CPC reform to introduce stricter standards of independence and impartiality in Italian arbitration

In accordance with the draft of the upcoming reform of the Italian Code of Civil Procedure (CPC) contained in Law November 26, 2021, no. 206 (the Enabling Act), Article 1(15)(a) assigned the legislator the task of strengthening the guarantees of impartiality and independence of arbitrators. The article reintroduces the right to challenge arbitrators for serious reasons of convenience. It also introduces, at the time of acceptance of the appointment, the duty for the arbitrator to disclose all factual circumstances relevant to the guarantees. The possible penalties for non-compliance include the arbitrator’s appointment being invalid or disqualification.

The legislative decrees implementing the reform of the Italian CPC were approved by the President of the Italian Republic on October 10, 2022. According to the decrees, the modified provisions concerning arbitration are consistent and in line with what was originally proposed in the Enabling Act (Law no. 206/2021).

The current framework

As of today, the provisions of the Italian CPC concerning arbitration do not contain any explicit reference to arbitrators’ duty to be and remain impartial and independent for the course of the arbitration proceedings.

This duty is implicitly enshrined in the grounds for challenging arbitrators, which are set out in art. 815 CPC – titled “Challenging of Arbitrators” – according to which arbitrators can be challenged in the following cases:

• if the arbitrator does not have the qualifications expressly agreed by the parties;
• if the arbitrator or an entity, association or company of which the arbitrator is a director, has an interest in the case;
• if the arbitrator or their spouse is a relative up to the fourth degree or a cohabitant or a habitual table-companion of a party, one of its legal representatives or counsel;
• if the arbitrator or their spouse has a pending suit or a serious enmity against one of the parties, one of its legal representatives or counsel;
• if the arbitrator is connected to one of the parties, to a company controlled by that party, to its controlling entity or to a company subject to common control by a subordinate employment relationship or by a continuous consulting relationship or by a relationship for the performance of remunerated activity or by other relationships of a patrimonial or associative nature which might affect their independence;
• if the arbitrator is a guardian or a curator of one of the parties; or
• if the arbitrator has given advice, assistance or acted as legal counsel to one of the parties in a prior phase of the same case or has testified as a witness.

These are all factual circumstances that have been framed as indicators of the arbitrators’ (or threatened) lack of independence and impartiality.

Furthermore, albeit not expressly codified in the Italian CPC, the arbitrators’ duties of impartiality and independence are often included in the arbitration rules of the major arbitral institutions. For instance, under the rules of the Milan Chamber of Arbitration (MAC), arbitrators must disclose the events that may affect their impartiality or independence (art. 20). Likewise, art. 11 of the International Chamber of Commerce (ICC) Arbitration Rules establishes that “[e]very arbitrator must be and remain impartial and independent of the parties involved in the arbitration.”

In the case of administered arbitration proceedings institutional rules may fill the gap of the absence of explicit legislative provisions. But provisions should be still set forth so to align the discipline for all arbitration proceedings (ie those administered by arbitral institutions and those ad hoc) and to strengthen the guarantees by establishing that these provisions have binding effect.

The reform proposal

Article 1(15)(a) of the Enabling Act aimed to strengthen the guarantees of the arbitrators’ impartiality and independence in two ways:

• By “reintroducing” the right of challenging the arbitrators if they have serious reasons of convenience on the case that might jeopardize their independence and impartiality.
• By introducing the arbitrators’ obligation to release, at the time of the appointment’s acceptance, a declaration containing all the factual circumstances relevant to the guarantees, under penalty of invalidity of the acceptance or disqualification of the arbitrator.

The right to challenge arbitrators when they have serious reasons of convenience on a particular case

As things stand today in Italy, arbitrators may be challenged only for the reasons expressly set out in art. 815 CPC.

The Enabling Act wished “to reintroduce” the parties’ right to challenge arbitrators when they had serious reasons of convenience in the specific case.

As a matter of fact, before the Arbitration Reform of 2006 (which eventually adopted the current version of article 815 CPC), whether or not arbitrators could also be challenged for the “serious reasons of convenience” was debated.

With the expression “serious reasons of convenience” that a state court’s judge may have, the Italian legislator and case law meant any personal and factual circumstances that could lead to an arbitrator’s conflict of interest with respect to the dispute at issue. More specifically, any circumstances that would undermine the arbitrator’s serenity and capacity to be impartial, or to create the suspicion that they might render a decision inspired by purposes other than institutional ones, and aimed at favoring or damaging one of the parties for private and personal reasons.

At that time, article 815 CPC generically recalled article 51 CPC (which lists the circumstances in which the judges of state courts must refrain from deciding a case), without any further specification. Scholars have long argued the possibility to challenge arbitrators on the basis of any of the factual circumstances listed in art. 51 CPC, including serious reasons of convenience, which is expressly spelled out in art. 51(§2) CPC.

