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Italy - COVID-19 & Contractual Obligations under Italian law

31 March 2020
As a result of the spread of the COVID-19 virus, the Italian Legislator adopted several measures to contain the epidemic suspending the majority of activities (exception of those considered essential, which may continue in compliance with certain specific measures to contain the epidemic). 

Such provisions have an impact on the execution of pending agreements, leading to the termination of the agreements for supervening impossibility to perform them. In this scenario, the Italian Legislator recently adopted two specific provisions, in order to mitigate the impact of the Coronavirus measures on pending agreements.

Introduction

As a result of the spread of the COVID-19 virus, the Italian Legislator adopted several measures to contain the epidemic. In this regard, please note that, following the most recent provisions adopted, the majority of activities are suspended, with the exception of those considered essential, which may continue in compliance with certain specific measures to contain the epidemic. 

Such provisions have an impact on the execution of pending agreements. 

In detail, under Italian law, this scenario could lead to a termination of the agreements due to the supervening impossibility to execute them for the so called lock-down, established by the law. In such case, parties may rely on Articles 1256 and 1463 of the Italian Civil Code, related to the termination for supervening impossibility to perform the agreement. 

Please note that the Italian Legislator recently adopted two specific provisions, in order to mitigate the impact of the Coronavirus measures on pending agreements. 

Factum principis as force majeure and the supervening impossibility 

Although there is no specific definition of force majeure under Italian law, the measures adopted by the Italian Government to deal with the emergency could be considered an objective impossibility to perform the agreement. In that regard, the concept of "factum principis" is relevant (i.e., a cause of objective impossibility, beyond the debtor's control, to perform the agreement, provided for by a measure of the public authorities). 

According to the Italian Supreme Court case law, the factum principis could lead to the impossibility of the performance only if these circumstances are met:

- the measure of the authority is totally extraneous to the will of the debtor (Italian Supreme Court case no. 21973/2007 and no. 11914/2016);
- the measure is unforeseeable at the time of conclusion of the agreement (Italian Supreme Court case no. 2059/2000); and 
- the debtor has tested and exhausted all possibilities to perform the agreement regularly (Italian Supreme Court case no. 11914/2016).

Therefore, in the case at stake, the adoption of the Covid-19 measures seems to meet all the conditions of a factum principis capable to determine the termination of the agreements due to the supervening impossibility.

In that regard, Articles 1256 and 1463 of the Italian Civil Code are relevant, according to which the agreement is terminated when the performance of the obligations provided for therein becomes impossible for reasons beyond the debtor's control. More specifically, in order to determine the termination of the agreements, such impossibility shall be:

- supervening (i.e., arising after the parties entered into the agreement);
- objective (i.e., independent of the subjective circumstances of the debtor);
- beyond the control of the debtor (i.e., not dependent on his conduct); and
- final (i.e., the performance is not possible by any means).

Moreover, pursuant to Article 1463 of the Italian Civil Code, the consequences for the impossibility to perform the agreement are that the party that becomes unable to perform its obligations due to the supervening impossibility:

- is not entitled to claim the performance of the counterparty; and
- is required to return it, if already received.

For instance, tickets purchased for any event suspended pursuant to the measures adopted by the Italian Government (e.g., concerts) shall be reimbursed.

The application of the remedy under Article 1463 of the Italian Civil Code for the case at stake has been confirmed by Article 88 of the Decree-Law no. 18/2020 (adopted in the context of the Covid-19 emergency). Furthermore, please note that Article 91 of the of the Decree-Law no. 18/2020 provides that the implementation of the measures adopted by the Italian Government to contain the Coronavirus emergency is always evaluated in order to avoid debtor liability, even in connection with terms and penalty clauses related to delays or non-fulfilment. The burden of proof shall lie with the debtor, who shall prove that "the non-fulfilment or delay was caused by the impossibility of performance resulting from a cause beyond his control" (Article 1218 of the Italian Civil Code).

Excessive onerousness due to extraordinary and unforeseeable events

If there are no elements to determine the termination of the agreement due to the supervening impossibility, as described above, the Italian law provides other solutions. Among them, for agreements with continuous or periodic performances, or with deferred performances, Article 1467 of the Italian Civil Code provides that, if the performance of one of the parties has become excessively onerous due to the occurrence of extraordinary and unforeseeable events, the party who owes such performance may request the termination of the agreement.

According to Italian Supreme Court case law, in order to apply Article 1467 of the Italian Civil Code, two requirements shall be met: an intervening imbalance between the parties, which was not foreseen at the time of the conclusion of the agreement and a link between the excessive onerousness and the extraordinary and unforeseeable event. 

The "extraordinariness" shall be objective, to be evaluated on the basis of elements, such as frequency, size, intensity, which can be measured. The "unforeseeability" has a subjective root, instead, referring to the phenomenology of knowledge (Italian Supreme Court, case no. 22396/2006).

In this scenario, the Covid-19 emergency could be considered an "extraordinary and unforeseeable" event and, therefore, the application of Article 1467 of the Italian Civil Code could govern the consequences of the termination of such agreements. 

This article has been authored by Francesco Falco, Roberto Usai and Chiara Arcidiacono.

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