With the recent sentence n° 16601/2017 the Italian Supreme Court (“Corte di Cassazione”) – changing its jurisprudence – opened to the possibility of recognizing in Italy foreign judgments containing punitive damages. In this post we will see what these punitive damages are about, under which conditions they will be recognized and enforced in Italy and, above all, which countermeasures may be implemented to deal with these new risks.

Punitive damages are a monetary compensation – typical of common law legal systems – awarded to an injured party that goes beyond what is necessary to compensate the individual for losses. Normally punitive damages are imposed when the person who caused the damage acted with wilful misconduct and gross negligence.

With punitive damages, other than the compensatory function, the reimbursement of damages assumes also a sanctioning purpose, typical of criminal law, also acting like a deterrent towards other potential lawbreakers.

In the legal systems that provide for punitive damages, the recognition and the quantification of the highest compensation, most of the time, are delegated to the Judge.

In the United States of America punitive damages are a settled principle of common law, but ruled in different ways for each State. However, generally, they are applied when the conduct of person who caused the damage was intentionally directed to cause damage or is put in place without regard to the protection and safety standards. Usually they cannot be awarded for breach of contract, unless it also leads to an independent tort.

Historically, in Italy, punitive damages generally were not recognized, because the sanctioning purpose is not consistent with the civil law principles, anchored to the concept that the reimbursement of the damage is a simple restoration of financial heritage of the damaged person.

Therefore, the recognition of punitive damage established by a foreign judgment was normally denied due to a violation of the public policy (“ordre public”), so those judgments did not have access to the Italian legal system.

The sentence n° 16601/2017 of the 5 July 2017 of the Joint Sessions of Italian Supreme Court (“Sezioni Unite della Corte di Cassazione”) however, changed the cards on the table. In this particular case, the plaintiff applied to the Venice Court of Appeal for the recognition (pursuant to art. 64, law 218/1995) of three judgments of District Court of Appeal of the State of Florida that, accepting a guarantee call submitted by an American retailer of helmets against the Italian company, condemned this latter to pay 1.436.136,87 USD (in addition to legal expenses and interests) for the damages caused by a defect in the helmet used in occasion of the accident.

The Venice Court of Appeal recognized the foreign judgment, considering the abovementioned sum merely as compensation for damages and not as punitive damages. This decision was challenged by the unsuccessful Italian party before the Italian Supreme Court, arguing the violation of the Italian ordre public by the US judgment, on the basis of a consolidated juridical opinion until that day.

The Supreme Court of Cassation confirmed the Venice Court assessment, considering the sum non-punitive and recognized the US judgment in Italy.

The Supreme Court, though, took the opportunity to address the question of the admissibility of punitive damages in Italy, changing the previous orientation (see Cass. 1781/2012).

According to the Court, the concept of civil liability as mere compensation of the damage suffered is to be considered obsolete, given the evolution of this institute through national and European legislation and case-law that introduced civil remedies intended to punish the wrongdoer. As a matter of fact, in our system, it’s possible to find several cases of damages with sanctioning function: in the matter of libel by press (art. 12 L. 47/48), copyright (art. 158 L. 633/41), industrial property (art. 125 D. Lgs. 30/2005), abuse of process (art. 96 comma 3 c.p.c. e art. 26 comma 2 c.p.a.), labour law (art. 18, comma 14), family law (art. 709-ter c.p.c.) and others.

The Supreme Court has, therefore, stated the following principle: “Under Italian law, civil liability is aimed not only to compensate for losses incurred by the injured party, but also to reform the defendant and others from engaging in conduct similar. Therefore, the US legal institute of punitive damages is not incompatible with the Italian legal system”.

The important consequence is that this decision opens the door to possible recognition of foreign sentences that condemn a party to pay a sum higher than the amount sufficient to compensate the suffered injury as a result of the damage.

To that end, however, the Supreme Court has set certain conditions so that foreign sentences have validity, that is to say that the decision is made in foreign law system on a normative basis that:

1. Clearly establish the cases in which it is possible to convict a party to pay punitive damages; and
2. The predictability of it; and
3. Establish quantitative limits.

It has to be clarified that the sentence has not modified the Italian system of civil liability. In other words, the sentence will not allow Italian Judges to establish punitive damages under Italian law.

As for foreign court decisions, it will be now possible to obtain a compensation for punitive damages through the recognition and enforcement of a foreign judgment, as long as they respect the above requirements.

Extending our view beyond the Italian borders, we notice that punitive damages are alien to the legal tradition of most of  European States: there is the possibility, though, that other Courts of continental Europe might follow the decision of the Italian Supreme Court and recognize foreign judgments which grant punitive damages.

How to prevent this new risk

There are several measures which businessmen can adopt to mitigate this new risk: firstly the adoption of contractual clauses that exclude this kind of damages or establish a cap on the amount of the contractual damages which can be claimed, for example by limiting the value of damages at the price of the products or services provided.

Furthermore, it’s very important to have an overall knowledge of the legislation and case law of the markets in which the enterprise operates, even indirectly (for example: with the commercial distribution of products) in order to choose consciously the applicable law to the contract and the dispute resolution methods (for example: establishing the jurisdiction in a country that does not provide for punitive damages).

