The issues – briefly addressed here – on which the Supreme Court, with a commendable activity of reorganization and clarification, ruled (i.e., whether an award should be classified as a partial or an non-definitive one, and whether the issue of the validity of an arbitration clause is a substantial or procedural issue) may at a first sight seem inherently (and merely) technical. However, the practical implications of such issues, coupled with the risk that an inattentive defence, underestimating their relevance, may adversely affect the assisted person’s rights, make the decision under examination particularly worthy of attention.
The Joint Divisions of the Supreme Court ruled on the challenging of non-definitive and partial awards and, by judgment No. 23463, filed on November 18, 2016, they stipulated the following principle of law:
“A partial award on the merits of a dispute, immediately challengeable pursuant to Article 827, paragraph 3, of the Code of Civil Procedure, is both an award of condemnation to undetermined performance [or damages], as per Article 278 of the Code of Civil Procedure, and an award determining one or more of the claims brought without settling the case in full, while awards determining preliminary issues are not immediately challengeable”.
To fully appreciate the importance and significance of the above decision, it is worth making a brief introductory comment on Article 827, paragraph 3, of the Code of Civil Procedure. From the 1994 reform, such provision regulates two types of award not settling an arbitral dispute, i.e. partial awards (or awards on claims), which are immediately challengeable, and non-definitive awards (or awards on preliminary issues), which can only be challenged with the final award.
In practical terms, arbitrators will render a “partial” award when they only adjudicate on some of the claims raised by the parties, without completely fulfilling their task of settling the dispute. Condemnation to undetermined damages (i.e. a decision determining the existence of a right to damages and not the quantum) is an example of partial award.
An award determining a preliminary issue without settling the dispute can instead be classified as an “non-definitive” award. An example of it is the award dismissing an objection of expiry of limitation period while reserving the decision on the existence of a credit to a later date. Should the objection be upheld, the arbitrator would de facto render a final award.
The distinction between the above two types of award has an impact on the possibility of immediately challenging the award or not (respectively, in case of a partial or of an non-definitive award). A partial award has indeed an impact on the parties’ substantial legal sphere, in that it adjudicates on a right and results in an immediate and actual unfavourable verdict. By contrast, a non-definitive award has the only effect of exhausting the arbitrators’ authority to rule on a certain issue, preventing them from modifying their decision. In this way, a non-definitive award leads to a purely hypothetically unfavourable outcome, which may only be taken into account and assessed together with the effects of the final award.
The possibility of issuing awards not settling the arbitral dispute was introduced in 1994. Before such statutory change was implemented, case law had already allowed the issuance of partial awards (inter alia, Supreme Civil Court, judgment No. 6021, November 9, 1988), despite firmly excluding the right to immediately challenge them (Supreme Civil Court, judgment No. 3835, June 9, 1986). This was based on the principle of indivisibility of awards, which involves any invalid provision of an award affecting the validity of the remaining relevant provisions (Supreme Civil Court, judgment No. 12731, November 28, 1992). Said principle of law was overruled by Italian lawmakers in order to bring Italian law in line with the New York Convention, the Geneva Convention and other international laws.
Getting back to the case at hand, the Joint Divisions ruled on a judgment whereby the Court of Appeal of Naples declared the invalidity of two arbitral awards, finding that the award made earlier was not immediately challengeable for having only determined the issue of the arbitral panel’s jurisdiction. The claimant challenged the Court of Appeal’s decision on the ground of the Court having erroneously classified the substantial issues adjudicated in the award – on (i) standing to sue and (ii) the validity of an arbitration clause – as preliminary issues. In the claimant’s view, such issues should have been deemed related to the merits of the case and the award, as a partial decision on the merits, should have thus been immediately challenged under Article 827 of the Code of Civil Procedure. The Joint Divisions inquired into the (partial or non-definitive) nature of the award, answering two distinct questions on
- whether the award be immediately challengeable (and, therefore, classifiable as a “partial” award) also when it determines preliminary issues, or only when it determines the merits of a claim; and
- whether the issue of the validity of an arbitration clause be one of merits or procedure.
With regard to the issue under a), the Supreme Court put an end to a case-law conflict on the point. Indeed, according to certain precedents, an award determining the “jurisdiction” of arbitrators –recognising the validity of an arbitration clause agreed upon by the parties or, vice versa, excluding their power to adjudicate – should be classified as a partial award and, as such, should be immediately challengeable for being related to a preliminary issue of merits (Supreme Civil Court, judgments No. 5634, April 6, 2012 and No. 3678, February 17, 2014). According to another line of precedents, an award determining only the condition for admitting and bringing a case to arbitration should be classified as a “non-definitive” award and, as such, should not be immediately challengeable due to the preliminary nature of the issue brought to arbitration (Supreme Civil Court, judgments Nos. 4790, March 26, 2013 and 16963, July 24, 2014).
Starting from the assumption that the distinction between partial and non-definitive awards only partially overlaps with the distinction between final and non-definitive judgments under Article 279 of the Code of Civil Procedure, the Supreme Court referred to the rules introduced by Legislative Decree No. 40 of February 2, 2006 (Article 360, paragraph 3, and Article 361, paragraph 1, of the Code of Civil Procedure), providing that only condemnation to undetermined performances/damages under Article 278 of the Code of Civil Procedure and judgments determining one or more issues of a case without settling the same in full are challengeable before the Supreme Court. According to a further earlier judgment of the Joint Divisions of the Supreme Court (judgment No. 25774 of December 22, 2014), such rules are in accordance with the 1994 reform, which introduced the third paragraph of Article 827 of the Code of Civil Procedure.
In that perspective, the Supreme Court was led to the conclusion that the statutory criterion for distinguishing judgments under Articles 360, paragraph 3, and 361, paragraph 1, of the Code of Civil Procedure should likewise apply to arbitral awards and, accordingly, awards determining preliminary issues shall not be immediately challengeable.
With regard to the issue under b), the Supreme Court acknowledged the marginal nature of the conflict in case law in light of the unanimous approach of most recent case law. The Supreme Court indeed recognised the judicial nature of arbitration, which replaces the function of court judges, coming to the conclusion that the issue of the jurisdiction of an arbitration tribunal should once and for all be considered as a procedural one (Supreme Court, Joint Divisions, judgment No. 24153, October 25, 2013; Supreme Court, Joint Divisions, judgment No. 1005, January 20, 2014; Supreme Civil Court, judgment No. 22748, November 6, 2015). Accordingly, any inquiry as to the existence or validity of an arbitration clause should be deemed a preliminary procedural issue and can be the subject of a non-definitive award and, as such, shall not be immediately challengeable.