I. Can allegations of corruption serve as a bar to jurisdiction of arbitral tribunals or admissibility of claims?
Allegations of corruption made in arbitral proceedings seated in Italy, per se, do not impinge on the tribunal’s jurisdiction, nor do they lead to the inadmissibility of the claims put forward in the arbitration.
Under Italian law, the parties can refer to arbitration any disputes relating to rights that they can freely decide to exercise or not (diritti disponibili). Moreover, the Italian arbitration law expressly recognizes the principles of competence-competence (Art. 817(1) Code of Civil Procedure, “CCP”) and of separability of the arbitration agreement (Art. 808(2) CCP). Accordingly, arbitrators are empowered to decide challenges to the validity of the arbitration agreement (for instance, challenges based on allegations of corruption) and they must assess the validity of the arbitration agreement separately from the validity of the contract that contains the arbitration clause.
This means that, even if the arbitral tribunal were to conclude that the contract is invalid (or, more specifically, null and void) because it was concluded as a result of acts of corruptions, the arbitration agreement would remain valid and the arbitrators would be empowered to decide on the merits of the dispute, except when the arbitration clause itself was part of the corruptive scheme.
These principles were recently reaffirmed by the Italian Supreme Court in a case deriving from a lease agreement in which a usury interest rate was applied by the lessor, this being a criminal offence in Italy (Cass. n. 16364 of 8th June 2023). However, it is worth noting that a 1997 decision of the Milan Court of First Instance – often criticized by scholars – held that the corruption affecting a contract also invalidates its arbitration agreement.
II. Can allegations of corruption affect the validity of an arbitral award?
Allegations of corruption can be the basis of an application either to set aside an arbitral award or to seek its revocation.
The grounds to set aside awards rendered by tribunals seated in Italy are only those listed in Art. 829 CCP. A party seeking the annulment of an award can rely on corruption allegations mainly in the following circumstances. First, it can argue that the corruption rendered the arbitration agreement invalid, provided however that the inclusion of the arbitration clause in the contract was part of the illegal scheme and that this argument was already raised in its first submission during the arbitration (Art. 829(1) n. 1 CCP). Second, the party seeking annulment may argue that its allegations of corruption put forward in the arbitration were not dealt with in the award (Art. 829(1) n. 12 CCP). Finally, it can invoke the violation of public policy in two hypotheses: when the award confirmed the validity of the contract without considering evidence offered by the parties which showed that the contract was in fact tainted by corruption, or when the allegation of corruption was not raised during the arbitration (Art. 829(3) CCP).
It is worth pointing out that, once the award has been challenged, a public policy issue – including an issue of corruption – may be raised ex officio by the court. This is so irrespective of whether the application to set aside was based on a different public policy issue or the applicant invoked a ground for annulment other than public policy.
Also the grounds to obtain the revocation of an Italian award are limited by law. Corruption allegations can be the basis of an application for revocation in three scenarios. First, the arbitrator was found to be corrupt by a final decision having res judicata effects (Arts. 831 and 395 n. 6 CCP). Second, the award upholds or rejects allegations of corruption, but, after the award is rendered, the evidence relied upon by the arbitrators to reach such a conclusion is found to be forged by a final decision having res judicata effects or the other party recognizes that the evidence is false (Art. 395 n. 2 CCP). Finally, revocation can be sought when, after the conclusion of the arbitration, the moving party finds decisive documents relating to the allegations of corruption and it proves that it could not exhibit that evidence in the arbitral proceedings due to force majeure or because of the opposing party’s conduct (Art. 395 n. 3 CCP).
III. In annulment or enforcement proceedings, can the court review the award and the merits to determine whether corruption or related offences affect the underlying dispute?
In annulment proceedings, Italian courts cannot review the merits of the award, unless the parties agreed otherwise, or the law explicitly so provides (Art. 829(3) CCP). As for exequatur proceedings, the Italian arbitration law mirrors the 1958 New York Convention, thus, no review of the merits of the award is possible. This holds true even when public policy – which is the standard that generally comes into place when acts of corruption are alleged – is the ground underpinning the application to set aside or invoked to resist the exequatur.