Finally, this type of liability and risk may also be covered by a product liability insurance.

[Initial note: This article is not aimed as a political article pro or con boycott movements or the Israeli government, but rather as a legal informative overview, in light of the actual and financial impact or exposure international business may have in the referred to matter.]

It is perhaps not known to many international trading players, but under Israeli law, Bill for prevention of damage to the State of Israel through boycott – 2011, affirmed by the Supreme Court in 2015 (after a slight interpretive adjustment), boycotting Israeli origin products, or deliberate avoidance of economic or academic ties, may give rise to a lawsuit for actual damages under civil law.

In light of the international BDS movement, attempting to place pressure upon the State of Israel by means of economic and cultural pressure, Israel has realized such activity, indeed, causes actual harm and damage to Israeli based business, manufacturers, importers/exporters, etc., as well as to academic students and professors, and so on, in cultural ties of many sorts – just because the origin is Israel.

This boycott movement affects the people and businesses of Israel, as opposed to  Israeli leaders or politicians or  the State of Israel as a state, and conveys questionable (to say the least) economic and cultural negative effects upon the people facing unprecedented obstacles in trade in the international arena – for no wrongdoing on their part.

Regardless of the political opinion one may have concerning the legitimacy, or rather the non-legitimacy, of the BDS movement or concerning the current political policy of the State of Israel – the relatively new law provides actual legal tools to deal with negative economic outcomes (damages, loss of profits, etc.) that businesses or private people encounter or suffer from boycott measures, solely because of their affiliation or relation to the State of Israel.

Regardless of any opinion of the act itself or its enactment, at the end of the day the act exists and may be used and exploited by filing civil lawsuits against anyone who called for or participated in a boycott. In that sense it creates a new civil wrong as part of the Israeli tort laws.

Moreover, even a deliberate avoidance of economic, cultural or academic ties can raise liability for the avoider towards the business or ties avoided, as well as liability for anyone who has called for the boycott or publicly expressed support of it.

The law goes even further – and also excludes the defense argument of „sufficient justification“ and thus provides that anyone who has caused or led to a breach of a contract, by calling for a boycott, may be liable for damages, as well.

As for the damages that can be claimed, after the adjustment to the law according to the Supreme Court ruling of 2015 (ruling that compensation must be awarded in correspondence with the actual damages or loss of profit caused, and cancelled the clause for penal compensation) – the entity that may sue for torts is the entity that suffered the damage and what can be sued for is the actual damage according to the regular Israeli torts law.

The law also prohibits a person who calls for a boycott from participating in any public tender, but this is a different focus from the side of the state.

It is worth mentioning  that the rationale for this legislation was also reviewed by the widely respected Israeli Supreme Court, that has strongly elaborated that such legislation is constitutional and, inter alia, that international entities and individuals such as the BDS movement (as opposed perhaps to states) should not be able to harm or interfere with international or domestic economic affairs without at least being accountable for the outcome of such, and that freedom of speech cannot be unlimitedly protected when it in fact calls for action (or for refraining from action)  that has an actual impact on another and is not simply an expression of an opinion.

To date, it seems that the Magistrates and District Courts of Israel have yet to render judgments in actual cases based on the boycott act, indicating that the implementation of the act is still inchoate. However, it seems that instances and measures of boycotting are on the rise and the methods of boycotting are becoming increasingly overt, in a manner that is bound to lead to considerable litigation in the near future.

Needless to say, issues of jurisdiction, and other aspects of private international law, or imposing jurisdiction on foreign players, are also yet to be resolved in reference to the emergence of lawsuits under the boycott law, but these will surely find their creative legal solutions with the actual submission of lawsuits concerning real life cases.

The Italian Court of Cassation, United Sections (judgement no. 24244 of 27 November 2015), recently issued a judgement on the applicability of article 5 no. 1 of the Brussels I Regulation on the jurisdiction, recognition and enforcement of judgements in civil and commercial matters, now corresponding to article 7 no. 1 of the Regulation 1215/2012 (Brussels I bis).

The above-referenced provision sets a special forum in matters relating to a contract, providing for the competence of the courts located in the place of performance of the obligation in question. According to letter b) of this provision, in case of the sale of goods, the place of performance of the obligation in question shall be the place in a Member State where, under the contract, the goods were delivered or should have been delivered.

In the case brought before the Court of Cassation, an Italian company – while objecting the claim of a French company regarding the conclusion of some sale agreements that the latter stated to have entered into with the first one – asked for a declaratory judgement stating the inexistence of any contractual obligation between the parties, and, alternatively, for a declaration that the alleged agreements were null and void.

First of all, the Court of Cassation asserted the applicability of article 5, letter b) of the Brussels I Regulation to the case de quo.

