Estonia: The Newest Civil Code in Europe

Up until 1^st July 2002, the Netherlands held the position of having the most modern Civil Code in Europe. On 1^st July 2002 the last ingredients of the Civil Code in Estonia entered into force – the General Principles of Civil Code Act ("GPCCA") and the Law on Obligations Act ("LOA"). The Civil Code of Estonia consists of 5 parts all grouped in different acts: general principles, property law, obligation law, inheritance law and family law. In this article we are going to touch upon the general principles and obligations law.

The most basic amendment to the principles in force until the enforcement of the LOA is the adoption of freedom of contract principle. So far Estonia acted on the basis of Civil Code that was in force also during the Soviet times when there was little private property. Under the old Civil Code basic rule was that the parties could not agree otherwise if the law provided regulations for that kind of civil relationships. Since 1991 Estonia has moved towards privatising most of the state and municipal assets and therefore we have interpreted the old Civil Code accordingly.

The new LOA is a dispositve law which means that parties can agree otherwise than the law has provided if the law does not specifically state or it does not derive from the essence of the law provision that parties are not allowed to agree otherwise or if different agreement would be in conflict with the public order or good manners or if such different agreement would violate the basic rights of a person. It could be rather complicated sometimes to understand whether the agreement could be in conflict of the essence of the provision or public order. As long as parties do not challenge the agreement, the agreement would be in force. Eventually, it all comes down to the court to decide, but currently the LOA has not been in force enough for the Supreme Court to render any rulings. Although the Supreme Court followed the principles of the new laws even when they were not adopted yet.

Freedom of contract principle also includes the freedom to conclude the agreements in any possible form unless specific form is required by the law, freedom to conclude agreements voluntarily, freedom to name the agreement as desired etc.

In contractual relationships also the principle of good faith should be kept in mind. The good faith principle is not a new one in Estonian laws and legal practice as it was before the enforcement of the LOA provided in the Law of Property Act but now it is to apply to all contractual relationships.

The good faith principle provides that the parties are obliged to act in good faith in relation to each other. The good faith principle is placed higher then the provisions of law, agreement or practice as the LOA stipulates that the provisions of law, practice or agreement shall not be applied if those would be in conflict with the good faith principle.

In the regulations of different contracts the definition of reasonability is brought in. This criterion is used in assessing different contractual rights and obligations. In a contractual relationship reasonable is considered to be something that the persons in the same situation acting in good faith would usually consider to be reasonable. In assessing reasonability one should take into account the essence of the contractual relationship and goal of the transaction, general custom and practice of respective business field, and also other related circumstances. As it can be seen, the principle is rather subjective and needs a lot of interpretation. Again it will be very interesting to read the interpretations of the Supreme Court when first disputes regarding the reasonability principle reach the highest court.

The criteria of customs and practice was already introduced before the enforcement of the new GPCCA and LOA but has now been stipulated in more detail. Parties to the contractual relationship are obligated to follow every customs that they have agreed upon to be followed and practice that has been formed in their relationship in case the parties act in their ordinary course of business. Not only customs and practice that has been created in their relationship must be followed but also the customs and practice that people and entities active in that business sphere usually follow, excluding the cases where following such customs and practice is in conflict with the laws or would not be reasonable considering the circumstances.

It can be concluded that although Estonia has a legal system that is similar to those of Germany and other countries of continental Europe, the new Civil Code makes principles of reasonability and good faith innovatively prevailing. This leaves a lot of room for judicial interpretation and therefore the role of the Supreme Court rulings grows larger taking the Europe one more step closer to common law systems.