Does the participation in public tenders by a company that filed a blank or conditional agreement with creditors integrate an automatic cause of exclusion under Articles 80 and 110 of Legislative Decree no. 50/2016? The Plenary replies with judgment no. 11 of May 27, 2021.
Through Ordinance no. 313 of January 8, 2021, the Council of State Sect. V presented the following questions to the Plenary Meeting:
a) should the submission of a blank agreement with creditors pursuant to art. 161, paragraph 6, of the bankruptcy law (Royal Decree no. 267 of 1942) be considered as a cause for an automatic exclusion from public tenders, due to the loss of the general requirements, or if the submission of the said application does not prevent the participation in procedures for the awarding of public contracts, at least in the event that it contains a request for the company to continue as a going concern;
b) if the participation in public tenders is to be considered as an act of extraordinary administration, therefore companies that applied for a so-called “blank” agreement with creditors are allowed to participate in the same tenders, only after judicial authorization in urgent cases, or should such authorization be considered a mere condition for the effectiveness of the award?
c) at what stage of the awarding procedure should the judicial authorization for admission to the going concern procedure take place in order for it to be considered timely for the purposes of the legitimacy of participation in the procedure and the awarding of the tender.
Well, the High Council, in reply to the above-mentioned questions, clarified that in more recent times the previous discrepancies that characterized the relationship between the Code of Contracts and the bankruptcy law have gradually been reduced.
Indeed, art. 80, paragraph 5, letter b) of Legislative Decree no. 50/2016 now refers explicitly to art. 186-bis of the bankruptcy law (as had already happened previously with art. 38 of the old code) and therefore also to its paragraph 4; furthermore, art. 110 was rewritten on the occasion of the implementation of the code of businesses in crisis (see art. 372 of this code), providing that art. 186-bis of the bankruptcy law is applied to companies that have filed an application for a conditional agreement and that for participation in tenders, between the time of this application and that of the decree of admission, it is always necessary to make use of another party’s requirements. The first period, referring to art. 186-bis, aims to provide clarification or an authentic interpretation; on the other hand, the second period is innovative in nature, introducing – for the future – an element of further guarantee in addition to the judicial control.
The Plenary Meeting therefore considers that, on the basis of art. 186-bis, paragraph 4, of the bankruptcy law, the presentation of an agreement with creditors that is blank or with reservations cannot be considered as a cause for automatic exclusion nor does it inhibit participation in procedures for the awarding of public contracts.
In particular, the consequences of presenting such an application cannot be only the loss of the general conditions for participation. In this regard, it is necessary to evaluate the rationale of art. 186-bis whose function is to protect the agreement with reservation and which therefore cannot become the opposite, that is, an obstacle that hinders the continuation of the entrepreneurial activity, given that it is this very perspective that requires that access to the public contracts market remains permitted even though “supervised”.
This conclusion, which conditions participation in tender procedures to the cautious evaluation of the court, applies both to the case where a company has already undertaken the role of debtor at the time when the (new) public procedure is called, and for the case in which, on the contrary, the application for the agreement with creditors takes place after the application presented to participate in the tender. In this sense the formula “participation in procedures for the awarding of public contracts”, included in art. 186-bis, paragraph 4 (and most recently in art. 110, paragraph 4, of the Contracts Code), must be read in its broadest sense and most consistent with the need for judicial control ab initio which, taking place from the moment when the procedural relationship with the bankruptcy judge is established, represents the balance between protecting the debtor and protecting third parties.
Finally, if a company applies for an agreement with creditors after already having applied to participate in the tender, it will have to ask the court to be authorized to (continue to) participate in the procedure (to this effect see Council of State. Sect. V, no. 6272/2013). Although the law does not indicate an ad hoc term for the submission of such an application (for authorization), the Plenary Meeting concludes by highlighting that it is entirely reasonable, according to the basic objective principles of good faith, that the application should be submitted without delay, also in order to obtain the authorization as soon as possible and to be in the condition to be able to forward it to the contracting authority while the public procedure is still underway.
The contractor’s liability: scope and limits.
