Costa Rica: Breach of Contract Obligations in Times of COVID-19 - Update 5

March 18th, 2020. COVID-19 is impacting the Costa Rican economy in a way that could prevent, or at least delay, the fulfillment of various contract obligations.

The declaration of a State of National Emergency and the sanitary measures ordered by the Costa Rican Authorities present a challenge for many individuals and companies in fulfilling their contract obligations, especially credit obligations.

Anticipating this situation, different institutions, regulatory entities and the Government itself have issued guidelines, resolutions or regulatory standards conducive to mitigating the impact of the crisis.

In any case, these mitigating measures could be insufficient and it is expected that controversies related to contract breaches caused by this sanitary situation, will begin to emerge in the medium term.

It is important to note that our Civil Code, in the article 702, establishes in general the force majeure and the fortuitous event as an exemption from liability for the breach of an obligation. The situation generated by COVID-19 worldwide is unprecedented and could be included as an exceptional situation that exempts the liable party in the event of default.

However, to make such an allegation it would be necessary to demonstrate that the breach was produced unequivocally by the situation generated by COVID-19 and, -eventually-, that the liable party in a state of default was diligent and took the necessary precautions. Of course, each specific case must be analyzed to determine whether the defense proceeds or not.

On the other hand, in the case of the party that is not at risk, -up until now-, of breaching its contract obligations in the short term due to the situation with COVID-19, this would be a good time to foresee possible situations of future default and anticipate with a contingency plan. We recommend reviewing your contracts again and analyzing whether they contain specific regulations to mitigate these situations or resolve them in a simple way. It is important to review if an arbitration clause was agreed to resolve possible disputes.

At Arias we remain at your disposal in case you need help with any of these issues. Do not hesitate to contact our specialized team at the following emails: victor.garita@ariaslaw.com; abraham.balzer@ariaslaw.com; german.rojas@ariaslaw.com