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CORONAVIRUS (COVID-19): FORCE MAJEURE EVENT (Update)

  • Italy
  • General

03-04-2020

In view of the health emergency, due to the spread of Covid-19, affecting Italy (and as of now, the whole world), the Italian Government and each Regions adopted a series of extraordinary and urgent measures which entailed the closure of almost all production activities, with the exception of those considered as strictly necessary and strategic, listed on Schedule 1 of the Decree of the Prime Minister dated March 22, 2020, as subsequently amended by the Decree of the Ministry of Economic Development dated March 25, 2020.  

This will necessarily have immediate implications on the fate of contracts which are currently in progress and to be performed continuously or periodically, and on the duly execution of the contractual relationship, making the implementation of the contractual arrangement impossible or partially different (with respect to the original underlying interests of the parties).

The above legal provisions enacted by the relevant Authority may be qualified as Force Majeure Event, exempting from liability the companies which are unable to fulfil their contractual obligations. In this respect, please see the newsletter dated March 5, 2020 (CORONAVIRUS (COVID-19): FORCE MAJEURE EVENT).

More specifically, the Italian legal system does not expressly set forth a definition of Force Majeure Event, which is merely indicated in general terms under article 1467 of the Italian Civil Code, granting – de facto - the debtor the right to request the termination of the contract in the event the performance of the obligation has become excessively onerous, due to extraordinary and unpredictable events which are beyond the debtor’s control.

Moreover, in relation to breach of contract, it shall be noted that pursuant to article 1256 of the Italian Civil Code, the contractual obligation is extinguished in the event the performance of same obligation becomes "impossible", for reasons not attributable to the debtor: if said impossibility is merely temporary, the debtor may not be held responsible for the delay in performance during the relevant period.

The orders or prohibitions issued by the relevant Authority (Decrees, Orders…) so-called “factum principis” which discharge the debtor from liability, provided that he gives evidence of such measures and regardless of the contractual provisions in force, may be invoked for the purpose of the afore-mentioned “impossibility to perform the contractual obligation”, irrespective of the conduct of the debtor.

The case law identified the requirements of the above measures which ought to be met, in order to invoke the remedy of the supervening impossibility to perform the contractual obligation. In particular, it is necessary that: (i) the measures adopted are beyond the debtor's will; (ii) they are not reasonably foreseeable at the time of assumption of the obligation, by using ordinary diligence; and (iii) the debtor has exhausted all reasonable possibilities, in order to duly perform the obligation. 

Many supply contracts in Italy and with foreign counterparties already envisage clauses which require the exhibition of certificates, in order to be able to invoke the Force Majeure Event and cope with non-performance of contractual obligations.

However, the companies shall attest the conditions of Force Majeure resulting from the current health emergency due to Covid-19 also by means of a certificate issued by the relevant Chamber of Commerce. Failure to do so would result in immediate damages to the detriment of the national companies, which would be subject to the termination of contracts, along with the payment of penalties and the absence of a refund of the costs already incurred.   

In this regard, it shall be noted that the Chambers of Commerce, within the powers vested with by law, may issue upon request of the company such declarations in Italian and English language, in order to support domestic and international trade following the Covid-19 emergency and the consequent restrictions imposed by the law in order to contain the outbreak.

In virtue of the afore-mentioned declarations the Chambers of Commerce will be able to certify that they have received from the applicant company a declaration in which same company, with reference to the restrictions imposed by the relevant Authorities and the current state of emergency, states that it was not able to timely fulfil the contractual obligations it had previously undertaken, due to reasons which were unpredictable and independent of the company's will and capacity.

Moreover, with regard to the temporary impossibility to perform the obligations, article 1256 of the Italian Civil Code excludes the debtor’s liability for the delay in performance, as long as such impossibility persists. Hence, generally speaking, once the afore-mentioned impossibility has ceased, the debtor shall always perform the obligation, irrespective of the debtor’s altered economic interest. The debtor may claim such altered economic interest merely under the remedy of the supervening excessive onerousness.

It shall be noted that the excessive onerousness differs from the supervening impossibility to perform the obligation, since the former outlines a quantitative concept, whereas the latter regards a qualitative phenomenon. Hence, although both remedies refer to occurrences able to alter the contractual reciprocity, their scope of application is different.  

Further, unlike the absolute impossibility to perform the obligation, in the case of supervening excessive onerousness, termination of the contract may be avoided where the party not suffering the unfair effects of the relevant occurrence agrees to "amend the terms of the contract equally".

In fact, once the cause of impossibility has ceased it shall be established, with regard to the contractual relationship, whether delayed performance may have the same value as punctual performance.

Prominent doctrine pointed out that non-performance lasting for a more or less significant period of time "is something different and minor than punctual performance and the creditor shall therefore be entitled to a reduction of the performance due by the same". Reference by analogy is made to article 1464 of the Italian Civil Code, in relation to partial performance.

In respect of the protection awarded to the debtor and alternatively to the application by analogy of article 1464 of the Italian Civil Code, once the reason for the temporary impossibility to perform the obligation has ceased and the debtor shall nevertheless fulfil same obligation, the general principle of good faith applies, which "does not impose on the parties a conduct with a predetermined content" yet obliges each party to carry out all activities which, although not regulated by specific contractual provisions, shall preserve the interests of the other party, "within the limits of an appreciable sacrifice, where this is necessary to safeguard the benefit of the contract for the other party", considering that it is "in general [...] the duty of each contractual party to protect the benefit and interests of the other party, to the extent that this does not entail an appreciable sacrifice of other values".  

Finally, in the event an obligation to renegotiate the contractual terms may be provided, this shall be intended to "grant effect to the protection relating to the performance of the contract”, it being understood that "being obliged to negotiate means being obliged to carry out all those acts which, in relation to the circumstances, may allow the parties to agree on the conditions regarding the adaptation of the contract, in the light of the changes that have occurred”.

It needs to be clarified whether the legal provisions may be waived by the parties, in the sense that the risk connected to the effects of a cause of supervening impossibility may be fully borne by one party, who would be in any case obliged to fulfil the respective obligation (irrespective of the safe harbour provided for by the second paragraph of article 1256 of the Italian Civil Code), once the suspension of the contract has ceased.

The reasoning may found in the emergency legislation, which protects interests of public order and therefore compulsory interests, so that any covenant envisaged in the contracts which excludes the applicability of articles 1463 and 1464 of the Italian Civil Code shall be deemed invalid.

The above may be derived from the premise of the Decree of the Prime Minister dated March 22, 2020 (which is in any case the common thread of the whole legislation regarding the actual emergency) which provides that, considering "the extraordinary need and urgency to contain the negative impact that the Covid-19 outbreak has on the socio-economic context", the measures aim at strengthening the National Health Service, civil protection and security as well as providing support to families, businesses and public and private jobs.

All these objectives represent constitutional values and as such shall be protected regardless (and irrespectively) of the regulation adopted.

It follows that any covenant envisaged in the contracts, excluding the remedy of the supervening impossibility to perform the obligation, and entailing that all the negative consequences of the definitive loss of the counter-performance or of the minor benefit of the same shall be borne by one party, due to the suspension of the contract following the temporary impossibility, shall be considered tamquam non essent (i.e. as if it has never been entered into).

Disclaimer

This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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