Introduction

The Italian Arbitration Act was substantially modified by the law decree no. 40 of 2 February 2006, which entered into force on 1 March 2006 (the ‘2006 law’). Amongst other modifications, the 2006 law revised the grounds to challenge arbitral awards in arbitrations seated in Italy, which are set forth in Article 829 para. 3 of the Italian Code of Civil Procedure.1 Whereas, before the reform, an arbitration award could be set aside for error of law unless the parties had provided otherwise; after the reform, an arbitration award cannot be set aside for error of law, unless the parties have provided otherwise.

Pursuant to the transitional provisions in Article 27 para. 4, the 2006 statute applies to all arbitration proceedings seated in Italy introduced after 2 March 2006,2 irrespective of the date of conclusion of the arbitration agreement. The preparatory works of the 2006 statute show that the clear purpose of such transitional provisions was to limit – to the greatest extent possible – the challenge of arbitral awards.

Against this background, Italian judges have had to determine whether the new statute applies to arbitrations initiated after the reform but based on an arbitration agreement concluded before such reform.

Various courts of appeal, and in particular the Milan Court of Appeal, have adopted a strict interpretation of the transitional provisions, which are found in Article 829 para. 3 of the Italian Code of Civil Procedure in its new drafting. Pursuant to such interpretation, an arbitral award issued in proceedings introduced after 2 March 2006 cannot be challenged for error of law unless otherwise provided in the arbitration agreement, irrespective of the date of the conclusion of the agreement containing the arbitration clause.

This issue was addressed by the Supreme Civil Court in a number of decisions(Cass. Civ. VI sect., 2 September 2013, no. 21205; Cass. Civ., I sect., 25 September 2015, no. 19075). Ultimately, both the plenary session of the Supreme Court and the Constitutional Court have been faced with the same question.

The position of the Italian Supreme Civil Court

At its plenary session of 9 May 2016 , the Corte di cassazione, Italy’s Supreme Civil Court, held that challenges to awards ought to be governed by the law in force at the time of the arbitration agreement was executed, regardless of whether the arbitration proceedings were introduced after 2 March 2006 (date of entry in force of the 2006 law):

In application of the transitional regime provided by Article 27 of the law decree n. 40 of 2006, Article 829 para. 3 as modified by Article 24 of the law decree n. 40/2006, applies to arbitration proceedings introduced after the entry into force of such law decree; however, the law to which Article 829 para. 3 refers to, in order to decide whether the challenge of the award for error of law is admissible or not, is the law in force at the time of the conclusion of the arbitration agreement.

In doing so, the Corte di cassazione relied on a number of general principles of law such as parties’ autonomy, legitimate expectations, certainty of the law and equal treatment. As a result, the Corte di cassazione found that the arbitral award could be challenged for error of law, unless otherwise provided in the arbitration agreement.

Such decision, which favours the parties’ autonomy, was however in blatant contradiction with the transitional provisions.

The position of the Constitutional Court

The issue reached the Constitutional Court in the context of a framework agreement, which had been executed between a bank and one of its clients in 2003, i.e. before the 2006 law. The client however introduced an arbitration after March 2006 on the basis of the arbitration clause contained in the framework agreement. After the award was issued, the client filed set-aside proceedings before the Milan Court of Appeal.

Considering that the abovementionedposition of the Supreme Civil Court was in apparent contradiction with the transition provisions of the 2006 law, the Court of Appeal of Milan referred the case to the Constitutional Court. In its motion, the Milan Court of Appeal explained that the decisions of the Supreme Civil Court could be contrary to: (i) the principle of equal treatment in that they could result in treating differently awards rendered on the basis of requests for arbitration introduced after the reform; and (ii) the principle of tempus regit actum, namely that acts are governed by the law then in force.

On 30 January 2018, the Constitutional Court rejected the Court of Appeal’s motion (C. Cost. 30 January 2018, no. 13). In its ruling, the Constitutional Court held that the principle of equal treatment could be applied only to identical situations. As requests for arbitration introduced after March 2006 differed whether the arbitration agreement was concluded before or after the reform, the Court decided that the Corte di cassazione’s position did not breach the equal treatment of the parties.

Regarding the principle of tempus regit actum, the Constitutional Court considered that the provision of Article 829 para. 3 of the Code of Civil Procedure was not procedural in nature, but rather a substantial and that, consequently, the principle tempus regit actum did not apply.

Finally, the Constitutional Court considered that the parties’ autonomy must be favoured over the strict interpretation of the 2006 statute.

Conclusion

The Constitutional Court did not examine the constitutionality of the statute or whether its transitional provisions are contrary to the Italian Constitution but shed light on the temporal application of the 2006 statute. It affirmed the interpretation of Article 829 para. 3 of the Code of Civil Procedure by the Supreme Civil Court according to which, irrespective of the date of the request for arbitration, the grounds to challenge an award are subject to the law in force at the time the arbitration agreement was made.


1
Article 829 para. 3 provides (free translation): ‘The challenge of the award on the basis of rules of law pertaining to the merits is admitted only if expressly provided by the law or the parties. In any event, the challenge of the award is admitted for breach of public policy’.

2
After the reform of 2006, Italian law only makes a distinction between arbitrations with a seat in Italy and arbitrations with a seat outside Italy; the section of the Code of Civil Procedure applicable to “international” arbitration has been abrogated.