The Effects of COVID-19 on International Contracts in Dominican Republic

Update as of April 30, 2020

The Dominican Republic declared the state of emergency on March 19, 2020 to prevent the spread of Covid-19. The state of emergency is currently extended until May 17, 2020.

During the state of emergency, court hearings are suspended.  The only hearings taking place, via conference are the continuous criminal service courts, those related to minors, urgent civil right lawsuits and habeas corpus.

The deadlines are suspended while the courts remain closed and until three working days after the state of emergency ceases.

How are Force Majeure and Hardship regulated under Dominican Law?

Force Majeure is considered a cause for exoneration from liability pursuant to the Dominican Civil Code. Force majeure exists when an event is beyond the control of one or more parties, which could not have been reasonably foreseen and are not the result of recklessness or negligence.

 

Force majeure clauses are commonly stipulated in contracts by which the failure of one or both parties to execute is related to a phenomenon beyond their control. These clauses usually provide that in the event of a natural disaster (hurricane, earthquake, others), a general situation of difficulty (war, terrorism, others) or other “acts of God” (situations completely out of control of a party or unpredictable) the affected party may be exempted from fulfilling its obligations under the contract. Those exonerative causes according to Dominican case law must always be unpredictable (unforeseeable) and inevitable.

Hardship refers to unforeseen circumstances that have occurred during a contract, which are equally unpredictable and alien to the parties, but does not create an impossibility of compliance, but rather an economic imbalance of the contract that may entail unreasonable burdens for one of the parties.

Can Covid-19 be considered as Force Majeure and/or Hardship and what are the consequences?

The Dominican Republic declared Covid-19 as a national health and economic emergency on March 19, 2020, declared the state of emergency and quarantine in the Dominican Republic and imposed certain restrictions on transport, transit and association.

Specific restrictions included: (i) daily lockdown between 5pm and 6am; (ii) the closure of non-essential businesses; (iii) social (physical) distancing; (iv) prohibition to travel from one town to another from April 6-13, 2020; (v) closure of borders -land, sea and air-, except for airplanes to allow the entrance of nationals and departure of foreign citizens, cargo and fuel ships. Special permits that allowed the transportation of goods and personnel were given to industries and companies that were considered essential (food supply chain, healthcare, pharmaceutical, IT, press, among others).

Therefore, it depends whether a party can invoke Covid-19 as Force Majeure and hardship and the unforeseeable and inevitable factors to comply with contract obligations. There must be an absolute impossibility in complying with the obligations and a link between this impossibility and the pandemic. We strongly advise parties and their legal counsels to review each contract to mitigate potential claims.

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