Italian force majeure

“Act of God”

Question: Does Coronavirus (COVID-19) qualify as Force Majeure in Italy?

Answer: Amid the Coronavirus (COVID-19) pandemic there has been a spike of breach of contract cases in Italy.

Here is some general advice to both the fulfilling party and the party in breach of contract.

Italian Force Majeure

In Italy, force majeure is a statute of the Italian Civil Code and applies default if it meets specific circumstances (see below). In order for force majeure to not apply, the parties must specifically exclude it in their contract. This differs from common law where force majeure does not apply by default and must be expressly included in the contract.

In order to claim force majeure in the Italian legal system, the event needs to meet three requirements:

1. caused by circumstances beyond the party’s control;
2. not reasonably foreseeable;
3. impossible for the party to overcome the negative implications with respect to the contractual obligations.

Each party can apply strategies to proactively react to a force majeure case and minimize prejudice.

To the Fulfilling Party (which is considering options against the non fulfilling party):

1. If you expected an obligation from an Italian subject/company which is currently in breach, the next move is not necessarily a legal dispute, especially if the contract is governed by the Italian law.

2. In particular, aside from a possible decision to reconsider due to subjective flexibility and an empathic approach, consider that, in the Italian legal system, it is easier to be excused for breach of contract due to force majeure for two reasons:

a) In the Italian Civil Code there is a default rule that excuses the party who cannot fulfill an obligation due to force majeure. This rule applies even if the parties have not established any force majeure clause in their contract.

Force Majeure in Italy applies by default.

b) If the contractual breach was caused by the compliance to the recent restrictions imposed by the Italian Government to confront the Covid-19 pandemic, it is even more likely that the breaching party will be excused. In particular, the Italian Government passed a law stating that Italian Courts must always consider the COVID-19 restrictions when evaluating the breaching party’s conduct. Though the law is open to interpretation by the judge, you can expect it to work more in favor of the non-fulfilling party than the fulfilling one.

3. However, the above does not mean that you have no options. A breach of contract often causes issues to the fulfilling party. There are a number of strategies that you can put in place to control the situation and minimize your losses. See below for the other side’s perspective.

To the Non-Fulfilling Party

1. If you are the party in breach of contract, please bear in mind that COVID-19 does not represent a blanket pass for any breach of any nature.

2. Basic Italian law principles require that the non-fulfilling party has to adopt a diligent conduct even in an event of force majeure. The main rules all boil down to the general one of diligently doing everything possible to minimize the prejudice that can be caused to the other party due to the unpredictable situation that prevents you to fulfill the contractual obligation(s). Legally you must fulfill the following three requirements:

I. Alert the other party immediately about your breach.

II. Renegotiate deadlines (for inbound and outbound supply chains).

III. Do not undertake new obligations that could be breached because of COVID-19.

3. Important: if the fulfillment of an obligation is absolutely essential, in the Italian legal system there is the possibility to expressly set out in the contract that no force majeure relief shall apply in any event of breach of contract. Therefore, should such wording exist in the contract, your liability would be higher. However, the wording for such a clause must be very specific and apply on the particular circumstances of your case. The specific contract terms need to be reviewed diligently; if the wording of the exclusion clause in the contract does not meet the requirements of your particular case circumstances, the force majeure default rules may still excuse your breach of contract.

“Italian Force Majeure exemption can be expressly excluded in a contract.”

In conclusion:

• Force majeure rules work differently depending on the jurisdiction that applies.
• The fact that the Italian Government passed a law in regards to Covid-19 and force majeure is because the force majeure concept is always left to the interpretation of the judge and the government wants to ensure that Covid-19 factors into the decision.
• Have force majeure clauses in future contracts and make sure to have a list of examples that addresses a wide range of events.
• Also consider the opposite option, which is to expressly set out in the contract that force majeure will not excuse the non-fulfilling party. You can set out this clause to apply to one party only or to both parties.
• Pay attention to clauses regarding choice of law and jurisdiction applicable to the contract.
• In the event of breach of contract, even if you (feel that) you are 100% in the right, consider to settle the case in Mediation, instead of going straight to a lawsuit: litigation is very expensive, time consuming and has uncertain result, whereas we have settled numerous cases in Mediation within a few months resulting in much better results for our clients.

The list above represents the core of the implications to consider with respect to Italian force majeure. There are numerous circumstances that might play a key role in a case and might radically change the scenario for either party.

Consult with an experienced lawyer to draft or review your contract and the specific applicable case circumstances before committing to the next strategy (undertake an obligation or start a dispute).

Related posts

• Coronavirus (Covid-19): Italian Legal Implications
• Coronavirus in Italy: Government restrictions
• Covid-19: SLM press release