FIDIC around the world – June 2020

Italy

Arianna Perotti
Milan

For convenience, in this questionnaire, references to FIDIC clauses are references to clauses in the 1999 Red Book.

1. What is your jurisdiction?

Italy.

2. Are the FIDIC forms of contract used for projects constructed in your jurisdiction? If yes, which of the FIDIC forms are used and for what types of projects?

The use of the FIDIC forms in Italy is not widespread, though they are being increasingly adopted by the major Italian construction companies involved in international projects.

Construction contracts concerning public works are regulated in Italy by Legislative Decree No 50 of 18 April 2016 and subsequent amendments (the ‘Public Construction Contracts Code’), which have implemented the European Union Directives on Public Procurement. The FIDIC forms contain provisions that are in conflict with several rules of the Public Construction Contracts Code and hence they are not normally used for domestic public construction projects.¹

In domestic private construction contracts, which are primarily regulated by the Civil Code, the FIDIC forms can be applied, but companies are not inclined to use them as they usually prefer bespoke contracts.

3. Do FIDIC produce their forms of contract in the language of your jurisdiction? If not, what language do you use?

The only FIDIC form available in Italian is the 1999 Red Book. However, in the context of international projects, the English language is preferred.

4. Are any amendments required in order for the FIDIC Conditions of Contract to be operative in your jurisdiction? If yes, what amendments are required?

The FIDIC forms contain a number of provisions that are in conflict with various rules of Italian law, the majority of which, however, are not mandatory and can be derogated.

Among the mandatory rules, one should remember the Italian insolvency legislation. It provides that clauses that link the termination of the contract to the bankruptcy or the judicial liquidation of a party (such as Sub-Clauses 15.2 (e) and 16.2 (g) of the FIDIC Red Book) are null and void.

Another mandatory rule to be considered is Article 1229, paragraph 1 of the Civil Code, which provides that any clause that excludes or limits the liability of the debtor in case of wilful misconduct (dolo) or gross negligence (colpa grave) is null and void. There is no coincidence between the concept of colpa grave and the wording included in Article 17.6, paragraph 3 of the Red Book (Limitation of Liability). Therefore an amendment of this clause is needed in order to ensure adherence to Article 1229 of the Civil Code.

Furthermore, according to Articles 1341 and 1342 of the Civil Code, certain provisions included in the standard conditions or forms particularly favourable to the party that has written them (‘Vexatious Clauses’) are null unless they are specifically approved in writing by the other party. The applicability of the regime included in Articles 1341 and 1342 of the Civil Code to the FIDIC forms (general conditions and particular conditions) is arguable (as they may be considered to be prepared unilaterally by one of the contracting parties). However, if one comes to the conclusion that the regime is applicable to the FIDIC contracts, then the Vexatious Clauses included therein would need to be specifically accepted by a double, ad hocsignature.

Several Clauses would be, in such a case, subject to specific approval, for instance: (1) Article 5.4 of the Red Book (Evidence of Payments), as it provides the right to pay a subcontractor directly when reasonable evidence of payments has not been provided to contractor; (2) Article 17.6 of the Red Book (Limitation of Liability); (3) Article 20.1 of the Red Book (Contractor’s Claim), which provides a deadline shorter than the one foreseen by the law; (4) Article 20.4 of the Red Book (Obtaining Dispute Adjudication Board’s Decision); and (5) Article 20.6 of the Red Book (Arbitration).

5. Are any amendments common in your jurisdiction, albeit not required in order for the FIDIC Conditions of Contract to be operative in your jurisdiction? If yes, what (non-essential) amendments are common in your jurisdiction?

There are several non-mandatory rules of Italian law that may need to be derogated in order to avoid circumstances in which an arbitrator may construe specific FIDIC provisions differently from the parties’ expectations.

There are many examples of how this could happen. For example, Article 4.12 of the Red Book (Unforeseeable Soil Conditions) could be considered to be in conflict with Articles 1467 and 1664 of the Civil Code. Article 1664 provides that the contract price may be adjusted if, as a result of unforeseeable circumstances, there is an increase or decrease in the cost of the materials or labour which lead to an increase or decrease of more than one-tenth of the total price agreed upon. Furthermore, if there are unexpected geological, hydrological or similar causes unforeseen by the parties that make the performance of the Contractor considerably more onerous, the Contractor is entitled to receive a proper indemnification in connection thereto. Article 1467 provides a general principle that is applicable to contracts for continuous or periodic performance. According to this principle, the party whose obligation has become excessively onerous due to extraordinary and unforeseeable events is entitled to request the termination of the agreement. The other party may avoid the termination by offering an equitable modification of the contractual terms.

