The International Business Transactions Blog

Human Right Violation Found in Italy’s Refusal to Correct Arbitral Injustice

By BethEl Nager, Law Student Editor
& Aaron Fellmeth, Faculty Co-Editor

The European Court of Human Rights (ECtHR) has recently held that Italy violated Article 6 of the European Convention on Human Rights, when Italian courts rejected a complaint regarding an arbitrator who had failed to disclose a conflict of interest. Article 6 of the European Convention provides for the right to a fair trial before an independent and impartial tribunal in both civil and criminal cases. The case before the ECtHR arose after the Italian company Becchetti Energy Group S.p.A. (BEG) entered into a contract with Enelpower S.p.A., a subsidiary of the largest Italian power company, to construct a hydroelectric plant in Albania. BEG held a concession from the Albanian government, but because both companies are Italian, the agreement provided for arbitration of all disputes in Rome under Italian law.

After Enelpower withdrew from the project, BEG initiated arbitration, seeking €130 million in damages. The chair of the tribunal and the arbitrator appointed by Enelpower, Natalino Irti, formed a majority to render an award in favor of Enelpower, effectively dismissing BEG’s claims. Irti never disclosed to BEG a major conflict of interest—he had been a past board member of Enel S.p.A, Enelpower’s parent company, and concurrently served as Enel’s attorney in an unrelated litigation.

Since 2002, BEG has been struggling for the award to be invalidated in multijurisdictional litigation in Italy, Albania, and New York. Regarding the conflict of interest, the Rome trial courts declined to disqualify Irti, arguing mootness because the arbitration proceeding had terminated. In 2009, the Rome Court of Appeals affirmed on the surprising theory that an undisclosed conflict of interest did not necessarily affect the arbitrator’s impartiality. Nonetheless, the revelations prompted an Italian prosecutor to indict Irti for forgery (by signing documents that falsely omitted his conflict of interest) and to indict the president of the tribunal for perjury, although these charges were eventually dropped. BEG also pursued the matter before the ECtHR, which in May 2021 rendered a decision.  The Court found that BEG had suffered a human rights violation by the denial of an impartial and independent tribunal, despite the private character of the arbitration, because Italian courts had ignored the conflict of interest.

BEG to recover compensation in the ECtHR, including material damage and lost profits, that it believed it would have received from an award following an impartial arbitral proceeding. The Court was unwilling to speculate on the damages BEG would have obtained, if any, in an impartial arbitration, however. It instead awarded BEG non-pecuniary damages and nominal costs and expenses arising from the Italian and ECtHR proceedings. Regardless, the ECtHR’s ruling established that Italian courts violated a business organization’s human rights by ratifying a tainted arbitration.

One message of these cases is that arbitrators should disclose their connections and potential conflicts of interest, and that municipal courts considering international arbitral awards should take conflicts of interest seriously.  Municipal courts in particular should not ignore apparent conflicts of interest merely because there is no evidence that the interests of the arbitrator and a party align in the specific dispute before the tribunal.