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© Simmons & Simmons LLP 2013. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships.

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1 © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Ariel Nachman October 14, 2013 Negotiating Corporate and Commercial Contracts in Europe A comparative view into typical Clauses in Corporate and Commercial contracts in a number of European Jurisdictions.

2 2 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Formation of Contracts.

3 3 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Formation of Contracts under Civil Law. Freedom of contract (i.e. no numerus clausus of determined contract types). Requirements for a contract under German law, according to sec. 145 et seq. German Civil Code (i.e. Bürgerliches Gesetzbuch, as known as BGB): –(1) One party makes an offer (Angebot); and –(2) another party accepts this offer (Annahme). For a contract to be enforceable the parties need to agree on its essential content (essentialia negotii): (i) parties; (ii) subject; (iii) place of performance; and (iv) any other rights and obligations. There is no need for an actual bargain (i.e. consideration). Specific forms are required for certain types of contracts (i.e. notarial form for donations and real estate contracts). However, the form is not part of the essential content of a contract. Therefore, upon certain circumstances, if not correct, it can be cured. Germany

4 4 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Formation of Contracts under Civil Law. Freedom of contract (i.e. no numerus clausus of determined contract types). The standard way for entering into a contract is through a contractual offer (made by one party) and the acceptance of such contractual offer (by the other party) (article 1326 of the Italian Civil Code). Under Italian law (article 1325 of the Italian Civil Code), a contract to be enforceable requires: (i) the agreement between the parties; (ii) the so called causa (i.e. the essence of the contract); (iii) the object; and (iv) to the extent it is requested for specific contracts, a specific form (i.e. written and/or notarial form – the requirement of the written form mainly regards contracts related to real estate). The object of a contract are the obligations thereto. It must be: possible, legal, determined or determinable (article 1346 of the Italian Civil Code). The requirement of the causa correspond to the essence of the contract and need to be legal (i.e. it must not violate mandatory provisions). There is no need for an actual bargain (i.e. consideration). Italy

5 5 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Formation of Contracts under Common Law. Freedom of contract (i.e. no numerus clausus of determined contract types). Under English law voluntary promises cannot be enforced: for a contract to be entered into there is always the need for: (i) an offer made by one party and accepted by another one; (ii) consideration; and (iii) the intent to create a legal relation. A contract to be valid need to contain a bargain: each party must do something for the other (i.e. consideration). Court will not assess whether the consideration is fair (i.e. it can be nominal). There is no need for a consideration for something that has been done in the past (i.e. past consideration) or consideration where one party is already legally obliged to act (i.e. by statutory law). Instead, a promise contained in a deed is enforceable, even without consideration. However, deeds require special formalities (i.e. written form and witnesses). In practice, lack of consideration is rarely an issue. England

6 6 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Most Common Clauses.

7 7 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Most Common Clauses: Conditions precedent. English Law German Law Italian Law Parties can agree on one or several condition(s) precedent for a contract (there could be also conditions subsequent). In order for such condition(s) to be valid, said event shall be future and uncertain. It can depend solely on one partys will (but such condition shall be reasonably interpreted and in practice is usually avoided). There are no constraints upon these conditions apart from that they have to be sufficiently clear to know when they have been met. Parties can agree on one or several condition(s) precedent for a contract (there could be also conditions subsequent). In order for such condition(s) to be valid, said event shall be future and uncertain. Such event cannot depend exclusively on one partys will (i.e. condition(s) precedent must be objective). Wording of the condition should be clear – avoid uncertainty about the occurrence of the condition. Parties can agree on one or several condition(s) precedent for a contract (there could be also conditions subsequent) (article 1353 of the Italian Civil Code). In order for such condition(s) to be valid, said event shall be future and uncertain and shall be in accordance with any applicable mandatory provisions and the public order and morality principles. Such event cannot depend exclusively on one partys will (i.e. condition(s) precedent must be objective) (article 1355 of the Italian Civil Code). The wording shall be clear in order to avoid uncertainty.

8 8 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Most Common Clauses: Representations and Warranties. English Law German Law Italian Law The are no representations and warranties by default (only exception: consumer contracts). Parties can insert specific representations and warranties, respectively, as statements of fact that induce the other party to enter into the contract or in order to warrant that a certain fact or situation is true. Representations and warranties are often linked to indemnities. By default apply general representations and warranties depending on the type of contract (i.e. sale contract: warranty for clean ownership). Parties can agree on explicit warranties (Selbständiges Garantieversprechen) in addition or instead of the warranty regulations set out by law. Representations and warranties are often linked to indemnities. By default apply general representations and warranties depending on the type of contract (i.e. sale contract: warranty for clean ownership). In addition or instead the general representations and warranties that apply by default (as far as they can be excluded), parties can insert: specific representations and warranties, respectively, as statements of fact that induce the other party to enter into the contract or in order to warrant that a certain fact or situation is true. Representations and warranties are often linked to indemnities.

