Since 1986 we are specialized in International Law and Commercial Law
Monographs, Publications and Seminars
Expert and specialized legal advice
calendar_today 30 May 2023
As is unfortunately self-evident, the recent spread of the Coronavirus has had and will have, for a prolonged period of time, a very strong impact on the economy, trade and international contractual relations, affecting, in particular, the functioning of both the so-called supply chain and the distribution chain.
The casuistry of the effects on contractual relations, with particular reference to non-performance, è heterogeneous, but nevertheless, the common trait è represented by delays and even the impossibility, for Italian companies, to fulfill their services (whether supplies of goods or provision of services), with a cascading effect that overwhelms the various economic operators, making it extremely difficult to frame the various responsibilities.
In emergency situations (health first, and economic second) such as the current one, the various traders who find themselves in the position of being unable to fulfill their contractual obligations are wont to appeal to the so-called force majeure clause.
The risk they may incur, however, è that of considering that in international transactions this institution is always applicable and therefore invocable, as it is regulated in the Italian Order and as it is commonly held there.
There’è then a further delicate aspect to point out; while in preparing contractual documents, great attention is paid to all the various aspects that characterize performance, all too often the clause governing force majeure è standard and is uniformly applied to all contracts entered into by the Italian company, without taking into account at all the legal climate in which the foreign partner finds himself, on the erroneous assumption that “so much, cases of force majeure are the same all over the world”. Nothing could be more wrong; merely by way of illustration, in Egypt, majority jurisprudence expressly excludes war from the list of force majeure cases. It follows that the company about to enter into or revise international contracts must necessarily instruct the drafters of the contract to check very scrupulously how è force majeure is regulated in the countries of interest, and especially how it is handled from a practical point of view.
In this sense, it is therefore useful - on the one hand - to summarily highlight what are the different meanings characterizing the institution of force majeure in the non-EU countries of greatest interest, and on the other hand to provide a series of “practical” recommendations aimed at protecting economic operators.
Generally speaking, it can be said that the ’institution of Force Majeure or other similar institution, è recognized in almost all countries, although there are nuances or even appreciable differences between the different notions, due to the historical and cultural context of each country. ITALIAN LEGISLATION: For what pertains to Italian law, it does not provide a positive definition of force majeure, but nevertheless, it recognizes in Article 1256, 1° paragraph 1, c.c., the possibility that an obligation is extinguished when, for a cause not attributable to the debtor, performance becomes impossible. È therefore, it is left to jurisprudence to determine the criticalities and limits of the institution in question.
C.D. COUNTRIES OF COMMON LAW: The same happens in countries whose legal systems are marked by the so-called. “common law“, where generally there is no normative definition of the concept of force majeure (although there are variations of the same concept, such as, for example, in English doctrine where it is referred to as “frustration” or the U.S. concept of “impracticability” which allow the contractor to extinguish/suspend his obligation, when performance becomes impossible due to causes not attributable to himself). It follows that, in common law systems, parties who choose to invoke force majeure as an exemption from contractual liability, specifying in detail the individual cases of force majeure, have little choice but to define the concept themselves within the contracts.
In this sense, the formulation of the force majeure clause within a contractual relationship, if it is always and in any case of considerable importance, becomes vieppiù in cases where one or both parties to the relationship reside in a country characterized by such a legal system, precisely because of the fact that, in the absence of a normative regulation of the institution, it will be more complex to define liability and consequences if not previously determined by agreement.
ISLAMIC LAW COUNTRIES: The “meaning of “force majeure” appears not to be unambiguously framed (according to the canons characterizing civil law systems) even in Islamic law countries. In fact, “force majeure” - known in the Arabic language as quwwat al-qanun - is not understood as a simple and mere external, unforeseeable event, not attributable to the debtor and in any case beyond his control, but as a cause of justification due to the occurrence of an unforeseeable event, but always understood as “act of God”.
In accordance with the “casuistic” method typical of Islamic contract discipline, however, the ’external event, i.e., the ““act of God”, is identified as much in a “heavenly fact” as in a “fact of man which it is impossible to resist”. Thus, both rain that destroys a crop and makes its delivery impossible and an imperative order of the ’Authorityà are potentially identifiable as force majeure, for example.
It should also be noted that the Shari’ah extends the scope of “force majeure” not only to the “case in which it has become impossible for the debtor to fulfill its performance, but also to the situation in which it has become - due to a change in the circumstances referable to the obligations and fundamental rights of the contract - impossible for the debtor to fulfill it exactly or in part.
In fact, according to Muslim law, a contract should cease to be binding on the parties if there has been a (unforeseeable) change in the circumstances referable to the obligations and fundamental rights of the contract, such that the same has become excessively onerous for the obligated party , since a contract should always be just, fair and reasonable.