A recent decision of the Supreme Court (Court of Cassation 22.06.2021, no. 17819) returned to the issue of the contractor’s liability, analysing its scope and limits, with specific reference to its role vis-à-vis the designer and the works management: where there are errors on the part of the designer or the works management or the principal himself, the contractor is obliged to identify and report them. If he fails to do so, he is liable for the resulting defects in the work, without even the possibility of invoking contributory negligence on the part of the designer, the works management or the principal himself.
The reasoning of the Supreme Court is quite schematic:
– the contractor’s performance is an obligation of result: he must deliver the required work in accordance with the contractual provisions and executed in a workmanlike manner;
– in the performance of his services, the contractor must exercise the specific diligence required under Article 1176(2) of the Civil Code and, therefore, must comply with the technical and scientific knowledge relating to the field of activity, with specific reference to safety, stability, use of materials and environmental protection;
– the contractor must therefore be able to recognise any flaws or errors in the project;
– where the result is flawed, the contractor is then liable.
The fact that the contractor has scrupulously adhered to the project or to the principal’s instructions and has therefore carried out the work in accordance with the contractual provisions, does not release him from liability. In other words, the obligation to perform a work in a workmanlike manner prevails over the obligation to perform the work in accordance with the commissioned work where the latter is vitiated by defects.
The only way for the contractor to be exempt from liability, therefore, is to report and denounce defects and errors to the principal. Three possibilities arise in this case: (i) the principal may take note of it, and have the project modified; (ii) the principal may insist that – despite the contractor’s remarks and objections – the original project be continued and the contractor comply with it; (iii) the third eventuality, not considered by the present decision but abstractly conceivable, is that the principal insists on the execution of the original project, but the contractor refuses to execute it. This is likely to give rise to litigation in which the contractor will have to prove and assert its right to terminate the contract or even challenge its validity if the design problems represent violation of mandatory rules.
Now, the reasoning of the Supreme Court, in its linearity, places a very onerous obligation on the contractor. In the practical case examined in the proceedings in question, the works to be carried out under the contract were not particularly complex (it was a project for the removal of architectural barriers in a building) and, at the same time, the errors in the design and management of the works were obvious and were highlighted very clearly by the court-appointed expert in the investigation phase.
More problems arise, however, in the case of much more complex works involving a structured and sophisticated design phase. Can the contractor be expected to scrutinise the project in order to point out any defects also in these cases?
The answer may be sought in the very words of the Supreme Court when it refers to the duty of care described above: “…if he [the contractor] did not detect the defects, although he could and should have recognised them in relation to the expertise and technical capacity which one can expect from him in the concrete case“, and again “the contractor is required not only to execute the project in a workmanlike manner, but also to check, with the diligence required by the concrete case and within the limits of the technical knowledge which one can expect from him, the appropriateness and completeness of the project itself and of the direction of the works“.
The contractor’s duty of care, although strongly emphasised by the judges, is limited by the level of difficulty and complexity of the design, to be assessed – specifically – with reference to the individual case. Where, therefore, the technical knowledge required is particularly high, it cannot be demanded of the contractor, who does not – legitimately – have the tools to assess and judge the project.
In conclusion, the principle of broad responsibility of the contractor remains, a contractor who cannot limit himself to blindly and uncritically executing the project and the instructions given to him, even if these come from the principal. There is, however, a limit to the obligation placed on the contractor to detect and report any flaws and errors by the designer or the works management: this is represented by the complexity of the subject matter or by technical knowledge so advanced as to be beyond the scope of the contractor’s knowledge.
Jurisdiction over derivative contracts: is the jurisdiction clause in favour of the English court valid even if not signed?
A few weeks ago, the Joint Divisions of the Court of Cassation (Decision no. 16491/2021) ruled on the issue of jurisdiction in favour of the Courts of an EU Member State. The Supreme Court affirmed the legitimacy of the clause of jurisdiction in favour of the English Court due to the clear and precise reference in the derivative contract to the clause of jurisdiction contained in the ISDA Master Agreement, which could not go unnoticed by the client of the foreign bank, especially when, as in the specific case the client is a professional customer who had already executed similar transactions in the past.
