This publication concerns arbitration agreements between a private party and the Italian Public Administration (PA) that fall within the scope of application of the old Public Procurement Code (Legislative Decree no. 163/2006, which became effective as of 2 May 2006, (Old PPC).
I. The non-retroactivity principle
Article 11 of the preliminary norms to the Italian Civil Code (Preleggi) establishes that the law “does not have retroactive effect.” This means that each legal arrangement is regulated by the law in force when that specific arrangement comes into existence. In terms of criminal law, the non-retroactivity principle is mandatory, as it is enshrined in Article 25(2) of the Italian Constitution. In other contexts of the Italian legal system, however, this principle may be derogated. As a result, it is possible to have laws with retroactive effect provided that they are based on an “adequate and reasonable justification” so to avoid that they do not “arbitrarily affect the legal relationships created by previous laws” or “contrast with other constitutional principles and values” (to use the words of the Italian Constitutional Court in the decision of 21 April 1994 no. 153. With particular reference to the laws pursing the public interest, the Italian Constitutional Court stated that the retroactive effect would not apply only in case of “manifest unreasonableness” (see decision of the Italian Constitutional Court, 28 November 2001 no. 376).
II. The stratification of the laws on the arbitrability of disputes between private parties and the Italian PA
In the context of public procurement and public works, the parties’ freedom to include an arbitration agreement in a public contract has been subject to several legislative amendments. Back in the 1960s, private parties were given the option to arbitrate disputes with the PA. In the 1990s, Italian public procurement law was repeatedly amended. At first, it prohibited arbitration with the PA. Then, at the end of the 20th century, the law was amended again in order to re-establish the arbitral route. In 2006, the Old PPC confirmed the parties’ freedom to arbitrate disputes with the PA.
The most relevant provisions that contributed to such legislative stratification are reported as follows:
- Section VI, Presidential Decree no. 1063 of 16 July 1962;
- Article 32, Law no. 109 of 11 February 1994 (so-called Legge Merloni);
- Article 9-bis, Law Decree no. 101 of 3 April 1995 (Merloni bis);
- Article 10, Law no. 415 of 18 November 1998 (Merloni ter);
- Articles 150 and 151, Presidential Decree no. 554 of 21 December 1999;
- Article 241 et seqq, Legislative Decree no. 163 of 12 April 2006 (Old PPC);
- Articles 1(19) - 1(25), Law no. 190 of 13 November 2012;
- Article 209 et seqq, Legislative Decree no. 50 of 18 April 2016 (the new Public Procurement Code).
III. The requirement of the prior authorization to arbitrate public disputes
On 13 November 2012, Law no. 190/2012 (the Anti-Corruption Law) entered into force. This law featured two main provisions. First, the law introduced the requirement of the prior authorization: an arbitration agreement with the PA is valid “subject to the prior and reasoned authorization by the governing body of the involved PA” (Article 1(19) of the Anti-Corruption Law, which replaced Article 241(1) of the Old PPC). Second, the Anti-Corruption Law excluded the application of the requirement of the prior authorization vis-à-vis those already pending arbitral proceedings that were “conferred” or “authorized” before the entry into force of the law (Article 1(25) of the Anti-Corruption Law).
IV. What do conferred arbitration and authorized arbitration mean under Article 1(25) of the Anti-Corruption Law?
Article 1(25) of the Anti-Corruption Law excludes from the scope of application of Article 1(19) those arbitral proceedings that are conferred or authorized before the law entered into force. However, since the Anti-Corruption Law was silent on the matter, in 2013, the Italian National Anti-Corruption Authority (ANAC) purported to interpret the meaning of such expressions (ANAC determination no. 13 of 10 December 2015). According to the ANAC, while conferred arbitration identifies those arbitral proceedings in which the PA has appointed its party’s arbitrator, authorized arbitration might not have such a clear-cut meaning and can be subject to different interpretations.
The ANAC maintains that such expression cannot refer to the appointment of the arbitrator by the PA, as this case is already covered by the expression conferred arbitration.
Furthermore, the ANAC affirms that the authorization given pursuant to Article 1(25) cannot have the same meaning of that under Article 1(19). In fact, Article 1(19), which requires a prior and reasoned authorization, refers to new arbitration agreements. On the contrary, Article 1(25) concerns those arbitration agreements concluded before the Anti-Corruption Law entered into force.
Finally, the authorization referred to in Article 1(25) does not concern the arbitration agreement but one (or more) well-identified arbitral proceedings. As a matter of fact, the authorization under Article 1(19) vis-à-vis the arbitration agreement is aimed at establishing that all disputes arising from the public contract will be decided by arbitrators. On the contrary, the authorization pursuant to Article 1(25) refers only to the already pending arbitral proceedings in respect of which the PA expresses its intention to avail itself of the arbitration agreement.