9 9 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Most Common Clauses: Indemnity. English Law German Law Italian Law General rule: if one party violates the contract, it must indemnify the other party for any damages arising therefrom (see general breach of contract provisions). Parties can insert clauses that state a party has to indemnify the other should some event occur or some provision (warranty or representation) transpire to be untrue. Purposes of indemnities are to derogate from the general time limitation rules and to limit indemnifications to certain scenarios and/or up to a certain maximum amount (see limitation of liability clause). General rule: if one party violates the contract, it must indemnify the other party for any damages arising therefrom (see general breach of contract provisions). Parties can insert clauses that state a party has to indemnify the other should some event occur or some provision (warranty or representation) transpire to be untrue (flexibility). Purposes of indemnities are to derogate from the general time limitation rules and to limit indemnifications to certain scenarios and/or up to a certain maximum amount (see limitation of liability clause). General rule: if one party violates the contract, it must indemnify the other party for any damages arising therefrom (see general breach of contract provisions). Parties can insert clauses that state a party has to indemnify the other should some event occur or some provision (warranty or representation) transpire to be untrue (flexibility). Purposes of indemnities are to derogate from the general time limitation rules and to limit indemnifications to certain scenarios and/or up to a certain maximum amount (see limitation of liability clause).

10 10 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Most Common Clauses: Limitation of liability. English Law German Law Italian Law Starting point is freedom of contract. Unfair Contract Terms Act 1977 (UCTA). Fraud – liability cannot be limited or excluded. BUT: Currently possible to exclude liability for deliberate breach/wilful misconduct AstraZeneca UK Limited v Albemarle International Corporation and Albemarle Corporation [2011]. Not all kind of losses can be excluded (i.e. personal injury, death). Limitation period – by default 6 years from accrual of cause of action (12 years where a deed is used), but parties can agree to shorten terms subject to UCTA. Starting point is freedom of contract: parties can limit their liability on a maximum amount of liability. Can also be applied: basket concepts, floor and minimum amounts. Parties can also limit their liability by exclusion of certain types of damages (indirect damages, loss of profits, etc.). However, it is not possible to exclude: (i) damages caused by wilful misconduct (sec. 276 para. 3 German Civil Code); (ii) liability according to tort law; and (iii) Product Liability Act and Liability toward consumers. Limitation period – by default 3 years from accrual of cause of action. Parties can agree to shorten terms. Starting point is freedom of contract: parties can agree on a maximum amount up to which they can be held liable. Can also be applied: basket concepts, floor and minimum amounts. Limitation of liability is not permitted upon the following: (i) damages caused by gross negligence, wilful misconduct or in connection with public order provisions (article 1229 of the Italian Civil Code); or (ii) special case: Consumer Code. Limitation period – by default 10 years from accrual of cause of action. Parties can agree to shorten terms.

11 11 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Most Common Clauses: Penalty. English Law German Law Italian Law Penalties are unenforceable under English law. Instead, liquidated damages are recoverable if they are a genuine pre-estimate of an innocent party in the event of the other party breaching. They are agreed in the contract by parties as being payable in specified circumstances, without needing to prove actual loss. Often relating to a specific breach and usually they operates alongside with the other remedies. Should liquidated damages be excessively disproportioned they could be reduced accordingly by the judge. Penalties must be explicitly agreed between the parties. Parties by drafting a penalty clause in connection with the breach of a contract can decide whether it shall operate as a sole remedy (i.e. excluding any other damages). Should a penalty clause be excessively disproportioned with respect to the contract it relates to, it could be reduced accordingly by the judge. Parties are entitled to insert penalty clauses in a contract (article 1382 of the Italian Civil Code). Parties by drafting a penalty clause in connection with the breach of a contract can decide whether it shall operate as a sole remedy (i.e. excluding any other damages). Should a penalty clause be excessively disproportioned with respect to the contract it relates to, it could be reduced accordingly by the judge, in accordance with article 1384 of the Italian Civil Code.

