Italy

In summary

The challenges of Brexit and the coronavirus have seriously affected global business and asset flows, changing how justice is administered. The pandemic has revitalised certain legal mechanisms such as force majeure and hardship, and is likely to lead to contract renegotiations, perhaps including arbitration clauses. Despite the obvious advantages of ADR over litigation, several issues may prove problematic, for example for award of damages. Regarding Brexit, the regulations governing the enforcement of judgments within EU member states will no longer be applicable to the United Kingdom; while on the other hand, the New York Convention on Arbitration will still be in force.

Discussion points

• Italian arbitration proceedings statistics (focus on the Milan Chamber of Arbitration)
• Main procedural figures of the Italian arbitration proceedings
• Appeal and enforcement of the arbitration award in Italy
• Award of damages
• Arbitration in Italy in and after the pandemic: force majeure and hardship clause issues
• Brexit and impacts on the future arbitration proceedings in Italy
• Overall perspective and predictions for the future of arbitration in Italy

Referenced in this article

• Emergency Decree No. 18 of 17 March 2020 (the Italy Care Decree)
• Act No. 27 of 24 March 2020 (Conversion of Law Decree No. 18 of 17 March 2020)
• EU Regulation No. 1215/2012
• The New York Convention)
• Italian Code of Civil Procedure, approved by Royal Decree No. 1443 of 28 October 1940
• Arbitration Rules of the Milan Chamber of Arbitration, entered into force on 1 July 2020

Introduction

The year 2020 was characterised by the covid-19 pandemic throughout the world. In addition, Brexit became a reality at the beginning of 2021. Although the transition period is considered to be concluded, a new – more complex – transition period has started and is expected to last for quite a long time, although exactly how long is difficult to predict. The agreement in principle leaves a lot of unanswered questions.

As we will see, the covid-19 pandemic has already influenced the current approach to managing arbitration. In fact, all of the main Italian arbitration tribunals were able to avoid any kind of backlog that might have arisen due to the lockdown – imposed by the emergency legislation approved by the Italian government – by managing hearings using information technology and, in some cases, even the old-fashioned but never forgotten telephone.

Amid the chaos and difficulties caused by the covid-19 pandemic, ADR procedures in general and arbitration in particular offer a sort of life preserver for any enterprises or companies that need, today more than in the past, to have their disputes resolved as quickly as possible.

Furthermore, in the uncertainty surrounding Brexit, as it is impossible to forecast whether the result will be a deal or no deal, a hard Brexit or a soft Brexit, arbitration has once again turned out to be a sort of wild card that can help companies and businesses reduce the uncertainty surrounding the judicial framework. One aspect, however, is certain: Brexit will not affect the New York Convention on arbitration, which will continue to apply regardless of the outcome (see below).

In a nutshell, the more uncertainty we have in the ordinary legal remedies, the more ADR and arbitration are seen as possible paths to be followed to reach certainty.

Arbitration proceedings in Italy: an overall perspective

Although Italy does not stand at the forefront of the tradition of international arbitration,^[1] alternative dispute resolution practices are gaining a progressively relevant role among the business community as an ordinary way to settle disputes, especially in corporate, banking and intellectual property matters,^[2] and this trend is likely going to increase in the post covid-19 period, as discussed below.

This scenario was outlined in a relatively recent report^[3] aimed at describing the state of the art of ADR in Italy under both qualitative and quantitative parameters. Moreover, a long-standing study by the Chamber of Arbitration of Milan highlighted that recourse to arbitration has been consistent in Italy in the past six years, with more than 300 proceedings in 2018 for an average yearly value of roughly €900 million and 142 arbitrations that were concluded in 2019.^[4] This data is essentially due to the fact that the Italian rules governing domestic and international arbitrations grant the disputing parties few but very useful tools for managing disputes in the manner that best matches their business needs.

First, the parties are free to determine the language of the proceedings. Rather than being an issue of lesser importance, this ability encompasses the very nature of arbitration, which often involves subjects (including the arbitrators) coming from different countries and speaking different languages.