In this case, the Supreme Court lays down the principle that the requirement of the written form of the clause of jurisdiction pursuant to Article 23 of Regulation (EC) No. 44/2001 (which is similar to Article 17 of the 1968 Convention and Article 25 of Regulation (EU) No. 1215/2012) is met even when such clause is not contained in the derivative contract signed by the parties, but it is included in another document or form to which the contract refers.
The case concerns a Total Return Swap entered into by an Italian professional customer with a foreign bank through an Italian investment company. This derivative contract clearly made reference to the ISDA Master Agreement in which the clause of jurisdiction was in favour of English courts. On the basis of previous rulings (see Court of Cass., Joint Divisions no. 3693/2012 and no. 8895/2017), this decision rules out the need for an express consent on the clause of jurisdiction in the derivative contract executed by the parties.
The Joint Divisions also reiterate the principle that the jurisdiction clause covers all the claims brought by the plaintiff, i.e., the principal claim (in this case it concerned the nullity of the contract) as well as the subordinate claim (in this case, compensation for damages due to the violations of the bank’s rules of conduct). This is based on the Joint Divisions’ case law according to which, in case of a foreign defendant against whom two claims are brought, the second of which is subordinate to the first one, the Court before which the lack of jurisdiction is challenged must resolve the question only with reference to the principal claim (Court of Cass., Joint Divisions no. 7822/2020 and No. 3841/2007).
On the other hand, the case law to the contrary (Court of Cass., Joint Divisions, nos. 2926/2012, 29107/2020; 1311/2017; 19675/2014, all regarding derivative trades executed using ISDA standard forms) is of no relevance in the case at issue because in the above mentioned cases the plaintiff’s principal claim was to ascertain the bank’s non-contractual liability to which the clause of jurisdiction under Article 13 of the ISDA Master Agreement did not apply as it expressly refers to disputes “relating to this agreement”.
The Joint Divisions deny, however, that the jurisdiction clause has any effect vis-à-vis persons that are not parties of the contractual relationship in which the clause is contained on the basis of CJEU case law according to which “a clause of jurisdiction contained in a contract may, in principle, produce its effects only in the relations between the parties who have given their agreement to the conclusion of such contract” (CJEU, C-519/2020, 18/11/2020, Ryanair DAC; CJEU, 8/03/2018, C-64/17, Saey Home & Garden NV/SA; CJEU, 28/06/2017, C-436/16, Leventis and Vafeias).
Indeed, in the case at issue, the clause of jurisdiction in favour of English Courts unfolds its effects in the relationship between the Italian client and the English bank, but it cannot be extended to the intermediary through which the derivative contract was entered into by the parties (i.e. the Italian investment company that was not involved in the derivative contract). The relationship between the client and the Italian investment company was governed by a separate agreement which, moreover, identified the Court of Bologna (Italy) as the Court having jurisdiction over the disputes. According to the Joint Divisions, the clause of jurisdiction of a derivative contract cannot be applied to persons and disputes which are not parties of such derivative contract, despite the fact that the relationships are undoubtedly connected.
Privacy: does your marketing campaign comply with the GDPR?
The Data Protection Authority (‘Garante Privacy’) recently sanctioned Iren Mercato S.p.A. (“Iren“) for EUR 3 million. The sanction resulted from the well-known, but unfortunately underestimated, management of consents for marketing activities.
The fundamental characteristics that a consent given in a privacy context, including marketing activities, must have, are: it has to be issued for a specific purpose and after appropriate information has been provided to the data subject.
Consent must therefore be properly obtained and managed by the data controller.
The above-described characteristics of consent prevent indiscriminate transfers of data related to data subjects from one company to another. Each transfer, as repeatedly reiterated by the Garante Privacy, must be supported by a specific and individual consent of the data subject concerned.
Iren, a company which operates in the energy sector, has used data from data subjects without verifying that the transfer of such data between different data controllers was supported by appropriate consent.