Albeit recognizing that the abovementioned provision seems to refer only to actions addressed to the performance of a contract and not to actions regarding the dissolution of a contractual obligation, the Italian Supreme Court has considered that also claims aiming at ascertaining the inexistence, invalidity or ineffectiveness of an agreement concern matters relating to a contract. More precisely, the Supreme Court has held that such claims involve an initial, actual or alleged, voluntary assumption of an obligation, of which they tend, in several ways, to default. In the light of this assumption and considering that the delivery of the goods was supposed to take place in France (according to the contractual documents evidenced during the proceedings), the Court of Cassation has found that Italian Courts were lacking jurisdiction over the case, thus confirming the judgement previously issued by the Court of Appeal.

The judgement of the Italian United Sections is important because it has definitively confirmed, consistently with the European uniform trend, that the place of delivery is the only autonomous linking factor to be applied to all claims grounded on contracts for the sale of goods and not only to claims based on the non-performance of the delivery obligation itself.

The author of this article is Silvia Petruzzino.

When considering pre-contractual negotiations in China some words need to said about culture differences, skills to use in the negotiation process, and, drafting techniques.

All of those points are relevant in any negotiation with a foreign counterpart, but they are even more valid and important when dealing with China.

First of all, it is fundamental to get acquainted with Chinese culture before starting a negotiation, especially if the counterpart (as is often the case) is not well versed in international trade and has had very few occasions to deal with foreign businessmen and counsels.

Keep in mind that actual down-to-the-table business only comes into the picture once a personal relationship has been established and the fundamental elements of trust and respect have been set.

Those who believe that an important contract can be closed with a 2 day rush visit to China or, even worse, at a distance without a personal introduction, are very far away from the real picture of things.

It generally takes several lunches, dinners and quite a few drinks together to break the ice and prepare the ground for real business talks, and it may take several trips back and forth from China before a contract can be closed: so when applying for the visa, you should consider a multi-entry.

Of course now we are in the era of internet and it very common that agreements are entered into digitally, by means of an exchange of proposal and acceptance on the web: it is not by chance that, more often than not, such long distance contacts lead to fraud and contractual breaches.

Expect long negotiations, and if a contract is eventually signed, don’t relax and don’t overestimate its value.

In western countries we tend to see the signed document as the final phase of contractual negotiations, as the bible of the future relationship.

In China contracts are often considered as nothing but the first milestone, very far from rules carved into stone: the warning is that in most cases the contract will be regarded more like a letter of intent than like a binding agreement.

So expect the Chinese side to use a great deal of flexibility, and be ready to re-negotiate or, better yet, have in place from the start in your contract appropriate rules and mechanisms to adapt to the frequent changes that may happen.

When you finally make it to the meeting room, first of all, be sure that there is a good translator around: quite often your counterpart will not speak English and will rely on a translator and it can seriously harm the flow of discussion if the person appointed for this task is not familiar with the needed terminology.

Secondly, it goes without saying that it is important to be patient and not lose your temper, especially taking into consideration that the way in which negotiations unfold may be very different from your experience.

While we are used to a linear flow of discussion, so that the parties move from one clause to the next and so on and so forth, the Chinese attitude, in most cases, is holistic.

They tend consider the agreement as a whole: it is not uncommon to re-discuss in the morning clauses that had been agreed upon the day before, without any explanation whatsoever.

A yes may mean no, and a no may mean yes: you will never know, and that is something to be always kept in mind.

The bottom line is not very different from what should be expected in all negotiations: the aim is to find a balanced agreement, that all parties find beneficial.

To start negotiating with a draft contract that is clearly unbalanced in favor of your client will not only complicate your negotiations, but may jeopardize them from the start.

With the recent sentence n° 16601/2017 the Italian Supreme Court (“Corte di Cassazione”) – changing its jurisprudence – opened to the possibility of recognizing in Italy foreign judgments containing punitive damages. In this post we will see what these punitive damages are about, under which conditions they will be recognized and enforced in Italy and, above all, which countermeasures may be implemented to deal with these new risks.

Punitive damages are a monetary compensation – typical of common law legal systems – awarded to an injured party that goes beyond what is necessary to compensate the individual for losses. Normally punitive damages are imposed when the person who caused the damage acted with wilful misconduct and gross negligence.

With punitive damages, other than the compensatory function, the reimbursement of damages assumes also a sanctioning purpose, typical of criminal law, also acting like a deterrent towards other potential lawbreakers.

In the legal systems that provide for punitive damages, the recognition and the quantification of the highest compensation, most of the time, are delegated to the Judge.

In the United States of America punitive damages are a settled principle of common law, but ruled in different ways for each State. However, generally, they are applied when the conduct of person who caused the damage was intentionally directed to cause damage or is put in place without regard to the protection and safety standards. Usually they cannot be awarded for breach of contract, unless it also leads to an independent tort.

Historically, in Italy, punitive damages generally were not recognized, because the sanctioning purpose is not consistent with the civil law principles, anchored to the concept that the reimbursement of the damage is a simple restoration of financial heritage of the damaged person.

Therefore, the recognition of punitive damage established by a foreign judgment was normally denied due to a violation of the public policy (“ordre public”), so those judgments did not have access to the Italian legal system.

