The coronavirus as force majeure event in the discipline of relations between italian companies and chinese suppliers
The Chinese Government, through the China Council for the Promotion of International Trade (CCPIT), is issuing “Force Majeure Certificates” in order to protect Chinese companies from the impact of Coronavirus on their ability to fulfill their obligations towards of foreign companies.
It is therefore evident that in China the spread of Coronavirus and the consequent provisions ordered by the Authorities are interpreted as force majeure events.
The force majeure certificates issued by the CCPIT have significant evidentiary efficacy in this regard. It remains understood that they should be seen in the framework of the possible force majeure discipline contained in the contract stipulated between the Italian company and the Chinese supplier.
In any case, under Chinese law, the party invoking force majeure:
- must immediately inform the other party, in order to limit possible harmful consequences;
- must provide proof of the cause of force majeure within a reasonable time.
The rules governing the relations between italian companies and their italian and foreign customers in the presence of the coronavirus force majeure event
- The application of the force majeure discipline to the sourcing relationship between Italian companies and Chinese suppliers, with consequent exemption from liability of the latter, does not automatically imply the application of the same exemption in the relationship of the Italian company towards its Italian and foreign customers.
- To establish whether it is possible to invoke “force majeure” towards customers, it is first necessary to check the contracts in force with them, in order to assess the presence and the provisions of a possible force majeure clause.
Force majeure clauses
Most international commercial contracts contain a force majeure clause. In this regard, although the wording of this clause varies from case to case, a force majeure event is generally an event:
- beyond the reasonable control of the parties.
The main purpose of a force majeure clause is to exempt a contractual party from liability for violation or late fulfillment of the contractual obligations undertaken, if such violation or late fulfillment is attributable to the occurrence of a force majeure event.
The party in question is exempt from fulfilling contractual obligations for the entire period during which the impediment determined by the event of force majeure lasts.
The force majeure clause usually contains a provision according to which, if the force majeure event persists for a certain period indicated in the contract (for example 3 months), the contract itself can be terminated by the party not affected by the force majeure event or by either party.
In order to invoke the force majeure, depending on the wording of the clause, one party may be required to take specific actions, such as: promptly notify and keep the other party duly informed, take the actions reasonably necessary to mitigate damage, etc.
Where a written contract has not been stipulated or where the contract does not regulate force majeure, it is necessary to check the provisions of the law applicable to the national or international contract.
The rules governing relations between italian companies and their italian customers
Italian law does not specifically define the concept of force majeure. This concept is attributable to the provisions on “supervening impossibility” referred to in art. 1256 of the Italian Civil Code, which can be invoked by the Italian company towards its customers following invocation of force majeure by its Chinese supplier. Article 1256 of the Italian Civil Code provides that the obligation automatically expires if it has become impossible for a cause not attributable to the debtor (i.e. the obligor). This provision also provides that, if the impossibility is only temporary and as long as it persists, the debtor will not be considered responsible for the delay in performance.
Art. 1256 Italian Civil Code – Definitive impossibility and temporary impossibility
The obligation is extinguished when, for a cause not attributable to the debtor, the performance becomes impossible.
If the impossibility is only temporary, as long as it remains, the debtor is not responsible for the delay in performance. However, the obligation ends if the impossibility continues until, in relation to the title of the obligation or the nature of the object, the debtor can no longer be considered obliged to perform the service or the creditor no longer has an interest in achieving it.
It is also necessary to consider that the coronavirus event, in some cases, may not determine a real impossibility of the performance of the Italian company, but rather a higher cost for it (for example, for procurement from alternative suppliers).
In such cases, the event in question may not be fully framed in the concept of “supervening impossibility of performance”, but rather in that of “excessive supervening burden” pursuant to Article 1467 of the Italian Civil Code (in English “hardship”).
Based on this article, the Italian company, if its performance has become excessively burdensome, may request the termination of the contract, while the party against whom the termination is requested may propose changes to the contractual conditions suitable for rebalancing the respective obligations.
Art. 1467 of the Italian Civil Code – Contract with reciprocal obligations
In contracts with continuous or periodic execution, or with deferred execution, if the performance of one of the parties has become excessively burdensome due to the occurrence of extraordinary and unpredictable events, the party who must perform this obligation may request the termination of the contract, with the established effects from article 1458.
The termination cannot be asked if the onerous burden falls within the normal scope of the contract.
The party against whom termination is sought can avoid it by offering to amend the terms of the contract fairly.
The rules governing relations between italian companies and theirtheir foreign customers
At international level, the United Nations Convention on Contracts for the International Sale of Goods (Vienna Convention 1980) admits and regulates the event of force majeure and identifies the three main characteristics that must be present in order for an event to be considered as a force majeure event:
- the extraneousness of the event from the sphere of control of the obliged party,
- the unpredictability of the event at the time of signing the contract,
- the insurmountable nature of the impeding fact or its results.
By proving the existence of these three elements, the defaulting party is normally considered to be free of responsibility towards the other party, since he is exempted in the presence of a force majeure event.
Article 79 – Vienna Convention
(1) A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it, or its consequences.
(2) If the party’s failure is due to the failure by a third person whom he has engaged to perform the whole or a part of the contract, that party is exempt from liability only if:
(a) he is exempt under the preceding paragraph; and
(b) the person whom he has so engaged would be so exempt if the provisions of that paragraph were applied to him.
(3) The exemption provided by this article has effect for the period during which the impediment exists.
(4) The party who fails to perform must give notice to the other party of the impediment and its effect on his ability to perform. If the notice is not received by the other party within a reasonable time after the party who fails to perform knew or ought to have known of the impediment, he is liable for damages resulting from such non-receipt.
Similar provisions are contained in the UNIDROIT Principles.
The Vienna Convention has been ratified by, and applies to, a very large number of foreign states, so it is conceivable that most of the commercial relations of Italian companies with foreign customers is regulated by the Vienna Convention.
Therefore the Italian company, to which force majeure has been opposed by its Chinese supplier, may invoke similar force majeure, pursuant to art. 79 of the Vienna Convention, against its foreign customer provided that:
- the customer is based in a country which ratified the Vienna Convention;
- and the contract in force between the parties does not expressly exclude the application of the aforementioned Convention.