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The Italian maritime and energy industries and COVID-196 March 2020

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INTRODUCTION

The recent outbreak of COVID-19, better known as coronavirus, has led to a public health emergency of international concern and is already having a large impact on the global economy. Indeed, to fight the coronavirus, the Italian Government, on 23 February 2020, enacted law decree no. 6, which entered into force on the same day and which Parliament will convert into law within 60 days of said date.

"Among the several provisions of the decree, the Italian Government has decided to limit/stop the transport by air, rail and sea carriage of passengers and goods."

Among the several provisions of the above decree, which are specifically addressed to the regions directly affected by the coronavirus, the Italian Government has decided to limit/stop the transport by air, rail and sea carriage of passengers and goods.

Shipping and energy are among the main sectors to have been hit by the coronavirus. However, it is affecting the employment sector as well, temporarily changing the general rules of the relationships between companies and employees.

SHIPPING MATTERS

As far as the shipping sector is concerned, there are currently several vessels waiting outside Chinese ports to be berthed. This is because said Chinese ports are operating on a reduced capacity, as quarantine has been imposed on numerous port operators.

This means considerable quantities of cargo must remain onboard vessels much longer than expected. Indeed, while this can expose ships to possible navigation risks, it also means the cargo onboard might reach its final destination not in good order and condition, leading the way to possible cargo claims.

From a legal standpoint, coronavirus can be “fought” by invoking force majeure. Such a course of action has already been taken by several companies in China, which have also benefitted from “force majeure certificates” issued by the China Council for the Promotion of International Trade. Provided that they are able to demonstrate the occurrence of a force majeure event, such certificates should grant their beneficiaries exemption from liabilities arising from contractual non-performance before Chinese courts at least.

Under Italian law, even local companies which are directly affected by the outbreak of the coronavirus can invoke force majeure. However, it should be noted that, although Italian law does not provide a force majeure definition, an event can be considered force majeure if it cannot be predicted and/or avoided.

In this respect, notice should be taken of article 1256 (first paragraph) of the Italian Civil Code, which provides, inter alia, that an obligation is considered extinguished when, due to a cause which cannot be attributed to a debtor, it is impossible for him to fulfil his obligation. Furthermore, the second paragraph of the article states that, should it be temporarily impossible for the debtor to fulfil the obligation – so long as such impossibility lasts for a certain period of time – they cannot be deemed liable for non-performance of their obligation. Moreover, this obligation is considered to be extinguished when, due to its title or nature, the debtor cannot be deemed to be obliged to fulfil the obligation and the creditor is no longer interested in it. Consequently, such provisions exclude the debtor’s liability in case force majeure events occur. A further element which can exclude a debtor’s liability is the so-called “factum principis”, which can be compared to force majeure. Indeed, when an order issued by an Italian authority does not allow a contractual party to fulfil its obligation, said party cannot be deemed liable for contractual non-performance.

Furthermore, in relation to “contratti a prestazioni corrispettive” – i.e. contracts which provide consideration – articles 1463 and 1464 of the Italian Civil Code provide respectively for (i) total supervened impossibility, in which case the party exonerated from fulfilling the obligation is not entitled to demand counterparty’s obligation and must also return to the latter anything received thereupon, and (ii) partial supervened impossibility, in which case the non-breaching party is entitled to a corresponding reduction of the counterparty’s performance and, should he have no particular interest in partial fulfillment, can terminate the contract.

When an order issued by an Italian authority does not allow a contractual party to fulfil its obligation, said party cannot be deemed liable for contractual non-performance.

An additional scenario is contemplated in Article 1467 of the Italian Civil Code, under which it could potentially be invoked by a non-performing party. Said provision states that, when extraordinary events cause the performance of the contract to become too onerous, the non-performing party might be entitled to terminate the contract.

The above provisions can be taken into account in relation to (a) shipbuilding contracts when it is impossible for the shipyard to build the ship to schedule and/or specification and (b) loan agreements when it becomes impossible for a shipping company to repay a loan due to a material adverse change as the coronavirus might arguably be.

Coronavirus has hit the cruise industry as well. In fact, some ports around the world have prohibited the berthing of cruise-ships whose passengers have been or might be suffering from the virus.  As a consequence, due to the high risk of spreading the virus in a restricted environment as a cruise-ship can be, cruise lines have decided to implement safety procedures in order to protect their passengers onboard.  As such, they are currently prohibiting the boarding of (i) passengers who – 30 days prior to boarding – visited countries affected by the coronavirus and (ii) passengers who have a corporal temperature of 38 Celsius degrees or more.

ENERGY MATTERS

The energy sector has also been hit by the coronavirus outbreak. For example, Bloomberg reports that Chinese oil demand has dropped by approximately 3m barrels a day, 20% of global consumption. Coronavirus has also had an impact on natural gas, with prices falling nearly 15%, and Chinese battery storage production capacity, which could contract by 10% or 26 GWh, compared to previous forecasts.

