The spread of Covid – 19 in China and, now also on national territory has inevitably caused negative repercussions for businesses, both domestic and international. Many companies are facing the risks connected to the inability for their suppliers to procure goods and services from affected countries and from slowed down economies as a result of the health emergency. This is further changing the supply chain processes and putting companies in front of a potential domino effect, leading them in turn to not being able to fulfil the obligations assumed at the beginning of the production process. The problem is across all sectors of the economy, primary, secondary and tertiary. For example, the difficulty for agriculture to obtain supplies of basic products, such as fertilisers and machinery, for industry the supply of raw materials from emerging markets and for tourism, the limitations on the movement of people, with the resulting economic slowdown.
In addition, following the recent restrictive measures ordered by the governments, primarily the Chinese government but also the Italian government, to contain the spread of Coronavirus (see summary mirror of the DPCM of March 4, 2020 on the side), there is a risk of jeopardising the regular execution and proper performance of contracts and, therefore, there is a possible increase in cases of “non-performance” or “unexpected inability of performance” for those who have taken on commercial obligations, now difficult to implement due to the measures to contain the epidemic.
With regard to this issue, Article 1218 of the Italian Civil Code states that if the debtor does not perform exactly those service due or behaves in a manner incompatible with the subsequent implementation of it, he shall be liable to pay damages, if he does not prove that the non-performance or the delay in the performance of his obligations, was caused by the inability of performance resulting from a cause not attributable to him. In the latter case, the obligation performance of his obligations, was caused by the inability of performance resulting from a cause not attributable to him. In the latter case, the obligation is extinguished, pursuant to Article 1256 of the Civil Code, which also provides that in case of temporary impossibility, the debtor is not responsible for the delay in performance for as long as it lasts.
In this regard, it should be pointed out that, with regard to the restrictive provisions made necessary to curtail the spread of Coronavirus, it will be appropriate to consider the duration of the epidemic and the administrative measures recently promoted by the government in order to assess the extinction of the obligation under Article 1256 of the Civil Code. It is worth underlying that the debtor will be required to perform the service when the cause of the inability ceases, regardless of his other economic interest.
With reference to contracts for services rendered, the effects of the inability to perform are governed by articles 1463ff.. of the Italian Civil Code, according to which the party who is unable to perform cannot request the counter-performance and must return the one already received. As such, it seems appropriate to specify that “inability” means a situation, as the current one might be, in which the debtor cannot perform what is expected from him under the contract with the efforts actually due from him for reasons not foreseeable at the time of the mandatory relationship. Therefore, the case referred to in Article 1463 of the Italian Civil Code, i.e. the termination of the contract due to the inability occurred, could happen.
Separately to the argument of inability is, that where there is a change in circumstance, causing the parties balance to change due to the occurrence of extraordinary and unpredictable events, which make the performance by one of the parties particularly burdensome. In this case, the excessive onerousness occurs, which determines that, if the parties do not find a new agreement to balance the contractual conditions, should at the expense of a contractor a termination of the contract occur, according to art. 1467 of the Civil Code, an increase in assets that is not part of the normal contractual value.
It is likely that the current situation makes the fulfilment of obligations burdensome and therefore, regardless of the extent and duration of the emergency, the conditions have already been met to assess the ability to advise on rebalancing domestic and cross-border contractual relations, especially if part of the fulfilment involves the procurement or execution of goods and/or services from particularly affected states such as China.
It should also be noted that the rules relating to liability for non-performance and the inability thereof must be coordinated with other rules in the Italian Civil Code and, particularly, with those relating to diligence and good faith. The instrumental use of legal provisions to deal with emergencies, such as the one we are facing today because of Covid – 19, could lead to censure and be a source of responsibility.
Among the causes that the debtor may invoke to prove that the inability of performance is not attributable, are the arguments of unforeseeable circumstance and force majeure, i.e. those linked to a natural event, such as an epidemic, or the factum principis, such as government measures.
It should be noted that recent jurisprudence of legitimacy has stated that, in the event that the debtor has not fulfilled his obligation within the contractually agreed terms, he cannot invoke the impossibility that has arisen with reference to an order or prohibition of the administrative authority, if this was reasonably and easily foreseeable according to common diligence at the time of assuming the obligation, or with respect to which he has not experienced all the possibilities offered to him to overcome or remove the resistance of the case (inter alia: Cass, 08 June 2018, no. 14915 e Cass., 10 June 2016, no. 11914).
As for force majeure, it seems appropriate to point out that this concept is also accounted for by Article 7.1.7. of the Unidroit principles for international commercial contracts, which, similarly to the provisions of the Italian Law, states the following: “Non-performance by a party is excused if that party proves that the nonperformance 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”.
In the light of the considerations made, it is clear that, with regard to the propagation of the Coronavirus and its legal and economic effects, the configuration of the argument of inability occurred, excessive onerousness occurred, force majeure and factum principis must be assessed in the light of the specific case, probably by reshaping the contractual relationship according to the conditions in place, using the necessary caution to avoid the abusive exercise of rights that could add to the damage caused by the delayed or non-performance of the obligations assumed.