The revised rules of the Milan Chamber of Arbitration
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Fabio Cozzi
Delfino e Associati Willkie Farr & Gallagher, Milan
fcozzi@delfinowillkie.com
Irene Saura
Delfino e Associati Willkie Farr & Gallagher, Milan
isaura@delfinowillkie.com
On 1 March 2019, the Milan Chamber of Arbitration (CAM) issued its revised Arbitration Rules (the Rules), which are now in force and are applicable to arbitrations commenced after 1 March (unless otherwise agreed by the parties).[1]
The revision of the previous rules dating back to 2010 (the 2010 Rules) aims at improving the quality of the administration of arbitrations by making arbitral proceedings more rapid and efficient, while ensuring the necessary procedural protections.[2] To this extent, the new Rules comprise both amendments to the 2010 Rules as well as innovative provisions in line with recent developments in the arbitral community, in particular in connection with third-party funding (TPF).
New tools to address emergency issues
The power for arbitrators to issue interim measures has always been an issue in Italy, since Italian law prevents arbitrators from adopting precautionary measures.[3] This legislative hurdle has been effectively handled by the pro-arbitration approach of Italian courts (especially Milan and Rome); however, it is undisputable that a reform to make Italian arbitration law (incorporated within the Italian Code of Civil Procedure) aligned with Article 17 of the United Nations Commission on International Trade Law(UNCITRAL) Model Law would be desirable.
CAM shows a proactive approach in this direction by introducing a solution to fill this gap to the extent possible. Article 26 of the Rules provides the Arbitral Tribunal with the general power to adopt provisional determinations with a binding contractual effect on the parties. The binding nature of these determinations implies, in case of non-performance, the possibility of a claim for damages for breach of contract. Moreover, a party’s refusal to comply with provisional measures can also be considered by the Tribunal in terms of adverse inferences.
The new Rules also introduce the Emergency Arbitrator. If a party so requests, prior to the confirmation of the arbitrators that will decide on the merits of the dispute, CAM appoints an arbitrator that shall be able to provide the necessary interim or provisional measures in a very short time limit (less than 20 days).[4] This mechanism is useful where the time required for the constitution of the Arbitral Tribunal could adversely and irremediably affect the position of the party, also considering that the application may be filed without prior notice to the other party.
However, in case of an ex parte order, a hearing is scheduled within a short time limit, to give the arbitrator all the necessary elements to confirm, revoke, or modify the adopted interim measure. In any case, the Emergency Arbitrator could not sit as an arbitrator in any further arbitration related to the same case.
Sanctions to punish parties’ unfair conduct
The Rules also address a sensitive issue which is negatively impacting the efficiency of international arbitral proceedings: so-called ‘guerrilla tactics’ aimed at slowing down the proceedings. Lawyers are normally bound by deontological (or ethical) rules which may sanction unfair conducts; however, such rules are of very limited use in the context of arbitral proceedings, since arbitrators do not have any disciplinary power over counsels.[5] Moreover, in international cases, different national rules may come into play, which can further complicate the ethical questions, in particular when the parties have not adopted the IBA Guidelines on Party Representation in International Arbitration for the arbitration.
In light of this scenario, CAM has taken a step to make clear that dilatory tactics and specious conducts have consequences. Specifically, it has introduced an explicit duty of ‘fair conduct’ on the parties (and on any other participant to the arbitration) coupled with a power granted to the Arbitral Tribunal to sanction possible breaches of this duty, including in the context of its decision on the allocation of the costs of the proceedings.
Transparency and third-party funding
As to TPF, CAM adopts a straightforward approach to avoid any risk of conflicts of interest or any undue influence on the proceedings.
Given that funders have economic interests in individual arbitrations, and the existence of the funding agreement may result in concerns over confidentiality or conflicts of interest, Article 43 of the Rules states that ‘the party that is funded by a third party in relation to the proceedings and its outcome shall disclose the existence of the funding and the identity of the funder.’
Similarly, Article 20 of the Rules, which relates to arbitrators’ statement of independence, has been amended to include a specific reference to financial relationships which may be relevant to assess possible conflict of interests.
The revised Article 20 provides that the arbitrator shall disclose ‘any relationship with the parties, their counsel and any other person or entity involved in the arbitration, even on a financial relationship basis, which may affect his/her impartiality or independence’. In case the arbitrator reveals a relationship, for example with a third-party funder, the Arbitral Council has to evaluate his/her position of independence and impartiality.
The duty of disclosure imposed by Article 43 of the Rules aims to ensure that the institution, as well as the parties, their counsels and the Tribunal, are well aware of all the participants and interests involved in the proceedings to provide an increasing standard of transparency. The provision is innovative not only in Italy, but also in the international scenario. In fact, at this time, only a handful of arbitral institutions expressly provide for rules on TPF, and even in those cases,[6] those ‘rules’ are intended as guidance or practical notes.
Article 43 will be welcomed as an innovative provision that specifically addresses TPF with the aim of preserving transparency and arbitrators’ independence and impartiality. CAM’s approach to TPF reveals that Italy is preparing to a significant increase of arbitration funding. TPF, which finds its root in common law systems,[7] has progressively spread also in civil law jurisdictions and currently represents an integral part of the global litigation and arbitration market.