It is worth noting that excessive onerousness is to be understood - also in the light of the interpretations given by case law, particularly that of the Egyptian and Lebanese Courts (which are to be considered a guide in the world of commercial law) - that increase in the burden on a party, which he could not foresee or imagine or estimate.
The foundation of the institution of force majeure, therefore, always lies in the principle of the fair balancing of the rights and obligations of the contracting parties, and its application is an obvious example of the appeal to those principles of equity, justice and sacredness that must always characterize a contract under Muslim law.
It is necessary to point out, however, how the current Laws of many Islamic countries (i.e., those countries in the Islamic world that have allowed forms of codification and secularization) have provided, over time, for a gradual Westernization of the concept of “force majeure”, striving to delineate its boundaries more (although the legal substratum always remains the Shari’ah) and tending to give it a more restrictive meaning.
FOCUS IRAN: For example, in Iran the institution of force majeure must be considered fully existing in the legal system. The underlying event must be characterized by three well-defined profiles: inevitability; unpredictability; and extraneousness to the control of the parties. This is an interpretation entirely in line with that prevailing in most international legal systems, but differing from that of other Shari’ah-based systems. The outbreak of COVID-19, seems to fall inexorably under the qualification of an inevitable, unpredictable and uncontrollable event. It is worth noting that while the Iranian legislation makes no express reference to pandemics or epidemics as force majeure events, the Labor Law's reference to events “similar to earthquakes-floods-wars”, suggests that large-scale contagions may be recognized as pathological events in a contractual relationship.
RUSSIAN FEDERATION: The Judiciary Ordinance of the Russian Federation also outlines a generic definition of the concept of “force majeure”, by which is meant the occurrence of unforeseeable and unavoidable exceptional circumstances, such as to exempt from liability the party that fails to fulfill its contractually assumed obligation, unless otherwise stipulated by law or by the agreement of the parties.
In the defining view is also the Russian Supreme Court, which should be credited with a primary role for having contributed, through copious case law on the point, to draw up a list of exceptional circumstances in the presence of which the “force majeure” exemption can be invoked, which requires a concomitant existence of the requirements of ’exceptionalityà and unforeseeabilityà referring to the specific case.
&It is good to point out that in the Russian legal system the indications regarding the identification of events qualifying as “force majeure” by the Russian Chamber of Commerce and Industry enjoy a special legal value. In relation to contractual relations arising on Russian territory this Body has the power to clarify what are those exceptional circumstances to be considered as events of “force majeure”.
From the brief examination of Russian legislation and measures in relation to the “institute of “force majeure” it is abundantly clear that epidemiological events can also be included there.
CHINESE POPULAR REPUBLIC: Similarly, Article 153 of the "General Principles of the Civil Law of the People'Republic of China" and Article 117 of the "Contract Law of the People'Republic of China" call in force majeure in the case of unforeseeable, unavoidable events, or in cases where there are objectively insuperable causes hindering performance.
The aforementioned Chinese regulations exclude the liability of the defaulting party if determined by a force majeure cause, as provided, for example, in ’Article 107 of the " General Principles of the Civil Law of the People's Republic of China". A further provision of law, in particular see ’Article 94 of the "Contract Law of the People's Republic of China" stipulates that the parties may terminate the contract if a force majeure cause has rendered its object impossible.
With reference to the epidemic, or, more accurately, pandemic, by Coronavirus, where the parties have listed the epidemic event among the causes of force majeure, there should be no doubt about the absence of liability of the defaulting party for reasons related to the epidemic itself. Even where such an event was not però expressly mentioned as a force majeure, è it is likely that Chinese courts would consider it as such. Such an assertion follows from precedents in the same sense that have already occurred in the past. Indeed, as early as 2003, with the SARS epidemic, for example, it allowed Chinese Courts and arbitration bodies to deem this type of epidemic as a force majeure cause.
However, in some cases, that is, when the restraining measures taken by the government had not completely prevented the performance of the service, some Courts did not deem to exclude the party's liability, if only partially. Currently, the General Office of the Chinese Ministry of Commerce has decided to provide Chinese companies with force majeure certificates, issued in order to protect companies in the event of failure to meet the delivery deadline for goods due to the epidemic.
From what has been noted so far, the international legislative framework is uneven prompting, operators to directly and specifically define, hopefully in writing, the cases of force majeure and expressly establish the consequences related to their occurrence.
At the international level, only the general principle expressed in Article 7.1.7 of the UNIDROIT Principles permits, in the abstract, an alignment of the different disciplines, through the stipulation that the defaulting party è be exempt from liability if the non-performance è was due to an impediment arising from circumstances beyond its sphere of control, and which the party itself was not reasonably required to foresee at the time of the conclusion of the contract or to avoid or overcome its consequences. Similar principle è contained in the 1980 Vienna Convention (at’art. 79) on the international sale of goods.