The ANAC concludes that such authorization concerns all those cases in which the PA maintains a conduct that manifests its intention to abide by the arbitration agreement. This also includes the instances in which the PA does not expressly outline such an intention. For instance, Italian administrative courts have held that the PA reveals such implicit intention when it objects to the jurisdiction of State Courts in favor of arbitral tribunals (Regional Administrative Court of Lazio, 10 February 2015, no. 2423).
V.The 2015 ruling of the Constitutional Court: The retroactive effect of the requirement of prior authorization
The newly introduced provisions of the Anti-Corruption Law were submitted in 2015 to the screening of the Constitutional Court in the context of a dispute arising from a contract for public works concluded in 2007 (see decision of the Italian Constitutional Court, 9 June 2015, no. 108). The dispute between the public owner and the private contractor was submitted to arbitration in 2013 and, upon the contractor’s motion, the arbitral tribunal objected that the new provisions of the Anti-Corruption Law were constitutionally unlawful (in particular, Article 241(1) of the Old PPC, as replaced by Article 1(19) of the Anti-Corruption Law and the transitional provision of Article 1(25)).
With its first argument, the arbitral tribunal claimed that the reformed Article 241 of the Old PPC would have rendered the already existing arbitration agreements retroactively null and void, thereby jeopardizing the principles of legal certainty and stability. In other words, the provisions introduced with the Anti-Corruption Law in 2012 would have undermined the parties’ legitimate choice to defer their dispute to arbitration on the basis of the law applicable at the time they entered into the agreement.
With its second argument, the arbitral tribunal argued that the new provisions would have conferred to the PA the power to unilaterally and discretionally authorize (or not) the commencement of the arbitral proceedings, thus undermining the principle of parties’ equality.
The Constitutional Court rejected the two arguments for the following reasons.
In relation to the first argument, the Constitutional Court affirmed that the requirement of the prior authorization for the Italian PA to enter into arbitration agreements with private parties does not affect the already existing arbitration agreements which remain valid although ineffective for the future.
In relation to the second argument, the Constitutional Court denied that there is a breach of the principle of the parties’ equality since the requirement of the prior authorization has a bearing before the commencement of the legal proceedings. Therefore, it does not give rise to any due process issue. The Constitutional Court explained that the retroactive limitation of the parties’ contractual freedom is justified by the need “to contain the costs of litigation and to protect the public interest.” It was the Court’s view that, in the context of public procurement and public works, these two needs fit with the more general purpose of preventing illegality and corruption within the PA.
Therefore, in light of the interpretation of the provisions of the Anti-Corruption Law provided by the Italian Constitutional Court, which has been confirmed by a subsequent decision in 2019 (see decision of the Italian Constitutional Court, 20 March 2019, no. 58), the following scenarios might be envisaged:
- there might be a risk that arbitration agreements concluded after the entry into force of the Anti-Corruption Law and without a prior and reasoned authorization by the governing body of the PA are declared void; and
- there might be the risk that arbitration agreements concluded before the entry into force of the Anti-Corruption Law are declared ineffective. However, they might be subject to ex post authorization.
VI. Ex post authorization
The 2015 and the 2019 decisions of the Italian Constitutional Court do not address a relevant issue: is it possible to authorize the already existing arbitration agreements after the entry into force of the Anti-Corruption Law, i.e. after 13 November 2012? As a matter of fact, if the lack of a prior authorization does not render the agreement void but only ineffective for the future, it is suggested that the PA may take action, upon the contractor’s motion or ex officio, to remedy such ineffectiveness so that any future dispute will indeed be referred to arbitration.
According to the ANAC, such an ex post authorization of the already existing arbitration agreements is admissible (ANAC determination no. 13 of 10 December 2015). Consequently, the ANAC has urged public administrations to take action in order to assess whether or not an ex post authorization of the arbitration agreements that were in force on 13 November 2012 is feasible.
The new provisions of the Anti-Corruption Law are still debated. The ANAC has urged public administrations to review the existing agreements and take a stand vis-à-vis the arbitration agreements included therein. As to those private contractors that (i) concluded contracts with the PA before the Anti-Corruption Law entered into force and that (ii) still have an interest in availing themselves of the arbitration agreements included therein, they might ask the relevant contracting PA so to obtain an ex post authorization. Even if such enquiry might not translate into the PA’s ex post authorization to arbitrate the dispute, it still might provide contractors with a clarification as to the effectiveness or not of their arbitration agreement. Should a dispute eventually arise from the public contract with the PA, such information would be crucial to identify the most appropriate venue in which the dispute should be decided.