Understanding how regular and irregular arbitration work, knowing their respective characteristics and the differences between them is important because, if those who use them do not give specific directions, the two institutions can be confused.
The two forms of arbitration have a single purpose, which is to settle a dispute in a forum other than the courts.
Arbitration, in fact, is a procedure through which the parties can obtain a resolution to their dispute by the pronouncement of an award (decision) by an arbitrator, a third party, who is identified by agreement between the parties themselves.
If the parties agree first on the use of a third-party arbitrator, in the event of a dispute arising, by means of an arbitration clause, the procedure is quicker, because the rules to be followed have already been established a priori (method of appointment of arbitrators, competent seat …).
If it is decided to resort to arbitration after the dispute has already arisen, the parties sign a written agreement, which is called a compromise by which they delegate the decision to a third person, extraneous to the facts.
Not all disputes can be subject to an arbitration agreement, but it would be most advisable for those involving multiple jurisdictions (international commercial arbitration), that is, if the commercial parties have different nationalities.
The Differences between Regular and Irregular Arbitration
The Italian legal system provides for two types of arbitration: regular “rituale” arbitration and irregular “irrituale” arbitration.
What they have in common is that the parties have already expressed, through writing, their willingness to have recourse to it for disputes that have arisen, either by compromise or that might arise, by arbitration clause.
The difference between regular and irregular arbitration mainly concerns the effectiveness of the award (final decision): the regular award has the same effect as a judgment and is effective as an enforceable title; the irregular award cannot directly become an enforceable title, but can be used, for example, to apply for an injunction or as documentary evidence during a trial.
If it were not specified with which type of arbitration one intends to proceed, it might be difficult to tell.
However, the choice should be made, because in case of a challenge to the arbitral decision, the regular award should be challenged before the Court of Appeals (it can also be challenged for error in iudicando). The irregular award, however, can only be challenged in front of the ordinary court, through an action for annulment that should be brought within the ordinary five-year period.
The Supreme Court of Cassation, in Judgment No. 6909 of 7/4/2015, ruled that in case of doubtful arbitration clause, preference should be given to regular “rituale” arbitration.
What Is Regular Arbitration?
Regular arbitration, governed by Articles 806 and following of the Code of Civil Procedure, while posing as an alternative procedure to the appeal to the court, has all the evidence of a judgment, and in fact the “arbitral award” that puts an end to arbitration will have the effect proper to a court order.
The law in this case gives the arbitration award the same effects as a judgment rendered in the first instance by the ordinary judge.
How Does Regular Arbitration Work?
The law does not specify exactly how the arbitration is to be carried out properly leaving the parties to dictate the rules.
It mandates that the right to be heard, and thus to defend one’s position, be respected, ensuring equality of procedural arms.
Should one choose to go to more than one arbitrator, the party initiating the dispute appoints his or her own and makes this known to the other party.
The introductory act, known as an application for arbitration or a writ of access, is that by which a party takes the initiative to start off the dispute through arbitration. It must also contain the correct identification of the right sought to be asserted.
The other party appoints its own arbitrator.
The two arbitrators chosen, choose in turn, a third arbitrator as chairman.
The arbitrators are instructed on the rules to be observed in the arbitration proceedings.
Deadlines are set for submitting pleadings, evidence and for hearing the parties.
Regular arbitration concludes with the arbitration award.
What is Irregular Arbitration?
Irregular arbitration is governed by Article 808b of the Code of Civil Procedure.
In this case, the parties have entered into an agreement of a contractual nature, binding as any negotiated agreement is, and the arbitrators act as proxies rather than judges.
The act by which the irregular arbitration is concluded remains quite distinct from the judgment, of which it can never acquire either the effectiveness or the aptitude to be subjected to means of appeal, proper instead to judgments and the award rendered in regular arbitration procedures.
The award of irregular arbitration can be appealed, but only on the same grounds on which any contracts would be held invalid, never for unfairness (injustice).
If the arbitrator decides professionally, in accordance with the rules, the irregular arbitration is absolutely binding; in case of default, however, the parties may appeal to the ordinary courts.
How Irregular Arbitration Work?
To proceed under the rules of Irregular arbitration, it is necessary to distinguish between two types of arbitration, documentary and simplified:
- Documentary arbitration: it is used for conflicts whose value is found to be less than 250,000.00€. It is based on documentary basis, evidence and defenses are presented exclusively in written form, without the need for oral hearing of the parties.
- Simplified arbitration: it is used for conflicts whose value turns out to be less than €500,000.00. A maximum of two witnesses per party are allowed. The first hearing serves to present the issues that will be discussed. At the second hearing, the arbitrator acquires evidence. The third hearing serves to discuss the case and reach a decision.
As a law firm, we always advise our clients to consider arbitration with the counterparts before concluding a contract, and to clearly indicate the type of arbitration they want to resort to, so as not to leave room for misunderstanding at such a delicate stage when the dispute arises.
Our International Commercial Arbitration Department is available for any clarification on arbitration matters.
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