Italian case law repeatedly confirmed this principle, holding that, while the court may analyse the award reasoning in carrying out its task, it cannot reassess the evidence on record before the arbitral tribunal and much less take into consideration new evidence. Moreover, at the annulment and exequatur stage, Italian courts cannot investigate if the arbitrators violated (i.e. misapplied) legal provisions relating to the merits of the dispute (Cass. n. 23160 of 25th July 2022). As a result, an Italian judge cannot perform a reassessment of the evidence allegedly demonstrating acts of corruption, nor can it determine if the arbitrators erred in applying a legal provision in respect to the claim (or defence) relating to corruption.
According to some scholars, this minimalist standard of review could be derogated in extreme circumstances, such as when it is prima facie clear that the arbitrators’ reasoning is manifestly and seriously mistaken and it would lead to an outcome that seriously undermines fundamental principles of public policy.
IV. Can courts review corruption allegations which have not been raised in the arbitration?
Under Italian law, a challenge to set aside an arbitral award for alleged violation of public policy can be filed “in any case” (Art. 829(3) CCP). Therefore, allegations of corruption can be considered by the Italian court seized to decide on the validity of the award even if they had not been raised before the arbitrators. It is worth stressing, as indicated in answer II above, that an issue of corruption (insofar as it amounts to a public policy issue) can also be raised ex officio by the court.
The same conclusion applies to exequatur When the award creditor seeks an ex parte order to obtain recognition in Italy of a foreign award, the Italian court can grant the recognition only if it determines that the award is not contrary to public policy (Art. 839(4) CCP). If the award debtor challenges the decision granting recognition of the foreign award, enforcement can be denied by the Italian court if it determines, either ex officio or upon request by the award debtor, that the award violates public policy principles (Art. 840(5) CCP). This means that corruption can be the basis to deny exequatur to a foreign award – at either of the two stages – even if no allegation had been raised in that respect during the arbitral proceedings.
V. Do courts defer to the arbitral tribunal’s finding that no corruption acts were committed?
Yes, as explained in answer III above, in principle Italian courts dealing with both annulment and exequatur applications will defer to the arbitrators’ conclusions, except when it is prima facie clear that their reasoning is manifestly and seriously wrong.
However, in revocation proceedings, an Italian court can revoke an award finding that there was no corruption, but only in very limited circumstances. These can occur when: the tribunal’s finding on the absence of corruption was reached as the result of the fraudulent conduct of a party against the other (Art. 395 n. 1 CCP); an arbitrator is found to be corrupt (Art. 395 n. 6 CCP); the evidence relied upon by the arbitrators to conclude that no corruption existed is found to be forged by a final decision having res judicata effects or other party recognizes that it is false (Art. 395 n. 2 CCP); or decisive documents relating to the allegations of corruption are found after the conclusion of the arbitration and the party seeking the revocation proves that it could not exhibit that evidence in the arbitral proceedings due to force majeure or as a result of the opposing party’s conduct (Art. 395 n. 3 CCP).
VI. Is there a standard of proof used by arbitrators and reviewing courts to assess the existence of corruption?
The Italian arbitration law does not set a specific standard of proof, neither for the arbitral proceedings, nor for the annulment and exequatur In general, in Italian civil proceedings the court must be satisfied that an event is more likely than not to have occurred. This standard is likely to be applied by Italian-seated tribunals, especially if a dispute is purely domestic or almost entirely connected with the Italian legal system. However, if the arbitration is international, the arbitrators may prefer to apply the internationally accepted standard of “clear and convincing evidence” when it comes to establishing corruption. This standard imposes a higher threshold compared to the “more likely than not” standard employed in civil proceedings, but it is not as high as the “beyond any reasonable doubt” standard, which is adopted in Italian criminal proceedings.
