Contracts are the heart of business; they regulate not only the delivery of goods and services, but also, crucially, the expectations of the parties to a contract. Indeed, these expectations are so pertinent to the form and interpretation of a contract that English law has even evolved to protect non-pecuniary interests, such as hurt feelings resulting from breach of contract! One might think that the damage would be considered too remote, but no, it turns out that this is not the case.
In this regard, the translator’s correct interpretation of a contract is absolutely crucial. Like every issue in law, this is a complicated topic, involving many factors, numerous variables, and it can be considered from a variety of angles. For the purpose of this article, however, it will be assumed that the remedies for breach of contract are considered in both Italian and English law where an effective contract is in place, but one party has failed to perform his duties, and there is no lawful excuse for this. Such failure provides a remedy to the aggrieved party. (I note: this article does not consider the resolution of contractual disputes through alternative dispute resolution mechanisms or through clauses in the relevant contract; furthermore, it is not possible to discuss every remedy that is available under Italian and English law.
The three key issues to be discussed here in comparing Italian to English law are termination of contract, performance and monetary relief.
Termination of Contract: the aggrieved party may terminate the contract where the other has failed to perform his contractual obligations.
Performance: the aggrieved party may demand performance under the contractually agreed terms.
Monetary Relief: The aggrieved party may claim compensation either alone or in conjunction with termination of contract or performance.
In translating and interpreting contracts, it is always important to remember that the Italian legal system is a civil law system, in which the law is codified, and thus an Italian judge will proclaim what the law is, rather than interpret it or develop it. This is in sharp contrast to English law, a common-law system in which statute is derived from Parliament and where the law is developed by judges; essentially being “judge-made.” The Italian Civil Code of 1942 provides the basis for the evaluation of the function of remedies.
The Comparative Law on Remedies
TERMINATION OF CONTRACT IN ITALIAN LAW
Article 1453 of the 1942 Civil Code gives the right for a party to terminate a contract, ‘la risoluzione del contratto.’
In Articles 1453-5 and 1681 of the Civil Code, termination of a contract arises when a breach of contract is caused deliberately or negligently and whether the fault is personal or vicarious.
Dissolution of contract can occur for three different reasons:
>Inadempimento-Breach of contract where one party fails to perform obligations (Article 1453-1462).
>Impossibilità sopravvenuta della prestazione– Impossibility of performance by one party for reasons beyond their control (Article 1463-1466).
>eccessiva onerosità sopravvenuta della prestazione– Excessive burden in proportion to the other party’s obligations (Article 1467-1469).
The inadempimento is of particular importance (Article 1458) Inadempimento may be either judicially ordered by the court or automatic through operation of the law.
Judicial inadempimento:
Judicial termination is available in Italian law for negligent breach of contract, which the aggrieved part does not consider small. For an inadempimento to be ordered, three conditions must be satisfied:
1. Non-performance of the contract
2. The non-performance must be the responsibility of the promisor.
3. The non-performance must be serious.
Inadempimento by operation of the law:
The court will not be required to intervene to order a termination as the contract will automatically end due to non-performance in three cases:
1. Article 1456- where there is an express condition in the contract.
2. Article 1454- where a formal demand for specific performance is ignored
3. Article 1457- where performance must take place within a given time and time
is also of the essence
However, there are exceptions:
Under Article 1460, performance cannot be rejected if, “in all the circumstances, rejection would be contrary to good faith.’
Where Article 1460 applies and non-performance is inadequate, Article 1453 may be applied; however, Article 1453(2) states that a party cannot change their mind and request performance once dissolution has been applied for. Article 1453 also provides for the aggrieved party to claim damages.
Article 1455 provides that a contract cannot be dissolved where the non-performance by one party has a slight importance in regard to the interest of the other party.
TERMINATION OF CONTRACT IN ENGLISH LAW
English law is slightly different to Italian law. Termination of contract arises by:
1. Breach of contract.
2. Agreement between the parties
3. Performance of the party’s contractual obligations
4. Frustration.
English law categorises contract terms as conditions, warranties or innominate terms. As ever in both law and translation, the precise definition of a term is of crucial importance, also because a different remedy is available for each term breached.
In English law:
Condition: a term which is at the root of the contract, the breach of which entitled the aggrieved party to terminate the contract or sue for damages for loss suffered OR to reaffirm the contract and recover damages for breach.
Warranty: a subsidiary term. Termination of contract is not available, only damages.
Innominate Terms: (as defined in Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26) Breach of innominate terms does not entitle the right to termination of the performance of the contract, but there is no limitation in regard of a remedy in damages.
PERFORMANCE
PERFORMANCE IN ITALIAN LAW
Article 1453: A party can demand performance.
Nei contratti con prestazioni corrispettive, quando uno dei contraenti non adempie le sue obbligazioni, l’altro può a sua scelta chiedere l’adempimento (1) o la risoluzione del contratto (2), salvo, in ogni caso, il risarcimento del danno (3).
One example of the way Article 1453 functions: if one party does not complete their duties to a contract, the aggrieved party can request completion by another party and use Article 180 to sue for damages.
Article 1453 highlights the relationship between a claim for performance and termination; although performance will always be available, where a party claims for damages, the right to performance ceases.
