The inclusion of a force majeure clause in the drafting of the sales contract, in the context of the current pandemic crisis from COVID-19, allows to exclude contractual liability for any delays in the shipment of commercial products or for the delay in the installation of them.
1) DESCRIPTION OF THE CASE
Our client ALFA, is an Italian company, world leader in the plant production sector.
ALFA has been using for a long time, in its commercial activities, texts of contracts drafted by our Law Firm, including its general terms and conditions of sale.
By means of its general terms and conditions of sale, ALFA entered into many sales and installation contracts of its plants, most of all with foreign client.
Such general terms and conditions of sale are governed by the Italian law, and the sales agreements executed pursuant to the same are governed by the United Nations Convention on Contracts for the International Sale of Goods – Vienna Convention of 1980 and, with respect to matters not covered by such Convention, by the Italian law.
Covid-19 pandemic and issuance of measures aimed at containing its spread have resulted in the restriction of ALFA’s industrial and commercial activities, as well as in limitations on the posting of its employees.
ALFA was therefore unable to deliver or install the plants ordered by its clients and therefore asked our Law Firm for a legal opinion.
2) OUR CLIENT’S QUESTION
ALFA wanted to understand if, in light of the restrictions imposed by the measures adopted to limit the spread of Covid-19 and, therefore, of the impossibility of ALFA to meet its contractual commitments: a. it can be held liable for any delays in the shipment of the products or in the installation of the same; b. its customers have the right to cancel orders and, therefore, to terminate the related sales contracts in consideration of such impossibility.
3) OUR LEGAL OPINION
As mentioned above, we assisted ALFA in drafting its general terms and conditions of sale, that contain, in fact, a force majeure clause.
We have therefore provided our legal opinion on the basis of such force majeure clause, which has been drawn up by our Law Firm in order to be self-regulating and by means of which we can answer to ALFA’s questions.
The abovementioned clause states that:
- ALFA cannot be held liable for any delay in the shipment of the products or in their installation due to a force majeure event;
- customers are entitled to terminate the sales contract and, therefore, cancel the orders whose execution is delayed, only if the delay in the execution of the obligations lasts for more than six months from the agreed due date.
4) OUR RESULTS IN DETAILS AND USEFUL TIPS
We take the opportunity from the request of our client to carry out an in-depth analysis in order to provide you with some useful tips on the drafting of sales of plants contracts.
4.1) Sale of plants: the most common current problems
Among the most common requests that we received in these days of lockdown, made by our clients that produce plants and machineries, we can mention two main issues related to:
- the impossibility to proceed with the shipment of plants or components;
- the impossibility to proceed with the installation of the plants.
The clients asked us whether they can invoke the force majeure or not in the presence of the abovementioned issues and, in case of a positive answer, the consequences deriving from it.
To answer these questions, we have to start our analysis from the text of the contract entered into between the parties, asking ourselves two fundamental questions:
- is there a force majeure clause in the contract? and
- which is the law applicable to the contract?
4.2) CASE A: the contract provides for a force majeure clause
If the contract contains the force majeure clause, the above questions can be answered by means of this clause.
And this is what we did in the legal opinion to ALFA which is based on the force majeure clause provided for in the general terms and conditions governing the sales of its plants.
In this case, ALFA was concerned to know whether, due to the measures issued by the Authorities to contain the spread of Covid-19 and the consequent interruption of its activity, it was liable for the delay in the shipment of the plant caused by the aforementioned interruption or in the installation of the same caused by the impossibility to transfer its employees to the site.
In this regard, the force majeure clause drafted by our Law Firm for this client provides that none of the parties can be considered liable or responsible in any manner whatsoever to the other party for the failure or delay in performing or fulfilling any of its obligations when such delay is due to the occurrence of an unforeseeable events, such as acts of public authority, or events against which it is not reasonably possible to find a remedy. The clause also states that, in such cases, the time for fulfillment of the obligation of the party affected by the force majeure event remains suspended for the entire duration of the event, without prejudice to the duty of such party to promptly notify the event to the other party.
Finally, the clause specifies that, if the force majeure event lasts for more than six months, the party not affected by the force majeure event shall have the right to terminate the contract.
The force majeure clause in ALFA’s general terms and conditions of sale provides the possibility, upon notification to the client, to invoke the force majeure. Therefore, ALFA notified the event, so that, on the one hand, the fulfillment of the obligation has been legitimately suspended and, on the other, the ongoing terms for the relative fulfillment have been moved forward and they will begin to run again right after the end of the force majeure event. As a consequence, ALFA will be exempt from liability for delay in delivery or installation compared to the terms initially agreed.
Indeed, we must also point out that, if the contract had provided for liquidated damages for delayed delivery or installation, the clause would have exempted ALFA from the payment of such liquidated damages too.
In conclusion, the task of the force majeure clause is to make the relationship between the parties self-regulating (i.e. the clause must be able to provide viable solutions in casse of a force majeure event) if unforeseeable or insurmountable events occur, as well as to spread beforehand between the parties the risks connected with the occurrence of such events, in order to give continuity to the contractual relationships and avoid disputes with high costs and, more often than not, with uncertain outcomes.
4.3) CASE B: the contract does not provides for a force majeure clause
Otherwise, if the contract does not provide for a force majeure clause or the same is not well-drafted in order to be self-regulating, it will be necessary to make reference to the applicable law in order to fill these gaps.
For example, in the case of a national sale, the Italian legislation will apply and, therefore, the provisions of the civil code related to the definitive or temporary impossibility of performance (art. 1256 c.c.), the total impossibility (art. 1463 c.c.), the partial impossibility (art. 1464 c.c.) or to the hardship (art. 1467 c.c.).
In the event of international sale, the Vienna Convention of 1980 will apply, unless expressly excluded by the parties. In particular, this Convention set forth the regulation of the force majeure in Article 79, which states that a party is not liable for a failure to perform any of its obligations if it proves that such failure is due to the occurrence of an event that:
- is beyond the control of this part and, therefore, independent of his will;
- is reasonably unpredictable at the time of the conclusion of the contract;
- prevents the fulfillment of the obligations of the contract.
Moreover, further to the identification of the law applicable to the contract, it is important to consider and evaluate the consequences deriving from the occurrence of force majeure events, since each State outlines regulations whose principles might be very different from those set forth in our national law.
In conclusion, when dealing with high value contracts, such as the sale of plants, it is strongly advisable to use contractual instruments that provide for an exhaustive regulation of the relationship between the parties in order to set beforehand any outcome that may occur during the contractual relationship, including a force majeure event.
Bacciardi and Partners Law Firm remains at your disposal to jointly evaluate and manage any case of force majeure, and, before that, to help you in drafting the most suitable contract to meet your needs within national and international commercial relationships.