The sentence n° 16601/2017 of the 5 July 2017 of the Joint Sessions of Italian Supreme Court (“Sezioni Unite della Corte di Cassazione”) however, changed the cards on the table. In this particular case, the plaintiff applied to the Venice Court of Appeal for the recognition (pursuant to art. 64, law 218/1995) of three judgments of District Court of Appeal of the State of Florida that, accepting a guarantee call submitted by an American retailer of helmets against the Italian company, condemned this latter to pay 1.436.136,87 USD (in addition to legal expenses and interests) for the damages caused by a defect in the helmet used in occasion of the accident.

The Venice Court of Appeal recognized the foreign judgment, considering the abovementioned sum merely as compensation for damages and not as punitive damages. This decision was challenged by the unsuccessful Italian party before the Italian Supreme Court, arguing the violation of the Italian ordre public by the US judgment, on the basis of a consolidated juridical opinion until that day.

The Supreme Court of Cassation confirmed the Venice Court assessment, considering the sum non-punitive and recognized the US judgment in Italy.

The Supreme Court, though, took the opportunity to address the question of the admissibility of punitive damages in Italy, changing the previous orientation (see Cass. 1781/2012).

According to the Court, the concept of civil liability as mere compensation of the damage suffered is to be considered obsolete, given the evolution of this institute through national and European legislation and case-law that introduced civil remedies intended to punish the wrongdoer. As a matter of fact, in our system, it’s possible to find several cases of damages with sanctioning function: in the matter of libel by press (art. 12 L. 47/48), copyright (art. 158 L. 633/41), industrial property (art. 125 D. Lgs. 30/2005), abuse of process (art. 96 comma 3 c.p.c. e art. 26 comma 2 c.p.a.), labour law (art. 18, comma 14), family law (art. 709-ter c.p.c.) and others.

The Supreme Court has, therefore, stated the following principle: “Under Italian law, civil liability is aimed not only to compensate for losses incurred by the injured party, but also to reform the defendant and others from engaging in conduct similar. Therefore, the US legal institute of punitive damages is not incompatible with the Italian legal system”.

The important consequence is that this decision opens the door to possible recognition of foreign sentences that condemn a party to pay a sum higher than the amount sufficient to compensate the suffered injury as a result of the damage.

To that end, however, the Supreme Court has set certain conditions so that foreign sentences have validity, that is to say that the decision is made in foreign law system on a normative basis that:

1. Clearly establish the cases in which it is possible to convict a party to pay punitive damages; and
2. The predictability of it; and
3. Establish quantitative limits.

It has to be clarified that the sentence has not modified the Italian system of civil liability. In other words, the sentence will not allow Italian Judges to establish punitive damages under Italian law.

As for foreign court decisions, it will be now possible to obtain a compensation for punitive damages through the recognition and enforcement of a foreign judgment, as long as they respect the above requirements.

Extending our view beyond the Italian borders, we notice that punitive damages are alien to the legal tradition of most of  European States: there is the possibility, though, that other Courts of continental Europe might follow the decision of the Italian Supreme Court and recognize foreign judgments which grant punitive damages.

How to prevent this new risk

There are several measures which businessmen can adopt to mitigate this new risk: firstly the adoption of contractual clauses that exclude this kind of damages or establish a cap on the amount of the contractual damages which can be claimed, for example by limiting the value of damages at the price of the products or services provided.

Furthermore, it’s very important to have an overall knowledge of the legislation and case law of the markets in which the enterprise operates, even indirectly (for example: with the commercial distribution of products) in order to choose consciously the applicable law to the contract and the dispute resolution methods (for example: establishing the jurisdiction in a country that does not provide for punitive damages).

Finally, this type of liability and risk may also be covered by a product liability insurance.

[Initial note: This article is not aimed as a political article pro or con boycott movements or the Israeli government, but rather as a legal informative overview, in light of the actual and financial impact or exposure international business may have in the referred to matter.]

It is perhaps not known to many international trading players, but under Israeli law, Bill for prevention of damage to the State of Israel through boycott – 2011, affirmed by the Supreme Court in 2015 (after a slight interpretive adjustment), boycotting Israeli origin products, or deliberate avoidance of economic or academic ties, may give rise to a lawsuit for actual damages under civil law.

In light of the international BDS movement, attempting to place pressure upon the State of Israel by means of economic and cultural pressure, Israel has realized such activity, indeed, causes actual harm and damage to Israeli based business, manufacturers, importers/exporters, etc., as well as to academic students and professors, and so on, in cultural ties of many sorts – just because the origin is Israel.

This boycott movement affects the people and businesses of Israel, as opposed to  Israeli leaders or politicians or  the State of Israel as a state, and conveys questionable (to say the least) economic and cultural negative effects upon the people facing unprecedented obstacles in trade in the international arena – for no wrongdoing on their part.

Regardless of the political opinion one may have concerning the legitimacy, or rather the non-legitimacy, of the BDS movement or concerning the current political policy of the State of Israel – the relatively new law provides actual legal tools to deal with negative economic outcomes (damages, loss of profits, etc.) that businesses or private people encounter or suffer from boycott measures, solely because of their affiliation or relation to the State of Israel.