As for Italian reviewing courts, as said in answer V above, they will usually stick to the tribunal’s findings. However, should they have to make findings on their own, they will apply the general standard for civil proceedings (“more likely than not”).
VII. Which method do arbitrators and reviewing courts employ to establish evidence of corruption?
Under the Italian arbitration law, the parties are empowered to set the rules applicable to the arbitral proceedings, including rules on evidence, provided this is done in the arbitration agreement or in an additional written deed executed before the beginning of the proceedings (Art. 816bis CCP). It is also generally accepted that the parties can agree on rules of evidence in the terms of reference, or similar instruments provided for in institutional sets of arbitration rules. When the parties are silent, the arbitrators have broad discretion to regulate the proceedings as they see fit.
As a result, in an arbitration seated in Italy, the parties can agree on the application, and the arbitrators can decide to apply, all sort of evidence rules, even if they are not available to an Italian court in civil proceedings (such as the cross-examination of witnesses or the document production phase as it is typically devised in the international arbitration context). The only limit is that the arbitrators must comply with the principle of contradictoire, by granting each party a reasonable and equivalent opportunity to present its case.
Thus, to establish whether acts of corruption have occurred, an Italian-seated arbitral tribunal could resort to different means of evidence, ranging from documentary evidence (either spontaneously exhibited by the party invoking corruption or produced by the other party upon an order by the tribunal), to witness and expert evidence (including tribunal-appointed experts), and also inspections.
Unless the parties agree otherwise, a tribunal seated in Italy would typically adopt the adversarial principle, whereby each party has the burden of proving the facts it alleges, as this is the standard approach adopted in Italian civil proceedings. If this is the case, the arbitrators are under no obligations to seek evidence on their own. However, when it comes to allegations of corruption, given their sensitive nature, arbitrators could take a more proactive stance. Moreover, considering the hurdles in demonstrating the existence of corruption, arbitral tribunals may also resort to presumptive indicators, provided they are serious, precise and concordant.
As for Italian reviewing courts in annulment or exequatur proceedings, if they have to make findings on their own – and, as said above, this will occur in rare circumstances – they will apply the means of evidence that are available to them in civil proceedings.
VIII. Are arbitrators seated in your jurisdiction bound by criminal proceedings on issues that could impact the underlying arbitration dispute?
In principle, final convictions and acquittals issued by Italian criminal courts have res judicata effects in a civil case dealing with an overlapping subject matter, provided the criminal decisions have been issued and become final before the tribunal closed the proceedings.
On the one hand, a final conviction has res judicata effects in a civil proceeding relating to a claim for restitution or for damages brought against the convicted person with respect to the following findings: a fact occurred, the fact is criminally unlawful, and the defendant committed that fact (Art. 651 Code of Criminal Procedure).
On the other hand, a final acquittal has res judicata effects in a civil proceeding relating to a claim for restitution or for damages brought by the injured party against the prosecuted person with respect to the following findings: a fact did not exist or the defendant did not commit it, and the fact was committed in the performance of a duty or in the exercise of a legitimate power. It is worth noting, that in case of acquittal (as opposed to the conviction), the res judicata effects only apply if the injured party participated, or was in the position to participate, in the criminal case (Art. 652 Code of Criminal Procedure).
These res judicata effects also apply to arbitral proceedings seated in Italy. In fact, were the arbitrators to disregard a criminal decision in the above circumstances, it could pose a ground to challenge the award (Art. 829(1) n. 8 CCP).
However, the res judicata effects do not apply in at least two circumstances.
First, when no claim for restitution or for damages is put forward in the arbitration, but, for instance, merely a claim to declare the contract null and void because it was affected by acts of corruption. In this scenario, the arbitrators would have discretion to assess and evaluate the findings of the criminal court and decide whether, and to what extent, reliance on those findings should be made.
Second, even if a claim for restitution or for damages is being debated in the arbitration, there would be no res judicata effect if the conviction or acquittal were not final yet, or if it became final after the closure of the arbitral proceedings.
