Foreign investments in Italy: Dispute resolution

Some places are good to go to for arbitration, some places are better avoided. It is not this blog’s aim to hail the former and blame the latter but, rather, to outline why Switzerland certainly is a good choice when it comes to arbitration.

Arbitration clauses are sometimes called “Midnight Clauses”. They are called “Midnight Clauses” because they tend to be the very last clause that parties will negotiate on when trying to contractually finalize a business transaction. If the parties are looking for an excellent dispute resolution mechanism or are having last-minute difficulties in finding a suitable compromise, arbitration in Switzerland might be a valuable alternative. Why? There are a handful of unique selling propositions.

First of all, Switzerland has a long tradition of hosting international arbitrations of all kinds (both ad-hoc and institutional). The tradition dates back more than hundred years. As a consequence of this history and experience, you will find easy access to a great number of excellent legal practitioners, both counsel and arbitrators.

Second, Switzerland is politically neutral and is the seat of many international organizations (WTO, WIPO, IOC, etc.). This ensures an openness of mind to different cultures and values and makes Switzerland a great place for an international arbitration.

Third, Swiss substantive law offers a very liberal, clearly defined and predictable legal framework to its users. As a consequence, Arbitration in Switzerland is ideally combined with a choice of law clause in favour of Swiss substantive law.

Fourth and importantly, Switzerland offers both a very stable legal system and an excellent legal framework. Switzerland’s international arbitration law follows an efficient regime and is comprised of only 18 very concise articles. Furthermore, the Swiss judiciary applies a very arbitration-friendly approach in dealing with challenges of arbitral awards and only interferes in exceptional circumstances. There is only one challenge available and this challenge goes right to the Swiss Federal Supreme Court, Switzerland’s highest court. The Supreme Court will not review the merits of the award. It will, however, ensure that the most basic legal principles (public policy) are safe-guarded. Consequently, there are no cost-intense multi step annulment proceedings before state courts. Challenges are generally dealt with within six months.

Fifth, Switzerland offers great infrastructure both in terms of travelling access, hotels, security, court reporting and translation needs.

Last but not least, arbitration in Switzerland offers you great flexibility. You can arbitrate according to the arbitration rules of all of the major institutions, i.e., ICC, Swiss Chambers of Commerce, LCIA, SCC, DIS, AAA, SIAC, HIAC, CIETAC or under Ad-Hoc Rules and will find a suitable ground for your arbitration. For all of these reasons and many more, arbitral awards originating in Switzerland will profit from a great reputation and will be easily enforceable internationally in case of need.

There is a number of dispute resolution mechanisms available for the disputes with the Chinese parties. Depending on bargaining power of the parties and few other circumstances, such as limitations of Chinese law, the dispute can be sometimes resolved outside of China. More frequently, however, the Sino-foreign disputes are resolved in China and this post offers a brief introduction to the methods available there .

As almost anything else in business, an optimal method for resolution of future disputes is worth of anticipating well in advance. Once there is a conflict, it is much more difficult for the parties to agree on the solution equally acceptable to both of them. There is a variety of options to choose from and each of them has its own advantages and disadvantages. Also, there is no “one size fits all” solution and each transaction as well as dispute should be approached individually. Of course, there is always is a default solution, which is going to state court in case the parties have not provided for any alternative mechanism, but this is not always the most optimal way to go.

Litigation

Chinese courts are commonly perceived by foreigners as rather undesirable scenario for dispute resolution. It is so due to the often mentioned problems, such as local protectionism of the Chinese courts or lack of their professionalism. However, in practice, this is not always true and especially the courts in the China’s well-developed regions, particularly in the biggest coastal cities are generally a safe harbor for disputes involving foreigners. The same holds true for the IP courts located in Beijing, Shanghai and Guangzhou. One needs to remember, however, that the jurisdiction of particular court depends on a number of factors, such as place of registration of the Chinese counterparty or place of performance of the contract and therefore, the Chinese top courts may not be the ones handling particular dispute in practice.

