Costanza Mariconda April 25 2019 Supreme Court of Cassation rejects appeal of arbitral award for alleged violation of substantive rules Mariconda e Associati Studio Legale | Arbitration & ADR - Italy Costanza Mariconda Arbitration & ADR FactsDecisionCommentIn a recent decision, the United Sections of the Supreme Court of Cassation found as follows:In the case that the arbitration agreement has been signed before D.Lgs. 40/2006 comes into force, the party which has appealed the award exclusively for reasons related to the violation of procedural rules, cannot obtain relief from the time limit to extend the appeal even to the violation of substantive rules.(1)FactsWith Decision 4135/2019, the Supreme Court of Cassation addressed a supply contract between two parties that was signed on 10 May 2005 and contained a ritual arbitration clause. Pursuant to the clause, on 22 October 2007 an arbitration proceeding was commenced, which resulted in the defendant being ordered to pay €11.56 million in damages.On 19 November 2008 the defendant appealed the arbitral decision for alleged violation of the procedural rules, considering the fact that appeals for the violation of substantive rules are precluded by:Article 829 of the Code of Civil Procedure;Article 27 of Legislative Decree 40/2006 (transitional rule); andcase law.Subsequently, on 4 February 2014 the losing party filed an application for relief to extend the appeal to include the alleged violation of the substantive rules, arguing that the preclusion should not be applied according to recent case law (Court of Cassation Decision 6148 of 19 April 2012), which stated that:the changes introduced to art. 829 c.p.c. [Code of Civil Procedure] by the reform aim to define the scope of application of the award as a reflection of the new rules related to the arbitration agreement, whereas the agreements signed before 2006 continue to be regulated by the previous rules, which stated the possibility to appeal the award for the violation of substantive rules, except in cases of contrary agreements between the parties.The application for relief was rejected by the court of appeal.The decision was subsequently appealed before the Supreme Court of Cassation by the losing party for different reasons, including the alleged violation of the rules regarding relief from the time limit.The first section of the court found that the principles under review were not obvious and, consequently, asked the president to pass the question to the united sections.DecisionThe united sections firstly examined the doctrine of prospective overruling, stating that the doctrine should not be applied in the case under review, as the case law adds procedural power to the parties and the doctrine applies only to settled case law.The united sections reaffirmed the procedural nature of Article 829 of the Code of Civil Procedure and stated that, before 2012, there was no case law regarding the interpretation of Article 829 of the Code of Civil Procedure and Article 27 of Legislative Decree 40/2006.Consequently, the company's decision to appeal the arbitral award for reasons relating only to an alleged violation of procedural rules depended on a personal interpretation of the rules and not on case law; thus, the doctrine of prospective overruling should not be applied and the party should not obtain relief from the time limit.CommentPrior to the reform of the arbitration rules under Legislative Decree 40/2006, Article 829(2) of the Code of Civil Procedure provided for the appeal for nullity of an award for the alleged violation of substantive rules as a general rule, except in cases of contrary agreements between the parties.Following Legislative Decree 40/2006's introduction, the new Article 829(3) of the Code of Civil Procedure states that "the appeal for the violation of substantive rules, is permitted only if expressly provided for by the parties or by the law".According to a literal interpretation, the revised article should have been applied to all arbitration proceedings for which an arbitration request was filed after 2006, notwithstanding the date on which an arbitration agreement was signed.On the contrary, in 2012 the Supreme Court of Cassation stated that decisions which originate from arbitration agreements signed prior to 2006 could be appealed, even for a violation of substantive rules if the parties had not excluded this power.The united sections recently accepted this interpretation, stating that the doctrine of prospective overruling is applicable if the following requirements are met:the change of case law exclusively regards procedural rules;the change of case law is unpredictable and unexpected; andthe abovementioned changes are the direct and exclusive reason for the removal of a party's right of action or right of defence based on inadmissibility or revocation.The united sections added that the doctrine of prospective overruling does not apply in cases where the new case law adds procedural power to one party.Consequently, the united sections found that the defendant should not be provided relief from the time limit, as its decision to appeal the arbitral decision for reasons concerning only the violation of procedural rules depended on an error of law.For further information on this topic please contact Costanza Mariconda at Mariconda e Associati Studio Legale by telephone (+39 02 795 212) or email ([email protected]). The Mariconda e Associati Studio Legale website can be accessed at www.studiomariconda.com.Endnotes(1) Supreme Court of Cassation, 12 February 2019, 4135.