Jurisdiction in Proceedings for Provisional Measures under EU Regulation 1215/2012
LCA has acted in a number of recent cases concerning provisional measures, in which the Italian courts have declined jurisdiction under EU Regulation 1215/2012. There seems to be a common path in these decisions: the principle of mutual trust embodied in the EU legislation on the European judicial space, together with other considerations, leads Italian judges to block forum shopping tactics. These cases will be described below.
Actions brought by Italian contractors against a Polish governmental entity
Facts
Certain Italian contractors won several tenders for the construction of highways in Poland. The contractors delivered performance bonds and advance payment bonds to the employer, the General Directorate for National Roads and Highways of Poland. All such bonds were demand guarantees within the meaning of ICC Uniform Rules for Demand Guarantees.
As is customary, the guarantors were banks or insurance companies based in Poland, while the counter-guarantors were Italian entities. The main contracts, the guarantees and (almost all) the counter-guarantees were governed by Polish law and were subject to the Polish jurisdiction. However, the contractual relationship between the counter-guarantor and the contractor was governed by Italian law and all disputes were to be decided by Italian Courts.
In 2019, disputes ensued between the contractors and the employer, and this latter called the guarantees. The contractors, therefore, commenced precautionary injunction proceedings before the Italian Courts, seeking orders restricting the guarantors from making any payment and calling the counter-guarantees,and also restricting the counter-guarantors from making any payments and taking actions against the applicants.
Applicable law on jurisdiction
Under EU Regulation 1215/2012, persons domiciled in a member state shall be sued in the courts of that member state and may be sued in another state only under certain provisions of the same Regulation. In the case at hand, relevant provisions were:
- Article 25, providing that if the parties have agreed that the courts of a member state are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, those courts shall have jurisdiction, moreover, such jurisdiction shall be exclusive unless the parties have agreed otherwise; and
- Article 8 (1), providing that a person may also be sued, if they are one of a number of defendants, in the courts for the place where anyone of them is domiciled, provided the claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings.
The contractors contended that, despite the choice of jurisdiction in the contract agreements and in the guarantees, the Polish entities were subject to the jurisdiction of the Italian Courts under Article 8 (1) of the Regulation. The Polish employer, represented by LCA,argued for the lack of jurisdiction of the Italian Courts.
Four different decisions, one issued by the Court of Turin and three issued by the Court of Rome (one of which on appeal), held that Article 8 (1) could not be applied and ruled that the Italian Courts had no jurisdiction in the claims arisen from the agreements which provided for the Polish jurisdiction. The latest decision of the Rome Court, rendered in the appeal proceedings, held that also the claim arising from the legal relationship between the applicant and the counter-guarantor, though contractually subject to the Italian jurisdiction, had to be decided by the Polish Courts, based on the principle that the main relationship attracts the incidental one.
Reasoning
The Italian Courts based their reasoning on the principles inspiring the Regulation:
- the rules on jurisdiction should be highly predictable and based on the principle that jurisdiction is generally linked to the defendant’s domicile – jurisdiction should always be available on this ground save in a few well-defined situations in which the subject-matter of the dispute or the autonomy of the parties contemplate a different connecting factor (“whereas” No 15 of the Regulation);
- the autonomy of the parties to a contract, except in a few matters where only limited autonomy to determine the courts having jurisdiction is allowed, should be respected subject to the exclusive grounds of jurisdiction laid down in the Regulation (“whereas” No 19 of the Regulation); and
- there should be alternative grounds of jurisdiction based on a close connection between the court and the action or to facilitate the sound administration of justice – the existence of a close connection should ensure legal certainty and avoid the possibility of the defendant being sued in a court of a member state which they could not reasonably have foreseen (“whereas” No 16 of the Regulation).
These principles imply the need to give preference to the choice of jurisdiction made by the parties, the inadmissibility of derogations except when a conflicting choice is made by the same parties, the exclusion of an interpretation of “reasons of opportunity” that may ground the connection required by Article 8 (1) of the Regulation that could frustrate the choice made by the parties.
