Commercial aspects of Italian law

Vincenzo Sinisi As with most other Western European countries, Italy has a civil law system. The basic rules governing contractual relationships are embodied in the Italian Civil Code which was enacted in 1942. Although these laws have not been substantially modified by the legislature during the past 50 years, Italian courts have been flexible in die interpretation of the Code’s provisions. Generally, the application of Italian Civil Code and the implementation of new legislation have reflected the changing needs of Italian society.

This discussion will focus primarily on “domestic law,” meaning the law contained in the Italian Civil Code. However, a lawyer drafting any contract which will be executed by Italian residents or in Italy should be aware that there are various international conventions which may be applicable. The most important conventions are:

The Treaty of Rome. This treaty was the founding document of the European Economic Community. Specifically, Italian contracts may be subject to the antitrust provisions contained in Articles 85 and 86, as well as pertinent regulations as they are interpreted and applied by current case law.

The United Nations Convention on Contracts for the International Sales of Goods. Effective in Italy since Jan. 1, 1988, this convention governs contract formation, obligations, risk allocation, and remedies. It applies to contracts for the sale of goods between parties whose places of business are in different countries.

Jurisdiction

The provisions regulating the choice of law, as well as other rules regarding private international law issues, are set forth in the “Preliminary Provisions to the Civil Code” (Disposizioni preliminari al codice civile). Article 25 of the Preliminary Provisions sets forth three criteria to determine the law governing a contractual relationship: nationality, place of formation, and agreement of the parties.

The first criterion is used for contracts executed by parties sharing the same nationality. In this case, the law governing the contract is that of the country of shared nationality. The second criterion refers to the place of formation of the contract and is used when a contract is entered into by parties of differing nationalities. Both of these criteria may be superseded by an agreement between the parties as to the governing law. However, there should be a logical connection between their choice of law and the transaction, especially with parties sharing the same nationality.

The parties to a contract may, indirectly, determine the law which will govern the formation of a contract. Article 26 of the Preliminary Provisions states that the formation of an instrument, whether or not contractual, is governed by the law of the place where the instrument is formed or, alternatively, by the law that governs the substance of the instrument. Thus, the parties may apply their choice of law with respect to the substance of the agreement to determine the validity of the formation of the contract.

Law No. 613 of Oct. 14, 1985, implementing the EC Convention of June 19, 1980 on the Applicable Law for Contractual Obligations, reiterates that parties have the liberty to choose the applicable law for their contractual obligations. The main exception to this right is that the parties cannot avoid the mandatory provisions of Italian law by selecting the laws of a country which has no minimum contacts with the parties or the dispute. In such an event, the laws of the designated country which lacks such minimum contacts would prevail only to the extent that such laws did not conflict with the mandatory provisions of Italian law. The above exception would not apply where the designated state had sufficient minimum contacts.

The contracting parties are limited in their choice of law by Italian legal principles governing the protection of public welfare. An Italian court would not enforce a provision of foreign law or a contractual provision, even if valid under the law chosen by the parties, if its enforcement would violate a fundamental principle of Italian public policy.

Choice of Forum

The Italian Code of Civil Procedure does not provide parties with as much flexibility with respect to the choice of forum. The parties to a contract may avoid the jurisdiction of the Italian courts and submit a contractual dispute to a court of the jurisdiction of their choice only if the parties are non-Italians or, in the event one of the parties is Italian, if this party is neither a resident of, nor domiciled in Italy (Article 2 of the Italian Code of Civil Procedure). The scope of this rather strict regulation is limited by the provisions of the Brussels Convention on Jurisdiction and the Enforcement of Judgments, Sept. 27, 1968, as amended, which is in force in all EC countries. According to Article 17 of die Convention, parties to a transaction may choose another signatory country (i.e., another EC country), as the competent forum, provided that at least one of the parties is domiciled in a signatory country and that the agreement does not conflict with the Convention’s jurisdiction provisions. These provisions state that the exclusive forum for disputes regarding real property, status of a corporate entity, public records, trademark, copyright and patent, and enforcement of judgments is the place where the matter in controversy is located.

Contract Principles

One of the basic principles of Italian contract law is that of leaving the parties free to govern their economic relationship. The Civil Code contains provisions governing general contract principles and also provides for specific types of agreements including sales contracts, agency agreements, lease contracts, loan agreements, and insurance agreements. The Code contains standard terms which facilitate drafting and performance. However, most rules may be modified by agreement between the parties.