Regardless of any opinion of the act itself or its enactment, at the end of the day the act exists and may be used and exploited by filing civil lawsuits against anyone who called for or participated in a boycott. In that sense it creates a new civil wrong as part of the Israeli tort laws.

Moreover, even a deliberate avoidance of economic, cultural or academic ties can raise liability for the avoider towards the business or ties avoided, as well as liability for anyone who has called for the boycott or publicly expressed support of it.

The law goes even further – and also excludes the defense argument of „sufficient justification“ and thus provides that anyone who has caused or led to a breach of a contract, by calling for a boycott, may be liable for damages, as well.

As for the damages that can be claimed, after the adjustment to the law according to the Supreme Court ruling of 2015 (ruling that compensation must be awarded in correspondence with the actual damages or loss of profit caused, and cancelled the clause for penal compensation) – the entity that may sue for torts is the entity that suffered the damage and what can be sued for is the actual damage according to the regular Israeli torts law.

The law also prohibits a person who calls for a boycott from participating in any public tender, but this is a different focus from the side of the state.

It is worth mentioning  that the rationale for this legislation was also reviewed by the widely respected Israeli Supreme Court, that has strongly elaborated that such legislation is constitutional and, inter alia, that international entities and individuals such as the BDS movement (as opposed perhaps to states) should not be able to harm or interfere with international or domestic economic affairs without at least being accountable for the outcome of such, and that freedom of speech cannot be unlimitedly protected when it in fact calls for action (or for refraining from action)  that has an actual impact on another and is not simply an expression of an opinion.

To date, it seems that the Magistrates and District Courts of Israel have yet to render judgments in actual cases based on the boycott act, indicating that the implementation of the act is still inchoate. However, it seems that instances and measures of boycotting are on the rise and the methods of boycotting are becoming increasingly overt, in a manner that is bound to lead to considerable litigation in the near future.

Needless to say, issues of jurisdiction, and other aspects of private international law, or imposing jurisdiction on foreign players, are also yet to be resolved in reference to the emergence of lawsuits under the boycott law, but these will surely find their creative legal solutions with the actual submission of lawsuits concerning real life cases.

The Italian Court of Cassation, United Sections (judgement no. 24244 of 27 November 2015), recently issued a judgement on the applicability of article 5 no. 1 of the Brussels I Regulation on the jurisdiction, recognition and enforcement of judgements in civil and commercial matters, now corresponding to article 7 no. 1 of the Regulation 1215/2012 (Brussels I bis).

The above-referenced provision sets a special forum in matters relating to a contract, providing for the competence of the courts located in the place of performance of the obligation in question. According to letter b) of this provision, in case of the sale of goods, the place of performance of the obligation in question shall be the place in a Member State where, under the contract, the goods were delivered or should have been delivered.

In the case brought before the Court of Cassation, an Italian company – while objecting the claim of a French company regarding the conclusion of some sale agreements that the latter stated to have entered into with the first one – asked for a declaratory judgement stating the inexistence of any contractual obligation between the parties, and, alternatively, for a declaration that the alleged agreements were null and void.

First of all, the Court of Cassation asserted the applicability of article 5, letter b) of the Brussels I Regulation to the case de quo.

Albeit recognizing that the abovementioned provision seems to refer only to actions addressed to the performance of a contract and not to actions regarding the dissolution of a contractual obligation, the Italian Supreme Court has considered that also claims aiming at ascertaining the inexistence, invalidity or ineffectiveness of an agreement concern matters relating to a contract. More precisely, the Supreme Court has held that such claims involve an initial, actual or alleged, voluntary assumption of an obligation, of which they tend, in several ways, to default. In the light of this assumption and considering that the delivery of the goods was supposed to take place in France (according to the contractual documents evidenced during the proceedings), the Court of Cassation has found that Italian Courts were lacking jurisdiction over the case, thus confirming the judgement previously issued by the Court of Appeal.

The judgement of the Italian United Sections is important because it has definitively confirmed, consistently with the European uniform trend, that the place of delivery is the only autonomous linking factor to be applied to all claims grounded on contracts for the sale of goods and not only to claims based on the non-performance of the delivery obligation itself.

The author of this article is Silvia Petruzzino.

When considering pre-contractual negotiations in China some words need to said about culture differences, skills to use in the negotiation process, and, drafting techniques.

All of those points are relevant in any negotiation with a foreign counterpart, but they are even more valid and important when dealing with China.

First of all, it is fundamental to get acquainted with Chinese culture before starting a negotiation, especially if the counterpart (as is often the case) is not well versed in international trade and has had very few occasions to deal with foreign businessmen and counsels.

Keep in mind that actual down-to-the-table business only comes into the picture once a personal relationship has been established and the fundamental elements of trust and respect have been set.

Those who believe that an important contract can be closed with a 2 day rush visit to China or, even worse, at a distance without a personal introduction, are very far away from the real picture of things.

It generally takes several lunches, dinners and quite a few drinks together to break the ice and prepare the ground for real business talks, and it may take several trips back and forth from China before a contract can be closed: so when applying for the visa, you should consider a multi-entry.

