Default arbitration proceedings

Default arbitration proceedings, or – with a more accurate wording – arbitration proceedings in which a situation occurs corresponding to the situation giving rise to default proceedings in State Courts, is a topic of relevant practical interest.

Italian scholars dealt with that topic, developing three theses.  The first thesis holds that the above situation may occur in arbitration proceedings.  The second thesis, on the contrary, is that this situation cannot occur.  The third thesis, which is the more persuasive, is that it is necessary to identify the law rules concerning default proceedings before State Courts, which are compatible with arbitration proceedings.

On the other hand, Italian case law tends to repeat the doctrine that default proceedings rules do not apply in arbitration proceedings.

In this framework, two recent decisions, both issued in proceedings for the setting aside of Italian domestic awards, are fascinating, as the awards were issued in ‘default’ arbitration proceedings.

The first mentioned decision was issued by the Italian Supreme Court (Italian Supreme Court, I Civil Chamber, decision No. 24008 of 6 September 2021, Italian text available here). The case may be summarized as follows.

In multi-party arbitration proceedings, one of the respondents has not carried out any defensive activity: in other words, it has not ‘made contact’ with the Arbitral Tribunal, thus giving rise to a situation that, from a practical point of view, is quite similar to default proceedings in State Courts.

After the issuance of the award, the party ‘in default’ requested the Court of appeal to set it aside.  Its request was dismissed.

That party then appealed to the decision of the Court of Appeal before the Supreme Court.  It noted that it had not received the written submissions exchanged during the arbitration proceedings and claimed that this would involve that the award was invalid for two reasons.  First of all, the formalities established by the parties were not complied with, as it was provided in the minutes of the hearing of constitution of the Arbitral Tribunal that the written submissions had to be directly exchanged between the parties.  In addition, the lack of knowledge of the defences of the other parties would have precluded it from presenting its case.

In the proceedings before the Supreme Court, another defendant, who had ‘appeared’ in the arbitration proceedings, also claimed that the award was invalid. The reason was that the party ‘in default’ was precluded from presenting its case during the proceedings, as it did not receive the other parties’ submissions.

The Supreme Court rejected all the above grounds.

As for the ground raised by the party who ‘appeared’ in the arbitration proceedings, the Supreme Court rejected it, noting that only the party (allegedly) prevented from presenting its case would be entitled to raise such a claim.  In reaching that conclusion, the Supreme Court upheld its case law on default proceedings in State Courts.

The reasoning leading to the rejection of the grounds raised by the party ‘in default’ is more interesting.  

First of all, the Supreme Court observed that formalities concerning the proceedings, if not complied, may lead to the setting aside of the award only provided that these formalities have been established under pain of invalidity.  That was not the case, and the ground was rejected. 

The Supreme Court then examined the most significant ground concerning the alleged preclusion for the party to present the case.  In this regard, the Supreme Court noted that in proceedings before State Courts, Article 292 of Italian Code of Civil Procedure governs the matter.  The said provision has the purpose of allowing the party in default to have knowledge of some specific procedural acts: those extending the subject matter of the proceedings (new claims or counterclaims) or leading to severe consequences against the party in default (formal questioning or oath).  Therefore, in the light of the content, and the rationale, of Article 292 of Italian Code of Civil procedure, the Supreme Court concluded that the party ‘in default’ in arbitration proceedings should not be granted greater protections than those recognized to party in default before State Couts.  In other words, there is no reason why the issuance of the award should require more significant guarantees, as far as the right to present the parties’ case is concerned, than those granted in State Courts.  In so ruling, the Supreme Court countered – maybe unknowingly – the scholars’ opinion whereby all the written submissions have to be at least communicated to the party ‘in default’, although a service, that is to say, a formal communication under Articles 137 ff. of Italian Code of Civil Procedure, is not required.  Under the mentioned scholars’ opinion, this communication would follow the fact that in arbitration proceedings Article 170, para. 4, of Italian Code of Civil Procedure does not apply (the said Article setting forth that written submissions are usually communicated by lodging them with the Registry of the Court).

Concerning the matter of this contribution, the reasoning of the second decision is definitely more concise (Court of Appeal of Rome, 20 September 2021, No. 6093, Italian text available here).

The case heard by the Court concerned other multi-party arbitration proceedings.  In that caser, the Arbitral Tribunal issued the award after the expiry of the term set forth by Article 820 of Italian Code of Civil Procedure (240 days of the constitution of the Arbitral Tribunal), and the award-debtor requested the Court to set it aside based on this ground.

The issue of ‘default’ arbitration is grafted onto this ground of appeal.  Indeed, Article 821 of Italian Code of Civil Procedure provides that the expiry of the term referred to in Article 820 of the same Code may constitute a ground to set aside an award only if the interested party, after the expiry of the term and before the issuance of the award, has served on the arbitrators and other parties a communication indicating its intention not to accept a ‘late’ award.  In the case at hand, the interested party has so communicated to the arbitrators and to the ‘appeared’ party, albeit without complying with the formalities required by Articles 137 ff. of Italian Code of Civil Procedure (in other words, it communicated to the arbitrators and the other party, but did not serve on them), and omitted any communication to the party ‘in default’.

The omission of both the above formalities and of any communication to the party ‘in default’ led the Court of Appeal to dismiss the request to set aside the award.  In particular, the Court of Appeal noted that Article 292 of Italian Code of Civil Procedure does not apply in arbitration proceedings.  In any case, the Court added that Article 821 of Italian Code of Civil Procedure requires service on all the parties, including parties possibly ‘in default’.

It seems that both decisions elected to upheld the arbitration awards.  This election led the Courts to conflicting statements on the application of Article 292 of Italian Code of Civil Procedure in arbitration proceedings.

In this regard, a renewed in-depth scholarly discussion seems appropriate to identify the guarantees for the party ‘in default’ in arbitration proceedings and the relevant procedural measures.

In a few words, the statement of the Supreme Court seems correct.  The party ‘in default’ in arbitration proceedings should be granted the same guarantees as the party in default in State Courts.  Not less, but not more.  In this context, reliable guidance is given by Article 292 of Italian Code of Civil Procedure.  However, this guidance does not suffice since there are clear divergences between proceedings in a Court of law and arbitration proceedings.

Consequently, some acts other than those indicated by Article 292 of Italian Code of Civil Procedure have to be served on the party ‘in default’.  These acts include, for instance, the communication referred to in Article 821 of Italian Code of Civil Procedure (as noted by the Court of Appeal of Rome) and any act possibly affecting the composition of the Arbitral Tribunal or the extent of its powers.  Regarding other written submissions (and related documents), there is no lodging with the Registry of the Court in arbitration proceedings.  Nevertheless, there is a corresponding activity.  The lodging with the registry is indeed instrumental in allowing the Court and the other parties to have knowledge of the submissions.  The very same purpose is reached in arbitration proceedings by communicating the submissions to the Arbitral Tribunal and the other parties, observing the formalities established by the arbitration agreement, the parties or the Tribunal, as the case may be.  As a consequence, this communication, which takes the place of lodging with the Registry of the Court, should have the same effects as the said lodging.