COVID-19: courts step up to protect businesses forced to shut down

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COVID-19 emergency measures are starting to make their way into court decisions concerning businesses affected by the lockdown measures. Two judges in Venice, one in Bologna, and one in Genoa recently ordered banks and landlords to freeze any actions regarding companies that had to shut down due to COVID-19 emergency legislation.

All four of these orders were issued ex parte in the context of urgency proceedings filed by petitioners that had to close their businesses and, therefore, could not afford to pay their leases.

Court of Venice 1

On April 14, 2020, the court of Venice ordered a bank not to pay a bank guarantee and not to start any kind of proceedings toward the petitioner. From publicly available information, it appears that the petitioner requested termination of the lease agreement in connection with a shop in the center of Venice. The city was hit not only by COVID-19, but also by the Acqua Alta (flooding) phenomenon in November of last year. The tenant informed the landlord of termination of the lease agreement due to a reason not attributable to the tenant and due to a sudden occurrence of extraordinary and unpredictable events. The landlord insisted on payment and sought payment of the bank guarantee. The court issued an order to stop the bank from paying what the landlord had requested. The payment, the judge added, would have been made during “unfavorable times.”

Court of Bologna

On May 12, 2020, the court of Bologna ordered a landlord not to cash four checks issued as a guarantee for the payment of the lease of a gym. In his reasoning, the judge noted that gyms were ordered to shut down from February 24, 2020 (likely) until June 18, 2020. Also, the judge agreed with the petitioner that if the respondent (the landlord) had cashed the checks, the tenant (i.e., the gym) would have been reported to the Italian Central Bank and included on the list of bad payers. This would have caused severe prejudice to the tenant.

Court of Venice 2

Recently, on May 22, 2020, the court of Venice ordered a company not to request any payment from a bank in relation to a bank guarantee and ordered to the bank not to pay the bank guarantee or to start any kind of proceeding toward the petitioner. The details about the facts underlying this dispute are scarce, but it appears that it relates to the lease of a business unit. Notably, the judge quoted in the ruling Article 91 of Law Decree No. 18 of March 17, 2020, according to which actions taken to comply with the containment measures adopted by the government will entail a more tolerant approach when assessing liability for non-performance or delays due to the abovementioned actions.

Court of Genoa

Finally, very recently, on June 1, 2020, the court of Genoa ordered a defendant who leased a business unit to abstain from cashing in (or transferring) the promissory notes it had received as guarantee for payment of the lease of the business unit. With a reasoning similar to that used by the previous courts, the Genoa judge noted that there are “extremely urgent reasons” to grant the order on an ex parte basis because the petitioner could have been reported to the Italian Central Bank and included on the list of bad payers. This – in fact – can cause severe prejudice, especially in future interactions with banks.

Short Comments

These decisions show that courts are paying a great deal of attention to the need for businesses to get some air – since they were forcibly shut down due to the COVID-19 measures and, therefore, could not afford to keep paying their rent/leases.

The cases all share the same basic factual background: petitioners were entities that were forced to shut down and therefore lost income for several months – thus impairing their ability to pay rent/leases in a timely manner.

This case law trend counsels treading very lightly when requesting payment of bank guarantees or other guarantee instruments, such as promissory notes, as it is a first sign that courts are currently viewing businesses affected by the lockdown as deserving greater protection than landlords.

These orders were all issued on an ex parte basis and will need to be either confirmed or revoked after the respondents have the chance to present their cases. Therefore, it remains to be seen whether or not this trend ultimately will be confirmed.

Articolo inserito in: COVID-19, Contenzioso
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