12 12 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Most Common Clauses: Exclusive/Non Exclusive Remedies. English Law German Law Italian Law By default parties are entitled with the general breach of contract remedies: (i) termination (specific performance upon judicial discretion); and (ii) damage (see the contractual liability section). Parties can add to a contract: (i) specific representations and warranties; (ii) specific indemnities; and (iii) liquidated damages. Even if possible, rarely they are applied as a sole remedy (they are interpreted in accordance with the reasonability principle). By default parties are entitled with the general breach of contract remedies: (i) specific performance (termination only as an extrema ratio); and (ii) damage (see the contractual liability section). Parties can add to a contract: (i) specific representations and warranties; (ii) specific indemnities; and (iii) specific penalties. With respect to the by default provisions, such remedies can be either exclusive or non exclusive. Only limitation: wilful misconduct and gross negligence. By default parties are entitled with the general breach of contract remedies: (i) specific performance or termination; and (ii) damage (see the contractual liability section). Parties can add to a contract: (i) specific representations and warranties; (ii) specific indemnities; and (iii) specific penalties. With respect to the by default provisions, such remedies can be either exclusive or non exclusive. Only limitation: wilful misconduct and gross negligence (article 1299 of the Italian Civil Code).

13 13 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Most Common Clauses: Material Adverse Effect/Hardship. English Law German Law Italian Law By default there is no material adverse effect/hardship clause. English law allows for material adverse effect clauses governing circumstances under which the contractual obligations need not to be complied with because became excessively onerous. The scope of material adverse effect clause can be as broad or as narrow as the parties wish and should be stated in the contract. Parties could also insert a proper hardship clause. By default in case the obligations under a contract become excessively onerous (Störung der Geschäftsgrundlage), the parties may adjust of terminate the agreement (sec. 313 German Civil Code). Parties can define material preconditions and consequences, in case they do not happen, so broadening or narrowing the by default provisions. Parties could also insert a proper hardship clause. By default one party can early terminate a contract in case its obligations become excessively onerous (article 1467 of the Italian Civil Code). Parties are entitled to insert in a contract a material adverse effect clause, which allows to determine and specifically regulates the events that shall be interpreted as excessively onerous. Parties could also insert a proper hardship clause.

14 14 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Most Common Clauses: Force majeure. English Law German Law Italian Law There are no by default provisions concerning force majeure. Parties to a contract can insert a force majeure clause allowing for the contract to be terminated or suspended upon an event beyond the parties control. Force Majeure is not a defined concept in English law so needs to be defined by the contract. By default if satisfaction of a contractual obligation is impossible, the respective party is not bound to comply (Unmöglichkeit) (sec. 275 German Civil Code). Parties can broad or narrow their scope (but they cannot exclude them completely). In addition, parties can define scenarios which shall be considered as force majeure and can agree on consequences for that (termination right, etc.). By default, should the performance of certain obligations become impossible, the obliged party is entitled with a termination right. Parties can broad or narrow their scope. Parties are entitled to expressly insert a definition of Force Majeure in the contract, in order to better regulate the events upon which a contract cannot be performed (i.e. earthquakes, wars, floods, national strikes etc.).

15 15 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Most Common Clauses: Term. English Law German Law Italian Law English law allows for any term to be given to a contract. The term can either be fixed, given a minimum period and continue until terminated thereafter or be unlimited. In any event that a contract has an unlimited term (whether explicitly or implicitly) each party shall be entitled with a right of withdrawal providing the other party with a reasonable prior notice. The reasonable notice depends on the essence of the contract (i.e. between 3 to 6 months). The parties could decide whether to apply a fixed term or an unlimited term to a contract. If the term is not specified, a contract runs until performance of any obligations contained thereto is made (can be unlimited, if ongoing performance is agreed). In case a contract runs without a fixed term (Dauerschuldverhältnis), each party has the right to terminate in order to prevent the parties from being bound for an unforeseeable period of time providing the other party with a reasonable prior notice. The reasonable notice depends on the essence of the contract (i.e. between 3 to 6 months). The parties could decide whether to apply a fixed term or an unlimited term to a contract. If the term is not specified, a contract runs until performance of any obligations contained thereto is made (can be unlimited, if ongoing performance is agreed). In any event that a contract has an unlimited term (whether explicitly or implicitly) each party shall be entitled with a right of withdrawal providing the other party with a reasonable prior notice. The reasonable notice depends on the essence of the contract (i.e. between 3 to 6 months).