In this sense, the choice of procedural language becomes rather important for the peculiar purpose of this form of ADR: the consensual, or at least shared, resolution of the dispute (see article 5 of the Arbitration Rules of the Milan Chamber of Arbitration (the Rules), which entered into force on 1 July 2020). The selection of the proper language of the proceedings is in fact connected to the efficiency of the arbitration itself. From the missives in the early stages of the dispute, to the appointment of the arbitrators, the parties need to know in advance how to communicate with each other, and this will result in considerable savings in both time and costs. The average value of the proceedings shifted from €1,915,162 in 2019 up to €4,174,105 in 2020. At the same time, the average length of the proceedings shifted from 14 months in 2019 to 11.5 months in 2020. The organisation of the arbitration chamber was therefore such that it absorbed more litigation, thereby relieving the ordinary courts of their workload, with 76.4 per cent of hearings being held remotely.

Even evidence-taking procedures can be appreciated under the same perspective, especially when a large amount of non-Italian translated documents is involved: with particular regard to patent cases, judges have to deal with dozens of documents made up of thousands of pages, all of which require a sworn translation (in general terms, as for the evidence taking provisions of the Milan Chamber of Arbitration, see article 25 of the Rules).

In addition to the above, parties are offered the option to choose the venue and the ‘form’ of arbitration that better suits their needs. The distance between the venue of the arbitration and the registered offices of the companies involved may not automatically be a weak point, considering (as further explained below) that one of the aspects of the arbitration procedure (and Italy makes no exception) is the flexibility in the general management of the procedure, which can be handled remotely in a relatively easy manner.

Finally, like in other legal systems, in Italy, administered arbitration (ie, an arbitration conducted under the rules of an arbitral institution, such as, for instance, the Chamber of Arbitration of Milan) coexists with ‘ad hoc arbitration’, a procedure conducted by the parties and the arbitrators without the assistance of an administering entity. Because of the specific characteristics of the dispute (including the peculiar needs of confidentiality that may arise in certain circumstances or the necessity to act outside of imposed procedural schemes) the parties will be free to choose one, rather than the other, form of arbitration.

Arbitration, ADR, and the covid-19 emergency

On 20 April 2020, 12 of the world’s leading arbitration chambers (from Singapore to New York, from Paris to Milan) adopted a common manifesto for the management of arbitration proceedings during the covid-19 emergency and in view of the months to come. In doing so, these institutions – which administer, on average, between 10,000 and 15,000 new arbitration procedures per year – sought to provide stability and predictability to a highly unstable economic environment, ensuring the continuity of pending cases without undue delay. By enabling international arbitration to deliver some degree of certainty, the chambers sought to jointly contribute to a world that is better prepared to meet the challenges of the post-coronavirus crisis and to strengthen trade relations between companies in different countries. As demonstrated across the globe on a daily basis, cooperation and collaboration lies at the centre of an effective response to covid-19. Collaboration is particularly important, as each one of these institutions looks to ensure they are in the position to make the best use of digital technologies for working remotely through a large-scale use of their respective institutional rules; and any available management techniques that may permit arbitration procedures to progress without undue delay despite such impediments.

Since the very beginning of the pandemic, the Italian government has issued exceptional measures to fight the covid-19 emergency. Of these, it is worth mentioning Law Decree No. 18 of 17 March 2020 (the Italy Care Decree), subsequently converted into Statute No. 27 of 24 March 2020, addressing fundamental aspects of the Italian economy, including a mandatory suspension of most pending and new court actions during the lockdown period between 9 March and 15 April. Between 16 April and 30 June 2020, the courts of each Italian Region determined the procedural and organisational rules for court offices and case management, including hearings, in close consultation with the regional health units and the local bar associations. This scenario included the possibility for hearings to be conducted ‘behind closed doors’ or remotely, either by videoconference or through the exchange of written submissions by counsel for the parties.

Second, in accordance with the guidelines set forth by the emergency legislation, the clerk personnel and the arbitrators or mediators were allowed to carry out pending procedures remotely, in order to limit, as far as possible, step-backs and delays.

Moreover, as far as the Arbitration Chamber of Milan is concerned, while presented among the measures adopted to foster the use of ADR mechanisms to deal with covid-19 related disputes, the Simplified Rules actually appear to be suitable to enduringly flank ordinary arbitrations under the CAM Rules of Arbitration and become a permanent part of CAM’s offer. The Simplified Rules do in fact fit into a global trend whereby virtually all major arbitral institutions have in the past few years adopted provisions for conducting small to medium-sized arbitrations in an expedited and less expensive course.

