Italy And COVID-19 – Practical And Legal Guidance On Key Business Issues

As has been widely reported, after the initial outbreak of the Coronavirus Disease 2019 ("CoViD-19") in China at the end of December 2019, the virus has progressively reached Europe and other continents, with Italy currently being hit the hardest.

Pressed by the increasing public health threat posed by the outbreak, the Italian Government and local authorities have adopted a series of urgent measures, principally intended to contain the contagion.

The effects of the epidemic are expected to affect (and, to a large extent, are already affecting) the conduct of all activities, including the administration of justice, the exercise of individual freedoms, the performance of existing contracts, and the continuation of business operations.

This memorandum1 is intended to provide an initial overview from the Italian legal perspective of the questions that are most likely to arise in the current challenging scenario.

1. The Italian Government measures

   Since February 22, 2020, the Italian Government has adopted various urgent decrees which have introduced progressively tighter measures to contain the spread of CoViD-19.

   The most recent measures apply severe restrictions to the entire national territory until April 3, 2020.2

   These Government measures and, more generally, the current CoViD-19 epidemic, create a number of legal and practical questions for businesses operating in or with Italy. In the following paragraphs we will outline some of them and provide some initial thoughts on how to address them.

2. Impact of the outbreak on existing contracts

   The consequences of the CoViD-19 outbreak may affect the ability or the willingness of one of the parties to a contract to perform its obligations thereunder.

   Litigation is likely to arise in these circumstances and it is essential to understand whether applicable law or the relevant contractual provisions may, depending on one's position under the contract, afford protections if one is unable to fulfill its obligations, or on the other hand enable one to continue demanding full performance of the contract.

   In order to be prepared to face the challenges that the current circumstances present, companies should consider reviewing (at least) their crucial supply and customer contracts to identify possible weaknesses or exit routes and devise an appropriate strategy.

   Certain key aspects to be considered are outlined below.

   1. Force majeure / factum principis and other relevant principles of Italian contract law.

      There may be a number of grounds under Italian law that may be invoked to avoid or delay performance and/or excuse non-performance as a result of the CoViD-19 outbreak, including: (i) impossibility and/or force majeure / factum principis, which releases the debtor from fulfilling its obligation (Article 1256, paragraph 1) or, when it is temporary, excuses the debtor for late performance (Article 1256, paragraph 2); (ii) termination of the agreement for supervening impossibility (Article 1463); (iii) right to obtain a revision of the obligations or to withdraw from the agreement for partial impossibility (Article 1464); and (iv) termination of the agreement for supervening hardship (Article 1467, paragraph 1). In this last case, the counterparty can avoid termination by offering to renegotiate the contract on fairer terms (Article 1467, paragraph 3).

      Thus, it may be advisable for companies to review their key agreements (in terms of value, duration, strategic impact, etc.) to determine whether (i) the company (or its counterparty) may have an interest in seeking to renegotiate or set aside that agreement as a result of the CoViD-19 outbreak and (ii) if so, what legal grounds may be available to it (or its counterparty).

      Thereafter, a company may consider (i) contacting its counterparty with a view to identifying a potential consensual solution (e.g., negotiate a standstill or a postponement of the performance) or (ii) alternatively, take the necessary steps to anticipate possible actions that it or its opposing party may take, such as seeking a declaratory judgement that a force majeure or similar event has (or, depending on one's posture, has not) occurred.

   2. "Material adverse change" clauses in...