Any company that carries out marketing activities and acquires data of data subjects, in accordance with the recent statements of the Garante Privacy, must always verify the presence of the required consents, under penalty of heavy sanctions and considerable severe damage to image and reputation.
In this case, the amount of the sanction, EUR 3 million, was determined taking into account that the lists of data subject involved concerned millions of people.
The activity of the Garante Privacy was initiated, as is now increasingly the case, in response to complaints from data subjects.
In conclusion, the continuing spread of the privacy culture among citizens and consumers and the relevant sanctions now require all data controllers to comply with data protection provisions as soon as possible.
Is your company privacy system compliant?
If you have any questions, please do not hesitate to contact us.
Can the tax authorities combine VAT suspension with other precautionary procedures?
In the event of a request by a taxpayer for a VAT refund, can the tax administration which has a counterclaim suspend the refund to the taxpayer who has already provided a suitable guarantee?
On this point, after years of jurisprudential disputes, the Court of Cassation intervened last year with a United Sections decision, establishing that if the Tax Authority has a counterclaim, it cannot suspend the reimbursement to the taxpayer who has already provided a suitable guarantee (Civil Court of Cassation, United Sections, decision No. 2320/2020). In other words, in the event of a request for reimbursement of a VAT credit, the Tax Administration, which has requested and obtained a guarantee from the taxpayer pursuant to Article 38-bis (1) of Presidential Decree No. 633 of 1972, may not make use, during the period of validity of said guarantee, of the precautionary measures, alternative to it, provided for by Articles 23 (1) of Legislative Decree No. 472 of 1997 and 69 of Royal Decree No. 2440 of 1923. And, in the event that an act of imposition of sanctions has been annulled in whole or in part by a decision, even if not final, the provision suspending the payment of the credit claimed by the author of the violation or by the persons jointly and severally liable towards the tax authorities, issued pursuant to Article 23 (1) of Legislative Decree No. 472 of 1997, shall cease to have effect.
The ruling originates from a case in which, although the taxpayer had requested the reimbursement of a VAT credit, accompanying it with a specific guarantee provided pursuant to Article 38-bis, the procedure was suspended pursuant to Article 23 of Legislative Decree No. 472 of 1997, by virtue of the existence of a settlement notice for Registration Tax, and this suspension was maintained even after the annulment of the deed by the first instance judge. In particular, the interlocutory order had submitted to the examination of the United Sections the following questions:
1. if, in the event of a request for reimbursement of a VAT credit, the Tax Authority that has requested and obtained a guarantee from the taxpayer (pursuant to Article 38 bis (1) of Presidential Decree 633/1972) can make use of the precautionary measure pursuant to Article 23 (1) of Legislative Decree No. 472/1997 (provision for suspension of reimbursement) or also of that envisaged by Article 69 of Royal Decree No. 2440/1923, if it challenges the creditor’s counterclaim arising from the imposition of penalties, in this case resulting from non-harmonized taxes;
2. if the suspension (pursuant to Article 23 (1) of Legislative Decree No. 472/1997) applies in the event of an act of imposition of penalties which has not been definitively annulled.
The United Sections of the Court of Cassation, with the aforementioned decision No. 2320/2020, confirmed two important principles of law characterized by a guaranteeing approach with respect to the legitimacy requirements of the procedure for suspending refunds provided for by Article 23 of Legislative Decree No. 472/1997 concerning VAT deductible surpluses for which refunds have been requested. While the second maxim was foreseeable, continuing in the wake of an orientation already expressed by the same United Sections which, by emphasizing the immediate enforceability of the decision of the Tax Commission, considers the effectiveness of the precautionary measures based on an annulled tax act to be undermined, the first maxim – according to which the guarantee provided for the VAT refund absorbs any other precautionary measure – represents an original solution, not previously found, which nevertheless leaves unanswered the fundamental question raised by that the taxpayer’s defense, namely that of establishing whether a VAT refund can be stopped, without infringing the fundamental principles of the VAT system. This question is still open, and it is hoped that further clarification will be forthcoming.
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