16 16 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Most Common Clauses: Assignment. English Law German Law Italian Law The default position is that a party to a contract can only assign the benefit of the contract and not the obligations without the consent of the continuing party. Such assignment must be in writing and notice given to the other party according to s.136 LPA 1925 in order to avoid any confusions of the continuing party. The entire contract can be assigned with the consent of the continuing party (it is called a novation as if a new contract is formed between the incoming and continuing parties). The default position is that a party to a contract can only assign the benefit of the contract and not the obligations without the consent of the continuing party. In such case the assignment need to be notified to the assigned party. Such notice is only to avoid any confusions by the continuing party. Instead, the assignment of the contract is not possible without being explicitly permitted by the other party. There is no novation or new contract. The default position is that a party to a contract can only assign the benefit of the contract and not the obligations without the consent of the continuing party. In such case the assignment need to be notified to the assigned party. Such notice is only to avoid any confusions by the continuing party. Instead, the assignment of the contract is not possible without being explicitly permitted by the other party (article 1406 of the Italian Civil Code). There is no novation or new contract.

17 17 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Most Common Clauses: Third Parties Rights. English Law German Law Italian Law General rule: the contract is binding between the parties. Exceptions instigated by statute, which require some party or class to be specifically identified or the Contracts (Rights of Third Parties) Act 1999 applies. However, most commercial contracts specifically exclude the Contract (Rights of Third Parties) Act 1999, so third parties do not usually have rights. The parties to the contract can amend or revoke such third partys rights any time providing a simple notice to such third party. General rule: the contract is binding between the parties. Parties may agree on provisions which are in favour of a third party (Vertrag zugunsten Dritter, sec. 328 German Civil Code). Parties may not agree on provisions which are disadvantageous for a third party (Vertrag zulasten Dritter). Courts may interpret a contract in a way that it contains rights for third parties, even if such are not explicitly mentioned (Vertrag mit Schutzwirkung für Dritte). The parties to the contract can amend or revoke such third partys rights any time providing a simple notice to such third party. General rule: the contract is only binding between its parties (article 1372 of the Italian Civil Code). No third parties can claim any rights with respect thereto. However, in accordance with article 1411 of the Italian Civil Code, a contract can be entered into also in the interest of a third party. Such contract in favour of a third party is valid and in full force immediately upon execution. However, such third party can either refuse to it or accept it. As long as it does not accept it, the parties to the contract can either amend or revoke such third partys rights.

18 18 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Most Common Clauses: Set off. English Law German Law Italian Law By default if a contract is silent there is an implied right of set off between claims that: (i) regard money; and (ii) are due. The parties are free to include a set off clause with regards to future liabilities between the parties, derogating one or more of the by default requirements (i) or (ii) above. However, it is essential the reciprocal obligations exist. The parties are also entitled to expressly prohibit any setting off. By default each party may set off (Aufrechnung) two claims against each other, unless this is explicitly excluded (sec. 387 et seq. German Civil Code). Claims must be (i) of the same nature; and (ii) due (fällig) in order to be set off. Parties can insert a set off clause derogating one or more of the by default requirements (i) or (ii) above in relation to certain reciprocal future obligations thereto. However, it is essential the reciprocal obligations exist. The parties are also entitled to expressly prohibit any setting off. By default, the set off operates automatically between claims that: (i) regard money or exchangeable goods; (ii) are liquid (i.e. existing and certain); and (iii) due (article 1243 of the Italian Civil Code). Parties can insert a set off clause derogating one or more of the by default requirements (i), (ii) or (iii) above in relation to certain reciprocal future obligations thereto (article 1252 of the Italian Civil Code). However, it is essential the reciprocal obligations exist. The parties are also entitled to expressly prohibit any setting off.

19 19 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Most Common Clauses: Retention right. English Law German Law Italian Law By default retention right apply as a guarantee for the payment of certain obligation in very specific and limited cases (i.e. mechanic over the car that has just repaired). It operates as a lien. Parties can insert a specific retention right broadening or narrowing the default definition. Parties cannot agree that the retaining party become the owner of the retained good in case its original owner has not duly fulfilled its obligation within a certain period of time There is no by default retention right. Parties can insert a specific retention right in a broad or in a narrow way. It operates as a lien. Parties can agree that the retaining party become the owner of the retained good in case its original owner has not duly fulfilled its obligation within a certain period of time. However, as a general principle, a provision of a contract cannot be excessively disproportioned (very specific cases). By default retention right apply as a guarantee for the payment of certain obligations (i.e. article 2756 of the Italian Civil Code for any repairs carried out over a movable good). It operates as a lien. Parties can insert a specific retention right broadening or narrowing the by default definition. Parties cannot agree that the retaining party become the owner of the retained good in case its original owner has not duly fulfilled its obligation within a certain period of time (article 1963 of the Italian Civil Code).