In the cases at stake, the intervention as guarantor of an entity established in the member state of the performance of the contract and the lack of any direct relationship of the guarantor with the contractor is aimed at ensuring the closest connection between the main guarantee and the Polish jurisdiction and to separate its fate from the relationship concerning the application for the issue of the guarantee and the counter-guarantee, existing between the contractor and the counter-guarantor. Therefore, the employer is completely unconnected with the conventional choice of jurisdiction’s provisions operating between the guarantor and the counter-guarantor and between the counter-guarantor and the contractor.
The choice of the contractor and the counter-guarantor to identify as competent court a court other than the one entrusted with jurisdiction on the main relationship denotes, according to these decisions, the conscious undertaking of the risk of submitting such relationships to different jurisdictions and of obtaining different decisions on whether or not the enforcement of the guarantees was lawfully made by the beneficiary.
In conclusion, the precautionary proceedings seeking for an injunction to stop the enforcement and payment of the main guarantees refer to a relationship for which the Italian Courts lack jurisdiction. This could potentially lead to a different assessment of the Courts involved on the proper call of the guarantees by the employer, but this is not sufficient to satisfy the close connection required by Article 8 (1) of the Regulation to derogate from the forum agreed by the parties.
Case brought by an Italian distributor against a German principal
In a 2020 case, an Italian distributor of chemical products instituted an action before the Court of Milan, alleging that its German principal was acting in breach of the exclusivity clause, and seeking a provisional order restraining the unlawful conduct of the defendant. In the distribution agreement the parties had chosen Frankfurt as the exclusive forum for dispute resolution, so the claimant stated that the subsequent action on the merits would be brought before said Court.
In light of the forum choice clause, the defendant, represented by LCA, contended that the Milan Court had no jurisdiction under Section 35 of Regulation 1215/2012.
In the first instance, the motion was held without merit and rejected, but the Tribunal disregarded the German company’s defence on jurisdiction. The Italian company appealed the decision, and the defendant restated its objection to the jurisdiction of the Italian Court. The Panel entrusted with the appeal upheld the objection and declined jurisdiction on the case.
The reasoning is quite instructive. The Court took into consideration “whereas” 33 and Article 35 of Regulation 1215/2012 and concluded that the so-called “exorbitant jurisdiction” could not apply in the case. The order requested was a prohibitory injunction, ie, an order “not to sell” the exclusive products; as such, the order can only be enforced in Germany, where the decision to sell is taken. Also, in the view of the Court, only the German Judge would be able to enforce such an order.
Comment
Traditionally, Italian Courts almost always held they had jurisdiction for provisional measures when the jurisdiction on the merits was of a foreign Court. Over time, this position has changed and weakened, and the decisions under comment seem to be a significant step forward in this kind of proceedings. It is expected that the Italian Courts will continue this process, and that other judges of the European judicial will follow the same path. As a matter of fact, the mutual trust principle is a call for their action (and, of course, for the action of the European lawyers).
COVID-19 and Potential Medical Malpractice Litigation
The unexpected spread of COVID-19 pandemic all over the world risks to seriously increase the number of medical malpractice claims before the Italian Courts, once the health emergency will finally come to an end.
Medical professionals, health care facilities, care homes, local public authorities and the government have been facing the state of emergency at their best, still they may have to defend themselves – once the storm is over – in relation to the many losses that the pandemic has caused. Though the emergency may have been unpredictable, most of the operators have had to face it with a general lack of structures, organisation and devices, due not only to the lack of financing by both central and local government authorities that in the past years has struck the public health sector, but also by disorganisation and delays in supplying all the instruments and devices necessary to protect patients and operators.
The expectation, therefore, is the uprising of medical malpractice claims by those who have lost a relative, seeking compensation. The expectation shall turn into certainty, by considering that during the lockdown in Italy, some lawyers started to gather families willing to file their claims against health facilities and professionals. Such an attempt was discouraged by the immediate disapproval of public community and most of all by the official stance of the Italian Bar Association, which censured the initiative threatening disciplinary sanctions. The legal actions were only delayed.
