Establishing Your Business In Italy With No Risks With Hardship Clauses

Establishing Your Business In Italy With No Risks With Hardship Clauses

Italy is an interesting and attractive market for many commercial partners. In a time that experiences deep changes in the whole world, however, foreign companies operating in global markets need to figure out how to enter commercial agreements and be able to modify them in case of necessity.

All International Contracts Include Hardship Clauses To Protect Mutual Interests

Having incorporated a foreign company and established commercial relationships with partners in Italy, unforseen external events might modify the obligations arising from the agreements signed.

Deep global changes such as international military crises or pandemics are able to modify relationships and obligations stated in contracts. An international military crisis can determine a sudden increase in raw materials prices, an increase of the energy needed for production, an increase in the prices of the fuel needed to transport products from one port to another.

How To Protect Your Commercial Interests In Italy

Following the advice of this Law Firm assisting foreigners who want to register companies in Italy, in International Contracts it is necessary to be able to foresee the clauses for the management of unforeseen events that can influence the relationships stated.

Economic recovery and price increases in Italy

Italy is an attractive place for foreign companies. OECD estimates give the Italian GDP an increase of 6.5%. Such an impressive growth, however, is subject to fluctuations that may alter established commercial relationships. The increase in production can change the market by generating raw materials shortages, see the case of caviar in Iran which is in great demand in Italy, with consequent delays in the supply chain or in delivery times. Those changes might involve price fluctuations which were not considered in the contract, and new economic relationships in the agreements signed by the foreign company in Italy.

How To Regulate International Commercial Relationships

If market conditions change and generate unfavorable conditions for one or both parties, the terms of the contract need to change too. International commercial law provides a way to protect all contract parties thanks to hardship clauses that must be included when signing a contract between international partners. This is valid for Italy, too. The clauses apply when changes generated by an unforeseen event make the performance agreed in the contract impossible.

Hardship clauses identify the circumstances that can alter the economic balance of the contract and the remedies to apply. They are regulated by the UNIDROIT principles, signed by all countries operating in the international market who share the interest of safeguarding commercial relationships. The circumstances where hardship clauses apply are the following:

  • the damage caused to one of the parties by the unforeseen event;
  • the unpredictability of the event causing the damage;
  • the fact that the event cannot be controlled by the disadvantaged party;
  • the disadvantaged party didn’t take the risk of such events.

The International Chamber Of Commerce For Contracts Negotiation In Case Of Extraordinary Events

The reference point for companies in international trades is the International Chamber of Commerce (ICC). With hardship clauses negotiations are much faster. If safeguard clauses are not included, new trade relationships between the parties will be solved according to the law applicable chosen by them when signing the contract. In case none of the parties had chosen any, the international private law of the competent country will be identified and applied.

The recommendation is therefore to preempt these circumstances and regulate beforehand the ways to balance any contractual modification due to pandemics consequences or the effects of recovery.