The United Sections of the Italian Supreme Court (Corte di
Cassazione a Sezioni Unite) recently issued a remarkable
ruling in relation to the validity of Italian law preliminary
agreements contemplating the subsequent execution of further
preliminary agreements (the so called "preliminare di
preliminare"), by decision no. 4628/2015 (the
In particular, the Decision addresses the enforceability under
Italian law of a binding arrangement whereby the parties agree,
subject to certain conditions precedent, to enter into a subsequent
preliminary agreement, which in turn contemplates the execution of
a final agreement.
This brief note is aimed at summarizing the main contents of the
Decision, which we believe is also relevant for acquisition
transactions (both share and asset deals), where typically a
preliminary binding arrangement such as a letter of intent, a
binding offer or a term sheet (collectively, the
"Preliminary Binding Arrangement") is
executed as a first step of the acquisition process whereby the
parties agree upon the key terms and conditions of the transaction
and undertake to reflect them into a more detailed sale and
purchase agreement (the "SPA"), which in
turn provides for the execution of a transfer deed as the ultimate
step of the transaction.
Concerns were risen on the enforceability of the undertaking to
execute the SPA as provided under the Preliminary Binding
Arrangement, based on the argument (expressed by certain Italian
scholars and case law in respect of subjects having contractual
structure and process similar to the one of M&A deals) that
Italian law would not contemplate the "undertaking to
undertake" to perform a certain obligation in the
future1. By leveraging on these arguments, in a typical
acquisition transaction a party to a Preliminary Binding
Arrangement (more likely the vendor) could infer that –
although the conditions to the execution of the SPA (e.g., positive
outcome of the due diligence) have been met – it has no
enforceable contractual obligation to proceed with signing on the
agreed terms, thereby trying to escape liability. This means that
the non-breaching party could attempt to seek restoration of the
damages so incurred only by claiming "pre-contractual"
liability of the other party (which is weaker remedy when compared
to a full "contractual" liability).
By following a different approach, the Decision2
clarifies that an acquisition process which contemplates
the execution of two preliminary agreements and a final agreement
is contractually valid and enforceable, to the extent that the
parties thereto have an interest to progressively define the
contents of the deal by entering into subsequent agreements which
provide for increasingly specific terms and conditions. We
believe that such requirement can be regarded as met in standard
acquisition transactions, where typically the parties first execute
a Preliminary Binding Arrangement (setting forth the general terms
of the transaction), then a detailed SPA and, ultimately, a final
transfer deed whereby the transaction is consummated. All such
agreements have structural features distinguished from each other
and are aimed at progressively define the terms and conditions of
the transaction, thereby ensuring that each of them serves a
different purpose in its context.
Based on the Decision's interpretation, where a Preliminary
Binding Arrangement is executed and, at a later stage, one of the
parties does not comply with its undertaking to execute the SPA,
the non-defaulting party can fully rely on the contractual
enforceability of the Preliminary Binding Arrangement and,
therefore, claim compensation for breach of contract. To this end,
it would certainly be advisable determining in a Preliminary
Binding Arrangement the amount of liquidated damages which would
become payable by the party in breach of its obligation to execute
the SPA, so as to minimize the room for disputes in that
In light of all the above, we believe that from investors
perspective the Decision establishes a significant step forward
towards certainty of full enforceability of the Preliminary Binding
Arrangements, provided of course that the aforementioned required
"progression" of contents and regulations is ensured when
drafting the relevant transaction documents.
1. See, among others, decision no. 8038/2009 of the
Italian Supreme Court.
2. Note that the Decision was adopted by the most
important Italian court having jurisdiction over civil law matters,
and therefore it constitutes a precedent which (although in
principle always subject to overruling) can certainly influence
subsequent case law.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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