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Date:   16 August 2006
Court:   The Court of Valmiera District
Local case reference:   C390870050091/06
CISG Nordic ID:   060816LV
Country of decision:   Latvia
Buyer's country:   Latvia
Seller's country:   Latvia
Goods involved:   Contract for the subsidy of a project
Case history:   n/a
Original language:   Latvian
Provisions cited:   CISG articles 79
Original court document:   n/a
Rapporteur:   Aleksandra Vasiljeva
Case citations:   n/a



by Aleksandra Vasiljeva

The Latvian State Agency, which deals with the development of the region (hereinafter the Agency) concluded a contract with a Latvian company (hereinafter the Company). The Company won the tender for the development of public transport opportunities in the city. According to the contract, the Company was obliged to maintain the roads, offer transport services and operate gas stations. On 26 August 2001, the Agency concluded another contract with the Company. According to the contract, the Agency was obliged to pay 18 percent interest from the amount of the loan that the Company obtained from the bank in order to perform the project. The abovementioned interest was paid as a subsidy to the project.
According to clause 5.1 of the contract, the Agency had the right to avoid the contract and to ask the repayment of the interest if the Company was not performing its obligations. According to clause 4.4 of the contract, the Company was not responsible for the non-performance of its obligations if the reason for it was a force majeure event. However, in case of force majeure, the Company was obliged to notify the Agency about it within two days, in order to be exempt from liability.
The Company was not able to perform its obligations and the Agency announced the avoidance of the contract and sued the Company for the repayment of the interest before the Court of Valmiera district (hereinafter the Court). The Company’s representative stated that the Company did not perform its obligations because of events beyond its control. The Company’s representative mentioned that the state regulations concerning the certification of companies that are dealing with road maintenance had been changed. According to the new rules, the certification was no longer necessary, which increased the competition in the market. As a result, the municipality hired another company. The Company also ordered equipment that was fully prepaid. However, the equipment was not delivered and the Company suffered damages. The Company claimed that the abovementioned circumstances constituted force majeure and for this reason, the Company required to be exempt from the liability, according to clause 4.4 of the contract.
The Court stated that there is no dispute between the parties about the fact that the Agency paid LVL 6.064.89 to the Company as a subsidy for the project. The court also stated that it is not disputed that the Company did not perform the obligations stipulated in the contract.
The Court evaluated if the Company did not perform its obligations due to a force majeure event. The Court noted that according to Articles 1657, 1773 of the Latvian Civil Code, a party may be exempt from its liability for the non-performance of the contract if the reason for it was a force majeure event. However, there is no definition of force majeure in the Latvian law. For this reason, the Court decided to apply the UN Convention on the Contracts for the International Sale of Goods (hereinafter the CISG). According to Article 79 (1) of the CISG, ‘a party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences.’
The Court found that the Company did not prove that the non-performance of the contractual obligation was caused by a force majeure. The fact that the new regulation in the field of road maintenance increased the competition did not absolutely preclude the Company from the ability to perform its obligations. This regulation influenced the Company indirectly and should be considered as a part of the business risk. The fact that the Company suffered damages because of the non-delivery of the equipment by its business partner should not be considered as a force majeure event. By paying the entire amount in advance, the Company demonstrated lack of prudence.

Moreover, the Court noted that the Company did not notify the Agency about the force majeure event within two days as it was agreed in the contract. This deprives the Company of any rights regarding clause 4.4 of the contract. For these reasons, the Agency has rightfully avoided the contract and the Company has to repay back the subsidy received from the Agency (LVL 6,064.89).



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