Arbitration

Arbitration is a common choice for foreign-related disputes in China. It happens so, because of a number of advantages of arbitration over litigation in such a context. To start with, China and the vast majority of the countries in the world are the parties to the New York Convention, which significantly streamlines the enforcement of foreign arbitral awards. There is no comparable treaty of that scale for the enforcement of state court judgements, what can cause practical problems if certain country does not have an agreement on judicial assistance with China and the enforcement of foreign court judgements is sought. Therefore, since the parties want money and not a piece of paper, the use of arbitration in the cross-border context can substantially improve the prospects for effective enforcement of arbitral award. Furthermore, in contrast to litigating in China, in arbitration English language can be used in proceeding and a party can be represented by a foreign counsel. In arbitration, the parties can also select arbitrators resolving their dispute and a foreign arbitrator is not an uncommon scenario in case of the Sino-foreign arbitration proceedings in China. The parties can also select a specific arbitration institution and rules applicable to the proceeding.

The China International Economic and Trade Arbitration Commission (CIETAC) and the Beijing Arbitration Commission (BAC) are one of the most frequently chosen arbitration institutions in China for the foreign-related disputes. Alternatively, if the circumstances of the case permit – the dispute can be taken outside of China and resolved, for instance, by  the Hong Kong International Arbitration Centre (HKIAC) or the Singapore International Arbitration Centre (SIAC), which are fairly acceptable alternative choices for the Chinese parties.

Other options

One of the other methods popular in China is mediation. Mediation is typically faster, cheaper and increases the chances of preserving good relationship between the parties. However, one needs to remember that in order to mediate, the parties need to be willing to do so, since the role of mediator is to help the parties reach an agreement and not to ultimately decide their dispute. Furthermore, the product of mediation is a contract and so, the breach of mediation agreement typically equals to contractual breach.

One additional important tool frequently used in practice is engaging local lawyers for the purpose of negotiating with the Chinese party as soon as the dispute escalates. The lawyers can help the parties communicate and when the communication is impossible – they can prepare a document describing the claims and informing the Chinese party about the risk of undertaking further legal steps, such as staring court proceeding, what is made mainly for the purpose of brining the other party back to negotiation and finding a solution acceptable to both parties. This often helps save time and money, but it can be problematic if the other party ignores the actions of lawyer. Also, like in case of mediation, the problem lies in the enforcement of any agreement reached by the parties in the course of negotiation.

The main takeaways from this short post are the following:

• Think about the dispute resolution mechanism in advance. There are quite many issues that need to be taken into consideration and there is no “one size fits all” solution. There might be the situations when going to the Chinese court makes perfect sense and there also might be the situations when it makes no sense at all. What is the best option for me in particular case? Which court can potentially have jurisdiction over my case? Does the country involved have a judicial assistance agreement with China for the purpose of enforcement? What should be the language of proceeding? Which arbitration institution to choose?
• Think about hiring professionals right from the very beginning, preferably at the stage of negotiating and drafting agreements. Choosing an optimal solution for resolution of future disputes can help save a lot of time, money and energy. In case of dispute occurring already – act promptly. If the dispute escalates, think about what you can do to best preserve your rights. Should you apply for interim measures? Do you need to first negotiate before you can go for arbitration in case of multi-tier clauses? Which documents are needed to start the proceeding?

The author of this post is Monika Prusinowska.

General principles

There are a number of general contracting principles under Venezuelan contract law. These principles are mainly regulated by the Venezuelan Civil Code. General civil law principles like freedom to contract, capacity to contract, and formation are applicable under Venezuelan law. Contracts can be written or oral and, in general, no formal requirement for a contract to be enforceable and valid, the parties should however make sure that the signatories acting on behalf of another person or entity have authority to execute the contract.

Choice of Law and Jurisdiction

In general, the choice of foreign law by the parties as governing law for contracts is binding under Venezuelan law, provided that foreign law does not contrive essential principles of Venezuelan public policy. Collateral granted on assets located in Venezuela and other contracts relating to real estate located in Venezuela are governed by Venezuelan laws.

Choice of foreign jurisdiction is valid under Venezuela law. A foreign judgment rendered by a foreign court is enforceable in Venezuela, subject to obtaining a confirmatory judgment in Venezuela.

