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Coronavirus (COVID-19): force majeure event

  • Italy
  • General

05-03-2020

The Coronavirus (Covid-19) caused and is still causing a slowdown of the Chinese manufacturing industry, and, according to the latest news, it is also spreading in Europe, in particular in Italy, inevitably affecting its national manufacturing network.

 

The measures adopted by the governments to contain the spread of Covid-19 entailed the interruption of some production activities within the areas affected by the outbreak and may, from a legal perspective, be qualified as a Force Majeure Event, exempting from liability the companies which are unable to fulfil their contractual obligations.

 

In the event of government measures which are adopted at a national level and which interfere with the production process of Italian companies, the latter might similarly invoke the Force Majeure Event to justify any delays in deliveries to their customers, with a consequent exemption from liability and a non-applicability of penalties for any delays which might have been previously agreed with their customers.

 

In view of the global scope the industrial production has assumed in the recent decades and the consequent international character of the contractual relationships between the participants of one supply chain, an overview of the legal praxis and the international and national legislations in respect of a Force Majeure Event, which might be taken into account following the slowdown of the global industrial production caused by Covid-19, shall follow.

The UNIDROIT Principles

 

The international legal praxis regarding a Force Majeure Event was implemented in article 7.1.7. of the UNIDROIT Principles, updated as of 31 December 2013, which provides the following:

 

(1)     Non-performance by a party is excused if that party proves that the non-performance was due to an impediment beyond its control and that it could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences.

 

(2)     When the impediment is only temporary, the excuse shall have effect for such period as is reasonable having regard to the effect of the impediment on the performance of the contract.

 

(3)     The party who fails to perform must give notice to the other party of the impediment and its effect on its ability to perform. If the notice is not received by the other party within a reasonable time after the party who fails to perform knew or ought to have known of the impediment, it is liable for damages resulting from such non-receipt.

 

(4)     Nothing in this article prevents a party from exercising a right to terminate the contract or to withhold performance or request interest on money due.

 

 

The United Nations Convention on Contracts for the International Sale of Goods (1980 – CISG)

 

The above-mentioned UNIDROIT principle is in line with the provisions of art. 79 of the CISG which, in respect of Force Majeure, takes into account an additional element, consisting in the failure of the third party, appointed by the non-performing party, to perform all or part of the contractual obligations.

 

The new element set forth in the Convention requires that the impediment to perform the contract pursuant to paragraph 1 applies both to the non-performing party and the third party.

 

The Italian Legislation

 

The Italian legislation, unlike the afore-mentioned international regulations, does not expressly set forth a definition of a Force Majeure Event. Frequently, the term "force majeure" is merely mentioned in contractual relationships, however, there does not exist any specific definition in legislation. The concept may further be derived from article 1467 of the Italian Civil Code, which grants the debtor the right to request 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 his control.

 

Moreover, in respect of contractual breach, it shall be noted that pursuant to article 1256 of the Italian Civil Code the obligation is extinguished whenever, for reasons not attributable to the debtor, the performance of such obligation becomes "impossible". In addition, if the impossibility to fulfil an obligation is merely temporary, in the interim, the debtor is not responsible for the delay in performance.

 

Hence, the discharge of the debtor due to the supervening impossibility to fulfil the obligation may occur - pursuant to article 1256 of the Italian Civil Code - only if and to the extent that both the objective factor of the impossibility to perform the obligation itself strictly considered, and the subjective factor of the debtor’s lack of fault with regard to the determination of the event that made the performance impossible, concur.

 

Causes which may be invoked for the purpose of the above-mentioned "impossibility to perform the contractual obligations" are inter alia the orders or prohibitions issued by the administrative Authority so-called "factum principis": specifically, they are legislative or administrative measures, arising from general interests, which make it impossible to fulfil obligations, irrespective of the conduct of the obligor. In brief, it is a circumstance which exempts the debtor from liability, irrespective of the contractual provisions in effect.

 

In the event of a temporary impossibility article 1256 of the Italian Civil Code excludes, as for the period of the same impossibility, the debtor's liability for the delay in fulfilling his obligations. Hence, as a general rule, once the afore-mentioned impossibility has ceased, the debtor shall always fulfil his obligations, regardless of his different economic interest which he may claim under a supervening excessive burden.

 

The criteria drawn from the above regulatory framework in order to identify a Force Majeure Event are consistent with the provisions of the afore-mentioned regulations and in particular with the first paragraph of article 79 of the CISG.

 

As far as the CISG is concerned, we shall remember that the latter, it being a treaty of international law, applies to international sales between companies located in the countries that have ratified it, unless the parties have expressly agreed to exclude the application of its provisions to the contract.

 

Hence, in the event of international sale of goods agreements entered into between a company located in Italy and companies located in countries which have ratified the Convention, the Force Majeure Event will be determined pursuant to article 79 of the CISG.

 

Further, since the Force Majeure Event identified at national level concerns the imputability of the non-fulfilment also if it actually occurs, the party unable to perform its contractual obligations shall take action by promptly notifying the counterparty of the occurrence of the Force Majeure Event and provide evidence thereof.

 

In view of the above, we may reasonably conclude that any impediment to the performance of contractual obligations, caused by preventive measures aimed at containing the spread of Covid-19, may be considered a Force Majeure Event, with a consequent exemption from liability of the non-performing party.

 

Conclusion

In the light of the above, we may conclude that:

 

1)       in all cases in which the non-fulfilment of contractual obligations occurs as a consequence of an order of the administrative Authority (the so-called "factum principis"), this circumstance may be valid as an exemption from the debtor's liability regardless of the contractual provisions in force, providing relative evidence of such measure;

 

2)       in the event of international sale of goods agreements entered into between a company located in Italy and companies located in countries which have ratified the Convention, the Force Majeure Event will be determined pursuant to article 79 of the CISG, without prejudice to the effectiveness of the order issued by the administrative Authority, which in itself triggers a Force Majeure Cause;

 

3)       in contracts governed by Italian law, where there is no provision on Force Majeure Cause, the rules and principles described in articles 1256 of the Italian Civil Code and 1467 of the Italian Civil Code shall apply.

 

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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