Third, as for the e-signatures and the electronic service of awards, bearing in mind the wording of section 15 of the ICC Guidance Note (which shall also apply to the Chamber of Milan), it should be underlined that they may give rise to several concerns, especially in the Italian legal system. The e-signature of the award might, at first sight, cast doubts upon the validity of the award, especially if the signature is a mere scan of a ‘wet signature’ – as it seems to be the case suggested by the ICC, as well as in the practice of the Milan Arbitration Chamber – and not a certified digital signature in compliance with the terms and conditions regulating digital signatures in Italy.

The electronic drafting of the award might have an impact on the enforcement procedures to be started in Italy, as an original of the award (ie, a handwritten signed document) or a certified copy shall be dispatched to each party, in accordance with the Italian Code of Civil Procedure (CCP). However, it seems reasonable that the Arbitration Chamber of Milan will adopt the same solution already followed by the ordinary courts (ie, a native digital document instead of a mere scan copy).

Finally, yet importantly, Italian arbitration chambers took the remarkable step of adopting and instituting telematics and videoconference platforms for the conduction of hearings: these measures allowed (and still allow) proceedings to continue despite the impossibility of holding hearings in person at the premises of the chambers, thus ensuring, especially in arbitration, that the proceedings can be resolved within a reasonable time frame.

Having said that, the two approaches (through the arbitration chambers and the ordinary courts), which are substantially similar in terms of the measures that were adopted, differ in one aspect: once the pandemic has passed, the national courts will likely return to ordinary means of managing hearings and the proceedings in general, while arbitration chambers, even before the health emergency, used to offer telematic tools for managing both the attendance of the hearings and the examination of witnesses.

Parties to arbitration have a few advantages, especially in relation to the – nearly inevitable – economic crisis following the general lockdown, namely:

• the possibility to agree a binding term within which the arbitration decision has to be issued; and
• the stability of the arbitration award, in respect of which the CCP offers very few grounds for appeal. In any case, the overriding principle of public policy and national constitutional values (more specifically, the right of defence and due process) must always be respected, notwithstanding any waiver or derogation. Therefore, any breach to these principles and values will be regarded as a mandatory ground for challenging the award.

Parties have the chance to tailor the arbitration procedure on the basis of their specific needs. Hence, it will be very likely that, despite the almost inevitable economic troubles that will unfold in years to come, arbitration will emerge stronger than before. What once appeared to be a mere theoretical option, or a legal tool reserved to a limited circle of high-turnover companies, nowadays is likely to represent a viable choice for all subjects that are willing to settle actual and potential disputes, in particular those arising from the current emergency and the general lockdown.

When force majeure and hardship clauses are enforceable, parties may conveniently resort to alternative dispute resolution, including arbitration, mediation, conciliation and direct negotiation. Indeed, both force majeure and hardship clauses are expressly provided for in the Italian Civil Code and can be invoked regardless of whether the agreement includes clauses to this effect.

In this respect, without an indication of the parties’ intent at the moment in which the contract is executed as to the consequences of a force majeure or hardship event on the contractual relationship, and specifically any potential agreement on reimbursement or indemnification to be paid, it would be necessary to bring the issue before an ADR body.

Damages compensation

The damage resulting from the infringement of intellectual property rights can be appreciated at least from three perspectives: (1) the methods of liquidation, (2) the quantification, and (3) the relevance of the ‘subjective’ elements (wilful misconduct) in the judgement of the judge, a judgement which, as regards Italy, France and Germany, is reserved for the outcome of civil proceedings.

Focusing in particular on the Italian legal system, it is first of all necessary to point out that in the field of intellectual property the damage can be liquidated and compensated in a manner significantly different from the classic ‘civil’ damage. In fact, the owner of the infringed right, as an alternative to the claim for compensation for loss of profit (ie, the loss of earnings as a direct consequence of the infringement of his rights), may resort to the criterion of the ‘account of profits’ under article 125 of the Industrial Property Code, according to which damages may be liquidated taking into account the profits made in infringement of the right (ie, considering the profit margin achieved by deducting the costs incurred from the total revenue).

Therefore, the owner of the infringed right may always claim, as an alternative to compensation for loss of profits (or to the extent exceeding such compensation), the account of the profits made by the infringer. The two remedies must be considered operationally and conceptually distinct, the compensation of damages being attributable to the profile of the restoration of the assets of the owner of the injured right (ie, the removal of the damage suffered, and the remedy of the retroversion of the profits to the different profile of the unjust enrichment realised in the assets of the author of the illicit act).

