(Feb. 19, 2021) On January 18, 2021, the Italian Supreme Court issued Decision No. 1788 concerning the grounds for invalidating a domestic arbitral award based on public policy considerations.
Background of the Case
A petitioner requested the Italian Supreme Court to overturn a decision by the Appellate Court of Ancona, which had rejected his petition to annul an arbitral award issued in 2015. (Decision, Considerations of Fact, #1, para. 1.) The arbitral award had ordered the petitioner (a contractor in a public works project) to make restitution of certain amounts resulting from the breach of a construction contract.
In the relevant portion of his annulment action, the petitioner argued before the Ancona Court that the arbitral award violated public policy by denying his actions for restitution against his subcontractors, who according to the law, were jointly and severally liable as his codebtors. (Decision, Considerations of Fact, #2, para. 1.) In the petitioner’s view, such joint and several liability and the concurrent right of a debtor who has paid a debt in full to obtain partial restitution from his codebtors constituted a public policy principle in the Italian legal system, which the Ancona Court had disregarded. (Decision, Considerations of Fact, #2, para. 5.) In effect, the petitioner argued that the Italian Civil Code, article 1343, provides for the nullity of a contract that violates public policy and, as a result, that public policy grounds constitute a legal basis for the annulment of domestic arbitration awards.
According to the Italian Code of Civil Procedure, article 840(5)(2), public policy considerations are also a ground for the nonrecognition of foreign awards in Italy. In addition, the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, in force in Italy since 1968 (article V, para. 2(b)), provides that “recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that . . . the recognition or enforcement of the award would be contrary to the public policy of that country.”
Reasoning of the Court
The Supreme Court reasoned that the Italian legal order does not allow for the annulment of an arbitral award based on grounds of substantive law. (Decision, Considerations of Fact, #5.1, para. 1.) The Court recognized that “substantive public policy” is “the part of the legal order that contains the fundamental principles whose observance and implementation must be complied with also on the basis of the provisions of the regulations that recognize them [and that are] indispensable for the existence of such order or for obtaining its essential purposes.” (Decision, Considerations of Fact, #5.1, para. 2.) The Court also reasoned that the petitioner’s appeal was nonjusticiable, as it referred to the merits of the case, in particular to the issue of contractual good faith, whose existence is for the arbitral tribunal to establish according to the merits of the case and not for an appellate court to review. (Decision, Considerations of Fact, #5.3.)
Holding of the Court
The Supreme Court declared nonjusticiable the petitioner’s request for review of the Ancona Appellate Court’s decision rejecting his annulment action against the 2015 arbitral award.
This decision has the effect of further restricting the use of public policy grounds for the annulment of arbitral awards in Italy.