning the validity of the underlying contract, since the invalidity of that contract would also lead to the invalidity of the arbitration clause: “questioning the existence or validity of the contract that includes the clause, the very jurisdiction of arbitrators is questioned” (Codovilla, Del compromesso e del giudizio arbitrale, Torino, 1915, p. 344; also see Mattirolo, Trattato di diritto giudiziario civile, V ed., Torino, 1932, p. 761 and Amar, Dei giudizi arbitrali, Torino, 1868, p. 157). In the same years, similar arguments were used, for example, under English law (see the decision of the House of Lords of 20 February 1942, Heyman v. Darwins Ltd).

Amongst Italian scholars, a dissenting voice was raised by Carnelutti (Clausola compromissoria e competenza degli arbitri, critical note to Court of Venice, 4 August 1920, on Riv. Dir. Comm., 1921, II, p. 327 ss.).

The learned author, first of all, underlined the ambiguity of the term “clause” contained in the phrase “arbitration clause”.

In the most common sense, a clause is a part of an agreement, which follows its fate, as the part follows the fate of the whole. The arbitration clause, on the other hand, is a clause in the sense that it is an agreement that is formed at the same time as another and on the occasion of another (the underlying contract), of which, however, it is not a mere part.

In some cases, the invalidity of the underlying contract also entails the invalidity of the arbitration clause: for example in the case, referred to by Carnelutti (Clausola compromissoria, cit., p. 331), of the underlying contract and arbitration clause entered into by an incapacitated person; or in the case, more frequent, of a contract whose signature is forged. In these cases, the invalidity of the contract also entails the invalidity of the arbitration clause. In all other cases, however, the invalidity of the contract cannot also constitute a ground for invalidity of the autonomous stipulation contained in the arbitration clause. The latter is therefore valid and enforceable and jurisdiction lies with the arbitral tribunal.

Post-WW2 Italian case law upheld the separability doctrine and therefore stated that the invalidity of the underlying contract does not entail the invalidity of the arbitration clause and vice versa. In this respect, earlier decisions issued in the 50s of XX century were upheld by the Italian Supreme Court in its decisions No. 2161 of 29 July 1964, No. 221 of 27 January 1967, and No. 3003 of 11 October 1972, no. 3003. In its decision No. 4279 of 2 July 1981 Italian Supreme Court drew a distinction, by specifying that separability doctrine does not apply in case of contractual arbitration (that is to say, a particular ADR mechanism provided for by Italian law, resulting in an award that has the same effects as a contract entered into by the parties) and that principle is currently upheld by Italian case law (see for example Italian Supreme Court, First Civil Chamber, decisions No. 9230 of 9 April 2008 and No. 5105 of 29 March 2012).

Scholars’ opinion agrees (see for example Rescigno, Arbitrato e autonomia contrattuale, on Riv. arb., 1991, p. 13 ss).

Finally, Italian Parliament, by passing 1994 reform of Italian arbitration law, enacted separability presumption and the relevant doctrine as already laid down by Italian scholars’ opinion and case law.

At the end of this long process, there are two recent decisions of Italian lower Courts, issued by the Court of Appeal of Ancona (decision No.916 of 15 September 2020, Italian text available here) and by the Court of first instance of Catania (decision No. 3016 of 21 September 2020, Italian text available here).

The claimant in Ancona requested the Court to set aside an arbitration award issued in contractual arbitration proceedings. In these proceedings, it acted as respondent, while the claimant claimed its breach to the underlying contract and, as a consequence, the termination of the same contract. In the opinion of the claimant in the Court proceedings, separability presumption does not apply in the case at hand, since it does not apply in cases of contractual arbitration. As a consequence, the arbitral tribunal did not have jurisdiction over the dispute concerning the termination of the underlying contract.

The Court of Appeal rejected the claim, noting that in cases of disputes concerning the termination of a contract, the contract is not regarded as a contractual instrument, but as a contractual relationship. Indeed, termination concerns the contractual relationship, not the contractual instrument. While the contractual instrument remains valid and enforceable, the contractual relationship is terminated. In the light of these principles, there is no room to question on the separability (or non-separability) of the arbitration clause with respect to the underlying contract: the validity of the latter is not in dispute so that the validity of the former cannot be denied.

The decision correctly applies the relevant principles of Italian law; unfortunately, the Court of Appeal did not take the chance to examine the issue of the application of separability presumption in cases of contractual arbitration, as a revision of the principles applyd by Italian case law on the matter would be needed.

In turn, the Court of first instance of Catania heard a complex case, in which the incorporation of a company was simulated, while the parties wished to jointly buy an interest in land. The company’s articles of association, which the Court found to be a simulated contract, contained an arbitration clause. A dispute between the parties arose, and the Court rejected the objection to its jurisdiction raised by the defendant on the basis of the said arbitration clause. In the Court’s opinion, the simulation of the underlying contract affected the enforceability of the arbitration clause contained therein. In particular, the Court stated that, since the apparently incorporated company did not exist, also the arbitration clause contained in its articles of association did not exist.

The conclusion reached by the Court of Catania seems extreme and disproportionate, inconsistent with separability presumption as enacted by Article 808 of Italian Code of Civil Procedure and with the evolution of the relevant doctrine that was also laid down with specific reference to cases of simulation of the underlying contract (as in the mentioned decision of the Swiss Federal Court of 7 October 1933).

A different issue, which the Court did not address, is that of the application of Article 34 of Italian Legislative Decree No. 5 of 17 January 2003. In other words, the question is whether the arbitration clause contained in the simulated articles of association of a simulated company has to comply with the requirements set forth by Italian law on corporate arbitration, and therefore, for instance, if the said clause has to provide for the appointment of the whole arbitral tribunal by a third party.

There are no reported decisions on that very issue, nor scholars’ opinions. It could be maintained that specific rules on corporate arbitration should anyway apply since, if they do not, the arbitration clause would be valid or invalid depending on the decision on the merits (valid if company’s incorporation is actually simulated, otherwise invalid). However, that argument could be flawed: in fact, even in the case of a contract bearing an allegedly forged signature, arbitral jurisdiction is established (or denied) depending on the decision on the merits. In addition, different conclusions could be reached if the contract simulation is not a disputed issue and therefore the validity of the arbitration clause does not depend on the decision on that issue.