Force Majeure and loss of the basis for business in Italy
When does the obligation to perform the contract cease to apply?
Italian contract law is governed by the principle of contractual fidelity, according to which a contract has legal force between the parties. However, the debtor's liability for non-performance is excluded if the non-performance or delay is caused by impossibility of performance due to a cause beyond its control, i.e. force majeure. This must be understood as any unforeseeable and extraordinary event. In this case, the party's obligation to perform the contract shall lapse. Covid-19, the war in Ukraine or official orders, i.e. the order or prohibition of an authority, which constitute an insurmountable obstacle to performance. The European Union's currently imposed sanctions against Russia also constitute force majeure. The obligation to perform shall also lapse if one of the parties is unduly burdened by the occurrence of (subsequent) extraordinary and unforeseeable events.
When may a withdrawal or an adjustment of the contractual relationship be considered?
In the event of subsequent circumstances beyond the parties' control affecting the framework within which the contract was concluded, the contract may be terminated for unforeseen impossibility of performance under Art. 1463 of the Italian ZGB (Zivilgesetzbuch [Civil Code]) if one of the parties has become unable to perform due to external, extraordinary and unforeseeable circumstances. A right of termination also exists under Art. 1467 of the Italian ZGB for unforeseen excessive burden if one of the services owed under the contract has become excessively burdensome, i.e. disproportionate to the normal risk of the contract, due to the occurrence of extraordinary and unforeseeable events. In these cases, the beneficiary has the right to avert the termination by offering a reasonable adjustment of the contractual conditions (e.g. reduction of the rent, etc.).
How can future contractual relationships be optimally structured?
In future contracts, it is advisable to include clauses aimed at maintaining or restoring the original balance of performance and consideration, even in the event of unforeseen circumstances. Similarly, it is advisable to include explicit clauses on customary risk sharing between the parties in order to spread the risks arising from changes in the contractual environment. In view of the "black and white" rules resulting from the statutory regulations regarding impossibility (i.e. either continued validity or termination of the contract), it is advisable to include more detailed and graduated clauses to regulate situations that could make performance impossible, such as clauses suspending deadlines, stipulating penalties for delay (excluding further damages) and hardship clauses with the resulting obligation/entitlement to adjust the price.
Autor: Elena Zappoli