On June 20, 2013 the Saeima adopted the Law "Amendments to the Civil law" (hereinafter - the Amendment), which entered into force on 1 January, 2014.
Contracts which entered into force before December 31, 2013 and which include the obligation to pay a penalty, if the contract is continued after January 1, 2014 and till December 31, 2014 they have not been brought to court, on January 1, 2015 changes of article 1716, 1717, 1722, 1843 of Civil law applies to them.
Taking into account the principles laid down in Article 3 of the Civil law that "every civil law relationship shall be considered by the laws in force when this relationship was created, altered or terminated, rights already acquired shall not be affected”, the amendments apply only to obligations established by actual regulation, that is, after January 1, 2014.
Given the above, it can be concluded that the amendments does not apply to obligations established before actual regulation, that is, before January 1, 2014 while the amendments relate to:
obligations established by actual regulation, that is, after January 1, 2014
by January 1, 2015 – to obligations established before actual regulation, that is, before January 1, 2014, if the contract is continued after January 1, 2014 and till December 31, 2014 they have not been brought to court
The amendments provide changes to the penalty and interest of article 1716, 1717, 1722, 1764, 1843 of Civil law.
There is several types of penalties:
1. about default in general
2. about improper fulfillment of obligations or failure to comply with the deadline (it is limited to 10 percent of the amount of the obligations)
Penalty shall be proportionate according to fair business practices.
Penalty may be declared void, according to article 1717 of Civil law, or reduced, according to article 1724.1 of Civil law.
About improper fulfillment of obligations or failure to comply with the deadline: penalty may be claimed only to the extent which is above the required amount of interest resulting from the failure occurrence
About default in general: penalty may be claimed only to the extent which exceeds the amount of damages to be recovered, unless explicitly agreed that penalty precludes the consideration.
The courts have certain powers to reduce the required penalty on its own initiative if superfluity is detected.
Interest can be deemed unlawful, according to article 1764 of Civil law.
Payment shall be transferred first to unpaid interest, then for the capital redemption and only after to cover penalty. Parties may deviate from established policies just in case if the creditor has been willing to accept payment only in the capital expense.
