The Milan Chamber of Arbitration’s makeover!

On 1 March 2019 the new Rules of the Milan Chamber of Arbitration became effective (https://www.camera-arbitrale.it/upload/documenti/arbitrato/REG.%20ENG.%202019.pdf – “New Rules”).

This post aims at providing a helicopter view of just some of the most innovative amendments, of which I think we’ll hear a lot in the upcoming months.

In particular, I will focus on:

  1. the “emergency arbitrator” (introduced in section VII, art. 44 of the New Rules) and the arbitrators’ power to grant interim measures in arbitration (art. 26 of the New Rules);
  2. the obligation to disclose the third party funding (art. 43 of the New Rules).
  3. The emergency arbitrator and the arbitral tribunal’s power to issue interim measures

Most practitioners will certainly be aware that, pursuant to art. 818 of the Italian Code of Civil Procedure, arbitrators do not have the power to issue interim or provisional measure. This provision inevitably affects enforcement in Italy of interim measures issued by Arbitral Tribunals, or emergency arbitrators, seated in Italy or abroad.

Against this background, the fact that “THE” most important Italian arbitration institution has included in the New Rules the “emergency arbitrator” and it has enhanced the arbitral tribunals’ power to “issue all urgent and provisional measures of protection” represents a strong message to the Italian legislator. It is about time for Italy to line up with the majority of other jurisdictions (such as our French and Swiss neighbors, not to go too far), so that Italy can truly become an attractive venue for international arbitrations.

The emergency arbitrator

A whole new section (the seventh, article 44) of the New Rules has been entirely dedicated to the proceedings before the “emergency arbitrator”. Parties may have recourse to this procedure:

  • until the arbitrators’ appointment has been confirmed;
  • if the arbitration agreement is concluded after the effective date of the New Rules;
  • unless the parties agree otherwise. This implies that parties wishing to exclude the recourse to the “emergency arbitrator” shall expressly carve this option out from the arbitration agreement.

In addition to equipping arbitral tribunals (and emergency arbitrator) nominated under the New Rules with the powers to issue urgent and provisional measures of protection, also of anticipatory nature, the Milan Arbitration Chamber:

  1. a) introduces the possibility for the parties to have access to the “emergency arbitrator” even without prior notice to the other party (art. 44, first paragraph);
  2. b) upon request of the applicant, it allows the emergency arbitrator to “issue the order without notice to the other party if prior disclosure risks causing serious harm to the applying party” (art. 44, fourth paragraph). A hearing will then be scheduled within the subsequent 10 days to discuss the case.

The Milan Arbitration Chamber seems to have taken the cue from the Rules of the Swiss Chambers’ Arbitration Institution, which is one of the few European arbitral institutions to enable arbitrators to issue interim measures without the preliminary involvement of the party against which the measure is granted (see art. 26 of the Swiss Rules of International Arbitrations available at https://www.swissarbitration.org/files/33/Swiss-Rules/SRIA_EN_2017.pdf).

While the Swiss Rules of International Arbitrations clarify that a measure can be issued “inaudita altera parte” in “exceptional circumstances”, without explaining when these may occur, the Milan Arbitration Chamber takes a step forward and opts for a more practical and clear wording. Accordingly, the measure “inaudita altera parte” may be issued any time the involvement of the other part may materially harm the applicant’s right.

The arbitrators’ power to issue interim measure

Article 26 of the New Rules reads as follows:

1. At request of a party, the Arbitral Tribunal may issue all urgent and provisional measures of protection, also of anticipatory nature, that are not barred by mandatory provisions applicable to the proceedings.

  1. In any case, unless otherwise agreed by the parties, the Arbitral Tribunal, at request of a party, has the power to adopt any determination of provisional nature with binding contractual effect upon the parties.
  2. The Arbitral Tribunal may order the party requesting an interim measure to provide appropriate security for costs as a condition to issue the measure.
  3. Any request for interim measure made by a party to a judicial authority does not imply any waiver of the effects of the arbitration agreement or of the request for arbitration if any”.

Article 26 of the New Rules, caught my attention for three main reasons.