20 20 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Most Common Clauses: Early termination/Withdrawal. English Law German Law Italian Law Parties are free to insert in a contract an early termination clause specifying that upon the breach of specific provisions of a contract, it shall be deemed to be immediately terminated. The parties are also free to determine whether or not notice is required to be given to the other party. Parties are free to insert a cure period. Parties are free to include in a contract a clause allowing for early withdrawal. Normally this will be included in the clause on term of contract and include some notice requirement. Parties are free to insert in a contract an early termination clause specifying that upon the breach of specific provisions of a contract, it shall be deemed to be immediately terminated. Alternatively the parties can insert a cure period. Early termination is only possible if termination right is explicitly agreed or if the contract is concluded for an indefinite period of time (exception: bankruptcy). Parties are free to insert in a contract an early termination clause specifying that upon the breach of specific provisions of a contract, it shall be deemed to be immediately terminated (article 1456 of the Italian Civil Code). Said early termination is effective upon the relevant notification sent by the party not in breach to the other one. Alternatively the parties can insert a cure period. Parties can freely insert a withdrawal clause in a contract (exception: bankruptcy). In any event, should the performance of the obligations of a contract already started, the withdrawal shall be effective only for the obligations not yet performed (article 1374 of the Italian Civil Code).

21 21 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Most Common Clauses: Confidentiality. English Law German Law Italian Law Parties are free to insert confidentiality clause according to which the parties (or one of them) are obliged not to disclose any of the provisions of a contract to third parties. Such clauses usually contains few exceptions (i.e. the possibility to disclose certain confidential information upon the issuance of a court order). Such clauses also usually contains specific penalties in connection with their breach: Their breach could be also a reason for early termination. Parties are free to insert confidentiality clause according to which the parties (or one of them) are obliged not to disclose any of the provisions of a contract to third parties. Such clauses usually contains few exceptions (i.e. the possibility to disclose certain confidential information upon the issuance of a court order). Such clauses also usually contains specific penalties in connection with their breach: Their breach could be also a reason for early termination. Parties are free to insert confidentiality clause according to which the parties (or one of them) are obliged not to disclose any of the provisions of a contract to third parties. Such clauses usually contains few exceptions (i.e. the possibility to disclose certain confidential information upon the issuance of a court order). Such clauses also usually contains specific penalties in connection with their breach: Their breach could be also a reason for early termination.

22 22 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Most Common Clauses: Applicable law/Jurisdiction. English Law German Law Italian Law Regulation EU 593/2008 apply. Generally the parties to a contract are free to choose the relevant law to the contract. Choice of jurisdiction is also fairly free allowing parties to negotiate the most favourable forum for their position. The choice of jurisdiction can be either exclusive or non- exclusive (with the latter allowing forum shopping at a later date). CISG does not apply. Regulation EU 593/2008 apply. As a principle the parties are free to choose whatever applicable law to a contract. Some mandatory provisions cannot be excluded (tort law, certain employment law regulations etc.). The parties are also free to decide which shall be the competent court (whether Italian or foreign). CISG applies to contracts under German law, if not explicitly excluded (German law more buyer friendly than CISG). Regulation EU 593/2008 apply. As a principle the parties are free to choose whatever applicable law to a contract. Some mandatory provisions cannot be excluded (tort law, certain employment law regulations etc.). The parties are also free to decide which shall be the competent court (whether Italian or foreign). CISG applies to contracts under Italian law, if not explicitly excluded.

23 23 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Most Common Clauses: If & When. English Law German Law Italian Law If and when clauses operate as conditions or time limits for the contract or for specific provisions thereof. There is nothing to prevent them from operating. The only constraint is that they must be sufficiently clear to establish when the clause has been satisfied. Parties can agree on conditions (Bedingungen) or time limits (Befristungen) for the contract or for specific provisions thereof. Wording of the conditions/time limits should be clear – avoid uncertainty about the occurrence of the condition/time limit. Under Italian law the parties are legitimated to insert in a sub-contract an if & when clause: a clause which sets that the payment in whole or in part of the consideration thereto by the sub-contracting party to the sub- contractor is conditional upon the receiving by the sub-contracting party of the consideration as contractor under the main contract. The applicability and effectiveness of such clauses depends upon the reason for which the payment of the consideration under the main contract has been not paid or delayed by the contracting party to the contractor (i.e. insolvency of the contracting party, impossibility of the duly fulfilment of a contract).

