By: Irene Grassi
Express Termination Clause under Italian Law: Opportunities and Pitfalls
Italian contracts very often contain a so called “express termination clause”, according to which the parties agree that, in case one party does not correctly perform a certain obligation, the other party may declare that the contract is terminated. Express termination clause may be included in all type of agreements, including contracts of duration like agency or distribution contracts. It may also be included in general terms and conditions. This can make termination easier, but in some cases a special attention is required.
Express termination clause (clausola risolutiva espressa) is a well-established rule of Italian law, regulated by Article 1456 of Italian Civil Code. The parties may use it with reference to specific and detailed obligations, which they consider particularly relevant: if such obligations are breached, even in case of minor non-performance, the other party may declare to avail itself of the clause and obtain immediate termination.
According to the traditional interpretation of the rule, in such cases there is no room for court assessment on the importance of the violation, as it was the will of the parties that any breach of a certain obligation is relevant for termination. Courts may only verify the existence of fault, which by general rule is presumed.
A frequent use of express termination clause concerns minimum turnover clauses: the parties may agree that, in case specific and predetermined sales targets are not achieved by one of the parties in a given period, the other may declare the contract terminated. Another common use of express termination clause concerns non-compete obligation of the agent or the distributor.
Concerning agency contracts, the Italian Supreme Court ruled that even in case of an express termination clause, termination for agent’s fault always requires a so called “just cause” (giusta causa), i.e. a serious breach which does not permit the continuation, even temporarily, of the relationship. In such cases therefore, even if the principal invokes an express termination clause, it is possible for the courts to decide that the breach is not serious enough to allow termination of the contract.
The above guidelines are peculiar for agency contracts and do not apply to other contracts, like distribution or concession.
However, the Supreme Court has stated in some decisions that the general principle of good faith is relevant in the interpretation of express termination cause, in order to assess both the existence of a breach and the consequent legitimate exercise of the unilateral power to terminate the contract. Thus, even in the presence of an express termination clause, if such an assessment shows that the conduct of the party in default, while materially realizing the fact contemplated by the express termination clause, complied with the principle of good faith, this will exclude tout court the existence of a breach and, therefore, prevent the termination of the contract. In conclusion, express termination clause can be considered a double-edged sword. While the inclusion of such a clause usually makes the parties comfortable on the possibility to terminate the contract without major discussions, it is not always so. In particular, when it comes to agency or distribution contracts, it is always advisable to evaluate all the circumstances of the case in order to avoid that termination is subsequently challenged in cour