After the intervention of the United Sections of the Court of Cassation, with the so called twin judgments of May 2016, the Constitutional Court was asked to requested to determine if the rules regarding the challenge of arbitral awards and its consequences have, in relation to the amendment of 2006, substantive or procedural nature.

In order to understand the meaning and relevance, of the issue, it is to be born in mind that, generally speaking, awards have a greater "stability" than judicial decisions.

In fact (apart from the cases of revocation and third-party opposition), the only instrument for challenging the award is act for its nullity, pursuant to art. 828 c.p.c.. This is a remedy which can be act on only for the reasons set out in art. 829 c.p.c.

Until the reform of 2006, there were 9 reasons (Article 829, paragraph 1. c.p.c., old version); with today’s rules the reasons have now become 12 and they are listed in the current version  art. 829, c. 1, c.p.c..

These reasons do not concern the merit of the dispute, but the defects in the proceeding (the so called defects in activities or errores in procedendo). As it was mentioned before, this is the reason why awards are far more difficult to be challenged than judicial decisions. The remedy for the setting aside the award in reasons substantive law issue, is, in fact, to be found in the breach of the rules of law relating to the merit of the dispute (i.e. the violation or misapplication of the rules of law).

 

The question.

The question submitted to the Italian Constitutional Court is as follows.

Article 829, para. 3 of the Italian Civil Procedure Code regulates the challenge of arbitral awards; over the time this rule was subjected to a radical change, according to Legislative Decree N. 40 of 2006.

In fact, before the reform, the general principle explicitly recognized that in case of errores juris in judicando, the provision rendered by the Arbitral Court could be challenged, except for the cases in which the parties had either expressly requested an equity judgment or agreed to accept without any appeal the entire ruling.

Therefore, for the case in which the arbitration agreement did not provide anything about the possibility of challenging the award in reason of substantial matter for errors of law, the silence of the parties had to be understood as implicit consent.

Instead, Legislative Decree N 40 of 2006 reversed the concept.

The current third paragraph of Article 829 of the Italian Civil Procedure Code provides, in fact, that any appeal for breaches of the rules of law relating to the merit of the dispute is allowed only to the extent that it is expressly prescribed by either provisions of law or by party autonomy (or in reason of the contrast with public order). Otherwise, it is to be considered precluded.

 

The rules for the time in between different law provisions.

The aforementioned Decree provides that the new rules should apply to all the arbitration proceedings started from March 2^nd 2006 (day of the entry into force of the amendments).

The transitional provisions do not distinguish between the case in which the arbitration procedure was initiated before March 2^nd 2006 and the case in which, the arbitration procedure, albeit initiated after March, 2^nd 2006, was related to an arbitration agreement concluded before the entry into force of the aforementioned Decree. For this reason, in 2016, the Italian Supreme Court had to intervene on the subject matter with the so-called twins rulings (N. 9284, N. 9285 and N. 9341) of 2016.

According to the Constitutional Court Judges, the new regime of award challenging is not be applied to arbitration proceedings started after March 2^nd 2006, even though the arbitration clause was concluded by the parties before the entry into force of the reform.

This position, however, met the opposition of the Court of Appeal of Milan. In this latter Court opinion the Supreme Court interpretation was against Constitutional Law with particular reference to articles 3 and 41 of the Constitution. Therefore, it requested the Constitutional Court to issue a preliminary ruling on the specific issue.

Moreover, in the opinion of the Court of Appeal of Milan, the interpretation of the United Section of the Supreme Court – which is to be considered as “living law” and can only be overcome by a  constitutional ruling – is based on unjustified differentiation since it puts on the same level acts of substantive law (the arbitration clause) and acts of procedural law (the appeal of the arbitral award). Differentiation that would not emerge from the wording of the law, nor it could be considered to be in line with the principle of tempus regit processum (according to which any aspects of procedure have to be governed by the law in force at the time of the act, unless it is stated differently in the provision of interim law).

Moreover, the Court of Milan believed that the application of such regime could be in contrast with the principles of party autonomy and freedom of contract in the case in which parties did not explicitly provided for this option..

The intervention of the Constitutional Court, however, recognizes that the interpretation the United Sections of the Supreme Court is completely legitimate.

The Constitutional Court points out that the principle set out in art. 3 of the Constitution is to be understood as a substantial equality. Consequently, it cannot be found any violation in the case in which for two different factual situations is provided the same number of diverse treatments.

This is also true with regard to the case at hand: it is clear that if the parties with their agreement appointed the panel of Arbitrators before the entry into force of the Legislative Decree of 2006, the new legislation is not applicable: the opposite line of reasoning, indeed, lead to the paradox of treating different situations in the same way.

The Court, repeat the reasoning of the United Section of the Supreme Court, by underlining the erroneous syllogism operated by the Court of Appeal of Milan, whose premises are based on the on the fact that art. 829, para. 3, of the Italian Civil Procedure Code, has only a procedural scope while the arbitration clause scope is of substantive nature.

On the other hand, as we read, “the procedural nature of the arbitrators' activity does not exclude the fact that it is still the arbitration agreement that determines the limits of the rights to appeal the award”; nor could the principle of tempus regit processum be said to have been violated, since, if it were a mere matter of procedure, there would have been no need to regulate potential interim law issues and the transitory discipline.

From these premises descends the full legitimacy of that doctrine that, without stopping at the appearance of a merely formal equality, has fully grasped the discrepancy between those who, under the regime of "tacit consent", would hardly have pointed out their intentions regarding the appeal of an award for mistakes in the application of the law with reference to the merit of the dispute, and those others who, on the contrary, have entered into an arbitration clause after the new regulations came into force.

In conclusion, the appeal of arbitral awards, arising out agreements concluded before the entry into force of the amendments, made to the third paragraph of art. 829 c.p.c. by Legislative Decree N. 40 of 2006, must also be admitted for any errores juris in iudicando in application of the previous discipline.