Of course now we are in the era of internet and it very common that agreements are entered into digitally, by means of an exchange of proposal and acceptance on the web: it is not by chance that, more often than not, such long distance contacts lead to fraud and contractual breaches.

Expect long negotiations, and if a contract is eventually signed, don’t relax and don’t overestimate its value.

In western countries we tend to see the signed document as the final phase of contractual negotiations, as the bible of the future relationship.

In China contracts are often considered as nothing but the first milestone, very far from rules carved into stone: the warning is that in most cases the contract will be regarded more like a letter of intent than like a binding agreement.

So expect the Chinese side to use a great deal of flexibility, and be ready to re-negotiate or, better yet, have in place from the start in your contract appropriate rules and mechanisms to adapt to the frequent changes that may happen.

When you finally make it to the meeting room, first of all, be sure that there is a good translator around: quite often your counterpart will not speak English and will rely on a translator and it can seriously harm the flow of discussion if the person appointed for this task is not familiar with the needed terminology.

Secondly, it goes without saying that it is important to be patient and not lose your temper, especially taking into consideration that the way in which negotiations unfold may be very different from your experience.

While we are used to a linear flow of discussion, so that the parties move from one clause to the next and so on and so forth, the Chinese attitude, in most cases, is holistic.

They tend consider the agreement as a whole: it is not uncommon to re-discuss in the morning clauses that had been agreed upon the day before, without any explanation whatsoever.

A yes may mean no, and a no may mean yes: you will never know, and that is something to be always kept in mind.

The bottom line is not very different from what should be expected in all negotiations: the aim is to find a balanced agreement, that all parties find beneficial.

To start negotiating with a draft contract that is clearly unbalanced in favor of your client will not only complicate your negotiations, but may jeopardize them from the start.

With the recent sentence n° 16601/2017 the Italian Supreme Court (“Corte di Cassazione”) – changing its jurisprudence – opened to the possibility of recognizing in Italy foreign judgments containing punitive damages. In this post we will see what these punitive damages are about, under which conditions they will be recognized and enforced in Italy and, above all, which countermeasures may be implemented to deal with these new risks.

Punitive damages are a monetary compensation – typical of common law legal systems – awarded to an injured party that goes beyond what is necessary to compensate the individual for losses. Normally punitive damages are imposed when the person who caused the damage acted with wilful misconduct and gross negligence.

With punitive damages, other than the compensatory function, the reimbursement of damages assumes also a sanctioning purpose, typical of criminal law, also acting like a deterrent towards other potential lawbreakers.

In the legal systems that provide for punitive damages, the recognition and the quantification of the highest compensation, most of the time, are delegated to the Judge.

In the United States of America punitive damages are a settled principle of common law, but ruled in different ways for each State. However, generally, they are applied when the conduct of person who caused the damage was intentionally directed to cause damage or is put in place without regard to the protection and safety standards. Usually they cannot be awarded for breach of contract, unless it also leads to an independent tort.

Historically, in Italy, punitive damages generally were not recognized, because the sanctioning purpose is not consistent with the civil law principles, anchored to the concept that the reimbursement of the damage is a simple restoration of financial heritage of the damaged person.

Therefore, the recognition of punitive damage established by a foreign judgment was normally denied due to a violation of the public policy (“ordre public”), so those judgments did not have access to the Italian legal system.

The sentence n° 16601/2017 of the 5 July 2017 of the Joint Sessions of Italian Supreme Court (“Sezioni Unite della Corte di Cassazione”) however, changed the cards on the table. In this particular case, the plaintiff applied to the Venice Court of Appeal for the recognition (pursuant to art. 64, law 218/1995) of three judgments of District Court of Appeal of the State of Florida that, accepting a guarantee call submitted by an American retailer of helmets against the Italian company, condemned this latter to pay 1.436.136,87 USD (in addition to legal expenses and interests) for the damages caused by a defect in the helmet used in occasion of the accident.

The Venice Court of Appeal recognized the foreign judgment, considering the abovementioned sum merely as compensation for damages and not as punitive damages. This decision was challenged by the unsuccessful Italian party before the Italian Supreme Court, arguing the violation of the Italian ordre public by the US judgment, on the basis of a consolidated juridical opinion until that day.

The Supreme Court of Cassation confirmed the Venice Court assessment, considering the sum non-punitive and recognized the US judgment in Italy.

The Supreme Court, though, took the opportunity to address the question of the admissibility of punitive damages in Italy, changing the previous orientation (see Cass. 1781/2012).

According to the Court, the concept of civil liability as mere compensation of the damage suffered is to be considered obsolete, given the evolution of this institute through national and European legislation and case-law that introduced civil remedies intended to punish the wrongdoer. As a matter of fact, in our system, it’s possible to find several cases of damages with sanctioning function: in the matter of libel by press (art. 12 L. 47/48), copyright (art. 158 L. 633/41), industrial property (art. 125 D. Lgs. 30/2005), abuse of process (art. 96 comma 3 c.p.c. e art. 26 comma 2 c.p.a.), labour law (art. 18, comma 14), family law (art. 709-ter c.p.c.) and others.

