The Supreme Court of Cassation recently found that:
"according to the transient regulation as provided for in Decree-Law 40/2006, art. 27, art. 829 of the Code of Civil Procedure, para 3, as modified by Decree-Law 40/2006, art. 24, applies in the arbitration proceedings started after such law entered into force, but the law at which art. 829 of the Code of Civil Procedure, para 3, refers to establish if the appeal for violation of the rules regarding the merit of the question is permitted, is the law in force at the moment of the stipulation of the arbitration clause."(1)
In Decision 9284/2016 the Supreme Court of Cassation considered the nullification of an arbitral decision based on a violation of the rules regarding the merit of the dispute, as set out in Article 829(3) of the Civil Procedure Code as modified by Decree-Law 40/2006.
The municipality of T and the Centre for Assistance and Rehabilitation VR entered into an agreement on December 22 2004.
When the rehabilitation centre did not fulfil its obligations as provided for in the agreement, the municipality initiated arbitral proceedings according to the arbitration clause included in the agreement.
The arbitrators terminated the agreement, as the rehabilitation centre had failed to fulfil its obligations. However, the arbitrators rejected the municipality's claim for damages and accepted the rehabilitation centre's counterclaim, which required the municipality to pay consideration for violating the principle of hearing both parties.
The plaintiff appealed before the Messina Court of Appeal, requesting that the arbitral decision be nullified on the basis that, among other things, it violated relevant laws. Rejecting the other requests, the court declared that the plaintiff's argument regarding the violations of law in relation to the merit of the dispute was inadmissible. According to the court, this was because the request for arbitration – despite the fact that it was based on an arbitration clause stipulated in 2004 – was made after Decree-Law 40/2006 (which modified Article 829 of the Civil Procedure Code insofar as violations "of laws regarding the merit of the dispute can be admitted only if expressly provided by the parties or by the law") came into force.
The Court of Cassation granted the municipality's appeal, declaring that the December 22 2004 agreement should be regulated by the earlier version of Article 829(2) of the Civil Procedure Code, which states that an "appeal for nullity is permitted if the arbitrators in the judgment did not observe mandatory laws, unless the parties authorized them to decide ex aequo et bono".
In its decision, the court went beyond the literal interpretation of Article 27 of Decree-Law 40/2006, which clearly states that the revised version of Article 829 of the Civil Procedure Code applies to arbitral proceedings commenced after the new article came into force, even where an arbitration clause was agreed beforehand.
According to the previous version of Article 829(2) of the Civil Procedure Code, unless the parties expressly agreed otherwise, an arbitration award could be appealed for a violation of mandatory laws; however, the revised text overturns this clause. Thus, arbitration decisions can be appealed for violating mandatory law only where the parties have expressly agreed or where this is provided for by law.
However, case law on this point has been varied. Some decisions underline that Article 27 of Decree-Law 40/2006 expressly states that the revised version applies to arbitral proceedings commenced under previously agreed arbitration clauses.(2) However, other decisions underline that this provision must be interpreted in light of the general principle of non-retroactivity of the law and Articles 3 and 24 of the Constitution.(3)
The United Sections of the Supreme Court of Cassation clarified to which law Article 24 of Decree-Law 40/2006 refers. To do so, the court identified three criteria:
- The law must be different from Article 829(3) of the Civil Procedure Code.
- The law must govern the arbitration agreement as it "is such convention that defines the limits of the appeal of the award".
- The law must have been in full force when the arbitration agreement was concluded.
In any case, only the pre-existing legal context – including the laws which were in full force when the agreement was concluded – may attribute meaning to the silence of the parties.
The Court of Cassation declared that it was not possible to attribute to the parties' silence (with regard to the arbitration agreement) a meaning other than that provided for by the law which was in full force when the agreement was concluded; thus, Article 829(2) of the Civil Procedure Code applied.
For further information on this topic please contact Costanza Mariconda or Luciano Castelli at Mariconda e Associati by telephone (+39 02 795 212) or email ([email protected] or [email protected]). The Mariconda e Associati website can be accessed at www.studiomariconda.com.
(1) Supreme Court of Cassation, SU, 9284/2016; see also Cass 9341/2016.
(2) Supreme Court of Cassation, 748/2015.
(3) Supreme Court of Cassation, 21205/2013; Cass 19075/2015.