The Supreme Court: it is obligation of a court to evaluate, if contracts are not in conflict principle of good faith
14 November, 2013
When applying demurrage, principles of rule of law, fairness and equal protection of parties of legal relations, which are included in the Constitution, should be observed, not denying freedom of contracts, but not admitting application of such demurrage and other means, which due to excessive severity destroy the party economically or due to insignificant infringement deprive his/her prospects to successful activity in long-term. It is obligation of a court to evaluate, if incommensurately great demurrage is not set in the contract and if contractual provisions, placing the consumer in disadvantageous position, are not in conflict with principle of good faith – compilation of case-law in application of demurrage, which is performed by the Supreme Court, indicates.
Demurrage – alongside with guarantee, collateral (mortgage) and earnest-money – is one of ways of reinforcement of liability law, which has been applied most often. Regulation on demurrage stated in the Civil Law provides extensive opportunities to establish it in different ways and amount, and the very issues regarding amount of demurrage become main subject of dispute in many cases being reviewed in a court. When reviewing such disputes, courts have to apply not only concrete provisions of the Civil Law, but also, executing obligation to provide just judgements, to follow provisions of the Civil Law regarding exercise of rights in good faith and invalidity of such deals, which are turned to purposes contrary to laws or good virtues or evasion of laws, and to provisions of special protection of consumer rights. However, other issues related to demurrages appear in courts’ practice, and those become subject of examination of the Senate of the Supreme Court.
More than 400 rulings of the Senate – both judgements and decisions of the Senate and decisions of assignment sittings of senators’ collegium, which were adopted between January 2008 and April 2013 – have been studied in summary. Part of these judgements is published on the web site of the Supreme Court, but the summary also contains many judgements, which had not been published previously. Particular rulings of the first and the appellate instance courts are also included in summary to provide more detailed insight into some concrete issue.
Summary of case-law has been prepared by the senator Dr.habil.iur. Kalvis Torgans and assistant to the senator Gunvaldis Davidovics, and it was accepted at the meeting of senators of the Department of Civil Cases of the Senate.
Authors of summary pay attention to the fact that when rulings to be studied were already selected and this case-law summary was processed, the Saeima (the Parliament) adopted the law “Amendments to the Civil Law”, which will become effective as from January 1, 2014. These amendments will significantly affect Latvian case-law. Thus, due to their becoming effective, part of solutions indicated in this summary, loses topicality. Courts, when following conclusions of the Senate available in summary, should not “blindly” follow theses of the Senate expressed prior to amendments to the Civil Law, but those should evaluate reasonably, to what extent those comply with case-law of the European Union and amendments to the Civil Law regarding regulation on demurrage and could be useful in review of every concrete dispute.
Information prepared by
Rasma Zvejniece, the Head of the Division of Communication of the Supreme Court
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