24 24 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Interpretation of Contracts.

25 25 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Interpretation of contracts under Civil Law. Contracts are interpreted from an objective perspective (objektive Vertragsauslegung) and according to the principle of good faith (Treu und Glauben), according to sec. 157, sec. 242 German Civil Code. In case an objective interpretation is not consistent with the understanding of both parties, the subjective view of the parties is decisive (falsa demonstratio non nocet) (i.e. subjective interpretation criteria prevail). The understanding of the parties shall be proved with any kind of evidences (i.e. behavior of the parties, pre-contractual and contractual exchange of s and letters). In case a contract contains an invalid provision or an unintentional gap, this gap must be filled with a provision that is as closely as possible to what the parties would have agreed, taken into account their economic motivation in the contract. The invalidity of one (sub-)clause does not harm the rest of the contract (as long as the contract is not considered as Terms & Conditions) (geltungserhaltende Reduktion). Germany

26 26 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Interpretation of contracts under Civil Law. In Italy the interpreter is guided in the interpretation of contracts by a series of articles of the Italian Civil Code, particularly 1362 to 1371 stating subjective and objective interpretation criteria: subjective interpretation criteria prevail. Subjective interpretation criteria: the interpreter is expected to establish the intention of the parties first of all on the basis of literal meaning of the contract. Should the literal meaning be clear, the interpreter should verify its consistence with the intention of the parties with any other external elements of the contract (i.e. parties behavior, pre- contractual and contractual exchange of s and letters). Objective interpretation criteria: such criteria should be applied only when the literal meaning of the contract it is not clear and it is not possible to reconstruct the intention of the parties by elements outside the contract. Therefore, the contract shall be interpreted in accordance with the good faith principle. If the language of the contract is clear enough, the interpreter cannot apply any other interpretation criteria contained in the interpretation rules of the Italian Civil Code (i.e. the purpose of the contract). Italy

27 27 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Interpretation of contracts under Common Law. In England the interpreter of a contract is expected to establish the mutual intention of the parties on the basis of the document itself (i.e. objective interpretation criteria prevail). The wording of the provisions has to be understood according to its plain and literal meaning; even if the interpreter will attempt to read the provisions in a manner that does not lead to absurdity or inconsistency with the remaining provisions, it will not be possible to construe the contract in a manner that runs against the language. The importance of the literal interpretation is strengthened also by the interpretation rule according to which reference in the contract to a certain case will exclude that the contract applies to other corresponding cases that have not been expressly mentioned: expressio unius est exclusio alterius. The literal meaning prevail as far as meets the intention of the parties. England

28 28 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Good Faith.

29 29 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Good faith under Civil Law. The general principle of good faith (Treu und Glauben) applies to pre-contractual scenarios and to contracts (sec. 242 German Civil Code). There are several specific obligations that arise out of the general concept of good faith under German law, prior to and during the lifetime of a contract, sec. 242 German Civil Code: Obligation not to act in contradiction to previous behaviour and not to make contradicting statements (venire contra factum proprium) (both pre-contractual and contractual). Obligation to respect the contract (pacta sunt servanda) (contractual). General obligation to respect other partys interest and to mitigate damages (the scope of this obligation is uncertain) (contractual). Germany

30 30 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Good faith under Civil Law. Italian law contains a general clause on good faith under article 1175 of the Italian Civil Code. Specific clauses on good faith in the phase of negotiations are set out under article 1337 of the Italian Civil Code, which states that the parties shall behave in good faith in the phase of the negotiations and the formation of the contract. Article 1375 of the Italian Civil Code states that the parties shall perform in good faith the obligations set out under a contract. This results, among others, in duties of: (i) disclosure; (ii) cooperation; and (iii) protection of the other partys rights and goods. Italy

31 31 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Good faith under Common Law. By default there is no good faith principle (neither pre-contractual nor contractual). However, a general principle of reasonableness apply. There are some exceptions to these rules for certain types of contracts, such as implied terms as set forth in specific statutory law (mainly for the protection of the consumer) or such as insurance contracts, where the insured party is supposed to disclose information to the insurance company. Definition of duty of good faith in, or in relation to the negotiation of, B2B contracts, as: playing fair, coming clean or putting ones cards face upwards on the table. (Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] 1 QB 433). However, good faith has never be deemed applicable. Very recent developments: Yam Seng PTE Ltd v International Trade Corporation Ltd [2013] EWHC 111 (QB). According to such case a duty to act in good faith can be implied into a contract in the same way as any other term. As a consequence: obligations not to undercut and knowingly provide false information implied into contract. However, such principles have not yet been dealt in other judgments. England

32 32 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Pre-contractual liability.