Moreover, if Italian criminal proceedings and arbitral proceedings seated in Italy are pending in parallel, the arbitration can sometimes be stayed. An arbitral tribunal is indeed compelled to suspend the proceedings when the claim for restitution or for damages (arising out of the commission of a crime) is put forward in the arbitration after the claiming party joined the criminal proceedings (to claim damages deriving from the crime) or after a decision of first instance is rendered by the criminal court. The suspension can be lifted only when the criminal judgment becomes final (Art. 819bis(1) CCP). In all other circumstances, arbitral tribunals are entitled to proceed in parallel and decide incidentally issues of criminal law that are relevant to decide the claims submitted before them. However, if a decision is rendered in the criminal proceedings and becomes final before the end of the arbitration, it will have the res judicata effects illustrated above.
Finally, foreign judgments can also have certain effects in arbitration seated in Italy, particularly with regard to civil effects of foreign criminal rulings.
Even though, as a general principle, Italian legislation does not provide for the recognition of foreign criminal judgments, there are some exceptions. First, the Minister of Justice (or the General Public Prosecutor under certain circumstances) has the power to request recognition of a foreign criminal judgement. Furthermore, within the framework of international cooperation, foreign judgments are automatically recognized when there is an extradition treaty between Italy and the State where the criminal ruling is issued. This automatism is even stronger in the context of the European Union, in light of the strides made in judicial cooperation in criminal matters on the basis of the principle of mutual recognition, offering a more solid grounding for the development of a criminal justice space.
According to the Italian regulation, recognition applies only when the judgments produce legal consequences under Italian law for the convicted person. These consequences, set out in Art. 12 of the Italian Criminal Code, are: (1) establishing recidivism or other criminal effects of the conviction or declaring habitual or professional criminal behaviour or criminal tendencies, (2) applying accessory sanctions under Italian law, (3) applying personal security measures under Italian law, (4) enforcing restitution, compensation for damages, or other civil obligations within the Italian territory. In this last case, a significant exemption is provided: in fact, Art. 12 states that the Minister of Justice’s request is not required, even in the absence of an extradition agreement.
Moreover, according to Art. 733 of the Italian Code of Criminal Procedure, certain requirements must be met for a foreign judgment to be recognized: it must be final and res judicata; the fact must be considered a crime under Italian law; and the decision must comply with the rule of law. This last principle requires that (i) the sentence be issued by a foreign judicial authority, (ii) it be compatible with the fundamental principles of the Italian legal system, and (iii) it respects the convicted person’s human rights.
IX. To what extent do they rely on or defer to findings from parallel criminal investigations?
Arbitrators are not bound by findings of ongoing criminal investigations. Nevertheless, they have broad discretion to consider those findings and give them the weight (if any) they deem appropriate, provided the relevant evidence is submitted by the parties in the arbitration.
X. Are remedies available when an arbitral tribunal rules that there is no evidence of corruption but subsequently a criminal ruling decides otherwise?
In these circumstances there are limited remedies available.
The party whose corruptions allegation were dismissed in the arbitral proceedings may move to seek the annulment of the award, but this application can only be upheld if the supervening criminal ruling contributes to demonstrate that the arbitrators’ reasoning on the issue of corruption was prima facie manifestly and seriously wrong (otherwise, the Italian judge will not review the merits of the arbitrators’ findings). Besides, this remedy will only be available if the time limit to challenge the award is still running, i.e. within 90 days from the date of service of the award or, absent the service, within one year from the date on which the last arbitrator signed the award.
No specific ground for revocation exists for a supervening criminal ruling that contradicts the finding of an earlier arbitral award. However, revocation could be sought if, during the criminal proceedings (but after the issuance of the award), a new decisive document relating to the allegations of corruption appears, and the party seeking revocation shows that it could not exhibit that document in the arbitration due to force majeure or because of the opposing party’s conduct (Art. 395 n. 3 CCP).