The above can be explained if one understands that, in the current legal system, civil liability is not only assigned the task of restoring the monetary sphere of the subject who has suffered the injury, since the deterrence function and the sanctioning function of the civil liability are internal to the system (as in the English and North American systems, albeit to a greater extent).

All this therefore leaves open the question of the entry into the Italian system of ‘punitive damages’, an institution of Anglo-Saxon origin (American in particular), which conceives of damages not only as restoration of the status quo ante, seeing instead in the relative compensation a function of deterrence with respect to further and future violations. Therefore, punitive damages are not ontologically incompatible with the Italian legal system: this does not mean, however, that the Italian courts can award damages in a ‘punitive’ manner, given that no rule of positive law has provided for their possible application.

It cannot be denied that damages compensation is one of the most controversial aspects of arbitration in Italy.

Even in the absence of statistics, practitioners complain about the limited resort to technical assessments to exactly determine the damages, which ordinary courts do by default when it comes to liquidated damages (especially for accounts of profits).

This practice is undoubtedly likely to limit the attractiveness of arbitration as a suitable ADR method for settling legal disputes, especially since the award, once made, is hardly subject to reform, which makes the liquidated damages de facto stable.

Differently from arbitration chambers, the case law of the ordinary courts appears to be oriented in a basically rigorous sense, having even stated that the equitable liquidation of damages deriving from the violation of trademark rights is not possible when the existence of the damage is not certain from an ontological point of view, given the limited duration and extent of the violation. Similar statements are also found in the matter of patent infringement. The general principle that seems to be deduced from a quick examination of the case law published on the subject of the burden of proof of damages for infringement of industrial patents is therefore that according to which it is always the plaintiff who has to prove (apart from his profit margins, of course) the number of infringing products sold by the defendant or, at least, the effective temporal duration and the effective territorial extension of the unlawful act that has caused him damage.

Finally, turning to the analysis of the subjective profile of the infringer (wilful misconduct or negligence), it is worth noting that even a slight degree of negligence in the choice of both products and suppliers or distributors can give rise to liability. For example, case law has clearly established that, in matters of counterfeiting, any declaration of authenticity issued by the seller is not sufficient to exclude the guilt of the buyer and subsequent seller, as it does not relieve the latter of the burden – which is incumbent on those who purchase products in order to resell them – of verifying the lawful origin of the goods. These criteria do not apply to the ‘retroversion of profits’, which, in the light of a very recent ruling by the Court of Appeal of Turin, must be considered to be irrespective of subjective profiles, given that it is an institute aimed, precisely, at the restitution of profits that a person has unlawfully earned and that he did not in any case have the right to use.

The enforcement of the award

The enforcement of an arbitration award in Italy is relatively straightforward and does not present any peculiar difficulties. However, as the covid-19 emergency keeps tightening its grasp, parties may have faced (or will face) delays and step-backs in enforcing the award through the ordinary means established by the laws of Italy and, more in general, EU countries.

Pursuant to Italian law, to enforce an award a party is required to file the award and the contract containing the arbitration clause with the court of the location the arbitration was based. The court limits its review to an assessment of the regularity of the formal elements^[5] of the award and, if no issues are identified, declares it enforceable. This passage requires, at any rate, the physical filing of the above-cited documents with the court and cannot be entirely managed remotely.

The winning party in the arbitration may have to deal with three potential (and weak) impediments from the opposing party.

In the first place, the opposing party is permitted to file a complaint against the order that denies or grants the enforceability of the award. Italian case law and legal doctrine consistently state that this complaint (which is a means of appeal) may only be brought for challenging specific procedural vices, such as the lack of jurisdiction of the court or the invalidity of the power of attorney.^[6] With these limitations, it is therefore clear that this type of action presents very few practical risks.

Once the ability to file this sort of appeal has lapsed, the debtor is allowed to bring two additional challenges to the pre-enforcement and enforcement procedures – the first one upon the service of the writ of execution, and the other one when the enforcement proceedings have effectively started.

These actions are, however, de facto connected to formal and procedural profiles concerning the writ of execution (the former) and the right of the creditor to enforce the award (the latter).

It is therefore clear that there is little opportunity for a party to successfully oppose the enforcement of an arbitral award; so long as all the formalities are respected, the debtor will have no means to pursue opposition proceedings.

