New anti-Covid19 emergency regulations referring to contractual and insolvency matters

With the recent report no. 56 dated 8 July 2020, the Supreme Court analyzed the impact that the anti-COVID19 emergency legislation has had on contractual relationships and in the context of business crises.

With reference to the contractual world, the report highlights how the pandemic mainly affected the performance of contracts that provide mutual obligations. Indeed, such obligations have been altered by the pandemic and, in some cases, overturned.

The report analyses some legal instruments already known in the Italian legal system which could be used by the contractors to protect themselves from the pandemic crisis, as well as the effectiveness and scope of new government principles aimed at mitigating the increase of litigation.

One of the existing legal instrument which abstractly may be helpful to protect contractors during the pandemic lockdown phase could be the concept of frustration provided under art. 1463 c.c. But the report underlines that such an instrument will probably not be useful for most cases. Indeed, monetary obligations are never frustrated because such an obligation is always performable. The report emphasizes that the anti-COVID19 regulation did not change a fundamental contractual principle which states that financial powerlessness gives not rise to the frustration of monetary obligations. The delay in performing a financial obligation could lead to the termination of the obligation only if time is of the essence (art. 1256 c.c.)

Another instrument that could be useful for contractors hit by the economic pandemic crisis is the one provided by art 1467 c.c., which regulates the unexpected excessive onerousness of the contractual obligations. Such disposition applies to long term contracts and to contracts with deferred execution, providing that the party who must perform an obligation “which has become excessively onerous due to the occurrence of extraordinary and unforeseeable events” may request the termination of the contract. The report underlines that this remedy “is linked to the occurrence of an external event […], objectively extraordinary and subjectively unforeseeable and inevitable“.

The report also points out that such a disruptive remedy against contractual tensions could destroy all the current and further parties’ business relationships.

The report also analyses the new principle contained in art. 91 of the Legislative Decree n. 18/2020 (c.d. “Decreto Cura Italia”) which disposes that compliance with the anti-COVID19 containment measures shall always be assessed for the purposes of excluding the debtor’s liability also with regard to the application of any forfeiture or penalties connected with delayed or omitted performance of the contractual obligation.

Finally, the report highlights that the real solution for most of the contractual tensions has to be found in the principles of good faith and fairness which, under articles 1175 and 1375 c.c., have to constantly guide the parties’ behavior in all phases of the contractual relationship: negotiation, conclusion, execution and interpretation.

Indeed, even if the Italian law does not provide a mandatory obligation to renegotiate an executed contract, such negotiation is considered by the Supreme Court as the only way to fairly handle a parties’ relationship which has changed due to the pandemic.

Such a renegotiation activity is more useful in long term relationships in which the parties do not have the interest to terminate the agreement, but rather to make some contractual amendments to continue their relationship.

Carlo Riso