Furthermore, Article 13 of the Red Book (Variations and Adjustments) does not perfectly match the Civil Code regime regarding variations and adjustment. To give two examples: Article 1661 of the Civil Code gives rights to the Employer to order variations to the project, provided that they do not give rise to an additional cost in excess of one-sixth of the total price agreed upon. Article 1660 of the Civil Code states that the Contractor must perform the necessary variations within the limit of one-sixth of the overall price agreed. If the necessary variations exceed that limit, the Contractor can withdraw from the contract and is entitled to an equitable compensation.

6. Does your jurisdiction treat Sub-Clause 2.5 of the 1999 suite of FIDIC contracts as a precondition to Employer claims (save for those expressly mentioned in the Sub-Clause)?

There is no specific case law regarding Sub-Clause 2.5 of the 1999 suite of FIDIC contracts under Italian law. In general, notices which the law or a contract required to be delivered to the other party before legal proceedings may be commenced are considered by the courts as preconditions to claims.

7. Does your jurisdiction treat Sub-Clause 20.1 of the 1999 suite of FIDIC contracts as a condition precedent to Contractor claims for additional time and/or money (not including Variations)?

Contractually established notices may be considered to be preconditions to the exercise of claims only if the contractual provisions expressly provide that the right to claim will become extinguished as a consequence of the failure of the relevant party to give the notice. Therefore, the determination of a contractual notice as a precondition to claims depends on a case-by-case assessment of the contract interpretation.

With particular respect to Sub-Clause 20.1, it is likely that the courts would consider the notice foreseen therein as a precondition to the Contractor’s claims, since the provision expressly contemplates the extinguishment of the Contractor’s right to claim in case of their failure to give the notice.

8. Does your jurisdiction treat Sub-Clause 20.1 of the 1999 suite of FIDIC contracts as a condition precedent to Contractor claims for additional time and/or money arising from Variations?

See answer to question 7 above.

9. Are dispute boards used as an interim dispute resolution mechanism in your jurisdiction? If yes, how are dispute board decisions enforced in your jurisdiction?

Italian law does not specifically regulate dispute boards and hence it has been debated whether the decision of the dispute board could be considered to be a lodo arbitrale irrituale, that is, an award having a contractual nature rather than a res judicata one, or contractual expertise (perizia contrattuale). Although the dispute board’s decisions share characteristics with both legal instruments mentioned, they have a distinctive character: the arbitrato irrituale and the perizia contrattuale are final and binding upon the parties and their conclusions can be challenged only with remedies regarding the formation of the agreement. By contrast, the decisions of the dispute board can always be challenged by the parties commencing the arbitration procedure.

The decisions of the dispute board, when they become final and binding, still do not have res judicata nature. Therefore, if one of the parties fails to comply with the dispute board’s decision, the opposing party may file a separate claim for contractual breach by starting arbitration proceedings.

10. Is arbitration used as the final stage for dispute resolution for construction projects in your jurisdiction? If yes, what types of arbitration (ICC, LCIA, AAA, UNCITRAL, bespoke, etc) are used for construction projects? And what seats?

The Italian construction industry frequently refers to arbitration as a dispute resolution device. The Milan Chamber of Arbitration (Camera Arbitrale di Milano) is the most important arbitration centre in Italy for these types of disputes. However, when the construction project includes a foreign entity, the parties usually prefer to choose international organisations. In this context, the International Chamber of Commerce (ICC) is frequently selected with the seat of arbitration in Switzerland (Geneva or Zurich) or in France (Paris).

11. Are there any notable local court decisions interpreting FIDIC contracts? If so, please provide a short summary.

The few available decisions that can be traced are quite dated.

The Court of Appeal of Rome decree dated 12 December 1994 states that the figure of the Engineer does not ensure independence with respect to the other parties or neutrality with regard to conflicting interests.

The Court of Appeal of Rome decree dated 21 July 1997 states that Engineers’ decisions have the nature of a lodo arbitrale irrituale since the Engineer must be considered a ‘quasi- arbitrator’. According to the Court, the fact that the Engineer’s decision becomes final and binding if not challenged before the Arbitral panel confirms that Clause 20 provides a multi-tier arbitration system, consisting of two levels: the first, before the Engineer, which is irrituale (contractual); and the second, before the arbitra panel, which is ritual. The Court also rejected the argument that the Engineer lacks independence.

12. Is there anything else specific to your jurisdiction and relevant to the use of FIDIC on projects being constructed in your jurisdiction that you would like to share?

In the same way as other continental legal systems, Italian law contemplates the principle of good faith in the performance of contracts (Article 1375 of the Civil Code), which is most important in contracts of duration that require a certain level of cooperation between the parties. Regardless of specific provisions expressly foreseen in the contract, the principle of good faith provides for a general duty of solidarity and support, which imposes upon each party the obligation to act in such a way as to preserve the interests of the other party to the extent that such behaviour does not imply an appreciable sacrifice on their part.

Note

1 For this reason, the answers to this questionnaire do not refer to Public Construction Contracts Code.