The reintroduction of the right of challenging arbitrators for serious reasons of convenience that they might have on a case would therefore widely expand the scope of application of the law provision so it may encompass a broad range of conflicting hypothesis that are not specifically listed in art. 815 CPC and could not be individually envisaged beforehand. As a result, the attempt to guarantee arbitrators’ independence and impartiality would be strengthened.

On the other hand, because of its capacity to encompass a broad range of different hypotheses, the category may eventually give rise to interpretative doubts that could lead to a rigorous application. We wonder whether it would be desirable to introduce parameters that could establish more precisely what situations or circumstances would fall under this category.

This provision would align the Italian arbitration legal framework to the international standard rules and to more modern arbitration legal frameworks, where the option of grounding the challenge of arbitrators to a more general provision rather than to a specific set of factual hypothesis is predominant. But it also aligns arbitration to the provisions relating to state court judges’ independence and impartiality under art. 51 CPC, enhancing the progressive assimilation of the two dispute resolution methods.

The introduction of the arbitrators’ obligation to release a declaration

The arbitrators’ duty of disclosure of all factual circumstances relevant to their independence and impartiality is already codified in many other legal systems and in the rules of the most important arbitral institutions.

This is conceived as a “continuing duty” (eg art. 12 UNCITRAL Model Law; art. 20 co. 3 MAC Rules; art. 11(3) ICC Rules; art. 5(5) LCIA Rules of 2020) so arbitrators are required to disclose any new fact that might jeopardize their independence and impartiality arising throughout the arbitral proceedings.

Under the proposed legal framework of the Enabling Act, arbitrators must release a new declaration of independence and impartiality and disclose any newly discovered fact arisen after the acceptance of the appointment.

As to the content of the duty of disclosure, the provision of the reform proposal refers to “all relevant factual circumstances” that might affect the arbitrators’ independence and impartiality.

The arbitrator will be required to disclose the existence of situations of incompatibility with the appointment (ie the circumstances that under art. 815 CPC constitute grounds to challenge an arbitrator). They also have to disclose all facts and circumstances that, while not being preventative grounds to the acceptance of the appointment, should be brought to the attention of the parties, in a framework of full transparency.

If arbitrators fail to declare, at the time of accepting the appointment, the circumstances that pursuant to art. 815 CPC may ground the arbitrators’ challenge, they may be disqualified.

In this case, the parties might apply to the state court with territorial jurisdiction (with regards to the seat of the arbitration proceedings) for the disqualification of the arbitrator pursuant to art. 813-bis CPC, within ten days from the acceptance of the appointment (if the situation of incompatibility has not been declared) or from when the non-declared situation of incompatibility has been discovered.

Arbitrators will be required to declare any fact and circumstances, other than the circumstances relevant under art. 815 CPC, that may affect their independence and impartiality, such as any other fact that might hinder to some extent their capacity to remain impartial. The declaration will still be necessary even if the arbitrators conclude that there are no relevant circumstances to be disclosed. According to the reform proposal, if arbitrators fail to release a declaration (whether positive or negative), their appointment’s acceptance is to be considered invalid.

Once the written statement has been issued and filed with the arbitral proceedings, it will be archived and it will constitute the reference point for assessing whether or not the subsequent challenge made by a party claiming to have had knowledge of additional circumstances relating to the independence or impartiality of the arbitrator is grounded.

The strengthening of the arbitrators’ guarantees of independence and impartiality, which results from the Enabling Act, appears remarkable. Scholars have long argued the existence of an implicit duty of disclosure in the Italian legal system. Nevertheless, the obligation to disclose has so far remained relegated to international “best practices,” institutional rules and professional ethics (eg art. 61, co. 3, Lawyers’ Code of Conduct), in the absence of a provision that would cover it in the general framework of the Italian CPC.

The implications of the amendments to art. 815 CPC that the Italian legislator is about to approve are multifaceted: they are not only relevant to the grounds for the arbitrators’ challenge but might also become relevant to ground the appeal of arbitration awards.

According to art. 829 CPC, an arbitration award may be appealed “if the arbitrators were not appointed according to the forms and ways prescribed in Sections II and VI of this Chapter, provided that the invalidity has already been invoked in the arbitration proceedings,” which would encompass art. 815 CPC, situated in Section II. As food for thought, we wonder whether the appeal of arbitration awards might be grounded on the provisions relating to the independence and impartiality of the arbitrators that the Enabling Act and the subsequent legislative decrees have amended.

As anticipated above, the legislative decrees implementing the reform were recently approved by the President of the Italian Republic and are expected to be published shortly on the Official Journal. However, the modified provisions concerning arbitration will only apply to arbitration proceedings initiated after June 30, 2023.

Let’s wait and see how these provisions will be interpreted.