This case is about an unfortunate supply of an air conditioning system to an Italian hotel. The resolution of the case (at least at a judicial level) has requested the intervention of four courts at different levels, and has taken more than 15 years. This may give some lessons about how an incredible slow pace Justice may take in some countries; but it also casts serious doubts about the ability of certain domestic regulations to cope with contemporary business needs.

The actors involved were all Italians, but the same would have likely happened even in case the suppliers, or the principals were from aboard.

Just some preliminary explanations: under the Italian law –

  • a sale contract (vendita) is defined as a contract where one party (the seller) is to pass rights over a thing, to another party (the buyer) at a price (art. 1490 of the It. Civil code). Nothing particularly new, since it comes with due adjustments from the ancient Roman times. Saying it simple, a sale contract is the passing of hands of ‘something’ that can be legally transferred.

  • When the contract provides instead for one party (let’s call it contractor) to have something realized on order, and to the benefit of another party (the principal), well we have to change domain: it’s an appalto, i.e., from a layperson’s perspective, a contract for a ‘task’ to be realized (art. 1655 It c.c.). This may be a procurement, or a works contract involving just services to be rendered, but also goods to be provided[1].

So, to distinguish between a sale and an appalto becomes particularly intriguing when somebody is requested to supply a custom-tailored physical good, or to process certain materials provide by the principal in order to realize a new object; or, again, to supply both a goods and related services. The supply of an equipment that has been specially adapted, and is to be installed in order to become a segment of the purchaser’s production line, is a sale contract (since a piece of hardware has undoubtedly passed of hands) or is it rather an appalto (since the ultimate aim is that it has to work properly in accordance with the purchaser’s desires)?

To distinguish between a sale and an appalto is not a quirk, to satisfy a jurist’s need for categorization. It draws in fact serious consequences, since the legal schemes of the two diverge. In particular, as far as the terms for claiming non-conformity are concerned. Basically:

  • any non-conformity in a sale contract must be denounced within 8 days after discovery, and an action in court is barred unless started with 1 year after delivery of the good (art. 1495 It c.c.)[2]

  • any non-conformity in an appalto must be denounced within 60 days after discovery, and the limitation period amount to 2 years after the handing over of the ‘work’ (art. 1667 It c.c.). A special 10-year term is however provided for in case of ruin (or danger of ruin) or serious deficiencies of buildings (art. 1669 It.c.c.)

That said, what happened with our hotel?

In 2003 the owners of REMIN PLAZA, a 4-star hotel facing the Rimini beach in the Adriatic sea thought that time had come to revamp their old air-conditioning system, and entrusted FT to do the work, by utilizing DAIKIN products. This included the supply of all the necessary machines, and their installation and commissioning. In addition, the owners asked AIRVENT SAM, a company specializing in hot/cold regulation systems to provide them with such a system (that was intended as an alternative to the standard DAIKIN one, originally proposed by FT).

In the end, things were not working properly – possibly on account of problems in interfacing the DAIKIN equipment with the AIRVENT system and no commissioning took ever place. The principals decided therefore to sue both FT and AIRVENT SAM in order to force them to fix all non-conformities, and pay for the damage done.

The proceeding soon involved other parties, namely the supplier of FT, and the engineers responsible for the project. One thing emerged over others: i.e. both FT and AIRVENT counterclaimed that the principals’ action was to be considered a barred since any limitation period had elapsed.

This was also the opinion of both the 1st instance, and the appellate courts (April 2016)[3], with the only difference that the later considered both contracts as appalto, whereas the former held that the HOTEL-AIRVENT contract was actually a sale. Anyway, both courts rejected the principals’ reasoning that it should be considered, instead, the 10-year limitation term under art. 1669 It c.c. that allegedly had not even started running since no commission was ever made.

The case eventually went under the scrutiny of the Cassation court, which released their decision in December 2021 (!)[4]. Again, the principals’ claim was denied, and the Cassation mandated a lower court to reassess the apportionment of proceedings costs among the parties.

It is interesting that, on the occasion, it was held inter alia that-

  • to qualify a contact as a sale, or as an appalto is up to the courts of merits (the point was not addressed specifically, though – but it is interesting to note that the AIRVENT supply turned out to be considered as an appalto (and not a sale), because the contract provided for the control system to be installed, care of two qualified technicians);

  • a serious deficiency as envisaged in art. 1669 It c.c. must amount to “an unsatisfactory implementation of the work that affects the enjoyment of the property in a negative and considerable way” and it’s up to the judges of the merits to assess whether this is so or not.

  • The fact that no commissioning ever took place, did not preclude the running of the limitation period (i.e. the 2-year term). In fact, it is the principal who has the burden of proof as to when the limitation period starts, when faced with such an exception.

 

 

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[1] The law makes further distinctions in this respect, that is not the case to address here. Be sufficient to say that an appalto requires a certain level of organization, i.e. labor force, material means, financial capabilities, etc.

[2] There are exceptions, since the Italian law, at least in B2B transactions breaks the unitary concept of “non-conformity” into different types of defects. We do not need to dwell on this now.

[3] C. Appeal Bologna (IT), decision 633 of April 15, 2016.

[4] Cassation Court (IT), decision 39599 of December 13, 2021.

<img src="" class="rounded-circle shadow border border-white border-width-4 mr-3" width="60" height="60" alt="Carlo Mosca">
Author: Carlo Mosca

A lawyer specializing in international commercial transactions. Lexmill's owner.

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