On 1 March 2006 amendments to the Civil Law of Latvia came into force changing the statutory remedies available to contracting parties in cases of payment delays and fine-tuning the statutory rights and requirements concerning claims for compensation of moral damages.

The new amendments to the Civil Law will overrule an earlier decision of the Plenary Meeting of the Supreme Court of Latvia dating back to 1999 pursuant to which the Supreme Court had determined that general provisions of the Latvian contract law concerning claims for damages are not applicable to claims for moral damages and that such damages can only be claimed in certain specific and restrictive circumstances. According to the new amendments any unlawful act or failure to act may entitle the person suffering emotional distress due to such act or failure to act to compensation.

Emotional distress has been defined as physical or emotional suffering which is caused by harm to a person’s non-monetary rights or non-monetary benefits by an unlawful act or failure to act by the defendant. The burden of proof in relation to emotional distress is on the plaintiff. The claims for moral damages do not need to be quantified as the amount of compensation to be awarded to the persons suffering emotional distress will be determined by the courts at their discretion.

The existence of emotional distress is presumed if a person has suffered from a criminal offence against the person’s life, health, morality, sexual integrity, freedom, reputation, self-esteem, or from a criminal offence against the person’s family, or if the criminal offence has been committed against a minor. This presumption will significantly expand the scope of persons entitled to claim compensation for emotional distress suffered due to a criminal offence and it may contribute to a substantial increase in the claims for compensation in respect of criminal offences committed against these persons. Under the legal regulation of claims for compensation of moral damages in place prior to the amendments to the Civil Law, the damage claims were fairly infrequent, which, in part, was due to the difficulties to prove and substantiate the emotional distress.

The other set of amendments made to the Civil Law concerns improvements in the legal regulation of such material commercial issues as payment deadlines in contractual relationships and legal consequences of payment delays. As a general rule, unless another payment deadline has been agreed by the parties, all payments in respect of purchases and supplies of goods and services will be due in 30 days of the date of receipt of the invoice or goods or services, whichever is later.

Before the amendments to the Civil Law, in case of a payment default the defaulting party was required to pay default interest at the fixed rate of 6% per annum irrespective of the actual market situation and interest rates at the time. The interest rate of 6% was included in the law at the time it was adopted in 1937 and had not been changed since then.

According to the amendments to the Civil Law, the statutory default interest rates payable in case of payment defaults under the contracts of purchase or supply of goods and services will be tied to the semi-annual changes in the refinancing rates of the central bank of Latvia. The new default interest rate will be calculated as the sum of the adjusted base rate and the margin of 7 percentage points. The current base rate is 4%. It will be adjusted by the Bank of Latvia each 1 January and 1 July by the same percentage by which the Bank of Latvia has adjusted its refinancing rate in the relevant 6 months period.

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