Simulation of the contract and “potestas iudicandi” of the arbitrators

A recent ruling of the Court of Cassation (No 14884 of 31 May 2019) states, that the ascertainment of the simulation of the contract on which the claim relied on before the arbitrators is based, falls within the potestas iudicandi of the latter, since their knowledge extends, subject to any specific legal limits, to any aspect of the case which is relevant to establish whether and to what extent the right relied on by the party has legal ground.

In the case examined by the Court of Cassation, the dispute that arose in relation to a business lease contract was resolved, by reason of the arbitration clause contained in the contract, by arbitration award that declared the lease contract terminated at the end of the term and ordered the tenant to immediately return the business and all the assets that were part of it, as well as to pay damages for having delayed such restitution. The award, on the other hand, declared that the counterclaim for an ascertainment of the simulation of the lease contract and the existence between the parties of the contract of sale of the business for the sum of € 100,000, paid in full, could not be proceeded with, considering this issue unrelated to the arbitration clause.

The Court of Appeal, called upon to decide on the challenge of the award for the inadmissibility of the counterclaim, confirming the award and assessing the complaints made before it as inadmissible, held that the request for ascertainment of the simulation of the company lease contract was not genetically linked to the contract, since it did not concern either the interpretation or the execution of the contract.

In response to the ruling of the Court of Appeals, the Supreme Court reiterated that the arbitrators’ knowledge extends (subject to any specific legal limits) to any aspect of the matter that is relevant for the purpose of determining whether and to what extent the claim asserted by one party is well-founded.

There can therefore be no doubt that the assessment of the simulated nature of the contract on which the claim made before the arbitrators is based constitutes a logical prerequisite for the arbitrator to be able to rule on the subject matter of the claim.

The ruling in question appears to be in line with a distant precedent (Court of Cassation no. 3167/1957) in which the Supreme Court stated that “when the parties wanted to reserve for the arbitration proceedings the questions relating to the interpretation of the contract, among these are to be considered also those relating to the ascertainment of the simulation, absolute or relative, of the contract”.