TRADE CONTRACTS

 

Impact of existing measures

 

Recent Law Decrees can constitute a “factum principis”, suitable to exclude the imputability of the non-fulfillment on condition that it is not a simple difficulty to fulfill due to a temporary patrimonial insufficiency.
To be able to invoke force majeure, these measures must, however, meet three requirements:

• unpredictability at the time of conclusion of the contract;
• inevitability such that the impossibility of performance, caused by the measure, cannot be overcome by ordinary diligence;
• not attributable, in the sense that the authority’s measure must not have been caused by the conduct of the obliged party.

 

Possible scenarios for pending contracts:
  • The performance is – definitively or temporarily – impossible for reasons not attributable to the debtor (art. 1256 cc). This category also includes the hypothesis of the impossibility for the creditor to use the service. That is to say that, although the performance is executable, it is no longer suitable to realize the creditor’s interest;
  • Excessive onerousness of one of the services, in contracts with continuous or periodic execution, or with deferred execution (art. 1467 cc);
  • Application of the force majeure clause, where provided contractually.

 

Subsequent impossibility for reasons not attributable to the debtor (art. 1256 Civil Code)

 

PERMANENT IMPOSSIBILITY

In case of permanent impossibility of the service:

  • the debtor is not responsible for his non-performance (Article 1218 of the Italian Civil Code);
  • his obligation is extinguished (art. 1256 cc);
  • the contract is terminated by law without the need for the intervention of the judge unless contested (art. 1463 cc).

 

As a result of the termination, in contracts with mutual performance, the part released due to the impossibility of performance:

  • may not claim the counter-performance;
  • is required to return any performance received (art. 1463 of the civil code).

 

TEMPORARY IMPOSSIBILITY

In case of temporary impossibility of performance:

  • as long as the impossibility persists, the debtor is not responsible for the delay in performance and the obligation is not extinguished;

– the contract remains in force between the parties but the obligation to perform it is suspended.

  • the obligation is extinguished if the impossibility persists until, considering the title of the obligation or the nature of the object, the debtor can no longer be considered obliged to perform, or the creditor no longer has an interest in the performance:

– the contract is automatically terminated.

 

Excessive onerousness of the performance (art. 1467 Civil Code)

 

The concept of “excessive onerousness” has not been specifically defined by the legislator. Case law and doctrine believe that it must be ascertained through the use of strictly objective criteria. It should not be confused with a mere difficulty of fulfillment.

 

The excessive onerousness relates exclusively to events after the signing of the contract which are:

– extraordinary, namely they do not repeat frequently and regularly over time;

– unpredictable, namely with effects that are unknown, according to the common man’s criterion.

 

Both the urgent measures issued by the Government and the health emergency itself must be considered as falling within the above cases.

 

A necessary condition is the alteration of the contractual balance and the imposition on the obliged party of an economic sacrifice that exceeds the normal contract risk (to be assessed case by case).

 

If the performance of one of the parties has become excessively onerous:

– the party obliged to fulfillment may request the termination of the contract;

– the other party has the power to prevent the termination by offering to change the conditions of the contract equally (e.g. price reduction). This offer must be based on cooperation and good faith between the parties while preserving mutual interest.

 

Application of the force majeure clause

In the Italian legal system, NO rule explicitly defines the concept of force majeure.

  • According to case law, force majeure must be an impediment to the performance of a certain action, such as to make any acting party’s effort vain and must NOT be attributable in any way to the acting party.
  • Force majeure is absolute and, therefore, cannot be overcome. A situation that could have been overcome with diligence and commitment cannot be considered as force majeure.
  • The events attributable to the legal category of force majeure include epidemics, decisions of the health authorities and emergency measures, as unforeseeable phenomena, occurring and external to the will of the parties.

 

POSSIBLE SOLUTIONS (TO BE ANALYZED AND ASSESSED CASE BY CASE)
  • If the contract contains a force majeure clause, the contractual provisions shall be followed. The party is responsible for notifying the other of the occurrence of the event, expressing its willingness to do:

– suspend the service, a solution indicated in international contracts of duration and in cases where the situation is uncertain or the impediment is only temporary;

– renegotiate the contract, a typical tool to bring performance back to balance or to adapt the contract to the new situation;

  • If the contract does not contain a force majeure clause, the general rules on the impossibility or of excessive onerousness will apply.

 

The case of force majeure at the international level

At the level of international, the notion and discipline of force majeure are outlined in various sources:

  • the Vienna Convention on the International Sale of Movable Goods of 1980 identifies, in art. 79, co 1, three main features so that the force majeure clause can be applied:

– the extraneousness of the event from the sphere of control of the obliged party;

– the unpredictability of the event at the time of signing the contract;

– the insurmountable nature of the impending event or its outcomes;

  • the International Chamber of Commerce has developed two standard force majeure clauses:

– ICC Force Majeure Clause 2003, which, in addition to recalling the three characteristics previously identified by the Vienna Convention, indicates a list of events whose occurrence involves the application of the force majeure clause.

 

Examples of these events are wars, rebellions, acts of terrorism, sabotage, epidemics, cyclones, earthquakes;

– ICC Hardship Clause 2003, which provides that in the presence of the conditions of the hardship – which is the excessive cost caused by an unforeseeable event beyond the control of the parties – the parties are required to renegotiate the terms of the contract and, if they do not find an agreement, the party invoking the clause can terminate the contract. The clause does not provide for the right to ask the judge to adapt the contract.