Such confirmatory judgment could be obtained from the Supreme Tribunal of Justice of the Republic in accordance with the provisions and conditions of the Venezuelan law on conflicts of laws, without a review of the merits of the foreign judgment, provided that: (a) the foreign judgment concerns matters of private civil or commercial law only; (b) the foreign judgment constitutes res judicata under the laws of the jurisdiction where it was rendered; (c) the foreign judgment does not relate to real property interests over real property located in Venezuela and the exclusive jurisdiction of Venezuelan courts over the matter has not been violated; (d) the foreign courts have jurisdiction over the matter pursuant to the general principles of jurisdiction of the Venezuelan Statute on Conflicts of Law (pursuant to such principles, a foreign court would have jurisdiction over Venezuelan entities if such entities submit to the jurisdiction of such foreign court, provided that the matter submitted to the foreign jurisdiction does not relate to real property located in Venezuela and does not contravene essential principles of Venezuelan public policy); (e) the defendant has been duly served of the proceedings, with sufficient time to appear in the proceedings, and has been generally granted with procedural guarantees that secure a reasonable possibility of defense; (f) the foreign judgment is not incompatible with a prior judgment that constitutes res judicata and no proceeding initiated prior to the rendering of the foreign judgment is pending before Venezuelan courts on the same subject matter among the same parties to litigation; and (g) the foreign judgment does not contravene the essential principles of Venezuelan public policy.

The submission by the parties of an agreement to arbitration in a country outside Venezuela would be binding in Venezuela. Venezuela is a party to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”). Pursuant to the New York Convention, arbitral awards are enforceable in Venezuela without requiring a confirmatory judgment in Venezuela (exequatur) or a retrial or re-examination of the merits. However, the Venezuelan court in charge of enforcing the award can review the causes of nullity of awards contemplated in the New York Convention.

Enforcement

In practice, enforcement proceedings in Venezuela are generally lengthy, complex and cumbersome, and may be challenged (and therefore delayed) by the affected party on many legal grounds, and may be suspended or delayed. From our experience, an enforcement proceeding may take from several months to a few years, depending on the circumstances and complexity of the case.

In addition, a judgment or award for money issued by a foreign court or arbitration panel would likely be enforced in Venezuela only in bolivars at the then existing Cadivi exchange rate, and then the company receiving the bolivars would have difficulties in converting such bolivars into foreign currency as a result of the existing exchange controls.

In light of the above, counterparties of Venezuelan companies (whether public or private) generally take into account the assets of such companies located outside Venezuela as the real guarantee or support for the contractual obligations of such Venezuelan companies.

Contractual clauses allowing one party to unilaterally terminate a contract without judicial intervention in case of breach of the obligations of the other party may be unenforceable, unless the terminating party is the Venezuelan government or a Venezuelan state-owned company. As a general rule, termination for breach of the other party requires a declaration by the court or the arbitral tribunal (in case the contract contains an arbitration clause).

The author of this post is Fulvio Italiani

From 18 January 2017, the new European Regulation 655/2014 establishing a European Account Preservation Order procedure to facilitate cross-border debt recovery in civil and commercial matters will enter into force.

The Regulation foresees in a procedure to seize bank accounts of your debtor in other EU Member States (except when your debtor is domiciled in United Kingdom or Denmark), without that the debtor is notified hereof. The debtor will only notice once the seizure is into force.

Such cross-border seizure can be obtained before the Courts of an EU Member State who would have jurisdiction on the merits of the case under the EU Regulation 1215/2012 (Brussels I bis).

The seizure can be requested before, during or even after the procedure on the merits of the case. The request has to be filed using a standard document.

To grant the request, the Court will have to examine 1) if there is urgency (periculum in mora) and 2) if there is on basis of the provided evidence enough reason to assume the Court will also decide in favor of the creditor in the proceedings concerning the merits of the case (fumus boni iuris). Although these principles are not unknown to national legislation, both will have to await the autonomous interpretation by the European Court of Justice.

The new EU Regulation 655/2014 is however not created to bully any unwilling debtor by filing preservation order after preservation order. The Regulation foresees 2 mechanisms to avoid such practices:

• According to art. 12, the creditor can be required to provide a security when he has not obtained any judgment in favor yet;
• The creditor will also receive a fixed delay in which he has to undertake a proceedings about the merits of the case.

The new European Regulation 665/2014 also foresees a mechanism where a creditor can request information about his debtor’s bank account(s) in a certain Member State. 

Not unimportant, as the creditor needs to indicate the bank account number in his request for a transnational seizure (under Belgian national law, the indication of the name of the Bank would already be sufficient).

