Parallel paths

As far as the relationship between arbitration and Court proceedings is concerned, Italian law applies the s.c. parallel paths doctrine. This doctrine is laid down by Article 819-ter of the Italian Code of Civil Procedure, whereby “the jurisdiction of arbitrators is not excluded by the fact that the same case is pending before the State Courts, nor by the fact that a related case is pending before the State Courts”.

This principle applies in several cases, some of which relate to corporate matters. For this reason, a recent decision of the Court of Milan is of particular interest (Court of first instance of Milan, 12 July 2022, No. 6095, Italian text available here), as the judge failed to apply the said principle.

Before examining the decision at hand, it is worth making some preliminary remarks.

At least since the entry into force of Legislative Decree No. 5 of 17 January 2003, Italian Procedural law allows resolutions passed by an unlisted company’s general meeting to be challenged before arbitrators. This is because the law enacted in 2003 dispelled the doubts, advanced in particular by the Courts, concerning the arbitrability of such disputes.

Nevertheless, the prevailing case law deems a distinction has to be drawn. Indeed, it states that disputes relating to corporate resolutions may be submitted to arbitration, but only if such disputes concern disposable rights. If these disputes concern non-disposable rights, State Courts have jurisdiction. This principle mainly applies to resolutions approving the company’s accounts. If the claimant claims procedural issues (e.g., the general meeting was not properly called or conducted), the dispute concerns disposable rights and may be submitted to arbitration. If the claimant claims issues on the merits of the accounts (i.e., claims that the financial statements approved by such resolution do not clearly, truthfully and fairly represent the company’s situation), the dispute concerns non-disposable rights, and State Courts have jurisdiction.

This doctrine does not appear correct, and several scholars object to it. Nonetheless, it can be assumed as a given fact in this context.

It should be noted that in far from rare cases, the claimant claims both procedural issues and issues on the merits.

The Court of first instance of Milan already heard such a case and correctly applied the parallel paths doctrine: the Court heard the case concerning the alleged issues on the merits, while an arbitral tribunal heard the case concerning the procedural issues (Court of first instance of Milan, 28 July 2015, No. 9115).

In the decision at hand, the same Court retraced its steps.

The case can be summarised as follows.

Certain quotaholders of a limited liability company challenged the resolution of the general meeting approving the accounts as of 31 December 2018, claiming three issues. The first issue was a procedural one: the accounts to be approved had not been filed at the company’s registered office fifteen days before the meeting, as required by Italian law (Article 2429-ter of the Italian Civil Code). The other two issues, however, concerned the merits: according to the claimants, the accounts did not comply with the principles of a clear and faithful representation of the company’s situation (Article 2423, para. 2, of the Italian Civil Code), nor did they comply with the principle of prudence (Article 2423-bis, para 1, No. 4 of the Italian Civil Code).

The company’s articles of association contained an arbitration clause. This is the reason why the company objected to the Court’s jurisdiction.

The Court of Milan rejected that objection and set aside the resolution, upholding the claim concerning the procedural issue without examining the issues on the merits.

Leaving aside the reasoning that led the Court to grant the claimants’ claim concerning the procedural issue, as it is not of interest here, it is worth focusing on the reasoning that led the State Court to reject the objection to its jurisdiction.

The Court held that if a claim concerning disposable rights (the request to set aside the resolution due to procedural issues) is raised together with a claim concerning non-disposable rights (the request to declare the resolution null and void due to issues on the merits), State Courts have jurisdiction over the case as a whole under Article 2378, para. 5, of the Italian Civil Code (whereby all the claims concerned the same resolution shall be heard as a single case), representing a special rule with respect to Article 819-ter of the Italian Code of Civil Procedure.

This conclusion seems wrong for many reasons.

First of all, the Court assumed that Article 2378, para. 5, of the Italian Civil Code applies in the case it heard. Nonetheless, there is a precedent (Court of Appeal of Rome, 4 December 1979) that has ruled that the (then in force) Article 2378, para. 3, of the Italian Civil Code (corresponding to the currently in force Article 2378, para. 5 of the Italian Civil Code) only applies if the claimants request the Court to set aside a resolution under Article 2377 of the Italian Civil Code while it does not apply if the claimant requests to declare that a resolution is null and void under Article 2378 of the Italian Civil Code.

Moreover, another lower Court (Court of first instance of Foggia, 14 October 2005) laid down, albeit in a very different case, a principle that appears to be relevant also in the case at hand: Article 2378, para. 5, of the Italian Civil Code applies if the same relief is sought. And the request to set aside a resolution is a relief other than the request to declare that a resolution is null and void.

The Court’s finding that Article 2378, para, 5 of the Italian Civil Code represents a special rule in relation to Article 819-ter, para. 1, of the Code of Civil Procedure, also seems erroneous. Indeed, the two provisions have different scopes of application. The first provision (Article 2378 of the Civil Code) contains the procedural rules governing Court litigation concerning corporate resolutions. It relates to the rules set forth in the Second Book of the Italian Code of Civil Procedure, and therefore Article 2378, para. 5, of the Civil Code has to be read with Articles 273 and 274 of the Italian Code of Civil Procedure. On the other hand, the second provision (article 819-ter, para. 1 of the Italian Code of Civil Procedure) concerns a pretty different issue: the relationship between arbitral tribunals and State Courts. In fact, the procedural rules governing arbitration proceedings in cases regarding corporate resolution are set forth by Article 35 of Legislative Decree No. 5 of 17 January 2003.

Finally, even the Court’s application of the lex specialis doctrine does not appear correct. The purported lex specialis (Article 2378, para. 5, of the Italian Civil Code) was enacted by Legislative Decree No. 6 of 17 January 2003; however, it was also contained (as Article 2378, para. 3) in the original text of the Italian Civil Code, approved by Royal Decree No. 262 of 16 March 1942. Article 819-ter, para. 1, of the Italian Code of Civil Procedure, on the other hand, is a later provision: it was enacted by Legislative Decree No. 40 of 2 February 2006, while a similar provision was previously enacted by Law No. 25 of 5 January 1994. As a consequence, Article 819-ter, para. 1, of the Italian Code of Civil Procedure is a rule enacted after Article 2378, para. 5, of the Italian Civil Code. As learned scholars pointed out, under Italian law, the newest law, even if general, repeals the previous law, even if special unless the Parliament provides for any exceptions. From this perspective, it would be entirely irrelevant to ascertain whether Article 2378, para. 5, of the Italian Civil Code is a special rule with respect to Article 819-ter, para. 1, of the Italian Code of Civil Procedure. The latter is indeed the newest rule and must be applied; otherwise, Article 15 of the Preliminary Provision of the Italian Civil Code would be infringed. 

In a few words, the Court of Milan took a step backwards before the 1994 reform of Italian arbitration law, when the relationship between arbitral tribunals and State Courts was governed by the principle that the latter prevails over the former. Only after taking this step backwards could the Court hear the merits of the case and issue a decision on a matter that the parties had agreed to refer to arbitration.

This backward step is particularly alarming, as it was taken by a Court that supported arbitration for various reasons in the past. The hope is, therefore, that the decision at hand is the mistake of a single Judge and a specific panel and not the first of a new line of cases.