In a recent decision the Supreme Court of Cassation held that:
"there is a violation of the principle of hearing both sides when the arbitrators, that have disciplined the arbitration procedure fixing terms to the parties of the allegations and preliminary statements, consider these terms as mandatory time limits, as the ones provided for in art. 183 e 184 c.p.c., declaring consequently the expiry of the party who did not respect them from the power to put forward questions and offer evidence, without, nevertheless, a specific provision in the Arbitration Convention or in another written deed, prior qualification of the terms as in the arbitrators procedure rules, neither a specific communication to the parties in the moment of conceding to the terms, in this way remain unjustifiably in default to their duty to be informed of the points of view of all the parties to the proceeding."(1)
With Decision 1099/2016 the Supreme Court of Cassation accepted an appeal submitted against a Court of Naples decision which had rejected an appeal for nullity of an arbitration award. The award had been issued in relation to a real estate purchase draft agreement which had limited the rights originating from the contract in favour of the claimant.
The claimant had argued that the principle of hearing both parties had been violated, to the point that the party had lost the discretion to formulate evidence and conclusions. The Court of Appeal rejected this, holding that the arbitrators had legitimately fixed terms for motions of evidence, which guaranteed the principle of hearing both parties.
The claimant then argued Articles 816bis and 829(1) of the Civil Procedure Code had been violated on the grounds that the Court of Appeal had rejected the appeal even though there was a clear violation of the principle of hearing both parties, as the arbitrators had not specified that the terms were mandatory.
The Supreme Court of Cassation accepted the appeal, specifying that, as stated in Article 816bis of the Civil Procedure Code, the parties can establish in the arbitration agreement or a separate deed before proceedings commence "the rules that the arbitrators must follow in the proceedings". If this does not happen, "the arbitrators have the right to regulate the development of the arbitration in the way they consider most appropriate", but "in any case, have to make the principle of hearing both parties effective, giving to the parties reasonable and equivalent defence opportunities".
The court stated that "even in arbitration, the failure to assure both parties the right to be heard, is not a defect of form, but is a defect of activity, with the consequence that the nullity that arises, as stated in art. 829, first para, n. 9, [Civil Procedure Code] implies a concrete compression of the right of defence of the party in the proceedings". Further, the preclusions of the trial do not apply to arbitration, given the freedom of forms that characterise arbitration proceedings.
In regard to the principle of hearing both parties, the arbitrators can order the development of proceedings as they consider appropriate.
In carrying out this duty, the arbitrators can impose a mandatory term for completion of a specific activity. However, they must inform the parties of any obligatory term to ensure the right of the parties to be heard.
In a brief decision the Supreme Court of Cassation dealt with an important issue in arbitration proceedings: whether arbitrators can impose on parties mandatory time limits for the expiry of allegations, conclusions and evidence.
In the majority of cases, the preclusions typical of ordinary court hearings do not apply to arbitration proceedings(2) and arbitrators can organise proceedings as they wish, provided that:
- they respect the principle of hearing both parties; and
- the parties have not decided to use the power to regulate proceedings conferred by Article 816bis of the code.
Given the principle of hearing both sides, the relevant legislation recalls the principle of equality of the parties, explaining that both the parties must have a "reasonable and equivalent defence opportunity", as stated in Article 816bis of the code. This is a general rule intrinsic to the civil trial, in common with arbitration.
Arbitrators have full power to define the rules of development of the proceedings, which regulate deadlines, procedures for the exchange of documents, statements and motions.
With this decision the Supreme Court of Cassation has clarified this issue, ruling that, given the power of arbitrators to regulate arbitration proceedings under Article 816bis of the code, arbitrators can fix mandatory deadlines provided that the parties have been informed about this in advance.
The result is that arbitrators cannot declare a party's motion or documents inadmissible on the grounds of failing to respect a deadline if the parties had not been clearly informed of the relevant rules.
For further information on this topic please contact Costanza Mariconda at Mariconda e Associati by telephone (+39 02 795 212) or email ([email protected]). The Mariconda e Associati website can be accessed at www.studiomariconda.com.
(1) Supreme Court of Cassation, Sez I, January 21 2016, n 1099.
(2) Supreme Court of Cassation, Sez I, February 7 2007, n 2717; Supreme Court of Cassation, Sez I, May 3 2004, n 8320.