33 33 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Pre-contractual obligations under Civil Law. During contract negotiations prior to signing, the parties have only secondary contractual obligations arising in connection with good faith principle. Obligation to sign the contract? No, never. However, if negotiations are very close to signing already and one party walks away without any reason, then there can be an obligation to compensate the other party for damages incurred (very limited definition of damages: only expenses occurred in connection with negotiations. No loss of opportunity). Non-Binding LoI/MoU may include break-up fees. Written pre-contract (Vorvertrag) may require signing of the contract. As previously seen, a contract can be considered formed and enforceable when an offer (containing all the essentialia negotii) is made by one party and is accepted by another one. The actual formation of a contract shall be determined on a case by case basis. Germany

34 34 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Pre-contractual obligations under Civil Law. Parties shall carry out the negotiations for the entering into an agreement in good faith (article 1337 of the Italian Civil Code). The interruption of the negotiations might entail a pre-contractual liability only upon the occurrence of the following two conditions: In the meanwhile the counterpart has matured a reasonable expectation of the entering into the contract. The interruption of the negotiations is completely unjustified. Under pre-contractual liability, the damages that can be compensated only cover cost and expenses arising in connection with the negotiations and any loss of opportunity. As previously seen, a contract can be considered formed and enforceable when an offer (containing all the essential content under article 1325 of the Italian Civil Code) is made by one party and is accepted by another one. The actual formation of a contract shall be determined on a case by case basis. Italy

35 35 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Pre-contractual obligations under Common Law. Pre-contractual liability mainly falls under tortious liability (i.e. only reliance losses) and statutory liability (where applicable): mainly obligations aimed to avoid a contract from entering into existence inadvertently (i.e. oral contracts) or misrepresentations. The approach of English law is primarily based on the assumption that each party is to take care of its own interests, to acquire the information that it deems necessary, and to provide for a contractual regulation that is adequate for the purpose that that party has. In case of unjustified breach of negotiations, by default no rights to compensation. In fact, any costs and expenses arisen to that point can be compensate only if specifically agreed in advance between the parties. As previously seen, a contract can be considered formed and enforceable when an offer (containing a specific consideration; and made with the intent to create a legal relation) is made by one party and is accepted by another one. The actual formation of a contract shall be determined on a case by case basis. England

36 36 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Contractual liability.

37 37 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Remedies for breach of contract under Civil Law. By default breach of primary contractual obligations (vertragliche Hauptleistungspflichten), (i.e. the material obligations of a contract, such as performance of insufficient/wrong service or product, delay or non-delivery) (sec. 241 para. 1 German Civil Code): Specific performance: delivery of missing services or non-defective product OR Replacement: new delivery of agreed service or product. Termination: only if repair and replacement are both impossible or unacceptable (only under very rare circumstances) (i.e. right to termination is an extrema ratio). In any case: compensation of damages (sec. 280 para. 1 German Civil Code). Breach of secondary contractual obligations (vertragliche Nebenpflichten) (sec. 241 para. 2 German Civil Code), (i.e. not material obligations, such as information, disclosure of relevant facts, etc.): only Repair of breach: Comply with obligations in the future compensation of damages (sec. 280 para. 1 German Civil Code). In such case there is no termination right. Germany

38 38 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Remedies for breach of contract under Civil Law. By default (article 1453 of the Italian Civil Code) in case of a breach of contract by one party, the other party may decide either for: Specific performance (non need for the breach to be material): delivery of missing services or non-defective product or replacement (new delivery of agreed service or product). Termination of the contract (only if the breach is material with respect to the global obligations of the contract and is not justified). In any case: compensation of damages. Once termination is demanded, the specific performance cannot be demanded any more. However, once specific performance is demanded, termination can still be demanded at a later stage. Italy

39 39 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. By default, principal remedies for breach in the absence of further remedies expressly agreed are: Damages. Termination, where: Repudiatory breach (breaching party treats contract as discharged). Fundamental breach (breach deprives the non-breaching party of substantially all of the benefit that it would derive from the contract, if properly performed). Specific performance (equitable remedy, not available as of right or where damages alone are a sufficient remedy). Remedies for breach of contract under Common Law. England

40 40 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Damages.