Other international sources that deal with this clause are:

  • UNIDROIT Principles of International Commercial Contracts (art. 7.1.7 );
  • Principles of European Contract Law (art. 8.108).

 

 

 


 

 

COMMERCIAL LEASE AGREEMENTS

Changes with the new Dpcm 11 march 2020

The Dpcm 11 March 2020 ordered the suspension of:

  1. retail commercial activities, except for food and basic necessities activities identified in the measure, both in the context of neighborhood businesses and in the medium and large-scale distribution sector;
  2. restaurant service activities (including bars, pubs, restaurants, ice cream parlors, patisseries). Only catering with home delivery is allowed in compliance with hygiene and health standards for both packaging and transport activities;
  3. of activities for the personal services (including hairdressers, barbers beauticians).

 

Without prejudice to the application of the restrictive measures already in place throughout the territory.

 

NEWS
  • Compared to previous decrees issued by the Government, the activities involved in the suspension increased.
  • The closure of the “medium and large structures” of sales as well as the shops both inside the shopping centers and markets, and outside (neighborhood shops) has been ordered.
  • There is an absolute ban on the exercise of certain commercial activities (ie bars, restaurants, retail commercial activities).
  • Partial business is no longer possible (for example, in the allowed time slots, ie up to 18).

 

N.B. TAX CREDIT FOR WORKSHOPS AND STORES

Business entities are granted a tax credit of 60% of the amount of the rent, relating to the month of March 2020, of properties falling within the cadastral category C / 1. (For more information, see “Tax measures to support families and businesses”).

 

Suspension of rental payments

To date, the measures adopted do NOT provide for measures regarding the suspension of payments of rental fees for properties used to carry out suspended activities.

As a rule, according to the legislation on leasing, the tenant is NOT allowed to refrain from paying the rent or to reduce it unilaterally, if there is a reduction or decrease in the enjoyment of the property.

Suspension of payment may ONLY be possible if:

  1. in the lease agreement of the property there is an explicit indication of the specific activity that must be carried out in the premises such as to influence the determination of the rent (provision rarely included);
  2. the contract expressly provides for an ad hoc clause that provides for the tenant’s right not to pay the rent in the event of non-enjoyment of the asset (therefore for suspension of the commercial activity carried out in the leased premises).

 

Possible remedies

A) Withdrawal from the lease for serious reasons, according to art. 27, co. 8 of Law 392/1978

The art. 27 co 8 provides “Regardless of the contractual provisions, the tenant, in the event of serious reasons, can withdraw at any time from the contract with at least six months’ notice to be communicated by registered letter”.

By «serious reasons» we mean facts unrelated to the will of the same, unforeseeable and unexpected after the establishment of the relationship and must be such as to make it difficult for him to continue.

Withdrawal can take place at any time, subject to 6 months’ notice.

Law 392/1978 is lex specialis concerning the discipline of the civil code.

 

B) Exclusion of the tenant ‘s liability for delay in fulfillment (of the payment of the rent) due to temporary impossibility

The code does not regulate any effects on the contractual relationship.

An assessment of the circumstances of the specific case is required as well as an assessment based on what is contractually agreed between the parties.

 

C) Possible reduction of the rent due to non-enjoyment

In case of non-enjoyment of the property for more than 1/6 of the rental duration, or, in any case, for more than 20 days.

 

D) Possible suspension of payment or reduction of the rent proportionate to the extent of the non-enjoyment in analogical application of the provisions of art. 1584 cc.

 

E) Application of the principles of fairness and contractual good faith.

 


 

PROCUREMENT CONTRACTS

 

Remedies in procurement contracts following the Dpcm 11 march 2020

A) The following remedies could be proposed, by way of example:

if due to unforeseen circumstances there have been increases or decreases in the cost of materials or labor, such as to cause an increase/decrease of more than 1/10 of the price, the parties may request a price revision.

  • It is necessary to change the cost of materials or the workforce which is unpredictable and which is greater than 1/10 of the price.
  • The parties have the right to update the price, NOT to terminate the contract.
  • The parties may negotiate the exclusion of the application of the above rules.
  • in this kind of contract, art. 1664 of the Italian Civil Code takes precedence over the excessive onerousness’s rules (ex-art. 1467 of the Italian Civil Code).

 

B) Delay in the performance of the services not attributable to the debtor provided for in the contract

  • The debtor is not liable for damages that the counterparty may suffer due to a delay in the execution of the service deriving from an objective temporary impossibility.
  • The definitive or transitory nature of the impossibility cannot be assessed in an absolute way but it must be assessed case by case, taking into consideration the nature and object of the contract and the interests of the parties.

 

Refusal of the client to receive the service due to the impossibility of its use:

-> termination of the contract

  • It is configurable if the fulfillment of the service by the debtor or the use of the same by the creditor has become impossible.
  • The impossibility must NOT be attributable to the creditor.
  • The creditor’s interest in receiving the service must have disappeared and the essential purpose in which the concrete cause of the contract consists can no longer be achieved.
  • The obligation is extinguished, the contract is terminated and the remedies are activated.

 

The need remains for an assessment of the circumstances that characterize the specific case as well as the existence of the requirements for the application of the remedies envisaged.

 

 

LDP Tax & Law remains at your disposal for any further clarification.

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