Italian law does however provide for specific performance: Articles 2930 to 2932, especially Article 2931which provides the court with the right to enforce obligations on a party in accordance with the formalities laid out in the Code of Civil Procedure.
Articolo 2931 Codice Civile- Esecuzione forzata degli obblighi di fare
Se non è adempiuto un obbligo di fare (1), l’avente diritto può ottenere che esso sia eseguito a spese dell’obbligato nelle forme stabilite dal codice di procedura civile.
PERFORMANCE IN ENGLISH LAW
In English law, performance is termed “specific performance”; this is similar to the Italian court order provided for under Article 2931 CC, as the Court will order the defendant to perform the contract in accordance with the terms of the contract. However, an order of specific performance is supplementary to the common-law remedy of damages, and will only be grated where damages will not be sufficient to appease the aggrieved party.
There are, however, limitations to specific performance in English law:
1. Damages inadequate: it is likely that specific performance will only be granted where damages are an inadequate remedy. Often seen in contracts for the sale of goods.
2. Contracts where constant supervision by the court will be required (as in Co-operative Insurance Ltd v Argyll Stores (Holdings) Ltd, HL, 1997)
3. Contracts for personal services: e.g. contract of employment.
4. When granting specific performance will cause severe hardship to the defendant.
MONETARY RELIEF
MONETARY RELIEF IN ITALIAN LAW
Article 1453 provides for damages for breach of contract. In Italian law, damages are considered as a form of compensation and can be used in conjunction with the performance and dissolution remedies.
Damages are either: damno emergente or lucro cessante.
Damno emergente: damages resulting from reliance
Lucro cessante: the “expectation” loss of one party
Articles 1223-1225 provide that the courts, in issuing damages, will assess whether the damage is foreseeable, immediate and a direct consequence of the breach.
Equitable Liquidation (Valutazione equativa del danno): the courts will estimate the damage, as per Article 2056.
Importantly, Article 1227 provides that damages will be reduced if one party is responsible for the defendant’s breach of contract:
Se il fatto colposo del creditore (1) ha concorso a cagionare il danno, il risarcimento è diminuito secondo la gravità della colpa e l’entità delle conseguenze che ne sono derivate/ if the creditor’s negligence has contributed to cause the damage, the compensation is reduced according to the seriousness of the negligence.”
Therefore, a party cannot claim damages for breaches of contract due to their own fault.
MONETARY RELIEF
MONETARY RELIEF IN ENGLISH LAW
When a contract has been breached, there is always a right to damages, to compensate a party for loss suffered due to the breach.
A claim for damages can (theoretically) be made for various different reasons.
There are two tests:1) the “expectation interest” test which aims to place the client in the same position (in monetary terms) as if the contract had been performed) and 2) the “reliance measure” in which damages are awarded for the expenses incurred in preparing to perform or in part performance of the contract breached. (It isn’t possible to claim for a bad deal!)
ITALIAN AND ENGLISH REMEDIES IN COMPARISON
TERMINATION
Although both Italian and English provide for termination of contract in a similar fashion where one party has not fulfilled a contractual obligation, resulting in breach of contract, there are significant differences. In English law, termination is available as a remedy on its own, whilst Italian law requires performance to be ordered before termination is possible. This may be because Italian law recognises the significance of entering into a contract, which then requires the fulfilment of the terms and contractual obligations (as Article 1453 of the Codice Civile states, once termination has been ordered, performance cannot then be requested).
A significant difference between the two systems is the test that is used to order a termination of contract. The Italian law considers seriousness, but this is not defined in the Civil Code. English law, in contrast, bases termination on the distinction between the conditions, warranties and innominate terms of a contract.
MONETARY REMEDIES
Both Italian and English law base loss on the damages the creditor has suffered, rather than the benefit gained by the defaulting debtor, and both systems assess on the assumption of foreseeability of damages and strict liability; however, Italian law also considers the principle of good faith.
Italian law also tends to grant a judgment for monetary relief together with an order for performance or termination; however, in English law, monetary remedies can be used alone.
Furthermore, in Italian law, if a plaintiff is considered to have been partly responsible for the defendant’s breach of contract, damages will be reduced. This is not found in English law. There is a duty to mitigate in both systems; however, in Italian law the test is based on good faith, whereas English law considers the importance of reasonableness. Also, English law provides for a wider scope for damages: Italian law would be more likely to recommend alternative performance.
PERFORMANCE
Performance is considered quite differently in the legal systems; however, the importance of terminology for comparative lawyers is crucial. This is especially the case in relation to the fact that Italian law provides for both performance and specific performance (esecuzione specifica e/o esecuzione forzata in forma specifica), but English law has only specific performance. In Italian law, specific performance is a primary remedy, but it can only be ordered by the courts in English law.
Despite the differences in the remedies between Italian and English law, and between the common law and civil law system, they are surprisingly similar. In a globalised world, laws are becoming increasingly harmonised. Nevertheless, terminology continues to be of the utmost importance in the interpretation of contracts, and for this, not only is linguistic ability required, but also in-depth legal knowledge. An absence of this can result in misunderstandings and the misuse of terminology, which in Italian law would lead to the wrong conclusion.
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