Arbitral jurisdiction: default of the defendant and arbitration clause
By Judgement n. 17244 of 27th May 2022, the Italian Supreme Court clarified the impossibility of declaring ex officio the lack of jurisdiction in the presence of an arbitration clause for foreign arbitration.
The dispute concerned two companies (Italian and Algerian) that entered into a sale and purchase agreement concerning a durum wheat milling plant; the contract provided that disputes had to be referred to arbitration in Paris. After delivery of the milling plant, the Algerian company reported faults and therefore enforced the performance bond issued by an Italian bank on behalf of the seller. The Italian company thus turned to the Court of Modena, requesting the verification of the correct functioning of the plant and the restitution of the sum paid by the bank. The latter disputed the lack of jurisdiction of the Italian court on the basis of the arbitration clause in the sale and purchase agreement, and the objection was upheld by the Court of Modena. The decision of the Court of Modena was confirmed by the Court of Appeal. The Algerian buyer remained contumacious.
Firstly, the Supreme Court underlines that the basis of any arbitration is to be found in the free choice of the parties, which allows them to derogate from the exercise of jurisdiction by ordinary judges.
According to the Supreme Court, therefore, the parties have the power to opt for arbitration by means of an expression of will, but, on the basis of the same principle, they may waive arbitral jurisdiction and opt for a decision by the ordinary courts: this may be done not only expressly or by means of an agreement equal to and contrary to that reached with the arbitration clause, but also tacitly, i.e. through the introduction of the proceedings before ordinary courts, in respect of which the defendant does not oppose.
In these cases, the lack of jurisdiction cannot be detected ex officio, since, pursuant to Art. II.3 of the 1958 New York Convention, it is to be declared by the defendant with a specific objection. This rule applies not only when the defendant enters an appearance without raising the objection, but also when the defendant remains contumacious, as occurred in the present case.