Consequences of the Emergency Status in Peruvian contractual relations in Peru

Written by Maria Soledad Gastañeta, Senior Associate

Since last March 16, Peru is in a National Emergency Status (Estado de Emergencia Nacional) (“NES”) that obliges every person to keep quarantine (obligatory social isolation). Only those persons that work in activities related to essential services may work (food supply, medicines, water services continuity, sanitation, electric power, gas, fuel, telecommunications, cleaning and solid waste collection, funeral and financing services, among others, contemplated in Supreme Decree N°044-2020-PCM and its amendments) (“essential services”) and their related activities. A cur-few was added to the foregoing situation from 4:00 pm until 5:00 am.

The following are some effects that NES is having or may have in contracts executed under Peruvian law.

Force Majeure

In reality and regardless of the home office work that the Government is also promoting, it is clear that due to the NES, the majority of enterprises and individuals holding a business will not be able to perform the contracts they currently have and that they were performing at the time the NES was declared. Thus, they are not providing their services, performing works or supplying products, etc., and in many cases collecting a fee.

However, this situation does not constitute a contractual default, due to the fact that such companies and individuals are in a force majeure situation as it is defined in Article 1315 of the Peruvian Civil Code, and probably in the relevant contract. It must be clear that the force majeure applies even if the contract doesn´t make reference to the force majeure.

Force majeure is the non-imputable event consisting of an extraordinary, irresistible and unforeseeable event that prevents the performance of an obligation or determines its partial, late or deficient performance.

In this case, there is a factual situation, the coronavirus COVID-19 pandemic declared by the World Health Organization, that has given place to extraordinary measures issued by the Peruvian Government, including the quarantine and the express prohibition to drive on public roads. Under these two extraordinary, irresistible and unforeseeable events, the parties are not liable for breaching the performance of their contractual obligations. As result, the obligations of both parties are suspended; that is, the contractor is not obliged to render the service, and the contracting party is not obliged to pay the compensation. The above does not impede the contractual parties to negotiate other working formulas or schemes as far as the home office work may allow to partially provide some services and be entitled to a partial compensation.

It must be clear that the force majeure does not release the contracting party to pay those services already provided.

Therefore, we recommend enterprises and individuals to carefully review the contracts each has entered into in order to determine the impact the force majeure event has on them and negotiate with the other party the portion of the services that still may be provided through home office work as well as the applicable compensation, and if there is a force majeure clause, to comply with the procedure therein contemplated. In such regard, we consider that the nature of the event releases the parties to give the force majeure formal notice to the other party as usually contemplated in force majeure clauses.

Related services

A company providing essential services that, during the NES, must continue working, may request its contractors to continue providing its services on the basis that such services are a related activity.

In this case, Supreme Decree N°044-2020-PCM, as amended, should be interpreted restrictively, in order to respect its purpose, that is, to establish social isolation except for those activities that are indispensable to provide essential services. In those cases where the contracting party provides essential services, such contracting party should be the person/entity in charge of determining if a specific service related to an essential service is indispensable for the contracting party to continue providing an essential service. In such cases, the contractor would be entitled to work and would not be able to argue a force majeure situation. A clear example are the financial services. They are considered essential services by Supreme Decree N°044-2020-PCM, but the work of an architect that is remodeling an office of a financial entity, even though it could be a related service, should not be considered an indispensable service and therefore cannot be provided.

Under this scheme, it is important for the contractor to obtain a formal letter from its contracting party (eventually through a mail due to the current NES), indicating that the contractor has to provide its services because they are services related to the essential services that the contracting party, in turn, must provide. Such letter should allow the contractor to provide services to the contracting party under the responsibility of the contracting party.

Exemption to Force Majeure

Finally, we want to point out that in those contracts signed immediately before the NES declaration, the existence of force majeure may be objected by any of the parties on the basis that the NES was a foreseeable event. This issue must be reviewed case by case and will depend on the characteristics of the negotiation and the good faith of the parties.