Italian contract law also dictates certain requirements designed to protect a party in a weaker bargaining position or with less experience. For example, standard contracts prepared by one party which modify certain provisions of the Civil Code must provide for separate written approval of the modifications by the other party. These provisions include modifications on limitations of responsibility, the right to terminate or suspend the agreement, limitations on the right to raise objections, restrictions on relationships with third parties, automatic renewal or extension of the contract, arbitration clauses, and choice of forum.

Another protection which has recently been introduced in Italy is that of the “cooling off” period, which permits a customer who has signed a door-to-door salesman’s contract to cancel the contract within a certain period of time after its execution. Furthermore, any such contract must contain a warning that cancellation is permitted in this period. In the event the contract does not contain such a warning, the customer has the right to cancel the contract even after this time limit.

The rules governing the valid formation of a contract not executed simultaneously by the parties are set forth in the Italian Civil Code. An offer is deemed accepted when the offeror has received an acceptance at the place and in the manner indicated. This is normally at the offeror’s place of business or domicile, but the offeror may request specific formalities for a valid acceptance. An important point to note is that an acceptance which has terms even slightly different from the terms of the offer is considered a counter offer. Additionally, a contract is concluded when the offeror has received the acceptance, not, as in the United States, when the acceptance is sent. This point is particularly important with respect to international contracts, because, as noted above, the law governing a contract is, in the absence of an agreement to the contrary, the law of the place where the contract was concluded.

In theory, parties to a contract are free to determine the form of their agreement. In practice, however, this liberty is limited. Initially, the Civil Code requires that certain contracts be in writing, including contracts relating to the creation or transfer of rights to real property, long-term leases, and certain corporate documents. Furthermore, of those contracts not required to be in writing, the existence of only those with a value of less than 5,000 lire (approximately $4.35 at an exchange rate of 1,150 lire to one dollar) may be proven by oral testimony. Certain exceptions do exist. An exception is granted, for example, if the party asserting the existence of a contract produces some written documentation, originating from the other party, which evidences that a written agreement was entered into between the parties. In any event, upon consideration of the circumstances of the case, courts have discretion to permit oral testimony relating to the existence and contents of a contract.

Agency Agreements

Commercial agents have long enjoyed a protected status under Italian legislation. They may operate as self-employed persons carrying on their own business independently or on behalf of a principal. In either case, an agent has certain guarantees in the event of termination. Throughout the duration of an agency contract, a principal must make a contribution to an agent’s insurance fund (ENASARCO) in order to provide sickness, termination, and pension benefits.

Upon termination, the agent is entitled to compensation for the termination itself and for the clientele already provided to the principal. The termination payment comes from the ENASARCO fund and the compensation for clientele is based on the annual value of clientele serviced by the agent. This method has the virtue of providing certainty in calculating the compensation due. However, the situation has recently been complicated by the implementation of a new EC Commercial Agents Directive. The Legislative Decree that introduces the Directive (Italian Law No. 303 of 1991) adopts the option of compensation but without stipulating a clear formula. It also does not preclude further claims for damages arising out of termination. It may be that the practical result will be similar but there will be some confusion during the first months of application of the new law, which will come into effect on Jan. 1, 1993.

Distribution Agreements

Contracts which govern the relationship between manufacturers and distributors or wholesalers are not regulated by any special rules of law. Therefore, they are subject to the ordinary provision of the Italian Civil Code relating to contracts. Most distribution agreements operate by repeated sales of stock to the distributor, who may or may not be bound by a designated territory, exclusivity, competition, or confidentiality. They may operate by way of agency sale, but this is uncommon since it would not be favorable for a manufacturer to risk creating an agency relationship. There will be no compensation upon expiration of the contract unless otherwise stipulated, but there will be damages in the event of breach by either party.

The major limitation on distribution agreements, as well as franchising operations, is that they must not offend the rules against unfair competition. As anywhere else within the European Community, distributors in Italy must respect the principles of Articles 85 and 86 of the Treaty of Rome. They must also comply with the parallel rules of Italy’s own antitrust legislation.

The extent to which Italy’s antitrust legislation will be applied remains unclear. Although Italian law contains the EC prohibitions against competition restrictions, the EC block exemptions do not exist in Italy. Block exemptions permit conduct that would otherwise violate competition rules and are an essential part of the EC structure of distribution and franchising agreements. The pronouncements of Italy’s Competition Authority on this subject have not clarified the situation. It is probable that the Authority does not want to concern itself with agreements which comply with conditions equivalent to those of the EC block exemptions. On the other hand, any such unreported agreement could be rendered invalid if the Authority were to investigate. Though it would be prudent to report automatically all but the most minor agreements, very few enterprises actually do so.