Another aspect to be considered in the context of international contracts, è the difference subsisting between the force majeure clause and the hardship clause.
In 2003, the International Chamber of Commerce (ICC) in an effort to provide useful guidance to international traders, prepared standard texts, respectively, of clauses governing force majeure and hardship.
The force majeure clause, the so-called Force Majeure Clause, provides that the party who finds himself unable to perform the contract due to the occurrence of a cause majeure, will not è be held liable.
Diversely, the hardship clause governs cases of supervening excessive onerousness of performance. Its purpose is to allow the parties to renegotiate the terms of agreements to allow them to be adjusted to the new state of affairs. If no agreement is reached, and only then, it will be possible to request termination of the contract.
It should be further noted that, while in the case of force majeure, the text suggested by the ICC governs the consequences of an unforeseen and unforeseeable event that makes one of the performances impossible to perform, the circumstance contemplated by the hardship clause does not prevent the party suffering it from executing the contract, it simply makes its performance excessively onerous compared to the counterperformance.
In the event of the occurrence of the event, between contracting parties who have provided within the contractual relationship, the aforementioned clause, the party invoking it must notify the other party of the existence of the event by attaching proof that the event that occurred corresponds to what is provided for in the contract. As a result of such notification, the performance shall be suspended to allow for the eventual termination of the occurred event. If, the impeding condition, should persist, after a reasonable period of time has elapsed, the contract well may’be terminated.
In conclusion, in light of the reflections made, broadly addressing the issue of force majeure related to the Coronovirus, it is noted that it is necessary to make a distinction between international contracts of medium-long duration and those of very short and short duration, since, while for the former è legitimate and reasonable that the party who has become unable to fulfill requests and obtains (possibly resorting to the’Judicial Authority) a period of suspension of the contract - a period that will be reasonably longer or shorter, in proportion to the remaining duration of the underlying contract - for the latter it will be quite difficult to assume a suspension, given the narrow time frame within which the obligation must/should have been fulfilled.
In the latter cases, assuming that this is not provided for in the contractual document and/or that the parties to the relationship do not agree on the point, it becomes very difficult to think of the remedy of contract suspension, the termination/termination of the contract being the typical solution, it being understood that the party that è become in default may, by invoking force majeure or similar institution, be exonerated from liability and thus not be required to pay compensation or other form of compensation, even in equivalent, to the creditor.
A further reflection should be made on an issue that does not seem to have been adequately addressed so far: dealing with the issue of force majeure, a distinction must in fact be made between contracts entered into before the news of the existence of the virus spread, but whose performance still had to/must be fulfilled, at least partially, and contracts entered into after which, using ordinary diligence, commonly understood, the parties should have been aware of the existence of the virus and its rapid spread. Again: does the’existence of the virus in the country of one or both parties, count in sè and for sè to invoke force majeure or equivalent, and thus evade the’obligation of performance?
With regard to the first question, the case of force majeure or similar institution can, in theory, be invoked by the party who believes he is no longer able to perform. But in the hypothesis that a contract was concluded after the international dissemination of information that the Coronavirus epidemic was spreading outside the People’s Republic of China with great rapidity, certainly, in the writer’s opinion, neither party can’s invoke force majeure or kindred institutions, since the event was already known or should have been known using ordinary diligence, with the consequence that, failing then to perform, it will have to be held liable and pay damages.
And’ interesting is the further and following issue: it could happen, as in fact is materially happening, that a contracting party < located in a country where the Coronavirus has not yet manifested > has to perform contractual services to a counterparty in turn located in a country not afflicted by the epidemic, but that the first party fails to perform because it è unable to receive components or semicomponents or services from a supplier and/or sub-supplier and/or parties, necessary for the completion of the ordered product or service, because they are located in territories afflicted by the epidemic, and therefore unable to fulfill the order/order.