The Supreme Court has, therefore, stated the following principle: “Under Italian law, civil liability is aimed not only to compensate for losses incurred by the injured party, but also to reform the defendant and others from engaging in conduct similar. Therefore, the US legal institute of punitive damages is not incompatible with the Italian legal system”.

The important consequence is that this decision opens the door to possible recognition of foreign sentences that condemn a party to pay a sum higher than the amount sufficient to compensate the suffered injury as a result of the damage.

To that end, however, the Supreme Court has set certain conditions so that foreign sentences have validity, that is to say that the decision is made in foreign law system on a normative basis that:

1. Clearly establish the cases in which it is possible to convict a party to pay punitive damages; and
2. The predictability of it; and
3. Establish quantitative limits.

It has to be clarified that the sentence has not modified the Italian system of civil liability. In other words, the sentence will not allow Italian Judges to establish punitive damages under Italian law.

As for foreign court decisions, it will be now possible to obtain a compensation for punitive damages through the recognition and enforcement of a foreign judgment, as long as they respect the above requirements.

Extending our view beyond the Italian borders, we notice that punitive damages are alien to the legal tradition of most of  European States: there is the possibility, though, that other Courts of continental Europe might follow the decision of the Italian Supreme Court and recognize foreign judgments which grant punitive damages.

How to prevent this new risk

There are several measures which businessmen can adopt to mitigate this new risk: firstly the adoption of contractual clauses that exclude this kind of damages or establish a cap on the amount of the contractual damages which can be claimed, for example by limiting the value of damages at the price of the products or services provided.

Furthermore, it’s very important to have an overall knowledge of the legislation and case law of the markets in which the enterprise operates, even indirectly (for example: with the commercial distribution of products) in order to choose consciously the applicable law to the contract and the dispute resolution methods (for example: establishing the jurisdiction in a country that does not provide for punitive damages).

Finally, this type of liability and risk may also be covered by a product liability insurance.

[Initial note: This article is not aimed as a political article pro or con boycott movements or the Israeli government, but rather as a legal informative overview, in light of the actual and financial impact or exposure international business may have in the referred to matter.]

It is perhaps not known to many international trading players, but under Israeli law, Bill for prevention of damage to the State of Israel through boycott – 2011, affirmed by the Supreme Court in 2015 (after a slight interpretive adjustment), boycotting Israeli origin products, or deliberate avoidance of economic or academic ties, may give rise to a lawsuit for actual damages under civil law.

In light of the international BDS movement, attempting to place pressure upon the State of Israel by means of economic and cultural pressure, Israel has realized such activity, indeed, causes actual harm and damage to Israeli based business, manufacturers, importers/exporters, etc., as well as to academic students and professors, and so on, in cultural ties of many sorts – just because the origin is Israel.

This boycott movement affects the people and businesses of Israel, as opposed to  Israeli leaders or politicians or  the State of Israel as a state, and conveys questionable (to say the least) economic and cultural negative effects upon the people facing unprecedented obstacles in trade in the international arena – for no wrongdoing on their part.

Regardless of the political opinion one may have concerning the legitimacy, or rather the non-legitimacy, of the BDS movement or concerning the current political policy of the State of Israel – the relatively new law provides actual legal tools to deal with negative economic outcomes (damages, loss of profits, etc.) that businesses or private people encounter or suffer from boycott measures, solely because of their affiliation or relation to the State of Israel.

Regardless of any opinion of the act itself or its enactment, at the end of the day the act exists and may be used and exploited by filing civil lawsuits against anyone who called for or participated in a boycott. In that sense it creates a new civil wrong as part of the Israeli tort laws.

Moreover, even a deliberate avoidance of economic, cultural or academic ties can raise liability for the avoider towards the business or ties avoided, as well as liability for anyone who has called for the boycott or publicly expressed support of it.

The law goes even further – and also excludes the defense argument of „sufficient justification“ and thus provides that anyone who has caused or led to a breach of a contract, by calling for a boycott, may be liable for damages, as well.

As for the damages that can be claimed, after the adjustment to the law according to the Supreme Court ruling of 2015 (ruling that compensation must be awarded in correspondence with the actual damages or loss of profit caused, and cancelled the clause for penal compensation) – the entity that may sue for torts is the entity that suffered the damage and what can be sued for is the actual damage according to the regular Israeli torts law.

The law also prohibits a person who calls for a boycott from participating in any public tender, but this is a different focus from the side of the state.

It is worth mentioning  that the rationale for this legislation was also reviewed by the widely respected Israeli Supreme Court, that has strongly elaborated that such legislation is constitutional and, inter alia, that international entities and individuals such as the BDS movement (as opposed perhaps to states) should not be able to harm or interfere with international or domestic economic affairs without at least being accountable for the outcome of such, and that freedom of speech cannot be unlimitedly protected when it in fact calls for action (or for refraining from action)  that has an actual impact on another and is not simply an expression of an opinion.

To date, it seems that the Magistrates and District Courts of Israel have yet to render judgments in actual cases based on the boycott act, indicating that the implementation of the act is still inchoate. However, it seems that instances and measures of boycotting are on the rise and the methods of boycotting are becoming increasingly overt, in a manner that is bound to lead to considerable litigation in the near future.