First, article 26 has inherited by its predecessor article 22, second paragraph of the previous arbitration rules, the same constraint for arbitral tribunals, that can issue interim measures if these “are not barred by mandatory provisions applicable to the proceedings”, hence, typically, the law of the State where the arbitration is seated.

This might still represent a hurdle for arbitrations regulated by the New Rules that will be seated in Italy, where arbitrators have no power to grant interim relief under art. 818 of the Italian Code of Civil Procedure. In spite of the intense debate in literature over the possibility to restrict in practice the prohibition set forth in article 818 of the Italian Code of Civil Procedure, the predominant approach by Italian Courts is to consider this provision as mandatory, in the sense referred to by art. 26 of the New Rules (and by the former art. 22). It is also the predominant view in literature that the prohibition set forth in article 818 of the Italian Code of Civil Procedure shall be read in conjunction with article 669-quinquies of the Italian Code of Civil Procedure (regarding precautionary proceedings), which provides for the Italian Courts’ exclusive jurisdiction to issue interim measure even if the parties have opted for an arbitration agreement.

Therefore, set aside motions or opposition to enforcement pending in Italy against interim measures issued by an arbitral tribunal (or an emergency arbitrator) regardless of the seat of the arbitration are likely to be grounded on these basis. Equally, it will be hard to resist to those objections until the Italian procedural law or the trend of Italian case law does not change.

Second, art. 26 enables the parties to vest the arbitral tribunal with the powers to adopt provisional measures with contractual binding effects upon the parties (second paragraph).

This provision seems to echo the views of a number of authors on the effectiveness of the arbitrators’ decisions on urgent matters, in spite (and because) of article 818 of the Italian Code of Civil Procedure. Yet, what will be the practical effects of such an agreement absent a spontaneous fulfillment by the party against which such provisional measure was rendered?

Third, art. 26 of the New Rules clarifies that “any request for interim measures made by a party to a judicial authority does not imply any waiver of the effects of the arbitrations agreement or of the request for arbitration, if any”.

This provision seem to turnaround the trend of Italian Courts, which are oriented in interpreting the recourse to ordinary jurisdictions to obtain interim measure as a waiver to the arbitration agreement. It will be interesting to see how Italian Courts will react and interpret this new provision of the Milan Arbitration Chamber.

  1. The disclosure of third party funding

Article 43 of the New Rules introduces the parties’ obligation to disclose the existence and the identity of a third party funding the arbitration proceedings.

Such a provision clearly spells out the need to regulate in Italy the unrevealed, yet existing, phenomenon of third party funding.

The secrecy that usually surrounds the existence and the conditions of the agreement between one party and the funder makes it hard to identify the level of control granted to the funder over the arbitration. The intervention of a third party raises a number of issues, such as:

(i) the potential conflict of interest that might arise with one or more members of the arbitral tribunal and within the relationship amongst Counsel;

(ii) the breach of confidentiality of information and documents submitted in the arbitration, if communicated to the funder;

(iii) the decision on cost allocation.

Article 43 of the New Rules certainly fosters the need of transparency of the conditions of potential control over the arbitration by a third party funder. Yet, what if the parties will not comply with the disclosure obligation? What are the consequences of such breach, also taking into account, again, that arbitrators do not have coercive powers?

Conclusions

Usually, I tend to see the glass half full, rather than half empty. So, I believe these amendments are clearly a step forward towards a more up-to-date arbitral procedure that truly takes into account the parties’ interests. Yet, I cannot help but wonder how these changes will translate into effective measures to support the ultimate end-users.

Within the New Rules, the arbitrators’ power to issue interim measures can be paired with the parties’ commitment “to enforce the awards, the orders and decision of the arbitrators” (article 9, second paragraph of the New Rules), or with the specific provision that they have “binding contractual effect” (art. 26, second paragraph of the New Rules). These provisions might have a persuasive effect over the losing party, so to lead it to comply voluntarily with the arbitrator(s)’ determination on interim relief.

Yet, it might also be due to a cultural gap, in my view it will take some time before such an awareness raises and allows these newly introduced tools to become effective instruments to the users’ benefit.

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