The shortage of raw materials: is it a force majeure? How long will it last?

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There is no doubt that, for some time now, in several industrial sectors, manufacturers and importers of high-tech goods have faced a shortage of raw materials, with inevitable delays in manufacturing processes and significant impact on the delivery of the finished product. Often, the final customer won’t listen to reason because they were relying on the delivery of the goods, above all for work purposes. In sale and purchase agreements, such a delay may trigger the failure to perform clause of a contract, with predictable liability issues to follow.

In this context, it is reasonable to suppose that a temporary failure of the performance of the agreement will occur; as set out in article 1256 par. 2 of the ICC “… if the performance is temporarily impossible, the debtor is not liable for as long as the temporary impossibility lasts …”.

According to the case-law of the Courts of first instance “… the impossible performance set out by article 1256 of the Italian Civil Code cannot be identified with a mere difficulty in the performance or, alternatively, with a more expensive performance, but has to be identified with an unpredictable event which may cause the impossibility to perform the contract for reasons not attributable to the debtor …” (see Court of Milan Section VII, 21.06.20216).

The inability to fulfill must therefore be objective, occurring at the conclusion of the contract and not attributable to the debtor. As provided for by article 1218 of the ICC, the party who fails to precisely fulfill the performance has to compensate the other party for any loss suffered; in particular, it is necessary to prove “…that the failure of the performance (or its delay) has been caused by the impossibility to perform the contract for unattributable reasons …” (see article 1218 above mentioned).

Usually in such cases the event is named an unforeseeable circumstance, that is an unexpected event out of control, or force majeure, that is an event caused by nature (i.e. earthquake, flooding) or ordered by an Authority (i.e. factum principis), circumstances that prevent the debtor – and, in the abstract, may prevent anyone – to fulfill the performance. These events have to be considered absolute and objective (see paper D’Amico, La responsabilità contrattuale: attualità del pensiero di Giuseppe Osti, published in Riv. Dir. Civ., 2019, 1 e ss.).

If the raw materials represent a momentary element that, although temporary, could influence the liability of the debtor limiting his responsibility for the lack of supply, it is important to understand how long this condition could reasonably continue.

The above-mentioned article 1256, par. 2 ICC sets two rules which make it possible not to prolong such a state of uncertainty indefinitely; the temporarily impossible obligation ceases to exist when:

– Time has elapsed and, because of the type or nature of the obligation, the debtor is no longer obliged to fulfill the supply.

– The creditor no longer has interest to ask for the fulfilment of the agreement.

According to most of the legal theory, if one of the two aforementioned circumstances occurs, the obligation will terminate (see paper Di Prisco, I modi di estinzione delle obbligazioni diversi dall’adempimento, published in Tratt. Rescigno, 9, Turin, 1999, 447), it being understood that, in order to apply such a mechanism, it is necessary to balance the opposing interests of the parties. On the contrary, referring to a long-standing decision of the Italian Supreme Court, not yet over-ruled and still mentioned in serval commentaries, this kind of balancing needs to consider the interests of the creditor exclusively (see Italian Supreme Court, decision n° 794 dated 02.06.1979).

It is well understood that the burden of proof of the impossibility to perform the sale or purchase agreement – also in order to avoid any liability – rests on the debtor (see Italian Supreme Court, Section II, decision n° 6594 dated 30.04.2012).

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