Court’s costs and fees

The Court of Appeal of Milan and the Court of first instance of Milan recently issued two decisions on the issue of Court’s and attorney’s fees in case an objection to the Court’s jurisdiction is granted, as the parties entered into an arbitration agreement.

The decision of the Court of first instance (decision No. 5606 of 23 June 2022, Italian available here) is a simpler and more straightforward ruling.

The case heard by the Court may be summarised as follows.  The alleged creditor requested and obtained an order for payment against the alleged debtor, which under Italian law is an ex parte order.  The latter appealed to the order and objected to the jurisdiction of the Court, as the parties entered into an arbitration clause.  The Court referred to the settle case law of the Italian Supreme Court, whereby “the existence of an arbitration clause does not prevent the jurisdiction of a State Court requested to issue an order for payment (as arbitrators are not allowed to issue ex parte orders).  Nonetheless, if the debtor appeals the order on the ground that the State Court does not have jurisdiction, the Court shall set aside the order and instruct the parties to submit their disputes to the arbitrators”.  Therefore, the Court set aside the order in the case at hand.

Concerning Court’s and attorney’s fees, the Court correctly held that there was no reason not to apply the ‘cost follows the event’ principle.  As the debtor’s appeal was upheld, the creditor was the losing party.  As such, it was ordered to pay Court’s and attorney’s fees under Article 91 of the Italian Code of Civil Procedure.  Indeed, the alleged creditor decided to commence litigation in Court at its own risk despite the agreed arbitration clause.  In other words, such a case does not entail any of the exceptional cases provided for by Article 92 of the Italian Code of Civil Procedure, as construed by the Italian Constitutional Court in its decision No. 77 of 7 March/19 April 2018.  Under the said Article, indeed, the Court is allowed not to apply the above-mentioned ‘cost follows the event’ principle in case of unforeseen events beyond the control of the parties or situations capable of constituting an “unjustified obstacle” to asserting the parties’ rights.

In this respect, it should be noted that some lower Courts reach opposite conclusions, which does not appear to be right.

For instance, the Court of first instance of Cuneo (decision No. 262 of 15 March 2022) stated that ‘cost follows the event’ does not apply as the creditor accepted the objection to the Court’s jurisdiction.  The same Court (decision No. 261 of 15 March 2022) also held that the conclusion of the proceedings by a procedural ruling and the acceptance of the objection to the Court’s jurisdiction by the claimant constitute a just reason not to award Court’s and attorney’s fees under Article 92 of the Italian Code of Civil Procedure.

Furthermore, it is difficult to understand why costs are not awarded as the decision only concerns procedural matters (as stated by the Court of first instance of Parma in its decision No. 675 of 21 April 2021).

The case the Court of Appeal of Milan heard is quite more complex (decision No. 2230 of 24 June 2022, Italian text available here).

The case was as follows.  A party (A) had assigned to another party (B) a receivable it had towards a third party (C).  B requested and obtained by the Court of first instance a payment order against C.  C appealed the order, objecting to the Court’s jurisdiction, as B’s credit arose from a contract containing an arbitration clause.  The Court upheld that objection and set aside the order, ordering B to pay Court’s and attorney’s fees.  B only appealed the Court’s decision on costs.

In the decision at hand, the Court of Appeal upheld the principles laid down by the Italian Supreme Court, based on Article 808 of the Italian Code of Civil Procedure and separability doctrine.  In particular, the Supreme Court held that, as the arbitration clause constitutes a separate agreement, the assignment of the underlying contract does not automatically imply also the assignment of the arbitration clause.  As a consequence, if only a receivable arising out of a contract is assigned, such an assignment does not imply the assignment of the arbitration clause.  Nonetheless, the debtor is entitled to object to the Court’s jurisdiction if the assignee brings litigation proceedings to State Courts.  The reason is that it would be otherwise deprived of its right to have its disputes referred to arbitrators as a consequence of an agreement he did not enter into (that between assignor and assignee).

In other words, the assignee is not entitled to enforce the arbitration agreement against the debtor, while the latter is entitled to enforce the same agreement against the assignee.

However, in the light of the principles above, the Court held that the creditor brings proceedings in Court at its own risk in the case of assignment of receivables arising out of a contract containing an arbitration clause.  As a consequence, there is no reason not to apply the ‘cost follows the event’ principle under Article 91 of the Italian Code of Civil Procedure.

As a result, the debtor may paralyse all the creditor’s actions.  The debtor may object to their jurisdiction if the creditor brings proceedings in State Courts.  Moreover, if the creditor commences arbitration proceedings, the debtor may object to the tribunal’s jurisdiction.  In any event, the assignee is ordered to pay costs.

This construction is disappointing, as learned scholars pointed out. 

It is undoubtedly correct that the debtor should be entitled to object to the State Court’s jurisdiction, as the assignment cannot preclude any objection it might raise against the assignor (Article 1260, para. 1, of the Italian Civil Code).  

If the assignee instead commences arbitration proceedings against the debtor, there is no reason why it could be entitled to object to the tribunal’s jurisdiction.  The argument that it entered into the arbitration clause with the assignor and cannot be forced to take part in arbitration proceedings with the assignee only allows delaying tactics.

Therefore, it appears more reasonable (and in line with the need for certainty in commercial transactions) that both the assignee and the debtor may enforce the arbitration clause as it concerns the disputed receivable.  Such a conclusion could be based on Article 1263 of Italian Civil Code, as suggested by learned scholars.  In addition, it is in line with the principle that agreements closely related to a receivable (such as a security agreement) are assigned as a consequence of the assignment of the said receivable.