41 41 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Damages under Civil Law. By default, if the breach of a contract causes a damage, the breaching party must compensate this damage (sec. 249, 251 German Civil Code). The obligation to compensate the damage occurs irrespective of the legal type of fault (sec. 276 para. 1 German Civil Code): (i) simple negligence (leichte Fahrlässigkeit); (ii) gross negligence (grobe Fahrlässigkeit); and (iii) wilful misconduct (Vorsatz). The minimum conditions for demanding a compensation of damages are the following: (i) breach of contract; (ii) causation: adequate link between breach and damage necessary: the damage must occur as a logical consequence of the breach (if the damage is caused by several different reasons, the liability will be allocated pro rata between all responsible persons); and (iii) damage. Burden of proof: (i) claimant must provide evidence of the damage and the breach, but not of the link in-between; (ii) legal assumption that the damage was caused by the breach (sec. 280 para. 1 sent. 2 German Civil Code); and (iii) the breaching party must give evidence that the damage was not caused by the breach. Germany (I)

42 42 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. What needs to be compensated (i.e. categories developed by practice)? Direct damages (direkte Schäden): costs for repair/replacement of the damaged good/insufficient service itself; reduction of the market value of the damaged good (merkantiler Minderwert) (including the hypothetical profits lost due to the damages are one of the most important types of indirect damages). Indirect damages (indirekte Schäden): all damages caused as a consequence of the breach of the contract (Mangelfolgeschäden). Immaterial damages (immaterielle Schäden): compensation for injuries of body, health and freedom (Schmerzensgeld). Wasted expenditures (frustrierte Aufwendungen): reasonable expenditures that were made in expectation of the performance of the contract (compensation according to sec. 284 German Civil Code). They shall be claimed separately from damages. Duty of mitigation: claimant cannot recover for losses he could have avoided by taking reasonable steps. Damages under Civil law. Germany (II)

43 43 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Damages under Civil law. The minimum conditions for demanding a compensation of damages are the following: (i) breach of contract; (ii) causation; and (iii) damage. Burden of proof: (i) claimant must provide evidence of the damage and the breach, but not of the link in-between; (ii) legal assumption that the damage was caused by the breach; and (iii) the breaching party must give evidence that the damage was not caused by the breach. In particular the contractual damages are the following: Consequential damage (danno emergente): damages suffered as a direct effect of the breach of contract by the other party. Loss of profit (lucro cessante): loss of profit in connection with the breach of contract by the other party. Duty of mitigation: claimant cannot recover for losses he could have avoided by taking reasonable steps. Italy

44 44 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Damages under Common Law. General purpose of damages for breach is to put non-breaching party in the position it would have been in had the contract been properly performed – generally in the form of gain (whether financial or the benefit of the performance of the obligations/profit and/or anticipated saving) (expectation loss). In some circumstances, possible to claim damages to put non-breaching party in position it would have been in had there never been a contract (reliance loss/wasted expenditure). In particular the type of contractual damages are the following: Reliance losses: see Anglia Television v Reed [1971] 3 All ER 690 – actor breach of contract led to a claim for reliance loss, rather than expectation loss. Expectation losses: see Bridge UK Com Ltd v Abbey Pynford plc [2007] EWHC 728 (TCC) – negligent installation of a printing press - both expectation and reliance loss claimed. Generally parties have to elect which of expectation or reliance loss they wish to recover, to avoid double recovery of same loss. Reliance loss generally used where it is difficult to quantify loss on an expectation basis but cannot be used to escape a bad bargain. England (I)

45 45 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Damages under Common Law. Burden of proof: the non-breaching party must prove duty (contractual obligation), breach and loss. Concept of remoteness (see Hadley v Baxendale [1854]): can only be compensated damages which are arising naturally according to the usual course of things (direct loss) and (ii) special losses which may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract, as the probable result of breach having knowledge of special circumstances (indirect or consequential loss). Losses falling outside of the above definition are too remote to be recoverable in damages. Duty of mitigation: claimant cannot recover for losses he could have avoided by taking reasonable steps. Reasonable expense incurred in taking reasonable steps can be recovered. England (II)

46 46 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Any questions?

47 47 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.

48 48 / © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. simmons-simmons.com elexica.com


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