Needless to say, issues of jurisdiction, and other aspects of private international law, or imposing jurisdiction on foreign players, are also yet to be resolved in reference to the emergence of lawsuits under the boycott law, but these will surely find their creative legal solutions with the actual submission of lawsuits concerning real life cases.

The Italian Court of Cassation, United Sections (judgement no. 24244 of 27 November 2015), recently issued a judgement on the applicability of article 5 no. 1 of the Brussels I Regulation on the jurisdiction, recognition and enforcement of judgements in civil and commercial matters, now corresponding to article 7 no. 1 of the Regulation 1215/2012 (Brussels I bis).

The above-referenced provision sets a special forum in matters relating to a contract, providing for the competence of the courts located in the place of performance of the obligation in question. According to letter b) of this provision, in case of the sale of goods, the place of performance of the obligation in question shall be the place in a Member State where, under the contract, the goods were delivered or should have been delivered.

In the case brought before the Court of Cassation, an Italian company – while objecting the claim of a French company regarding the conclusion of some sale agreements that the latter stated to have entered into with the first one – asked for a declaratory judgement stating the inexistence of any contractual obligation between the parties, and, alternatively, for a declaration that the alleged agreements were null and void.

First of all, the Court of Cassation asserted the applicability of article 5, letter b) of the Brussels I Regulation to the case de quo.

Albeit recognizing that the abovementioned provision seems to refer only to actions addressed to the performance of a contract and not to actions regarding the dissolution of a contractual obligation, the Italian Supreme Court has considered that also claims aiming at ascertaining the inexistence, invalidity or ineffectiveness of an agreement concern matters relating to a contract. More precisely, the Supreme Court has held that such claims involve an initial, actual or alleged, voluntary assumption of an obligation, of which they tend, in several ways, to default. In the light of this assumption and considering that the delivery of the goods was supposed to take place in France (according to the contractual documents evidenced during the proceedings), the Court of Cassation has found that Italian Courts were lacking jurisdiction over the case, thus confirming the judgement previously issued by the Court of Appeal.

The judgement of the Italian United Sections is important because it has definitively confirmed, consistently with the European uniform trend, that the place of delivery is the only autonomous linking factor to be applied to all claims grounded on contracts for the sale of goods and not only to claims based on the non-performance of the delivery obligation itself.

The author of this article is Silvia Petruzzino.

When considering pre-contractual negotiations in China some words need to said about culture differences, skills to use in the negotiation process, and, drafting techniques.

All of those points are relevant in any negotiation with a foreign counterpart, but they are even more valid and important when dealing with China.

First of all, it is fundamental to get acquainted with Chinese culture before starting a negotiation, especially if the counterpart (as is often the case) is not well versed in international trade and has had very few occasions to deal with foreign businessmen and counsels.

Keep in mind that actual down-to-the-table business only comes into the picture once a personal relationship has been established and the fundamental elements of trust and respect have been set.

Those who believe that an important contract can be closed with a 2 day rush visit to China or, even worse, at a distance without a personal introduction, are very far away from the real picture of things.

It generally takes several lunches, dinners and quite a few drinks together to break the ice and prepare the ground for real business talks, and it may take several trips back and forth from China before a contract can be closed: so when applying for the visa, you should consider a multi-entry.

Of course now we are in the era of internet and it very common that agreements are entered into digitally, by means of an exchange of proposal and acceptance on the web: it is not by chance that, more often than not, such long distance contacts lead to fraud and contractual breaches.

Expect long negotiations, and if a contract is eventually signed, don’t relax and don’t overestimate its value.

In western countries we tend to see the signed document as the final phase of contractual negotiations, as the bible of the future relationship.

In China contracts are often considered as nothing but the first milestone, very far from rules carved into stone: the warning is that in most cases the contract will be regarded more like a letter of intent than like a binding agreement.

So expect the Chinese side to use a great deal of flexibility, and be ready to re-negotiate or, better yet, have in place from the start in your contract appropriate rules and mechanisms to adapt to the frequent changes that may happen.

When you finally make it to the meeting room, first of all, be sure that there is a good translator around: quite often your counterpart will not speak English and will rely on a translator and it can seriously harm the flow of discussion if the person appointed for this task is not familiar with the needed terminology.

Secondly, it goes without saying that it is important to be patient and not lose your temper, especially taking into consideration that the way in which negotiations unfold may be very different from your experience.

While we are used to a linear flow of discussion, so that the parties move from one clause to the next and so on and so forth, the Chinese attitude, in most cases, is holistic.

They tend consider the agreement as a whole: it is not uncommon to re-discuss in the morning clauses that had been agreed upon the day before, without any explanation whatsoever.

A yes may mean no, and a no may mean yes: you will never know, and that is something to be always kept in mind.

The bottom line is not very different from what should be expected in all negotiations: the aim is to find a balanced agreement, that all parties find beneficial.

To start negotiating with a draft contract that is clearly unbalanced in favor of your client will not only complicate your negotiations, but may jeopardize them from the start.