Let us draw conclusions that may apply in most jurisdictions worldwide:
From a purely operational point of view, the following are generally recommended:
(i) when entering into new negotiations or entering into new contracts or even in the case of split and multiple deliveries, prepare a contractual text that regulates – among other things – fully the cases of force majeure and the consequent solutions and hopefully try to get them signed; failing that, take care to transmit them to the’other party so that, on the one hand there is proof of transmission, on the other hand there is a specification regarding the fact that, the’beginning of the execution of the contract, is equivalent to tacit acceptance of the contractual document;
(ii) given the extreme delicacy of the matter, avoid using standard clauses but take care to regulate fully the cases of force majeure, and its consequences (suspension of the contract, for how many months, how to handle the resumption, payments, etc......), also and above all having well in mind the countries in which it will then have toà be invoked;
(iii) if one is not yet in an emergency situation and therefore is still theoretically able to fulfill the commitments made, warn for obvious fairness and in compliance with the oft-referred to principle of good faith, the counterpart of being in a country (Italy) afflicted by the epidemic and that one cannot’exclude a rapid deterioration of the situation or in any case the occurrence of a situation that makes it impossible to fulfill correctly and/or punctually (e.g. couriers not picking up or delivering, blockage of transportation, etc....);
(iv) collect and keep as much documentation as possible on the status of the’outbreak, the effects, etc..... (articles, reports, and so on), for future reference;
(v) on the other hand, in the case where there is a fear that the client will not accept the service because he/she fears the danger of contagion (think of the rumors spread, perhaps artfully, about the risk that agri-food products are means of contagion of the virus), acquire documents and evidence, including public evidence, attesting that the production è regular, that the goods è rigorously subjected to controls, tests, etc...... so as to be able to effectively warn the other party to accept the contracted performance;
(vi) in the event that a foreign company, debtor of a service, has invoked the’application of force majeure, in order to obtain exoneration from liability, and has adduced as evidence a certificate issued by a Chamber of Commerce, do not simply accept said document in sé and for sé but delve into whether in fact the’epidemic has affected the foreign company in a relevant way. More precisely, in sé and for sé certificates do not automatically imply the’application of force majeure and/or the’waiver of liabilityà;
(vi) where a company continues to send or retain its own employees and/or contractors and/or auxiliaries abroad, immediately adopt an accurate and detailed Travel Security protocol;
(vii) companies must update the Duvri, which è the risk assessment document.
Then, again from a purely practical point of view, it is suggested to proceed as follows, distinguishing the case in which the Italian company is the company that has to perform a service (whether it is a supply of goods or services) or is instead the company that owes the payment.
I° case * first hypothesis The Italian Enterprise is in danger of becoming in default, no longer being able to fulfill orders or perform. The advice è is to warn and, if possible, forewarn the counterparty adequately in advance, that the possibility of a stoppage of business may occur. This is out of due respect for the principle of good faith. With the alert communication, converà specify well the reasons for which è force majeure has occurred or is occurring (i.e. transport blockage, border crossing blockage, production blockage, sub-suppliers not supplying, material shortage, etc.......), so that any negligence is ruled out.
Even in the case of “simple” delay è it is advisable to give immediate notice to the other party, advising them of the fact that “due to the ’impossibility’ of maintaining your normal production levels, for facts beyond your control, the delivery time of the contracted goods cannot be met and that it will therefore be necessary to postpone the delivery”
You should then gather documents to support your claims (e.g., newspaper articles, government or local measures, correspondence with sub-suppliers or carriers, etc........). It will also be worthwhile to try to agree with business partners on shared solutions that are fair and reasonable.
Focus machinery and equipment: If the company’s production activity involves machinery and equipment, the above indications should also be extended to the’possible installation as well as to inspections and/or tests.
More precisely, in the event that the contract also provides for installation or the presence of the company’s personnel at the buyer’s premises, it’s advisable to communicate (in the event, on the other hand, that the contract is being executed) or to insert(in the event that negotiations are started or a new contract is entered into) a sentence to the following effect “it should be noted that certain countries (upon verification, add the name of the buyer’s country: “including ....”), have placed heavy restrictions on the’entry of Italian nationals into their national territory, which makes it extremely complex to be able to carry out the planned installation operations”.
* second hypothesis The Italian company receives communications from its foreign suppliers/sub-suppliers in which, invoking force majeure, they declare that they are no longer able to fulfill their contractual obligations. Converrà ask them for supporting documentation, and that indeed the difficulties represented directly affect performance. More precisely, it is not è sufficient for suppliers to invoke a general situation of difficulty; due to the spread of the virus, but they must provide precise and accurate documentary evidence. Certificates issued by the Chambers of Commerce of some countries generally do not have a decisive and definitive character, and “must be taken with due reservations”, being worth allalpiù as clues but not as full proof from a legal point of view. Therefore, the advice è that the Italian Company verify with great care the goodness and truthfulness of the foreign company's claims, and make sure that there was no underlying negligence (e.g. insufficient stock, errors in assessing the severity of the contagion, etc......) that would rule out force majeure, thus becoming the latter liable for non-performance and thus obliged to compensate the Italian Company for the damages suffered.
II° case. The Italian company, due to the emergency situation, may not be able in the immediate future to honor its commitments to the foreign company. The same recommendations given in case I°, to the first hypothesis, apply.
We and selected third parties use cookies or similar technologies for technical purposes and, with your consent, also for other purposes as specified in the cookie policy. If you close this banner with a tick or click on "Decline", only technical cookies will be used. If you want to select the cookies to be installed, click on 'Customise'. If you prefer, you can consent to the use of all cookies, including cookies other than technical cookies, by clicking on "Accept all". You can change your choice at any time.