For the time being, Italian law does not provide for any regulatory framework regarding TPF, and this lacuna created some initial uncertainties. In particular, some authors[8] pointed out that TPF would not be admissible in the Italian legal system, according to the so called ‘quota lite’ prohibition (ie, the lawyers’ fees cannot be, totally or partially, represented by a quota of the disputed right)[9] and pursuant to Article 1261 of the Civil Code.[10]
Other authors,[11] conversely, consider that no statutory obstacle exists in relation to the development of TPF in Italy, since professional funders cannot be considered as entities ‘representing’ the funded parties, thus not being comparable to lawyers in relation to whom Italian law provides for the above-mentioned limitations.
There should be little doubt that funding agreements are admissible also under Italian law. One possible reason for the muted role of TPF in Italy may be delays in the Italian judiciary system, which could discourage such investments in proceedings before Italian Courts.[12] Arbitration, however, provides for much more predictability and efficiency, often with less delay. Considering that Italy is a known pro-arbitration jurisdiction, and that high value and complex disputes are frequently submitted to arbitrators, it is easy to predict that in Italy arbitration will increasingly attract the interest of professional funders,[13] which have reportedly already entered into the Italian market.[14]
Final remarks
The revision of the Rules implements the best practices achieved by CAM in more than 30 years[15] of arbitration activity. Although some provisions transpose practices already affirmed in international arbitration, others represent innovation on both national and international scenes, confirming Milan as a developed arbitration hub. Arbitration continues to be the best option to solve most international disputes in jurisdictions like Italy, where the duration of court proceedings is too long and not in line with the expectations of companies and investors.
[1] According to Articles 45 para. 2 of the Rules, and Article 823 Italian Code of Civil Procedure.
[2] Press release by CAM, https://www.camera-arbitrale.it/upload/documenti/arbitrato/arbitration-rules-main-amendments.pdf.
[3] See Article 818 Italian Code of Civil Procedure.
[4] See Article 44 of the Rules.
[5] U. Draetta, The Dark Side of Arbitration, Juris, 2018, pp. 291 ff.
[6] Among them, it is worth mentioning the 2019 ICC Note To Parties And Arbitral Tribunals On The Conduct Of The Arbitration Under the ICC Rules Of Arbitration which clearly considers TPF while stating that arbitrators shall disclose ‘relationships with any entity having a direct economic interest in the dispute or an obligation to indemnify a party for the award’. See also https://iccwbo.org/content/uploads/sites/3/2017/03/icc-note-to-parties-and-arbitral-tribunals-on-the-conduct-of-arbitration.pdf, para. 28, and the Explanation to General Standard 6(b) of the IBA Guidelines on Conflicts of Interests in International Arbitration (adopted on October 23, 2014). In September 2019, the Stockholm Chamber of Arbitration adopted a policy on disclosure of third parties, see https://sccinstitute.com/media/1035074/scc-policy-re-third-party-interests-adopted.pdf. Other institutions provide for specific definitions of TPF: it is the case of Brazilian CAM-CCBC and the Singapore International Arbitration Centre (SIAC).
[7] TPF developed first in Australia, and then in the UK in the beginning of the 21st century; subsequently, it has spread in the majority of jurisdictions around the world (see Report of the ICCA-Queen Mary Task Force on Third-Party Funding in International Arbitration, April 2018, p. 18).
[8] See G.M. Solas, Finanziare il contenzioso: esperienze a confronto, in Contratto e Impresa/Europa, Cedam, No. 1/2016, p. 186.
[9] See Article 13 para. 4 of Law No. 247/2012 regulating the exercise of legal profession.
[10] Article 1261 of the Civil Code states that lawyers cannot perceive rights on which a dispute arose before a judge in the jurisdiction where they exercise the legal profession.
[11] See E. D’Alessandro, ‘Contratto di finanziamento della lite: mera operazione finanziaria finalizzata a trarre profitto dal processo civile ovvero strumento che agevola l’accesso alla tutela giurisdizionale?’, in Int'l Lis Rivista di diritto processuale internazionale e arbitrato internazionale, Ipsoa, 2016, pp. 142-156.
[12] Oliver Novick, manager of Therium Capital Management, affirmed that the funder entity decided to invest in three international arbitrations having their seat in Italy, because of the duration of Italian court proceedings, https://www.ilsole24ore.com/art/litigation-funding-anche-italia-controversia-trova-investirori-ACQ72Iv
[13] See E. D’Alessandro,Perspectives on Third Party Funding in Italy, Ledizioni, April 2019, p. 73.
[14] See https://www.ilsole24ore.com/art/litigation-funding-anche-italia-controversia-trova-investirori-ACQ72Iv
[15] The Milan Chamber of Commerce administered arbitration since 1971, however the CAM – as a special entity focusing on arbitration – was founded in 1986 (https://www.camera-arbitrale.it/Documenti/cam_06_attivita-internazionale.pdf).
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