A final aspect must still be addressed. According to article 283 CCP, the court of appeal can suspend the enforceability of the appealed award relying on ‘strong grounds’.

The evaluation of the appeal court is based on a global opportunity assessment that consists of, on one hand, a summary decision on the validity of the grounds of the appeal and, on the other hand, the economic prejudice that the losing party may suffer^[7] if the request for suspension is denied.

That said, on this procedural basis, the courts do not generally grant the suspension of the enforceability of the award.

As outlined above, the suspension decision also involves an assessment on the appeal proceeding itself – in line with the low degree of success of appeals in Italian case law generally, suspension of the enforceability of an arbitration award is particularly rare.

The key term is ‘time-saving’: predictable and straightforward enforcement procedures represent not only a helpful instrument for the prevailing party, but also a deterrent for the losing party against pursuing specious opposition proceedings to slow down the enforcement of the award.

Specific attention should then be paid to the enforcement of awards involving intangibles rights, namely IPRs, which represent one of the main means through which companies, inventors and developers obtain income from their investment in research. According to a recent study carried out by the EUIPO, the IPR sectors account for around 42 per cent of the European GDP (worth some €5.7 trillion annually), contributing to as much as 90 per cent of Europe’s exports.^[8]

These rights therefore represent a valuable asset to be enforced, especially when it comes to insolvency procedures. The peculiarities of the national public registries (which involve both the strictly related enforcement proceedings and, for instance, the constitution of security rights of the IPRs), especially the Italian registries, make it advisable to turn to an expert active in that particular field before taking any action that involves registered IP rights.

Arbitration and Brexit

The jurisdiction, recognition and enforcement of judicial decisions across the European Union are currently regulated by the Recast EU Regulation No. 1215/2012, which, broadly, provides for:

• specific rules for determining intra-EU jurisdiction, with rather explicit favour given to the parties’ choice of forum; and
• a relatively fast and simple procedure for decisions issued in one EU member state to be recognised and enforced across the EU countries.

In any event, pursuant to article 1, the provisions of the Regulation shall not be applied to arbitration proceedings.

Therefore, the enforcement of arbitration awards is governed by the New York Convention, while the EU Regulation only governs the enforcement of national court decisions. Accordingly, for arbitration procedures, the scenario will remain the same even after the Brexit is concluded. This may, de facto, lead to a wider use of arbitration due to the rather inevitable difficulties and uncertainty that will arise around the enforceability of UK court judgments.

That said, the United Kingdom has been a contracting member of the New York Arbitration Convention since 24 September 1975, and thus – at least in theory – all relevant provisions shall be applied to any award issued by a UK court and be enforced in an EU country. As emblematically stated by Van Haersolte-van Hof: ‘With the New York Convention in place, the enforceability of awards is assured.’^[9] However, the reality of the situation might be very different.

Undoubtedly, arbitration proceedings involving the United Kingdom will remain ‘robust and stable’, despite the covid-19 pandemic, with the result that parties seem to have preferred to rely on arbitration rather than on ordinary dispute resolution means.

On the other hand, it must be pointed out that the need for promptness and straightforwardness could be affected by the double passage required by the New York Convention for the recognition and enforcement of the award, and this may lead parties to prefer a jurisdiction in which they are able to both complete the proceedings and enforce the arbitration award.

Conclusions

Arbitration in Italy is progressively gaining importance in a considerable number of economic fields, including intellectual property. IP is a trans-sector subject matter that involves both corporate and contract law issues, and requires a rapid and – optimally – definitive resolution of disputes.

In this respect, arbitration is a valuable instrument that can be used effectively to break long-standing stalemates that may annihilate any interest in turning to the domestic court to obtain a decision.

The ability to appoint a trusted arbitrator, the limits imposed by the law to challenge the award and the straightforwardness of the enforcement procedures are valid elements that should incentivise parties to include an arbitration clause in all IP-related agreements.

The uncertainty of future events on the accurate performance of contractual obligations is likely to lead to a renegotiation of pending contracts; to this end, arbitration shall be a paramount tool to assist with the resolution of potential disputes without incurring in the delays that have been sustained by the ordinary courts during the general lockdown.

It may therefore be predicted with a particularly high degree of certainty that the arbitration, as well as the other ADR instruments, will strengthen and expand their range of application in Italy in the near future.

Notes