Art. 14 of the Regulation now foresees what one could call a bank account disclosure mechanism:

“Request for the obtaining of account information

Where the creditor has obtained in a Member State an enforceable judgment, court settlement or authentic instrument which requires the debtor to pay the creditor’s claim and the creditor has reasons to believe that the debtor holds one or more accounts with a bank in a specific Member State, but knows neither the name and/or address of the bank nor the IBAN, BIC or another bank number allowing the bank to be identified, he may request the court with which the application for the Preservation Order is lodged to request that the information authority of the Member State of enforcement obtain the information necessary to allow the bank or banks and the debtor’s account or accounts to be identified”.

In a few Member States (including Belgium), such disclosure mechanism is completely new.  The Regulation leaves it up to the Member States how they will organize this new disclosure, by giving a few examples:

“Each Member State shall make available in its national law at least one of the following methods of obtaining the information referred to in paragraph 1:

(a) an obligation on all banks in its territory to disclose, upon request by the information authority, whether the debtor holds an account with them;

(b) access for the information authority to the relevant information where that information is held by public authorities or administrations in registers or otherwise;

(c) the possibility for its courts to oblige the debtor to disclose with which bank or banks in its territory he holds one or more accounts where such an obligation is accompanied by an in personam order by the court prohibiting the withdrawal or transfer by him of funds held in his account or accounts up to the amount to be preserved by the Preservation Order; or

(d) any other methods which are effective and efficient for the purposes of obtaining the relevant information, provided that they are not disproportionately costly or time-consuming.

Does this mean any creditor can just run to the Court and ask information?

No, some conditions apply:

• the creditor needs to be in possession of an enforceable judgment;
• there need to be reasons to believe the debtor holds bank accounts in this Member State.

Conclusion: it will be interesting to see how the Member States will apply this new mechanism.  Whether it will be effective, will also depend on the interpretation of ‘reasons to believe the debtor holds bank accounts in this Member State’.  This will probably be the key to the question if this will end the Pyrrhus decisions, where a creditor is accorded his claim but cannot find assets to seize.

The author of this post is David Diris.

Commercial disputes in Italy can be efficiently resolved by Italian courts (either through ordinary or summary proceedings) or, if agreed upon by the parties, through arbitration.

The court usually decides a case – in first instance – in about three to four years and – in second instance – in about four to five years, while the length of arbitration proceedings is generally shorter (about one year), since it depends on the parties’ terms of engagement and the governing arbitration rules.

That said, the costs of arbitration proceedings are higher than the costs required for court proceedings, while timing of arbitration proceedings are generally faster, especially if the arbitration is carried out under the rules of an arbitration institution (e.g. The Milan International Chamber of Arbitration).

Enforcement of foreign judgments and international arbitration awards

Foreign judgments are recognised and enforced in Italy through different procedures depending on whether the judgment was issued by a court of an EU member state or by an extra-EU member state court.

In particular, any judgment, decision and measure which meets certain requirements, issued by a court of an EU member state and enforceable in that state is automatically recognised in the Italian jurisdiction without any special procedure and/or any declaration of enforceability being required, pursuant to the Regulation (EU) no 1215/2012, Regulation (EC) 44/2001 and the Brussels and Lugano II conventions, when applicable.

Furthermore, for judgments specifically issued by an extra-EU member state court, there are a number of bilateral conventions relating to the recognition and enforcement of judgments in civil matters.

As for international arbitration awards, in 1969 Italy signed the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. As a consequence, Italy recognises foreign arbitral awards as binding and enforces them in accordance with Italian procedural law under the conditions laid down in the New York Convention.

Therefore, in order for a foreign arbitration award to be enforced in Italy, it must be filed with the Court of Appeal of the place of residence of the other party (if it is in Italy) or with the Court of Appeal in Rome (if the other party resides abroad). In this case, the Court of Appeal will only check that the formal requirements of the award are respected, without entering in the merits of the dispute. The court will then issue an enforcement order, where the award becomes equivalent to a judgment capable of enforcement.

Enforcement of Italian judgments and arbitration awards in other jurisdictions

The possibility to enforce Italian judgments and arbitral awards may vary based on the jurisdiction.

In particular, Italian judgments are enforceable abroad pursuant to the Brussels I bis EU Regulation, and to the Lugano Convention, when applicable.

As mentioned above, Italy is also party to the 1958 New York Convention, which is based on the reciprocity principle for the recognition and enforcement of arbitration awards made in the territory of another contracting state. Therefore, an award rendered in Italy is enforceable in foreign jurisdictions that are party to the New York Convention.