Since the beginning of the Covid-19 pandemic, discussions have been held very extensively in Latvia and the European Union on compliance with contractual obligations and deadlines during an emergency situation. The concept of force majeure has been mentioned several times in the Latvian Civil Code, but it can still be considered a general clause, because the concept is still not given a sufficiently clear explanarion. The main condition is that force majeure should be recognised as a circumstance serving as an exempt of claims for damages and of the fulfilment of certain obligations. An exception is permissible in cases where a party to the contract has on his own will assumed a responsibility for such a risk.
During the Covid-19 pandemic, an emergency situation has been declared in Latvia. Due to the restrictions imposed, the economy and many sectors are experiencing difficulties, which may consequently result in delay or even impossibility to meet some commitments and fulfil contractual obligations.
In order to extend the concept of 'force majeure', the Supreme Court of the Republic of Latvia has indicated the following criteria:
- This is an unavoidable event, the consequences of which can not be overcome.
- A reasonable person could not have predicted the event at the time of the conclusion of the contract.
- The event is not the result of the conduct of the Party or of the person under control of the respective Party.
- The event makes the fulfilment of the obligations not only burdensome, but also impossible.
In particular, attention should be paid to the last precondition, which states that the event in particular makes the fulfilment of the obligations not only burdensome, but also impossible.
In the present case, a distinction must be made between the impossibility of fulfilment the obligations objectively and subjectively.
The Supreme Court states that if the other conditions have occurred, but the fulfilment of obligations is difficult, but in theory it is possible - circumstances cannot be recognised as force majeure (e.g. economic crisis). Accordingly, if the fulfilment of the obligations is only difficult but there is no objective obstacle which would make the fulfilment of the obligations entirely impossible, in the present case force majeure cannot be used as a justification for the failure to fulfil an obligation.
To understand whether Covid-19 can affect your performance of your obligations, you must primarily analyze your contract.
If the contract is not governed by mandatory rules, the terms of the contract are the result of the free will of the parties. Accordingly, the contract may:
- have a force majeure clause
- have no force majeure clause
Where a contract provides for a situation of force majeure, then an appropriate contractual term shall decide whether a pandemic and the declared state of emergency can be regarded as force majeure, resulting in the exempt of the parties from the obligation to pay damages and obligations (if they cannot be fulfilled for objective reasons), however, there may be a situation where the force majeure clause does not, however, exempt the obligation to perform the contract (unless the contract provides for their termination on account of force majeure).
Contract provides for principle of freedom of the contracting parties, which means that the definition of force majeure laid down in each contract is taken into account - for example. the parties agreed that the sector's performance and transactions could be affected by a particular circumstance: pandemic, epidemic, national emergency, etc.
Different contractual terms may affect each sector differently and the execution of transactions, i.e. creating a greater or less burden on the fulfilment of the obligations, or even not creating a burden at all.
For example, in many cases, the Covid-19 pandemic is compared to an economic crisis, in terms of economic and so-called economic and associated effects, and cannot be regarded as a force majeure. It is necessary to assess whether economic services are still provided in the light of precautionary measures or whether compliance with the obligations can still be carried out.
When can Covid-19 be considered a force majeure?
- If the implementation of the contract obligations is objectively impossible, e.g. containment measures - quarantine, closure of borders, and other individually assessed circumstances.
- Depending on the nature of the agreement, certain points set out in the law regulating the preventative measures on the pandemic make it impossible to fulfil obligations - mandatory in nature.
However, in order to refer to Covid-19 as a force majeure in the present case, it is necessary to assess each situation individually. The party shall be obliged to notify the other party of the circumstances which prevent the fulfilment of obligations in a timely manner, since the exception does not apply for the delay that the party could reasonably foresee. The very fact of the recognition of force majeure does not provide an automatic basis for the termination of the contract. There may be situations where the contract will simply be extended without releasing the obligation. It may be that the service provision agreement is (e.g. on a specific date) terminated.
When can Covid-19 not be regarded as a force majeure?
- Economic activity is still carried out, it is still possible to meet the obligations (even with the burden).
- The points set out in the law, which do not prohibit specific action during the pandemic - "recommends'' to do/not to do something, but has a legitimate aim - minimize the spread of Covid-19 infection.
EU LAW FIRM's lawyers advise the parties not to rely immediately on Covid-19 as a force majeure to exclude the fulfilment of the obligations and advises the parties who did not yet conclude the contract to include a force majeure clause in the contracts drafted during the pandemic. In each situation, it is necessary to assess the terms of the contract and the factual circumstances.
Article 1 of the Latvian Civil Code provides:
"Rights exercised and obligations fulfilled in good faith"
To learn more about your rights during the Covid-19 pandemic and seek legal advice, we encourage you to contact our lawyers - info@eulawfirm.eu
You also can contact our lawyers via Whatsapp, Viber, Telegram +37126742086
