Prepared by Daniele Landi e Lorenzo D’Alessio
The dramatic emergency caused by COVID-19 has forced the implementation, both at socio-political and economic level, of some draconian measures.
In Italy, the lock-down of non-essential economic activities, combined with the general ban on movements not justified by “proven needs”, is heavily affecting the business continuity of many companies.
Inevitably, indeed, the temporary suspension of activities generates an income break-off and the lack of liquidity, in many cases, turns into difficulties in fulfilling the contractual obligations undertaken.
The risks, from a civil law standpoint, are known: penalties, damages compensation, enforcement of guarantees, termination of the contacts and, in general, all adverse effects (also in terms of unfavorable verdict and court loss) related to the attribution of liability for non-performance or delayed performance of contractual obligations.
The debtor, in principle, is not liable if proves, pursuant to Article 1218 of the Italian Civil Code, that the non-performance or the late performance is the result of an impossibility of performance which was due to a cause not attributable to it: for instance, due to force majeure.
That the COVID-19 outbreak, which has been classified as a pandemic by the Word Health Organisation, can be qualified as a fortuitous event overwhelming the human will is not in question.
Likewise, the measures implemented by the Presidency of the Council Ministers can be seen as a factum principis, since restrictive if not totally inhibiting the ability of the companies to operate, therefore they might work as legal grounds for debtors to be exempted from liability when failing to perform their own contractual obligations.
Some of the provisions contained in Decree-Law no. 18 of March 17, 2020 (the so-called “Cura Italia” Decree), concerning delays or breaches of contract resulting from the implementation of containment measures, seem to be oriented in that effect.
In particular, Article 91 of such Decree has integrated Article 3 of the Decree-Law no. 6 of February 23, 2020 (converted with amendments by Law no. 13 of 5 March, 2020), adding a paragraph 6-bis which provides that the compliance with the emergency measures adopted for the containment of COVID-19 shall always be considered for the purpose of excluding the debtor’s liability, also with regard the application of any forfeiture or penalties related to delayed or omitted performance.
However, in EU and international contexts is not provided a univocal regulatory definition of force majeure, therefore even in the current scenario a certain amount of caution is advisable before judging the COVID-19 exemption certainly applicable to any and all cases.
Actually, the agreement itself (or the governing law thereof) shall be the primary source to refer to in order to establish, case by case, whether and to what extent the cause of force majeure shall apply, having regard also to the concrete impact the alleged events have had on the performance and on the fulfillment of the contractual obligations, whether or not the further commitments set out in the agreement have been meet, the degree of care that the defaulting party has taken once the emergency commenced.
Further profiles of this topic have been dealt with in the Newsletter PwC TLS “Emergency COVID-19 and breach of contract” dated 6 March 2020 (https://blog.pwc-tls.it/it/2020/03/06/emergenza-covid-19-e-inadempimento-contrattuale/), which you can refer to.
That said, in the international contracts – in particular in supply agreements – it is customary to provide that the party which is interested in invoking the force majeure shall, inter alia, document to the other party the occurrence of the underlying circumstances.
To facilitate the fulfillment of such burden of proof, in times of COVID-19, on March 25, 2020 the Ministry of Economic Development (MISE) issued the circular no. 0088612.
It has empowered the Italian Chambers of Commerce with the task to issue a certificate in English stating that the applicant company has declared that its failure to fulfill one or more contractual obligation was due to the epidemiological cause.
The utility of such measure, given the high number of contractual breaches expected throughout this adverse situation, can immediately be appreciated.
In the days following the enactment of the MISE Circular, the Chambers of Commerce have begun to publish on their website the declaration template that applicant companies shall use for the aforesaid purposes.
It is a declaration in lieu of a notorious deed that the company release, pursuant to Article 47 of Presidential Decree no. 445 of December 28, 2000, under its own liability and in the awareness that mendacious statements, falsity in documents and the use of false documents are criminal offences.
By means of such declaration, the applicant company states that, in relation to the restrictions imposed by Italian Government and the state of emergency in progress, it was unable to fulfil the contractual obligations previously assumed due to unpredictable reasons independent of the company’s will and ability.
In the related certificate, the Chamber of Commerce: (i) confirms that Italian Government has declared the state of sanitary emergency and lists the main restrictive measures adopted by the latter to deal with the spread of the contagion, (ii) specifies that all the above events have caused trade dislocation, limited the internal movements of labour force and caused factories closures or reorganization and finally (iii) acknowledges that the applicant company has declared that such restrictions have prevented it from fulfilling its contractual obligation previously assumed, regardless its ability.
However, as specified in the certification form, it is understood that “it is not under the Chamber of Commerce liability to check facts and events related to the Company’s statement”.
Despite its value of mere “background proof”, the Chamber of Commerce document it is however destinated to represent a valuable support for Italian companies operating abroad.
First of all, from a formal point of view, because of the “imprimatur” conferred to it by the autonomous public-law institutions which are the Chambers of Commerce, already competent to issue ordinary certifications for the purposes of trade transactions of Italian companies with foreign countries (e.g. certificate of free sale of goods in export transactions, Certificate of Origin of goods intended for circulation in non-EU countries).
Secondly, for the saving of time and resources that the Chamber of Commerce certificate seems to ensure compared to the variety of documents that the breaching party would be forced to gather for the same purposes in an ordinary situation (e.g. communications on the state of emergency issued by public bodies, associations of undertakings, sector Authorities or the proof of the suspension of the activity of companies vertically integrated in the production process, supplying goods and services essential for the execution of the performance).
But above all, the Chamber of Commerce certification might represent such evidence which international contracts require in order for the obligor to be exempted from liability despite the non-performance.
Given its authoritativeness, such type of proof might also have a deterrent effect and discourage foreign counterparties from starting litigations, during this phase of global crisis, against Italian companies.
In a proceeding, if any, debtor might indeed plead the observance of the emergency measures levied by the Italian Government to excuse the failure to perform its own contractual obligations and claim, on the ground of the Chamber of Commerce certificate, to be declared not liable toward the counterparty for any damage suffered by the latter or for payment of penalties provided for in the contract.
Of course, in such a case the creditor would still have the chance to prove, in the context of the investigation phase of the proceeding, that the supervening impossibility to perform the obligation actually arose from causes attributable to the defaulting party.
A proof, however, that is supposed to be at least hard to achieve in times of COVID-19…
Per una discussione più approfondita ti preghiamo di contattare:
PwC TLS Avvocati e Commercialisti