"Regarding the payment of electricity, water and gas bills, Article 4 of the decree provides for the suspension of said payments until 30 April 2020."

Regarding the Italian energy market specifically, coronavirus has led to hydroelectric providers’ representative submitting a request to the Managing Authority of Energy Services to postpone the deadlines in the Fer 1 decree by at least 30 days. Said deadlines are 9 August 2020, the final date to benefit from certain rates provided for under DM 23 June 2016, and 18 August 2020 which is the final date for hydroelectric installations to enter into service and to benefit from certain incentives, depending on their grade in the “Graduatoria del Registro IDRO_RG2016”. To date, this request relates to the northern regions of Emilia Romagna, Lombardy, Piedmont, Veneto, Friuli Venezia Giulia and Liguria only.

Considerable changes have also been introduced by decree no. 9 of 2 March 2020.  Indeed, Article 2 provides for the suspension of certain tax payments. Said measure relates to both natural persons and companies in the previously mentioned regions affected by the Coronavirus.

Regarding the payment of electricity, water and gas bills, Article 4 of the decree provides for the suspension of said payments until 30 April 2020.  Due to this provision, which also only covers the affected regions, the Italian Energy Regulatory is to set out within 120 days from 2 March 2020, new invoices instalment plans and payment notices. In addition, Article 6 provides that companies which have benefitted from favourable loan agreements, are entitled to (i) a 12-month suspension of instalment payments provided that their maturity date does not expire later than 31 December 2020, and (ii) an extension of their amortization plan timeline.

EMPLOYMENT MATTERS

Coronavirus could significantly impact the workplace, by reducing productivity and increasing employers’ liabilities in regarding the health and wellbeing of their employees.

Suspending or limiting office work in areas of high risk to avoid the spread of the virus is one of the measures provided by Decree no. 6/2020. The current situation has increased employers’ liability for their workforce as provided by the general safety obligation established by Art. 2087 of the Italian Civil Code. Indeed, employers are required to adopt all measures that – depending on the nature of the work undertaken by and the level of experience of the employees in question – are necessary to protect their physical and mental wellbeing. Article 2087 requires employers adopt all possible safety measures, both those expressly established by law (typical measures) and those identified by applying relevant working practice (atypical measures).

Employers are therefore in effect required to ensure as far as possible the health and safety of their staff. To this end, several orders have been issued by the Italian Health Ministry (i.e. Order of 23 February 2020) providing guidance on the measures to be taken to protect employees’ health and safety (for example, removing employees from high risk areas where there are a high number of cases of the virus; providing proper information on the virus’ risks; establishing a toll-free number or dedicated e-mail address to deal with queries or concerns from staff; suspending travel to areas of high risk and excluding access to particularly crowded places such as canteens, auditoriums and meeting rooms).

Employers are also obliged to adopt further preventative measures pursuant to Legislative Decree no. 81/2008, in cooperation with medical experts, such as updating their so-called “Duvri” documentation (Documento Unico di Valutazione dei Rischi da Interferenza) and identifying various measures which may be taken to reduce risk to employees (e.g. the use of personal protection devices). The measures to be taken include, at a minimum, those prescribed by the Health Ministry in Note No. 1141/2020 (washing hands frequently; avoiding contact with people with flu-like symptoms; not going to the hospital in case of suspected infection, etc.). In this context, employers may recommend that certain employees do not leave their homes or attend the workplace for a specified period of time. In such cases of self-isolation, employers must continue to pay the employee in question.

"Many businesses are sustaining losses due to the coronavirus outbreak, so the abovementioned contractual provisions of the Italian Civil Code might still prove to be beneficial to non-performing parties."

Smart working, as detailed in Articles 18-23 of the 22 May 2017 law No. 81, is now in force until 15 March 2020. More particularly, the Decree of the President of the Ministers Council of 25 February 2020, which implements law No. 6/2020, permits employers located in the affected areas to immediately move to remote working, even in the absence of an individual agreement with an employee. At this stage, it is not clear whether further safety measures will need to be implemented and how much this “forced” flexible working will affect productivity and the future maintenance of existing employment levels.

Finally, the recent Article 16 of Decree No. 9 of 2 March 2020 provides support measures for the self-employed, including professionals, who may be entitled to receive from the principal, with prior approval of the competent local authorities, an indemnity of €500m for a maximum period of three months depending on the effective period of suspension of the work activity.

FINAL REMARKS

The coronavirus has impacted both the shipping and energy sectors, as well as workers across all sections of the economy. Indeed, as noted, smart working has been strongly encouraged and business trips have been replaced by video conferences.

To date, many businesses are sustaining losses due to the coronavirus outbreak, so the abovementioned contractual provisions of the Italian Civil Code might still prove to be beneficial to non-performing parties. However, it goes without saying that each provision ought to be carefully analysed in relation to each specific matter, as every scenario will have different implications.

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