Anticipated claims
The claims are mostly expected to be addressed against health facilities and professionals, which are – according to the so-called Law Gelli-Bianco (the most recent law on medical liability in Italy) – jointly liable for medical malpractice towards the patients, or their relatives in case of decease, though respective liabilities are different: health facilities may be liable for contractual liability, whereas medical professionals for tort. The different type of liability affects the possible outcome of the legal action: the liability of medical professionals descends also from violation of guidelines, which have not been drafted yet, since COVID-19 is only a recent and still mostly unknown disease. It would be therefore unlikely to figure out misconduct of medical professionals, who have had to deal with such an aggressive and new epidemic, without any guidelines and/or experience rules gathered in the previous years.
However, the liability of the health facility lays inter alia on organisational faults, and it would not be hard to suppose that health facilities could have dealt with the emergency more effectively, by acquiring the necessary instruments, separating from the beginning the areas appropriate for COVID-19 patients or suspected to be such from those destined to all other patients, supplying all necessary personal protective equipment to medical staff, and those are only examples of what could have been made. Significant, in this respect, is the experience of care homes, where the epidemic spread at large and apparently without any controls, probably also due to the decision – by many of those structures – without taking the necessary precautions and, in many cases, without properly separating the COVID-19 patients from all the others. And indeed, home cares are expected to be the main subjects of COVID-19 related claims. Moreover, further claims may be commenced by patients who were not affected by COVID-19 and who have not received proper cares due to the pandemic.
Should the above considerations be correct, the subjects hit most by the incoming claims shall be the health facilities, which might soon have to deal with a large number of claims for damage compensation of significant amounts. In such a scenario, health facilities might also risk not to receive adequate insurance coverage for all the claims by the companies which have granted the coverage for malpractice related risks. Indeed, the insurance companies may claim for the termination of the insurance agreement, due to the risk aggravation, should the health facilities have failed to immediately communicate such circumstance to the insurance company.
Under Article 1898 of the Italian Civil Code, the insured has to inform the insurance company of any circumstances which may worsen the ensured risk, when – given such circumstances – the latest would have not entered into the insurance agreement or would have decided for a different, and higher, insurance premium. Any health facilities which failed to inform their insurance company – as it is likely to be, given the circumstances under which the same have had to operate – may now be refused insurance coverage in respect to all the claims they may be subject to.
The scenario described above, as disruptive as it appears, may take place once the pandemic will cease, as for the moment a further increase of COVID-19 cases is spreading all over Italy.
Contracts in the COVID-19 Era: Force Majeure and Duty of Renegotiation
Force majeure under Italian law
Can the emergency measures adopted by the Government, which directly or indirectly prevent one of the parties from fulfilling its contractual obligations, be considered a force majeure event? This question has been widely discussed all over the world. In Italy, the answer is peculiar, as there is no specific provision in the law about force majeure, but nevertheless it became part of our legal system.
What happens, therefore, when the force majeure event, ie, the pandemic crisis, turns into a set of measures adopted by the governmental authorities, the so-called “factum principis” (ie, the Prince’s decision, now the Government’s decision)?
To be considered a force majeure event the factum principis must be:
- unpredictable, meaning that, at the time of conclusion of the agreement, the parties were unable to foresee the occurrence of such an exceptional event;
- unavoidable, meaning that failure by the party to perform its obligation cannot be overcome by exercising ordinary care and diligence; and
- “non-imputable”, meaning that the measure adopted by the authority must not result from the defaulting party’s unlawful conduct.
What is the impact, then, of a force majeure event? The answer depends on whether the agreement includes a force majeure clause. If such a clause is included, as it typically is in international contracts, no question: the clause shall apply. As to the contracts that provide no force majeure clauses, most of the times one shall have to look at the provisions of the Civil Code regarding the so-called “supervening impossibility” (frustration) and “supervening excessive onerousness”.
