Partially annulled foreign arbitral awards: how to recover money in Italy?

Giovanni Catanzaro
GC Law Firm, Venice
info@gc-law-firm.com

Introduction

The procedure for recognition and enforcement of foreign arbitral awards in Italy is governed by Articles 839 and 840 of the Civil Procedure Code (CPC).

Article 839 concerns ‘recognition and enforcement of foreign awards’ and provides that: ‘anyone who wishes to enforce a foreign award in the Republic must appeal to the president of the court of appeal in whose jurisdiction the other party resides […]. The appellant must produce the original or certified copy of the award, together with the deed of compromise, […] The president of the court of appeal, having ascertained the formal regularity of the award, declares by decree the immediately enforceable effectiveness of the foreign award in the Republic, except:

1) the dispute could not be the subject of a compromise according to Italian law.

2) the award contains provisions contrary to public policy.’

Article 840 of the CPC regulates the opposition procedure according to which: “[…] The recognition or enforcement of the foreign award is refused by the court of appeal if in the opposition proceedings the party against whom the award is invoked proves the existence of one of the following circumstances:

1) the parties to the arbitration agreement were incapacitated under the law applicable

2) the party against whom the award is invoked was not informed of the appointment of the arbitrator or of the arbitration proceedings or in any case was unable to assert his defense in the proceedings themselves.

3) the award ruled on a dispute not covered by the compromise or arbitration clause, […]

4) the establishment of the arbitration panel or the arbitration proceedings did not comply with the agreement of the parties […]

5) the award has not yet become binding on the parties or has been annulled or suspended by a competent authority of the State in which, or according to the law of which, it was made. […] The recognition or enforcement of the foreign award is also refused when the court of appeal ascertains that:

1) the dispute could not be the subject of a compromise according to Italian law.

2) the award contains provisions contrary to public policy.

In any case, the rules established in international conventions remain unaffected.’

However, despite the quasi-identity of the provisions of Italian law with the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958  (the ‘New York Convention’),[1] the case of ‘partial recognition’ of the award is not expressly regulated, that is, there is no express legislative provision regarding the right to enforce a foreign award that was not then fully confirmed in the appeal before the state court at the seat of the arbitration.

The partially overruled foreign award and its effects in Italy

As is known, in the event of a challenge to a foreign arbitration award before the national judicial authority of the seat of the arbitration, this award can be confirmed or annulled, totally or partially.

In Italy, in the event of annulment of the foreign arbitration award, whether total or partial, recognition will never be obtained; the request of enforcement will always be rejected pursuant to Article 840 paragraph 3, n 5 of the CPC.

If the foreign award were to be completely annulled, there is no doubt about the reasons for non-recognition, but in the case of partial annulment the reasons for refusing recognition are a little more complex.

The trend of the Supreme Court of Cassation[2] and the Italian trial courts has always been that the declaration of annulment (even if only partial) of the foreign award by the State court during the opposition does not allow the foreign award to be recognised in Italy.

It should be highlighted that the textual data of Article 840, paragraph 3, n 5 of the CPC, a rule governing a condition that prevents the recognition of the enforceability of the award, does not distinguish between partial or total annulment nor does it provide for the possibility of recognising the enforceability only for the parts of the award not annulled. In the event of partial annulment of the award by the foreign authority, there is no possibility of recognising enforceability only for the non-annulled parts of the award, according to the provision of Article 840, paragraph 3, n 5 of the CPC, which does not distinguish between declaration of nullity, cancellation (total or partial), reform or correction.

Furthermore, the possibility of recognising in Italy only the parts of the award that have not been annulled must be considered impractical and conceptually incorrect even from a rational point of view; especially when compared with the procedure for recognising decisions of foreign state courts, for which examination of the merits of the decision is always precluded.[3]

The system outlined by the Italian legislature provides, in fact, the applicability of the procedure referred to in Articles 839 and 840 of the CPC only to the award not ‘touched’ in the appeal proceedings by the state court.

However, the preclusion of Article 840, paragraph 3, n 5 of the CPC refers only to foreign arbitral awards, and not also to court decisions affecting the awards because of their challenge.

What is the solution for the recognition of a partially annulled arbitration award?

To obtain satisfaction of the non-annulled claims in the proceedings to appeal against the foreign arbitration award, the creditor may proceed with the exequatur of the appeal sentence.

The ‘binding’ foreign decision for Italian law will therefore be the sentence of the appeal court, rather than the arbitration award.[4]

The procedure for the recognition of foreign sentences in Italy is essentially divided into two main areas: enforcement judgements rendered by non-European courts (according to  Law No 218 of 1995) and enforcement judgments rendered by European courts (according to Regulation (EU) No 1215/2012.

For over 25 years now, the reform of Italian private international law has allowed us to overcome the so-called ‘judicial nationalism’ in favour of broad recognition of sentences issued abroad.

It should be noted that the law reforming Italian private international law has also made it possible to arrive at an extremely innovative solution, namely the overcoming of that rule which subjected the recognition of foreign sentences to the ‘deliberation procedure’ referred to in Article 796 onwards of the CPC.

In doing so, the matter of exequatur proceedings, both for sentences or ordinances or, again, for decisions of other types, has been completely ‘overturned’: if previously we reasoned according to the principle that ‘no foreign decision is effective if it is not recognized first’, today instead it is ‘every decision is effective unless recognition is denied’.

In this way, the total repeal of Articles 796–805 of the CPC was carried out in favour of regulations that ‘remove’ from the Italian judge any ascertaining power regarding the facts which are the subject of the dispute judged by the foreign judge, leaving a very limited control ‘formal’ of the only conditions of applicability of automatic recognition.

Conclusion

The procedure for recognition and execution of the definitive and binding award is governed by Articles 839 and 840 of the CPC following the rules of the New York Convention. The award partially annulled by the foreign judicial authority competent for the appeal can never be enforced in Italy. In addition, the remedy for the creditor (meaning the person who, even following the partial annulment of the award, can retain an interest in the enforcement of a credit in Italy) will have to proceed with recognition of the sentence issued by the foreign court of appeal. If the Court where the award was challenged is European, EU regulation 1215/2012 will apply; if the state court is non-EU, Law No 218/95 will apply, whose deliberation procedure is not that different from that provided for arbitration awards.