A modernization of Italian arbitration law

Introduction

In recent years, arbitration has gained prominence in Italy. While particularly popular in international commercial transactions, domestic parties are also increasingly opting for arbitration over the Italian state courts as they consider that – in some specialized matters – arbitration is more effective than litigation. The increased predictability provided by the procedural rules of the main arbitration institutions is additionally playing an important role in the development of the practice. Notwithstanding this, the use of arbitration is still limited compared with court litigation in Italy.

In October last year, the Republic of Italy carried out a reform of several areas of the Code of Civil Procedure (the Code) via Legislative Decree no. 149, Riforma Cartabia (the Reform). Among other changes effected by the Reform is an attempt to modernize arbitration by improving the reliability of arbitral procedure under Italian law. The hope is that this will make arbitration more attractive to both domestic and foreign operators and will improve Italy’s reputation as an arbitration-friendly hub.

The changes under the Reform

The main changes effected by the Reform are:

1. long-awaited grant of arbitrators’ power to issue interim relief;
2. strengthening of arbitrators’ disclosure obligations in an attempt to foster impartiality; and
3. enhancement of the interaction between arbitration and Italian court litigation.

Grant of arbitrators’ power to issue interim relief

The new Section 818 of the Code, as amended by the Reform, grants arbitrators the power to order interim relief. This is a welcome change for parties arbitrating in Italy, as prior to this development no section of the Code expressly granted arbitrators this power.

Although the main arbitration institutions in Italy (for example, CAM - Chamber of Arbitration of Milan) used to grant arbitrators the authority to order provisional measures in their rules, absent a provision in the Code, these measures could not be enforced by Italian courts in the event that the other party refused to comply with the arbitrator’s interim order.

However, while these reforms go some way to bringing Italy in line with other arbitration-friendly jurisdictions, arbitrators’ power in respect to granting interim relief remains subject to some restraints:

(i) the parties’ express consent is required, and must be either recorded in the arbitration agreement or separate document, prior to the commencement of arbitration;

(ii) orders for interim reliefs are appealable in Court of Appeal; and

(iii) if the party subject to the arbitrator’s order does not comply, the other party has no alternative but to seek enforcement before the court; in fact, under Italian law, arbitrators are not entitled to exercise coercive powers, as these traditionally stay in the exclusive dominion of the courts.

Notwithstanding these restraints, supporters of the Reform predict that Italy is likely to become more “arbitration-friendly” as parties will be able to seek both final and interim relief from the same arbitration tribunal, safe in the knowledge that this can be enforced in the Italian courts.

Strengthening of arbitrators’ disclosure obligations in the attempt to foster impartiality

Changes have been introduced in the Reform regarding the appointment of arbitrators. First, a new ‘catch-all’ provision allowing the parties to challenge an arbitrator’s appointment both on the grounds of pre-determined circumstances set by the law – as was previously the case under the Code - but also for “serious reasons of convenience” has been implemented by the Reform. The scope of this provision has not been tested by the courts yet, however, we expect that it may be construed in accordance with Article 51 of the Code, which uses the same wording in respect of grounds for judges’ abstention.

Secondly, at the time of appointment and acceptance, arbitrators must promptly file a statement to disclose all facts potentially relevant to their impartiality or independence. Any omission of a relevant fact in this statement will make the acceptance void, and may result in an arbitrator’s removal – a stricter sanction that was not previously imposed under the Code.

Prior to this change, CAM already imposed sanctions on arbitrators for failure to disclose relevant facts pertaining to their impartiality in their regulations. However, these rules were only applicable to proceedings conducted under the institutional rules and not to ad hoc arbitrations governed by the Code.

These changes are likely to have both positive and negative effects. On one hand, there are now better safeguards in place in respect of arbitrators’ impartiality; on the other hand, the newly adopted “catch-all” provision may create an increase in the number of illegitimate challenges to arbitrators, potentially slowing the procedural process. The effectiveness of these developments remains to be seen as they are used in practice.

Enhancement of the interaction between arbitration and court litigation

Finally, the Reform has expressly codified the following principles that had previously been established by case-law.

First, service of a request for arbitration will now have the same effect for limitation purposes as the commencement of litigation proceedings. Previously, no section of the Code expressly provided for this.

Second, the Reform enhances the interaction between arbitration and court litigation. Under the new Section 819 quater of the Code, as amended by the Reform, the parties may now ‘save and transfer’ the effects of a claim submitted in court or compelled in arbitration when jurisdiction is denied, meaning they can effectively resume the existing proceedings before the alternative competent authority. In summary, the Reform’s goal is to establish a more efficient mechanism for reinstating proceedings in the correct forum, whether they were erroneously initiated before either state courts or arbitral tribunals.

Third, in contexts in which the appointment of arbitrators is delegated to courts, tribunals or other bodies, the Reform mandates that the appointing authorities adhere to transparent, efficient and rotational criteria when appointing arbitrators. This may include the collection and publication of a list of available arbitrators to be potentially selected.

Conclusion

With the advent of the Reform, it is hoped that Italian procedural law will be perceived as more ‘arbitration-friendly’, generating increased clarity, predictability and efficiency of the arbitral process and harmonizing the interaction between arbitration and the Italian courts.