The impossibility can be absolute, causing the automatic extinction of the obligation and the termination of the agreement, or temporary. In case of temporary impossibility, instead, if the fulfilling party is not interested anymore in obtaining the performance of the obligation of the other party, or the non-fulfilling party cannot be held obligated to fulfil its obligation anymore, the temporary impossibility will be considered equal to the absolute impossibility and will lead to the termination of the contract. In the other cases, instead, the temporary impossibility will cause a mere suspension of the performance of the obligation, and the non-fulfilling party will not be held liable for the delay.
A different situation occurs when performance becomes excessively burdensome, eg, when fulfilment would require a very high increase in the expenses necessary to discharge a party’s obligations. In this case, the party suffering the contingency, and whose performance has become excessively burdensome, will be entitled to terminate the contract. The other party, conversely, may avoid the termination by offering to modify the terms of the contract fairly. Such rights are enforceable. However, except in very specific circumstances, the party whose obligation became excessively burdensome can ask the other party to renegotiate, but does not have an enforceable right; in practical terms, it cannot request a Court to modify the terms of the contract. At least, this is the traditional position, which has come more and more into question in this extraordinary year.
The duty of renegotiation
Even though the Italian legal system lacks a rule establishing a general obligation to renegotiate a contract in the face of unforeseeable circumstances that have significantly altered the contractual balance, one might argue that such an obligation can be inferred by the principle of good faith.
The issue is of the utmost importance in the current times. Some commentators argue that good faith, as the primary source of integration of the contractual relationship, creates collateral obligations of protection, which may result in an enforceable obligation to renegotiate. Under this perspective, good faith entails an obligation of solidarity, that requires each party to behave in a way that, regardless of specific contractual obligations, effectively protects also the interests of the other party, in such a manner as to ensure that the contractual duties are in line with the factual situation that has evolved over time.
Ultimately, the obligation to renegotiate involves the duty, when necessary under the circumstances, to accept the proposed contract amendments or to propose solutions that, under the framework of the agreement and considering the parties’ interests, allow to rebalance the contractual relationship.
Unexpected occurrences
Unexpected occurrences and risk of imbalance have long been felt also in International and EU stages. The Unidroit Principles expressly provide that the occurrence of circumstances involving a substantial alteration in the balance of the agreement (hardship) gives rise to the right for the disadvantaged party to ask the renegotiation of the clauses, to adapt them to the new circumstances and restore the initial balance. In the same way, also the Principles of European Contract Law, in addition to the obligation of the parties to renegotiate the unbalanced agreement, expressly provide for the power of the judge to order compensation for damages against the party who refuses to renegotiate or behaves in a manner contrary to good faith and fairness.
Obligations and agreements
If the obligation to renegotiate is accepted as a tangible expression of the general obligation to behave in a fair manner in the performance of the agreement, it should be concluded that the breach of such obligation allows the non-breaching party to act for the termination of the agreement against the defaulting party and to seek damages. Besides, there is a further possibility: if the Judge is satisfied that the relevant conditions occur, they may intervene on the agreement, modifying the contractual arrangements to rebalance them.
After all, there are rules in the Civil Code which allow the Courts to change the terms of an agreement which is or became unbalanced, such as for rentals and for “manifestly excessive” liquidated damages. If one acknowledges that these provisions are not exceptional, but rather derive from principles inherent in the law, their expansion would be inevitable. Case law has already evolved in this respect, pointing to a duty of solidarity referred to in Article 2 of the Italian Constitution, in synergy with the general standard of objective good faith and fairness (Articles 1175, 1337, 1359, 1366, 1375 of the Italian Civil Code).
In 2009, a landmark decision of the Supreme Court held that “the principles of fairness and good faith in the performance and interpretation of agreements, referred to in Articles 1175, 1366 and 1375 of the Italian Civil Code, are relevant both in the identification of contractual obligations and in the balancing of opposing interests of the parties. Firstly, they require the parties to fulfil obligations even not expressly provided for in the agreement or the law […]; secondly, they allow the judge to intervene also amending or adding contents to the agreement if this is necessary to ensure a fair balance of the interests of the parties”.
The pandemic will cause waves of litigations and the renegotiation of agreements will inevitably be involved in many of them. An inclination of the Courts to construe and enforce a duty of renegotiation could change the tables.