FIRST COURT DECISION IN SPAIN. REBUS SIC STANTIBUS

On 25 September 2020 the First Instance Court No. 81 of Madrid passed a judgment adopting precautionary measures in application of the rebus sic stantibus clause.

The doctrine of the rebus sic stantibus clause is a reasonable theoretical construction from an equity point of view but devoid of regulation. It is, above all, a clause of exceptional and extraordinary application.

The fact is that rebus sic stantibus is a Latin expression that can be translated as “things being as they are” and refers to a principle of Law by virtue of which it is understood that the stipulations established in contracts take into account the concurrent circumstances at the time of their conclusion, that is to say, any substantial alteration of these circumstances could modify those stipulations.

However, this clause vigorously clashes with the principle of contractual security, better known as pacta sunt servanda or “the pacts [agreements] are made to be fulfilled”, hence the exceptionality of the clause under consideration.

Consequently, only atypical and extraordinary situations caused by “absolutely unforeseeable circumstances” and resulting in an “exorbitant disproportion between the services provided by the parties” will lead to a loss of contractual security for the purpose of applying the rebus sic stantibus clause, according to the Spanish Supreme Court.

The first judgment passed in Spain in application of this exceptional clause, motivated by the critical economic scenario (as a consequence of the current health emergency situation) settles in a precautionary basis ––before the trial takes place, and in order to preserve the effectiveness of a possible definitive estimation of the claim–– the controversy between: (i) the lessee of a night club whose opening is not permitted from the time of the declaration of the state of alert and until further notice; and (ii) the lessor owner of the night club who did not accept to the lessee’s request to suspend the payment of the rent.

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1. Background

On March 14, the Spanish Government approved the declaration of the state of alarm to deal with the health emergency caused by COVID-19 in Spain, through Royal Decree 463/2020.

This Royal Decree established “the suspension and interruption of procedural periods“, that specified that their calculation “shall continue at the moment the Royal Decree or its extensions end“.

Besides it stated the “suspension of administrative deadlines” and the substantive deadlines (i.e., the corresponding deadlines of the actions and rights that could be affected by the statute of limitations and lapse ––“caducidad” and “prescripción” in Spanish Law).

So far, it seemed clear that the deadlines would be continued when the state of alarm ended, but they would not be restarted.

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Public service and supply contracts with successive performance of obligations

Those contracts in force at the entry into force of Royal Decree-Law 8/2020, of 17 March, the performance of which becomes impossible as result of COVID-19, will be suspended, in whole or in part, from the time the situation that prevents their performance arises and until such performance can be resumed. It will be understood that performance may be resumed when the contracting authority notifies the contractor the termination of the suspension.

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Last Sunday, 29 March, Royal Decree-Law 10/2020 was published in the Official State Gazette – which came into force on the same day – and a few hours later Order SND/307/2020, 30 March, was also published, establishing the interpretative criteria for the application of Royal Decree-Law 10/2020, 29 March, and the model of responsible declaration to facilitate the necessary travels from the place of residence and the place of work.

This Royal Decree-Law contains and specifies the measures that the Government had already announced regarding the suspension of all non-essential economic activity. Thus, workers whose jobs are not considered essential will not have to go to work between Monday 30 March and 9 April 2020.

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GIMÉNEZ TORRES ABOGADOS publishes newsletters, from different perspectives, regarding the scope and repercussion of Royal Decree-Law 8/2020, of 17 March, in order to address the economic and social impact of COVID-19.

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