Exceptional Regime for the Financial Rebalance in Long-Term Contracts and Limitation of State Non-Contractual Liability  in the Context of the COVID – 19 Pandemic

Decree-Law 19-A/2020, of 30 April 2020 (“DL 19-A/2020”) establishes, in the context of the COVID-19 pandemic (i) an exceptional regime for the financial rebalance of long-term contracts to which the State or any other public entity is a party — including public-private partnerships —, and (ii) an exceptional regime that limits the non-contractual liability of the State.

 

Can private parties, within the context of their contractual relationship with the State or any other public entity, exercise their right to financial rebalance or to claim a compensation for loss of revenues due to the impacts caused by the pandemic or any related measures adopted by the State?

DL 19 A/2020 suspended any clauses and legal provisions providing for the right to financial rebalance or to compensation for loss of revenues between 3 April (effective date of the state of emergency’s first renewal) and 2 May (expiry of the state of emergency), preventing private parties from relying on such clauses and provisions in respect of any events occurred during such period.

As for events occurred after the expiry of the state of emergency, and to the extent their contracts expressly provide for a right to a compensation for loss of revenues or if a pandemic constitutes a ground for the exercise of the right to financial rebalance, private parties will be able to exercise such rights. DL 19 A/2020 establishes that the financial rebalance can only be achieved with the extension of the deadline for the performance of the contractual obligations or the extension of the term of the contract, thus eliminating the (legal or contractual) right of the private parties to adjust prices or to receive any financial compensations.

The exercise of such rights regarding events occurred before 3 April (i.e., prior to the first renewal of the state of emergency) is not limited by DL 19 A/2020.

 

Within public-private partnerships in the road sector, and considering the traffic reduction caused by the pandemic and the mitigation measures adopted by the State, can public partners determine the suspension or reduction of their private partners’ obligations?

DL 19 A/2020 established a duty of the grantors (and sub-grantors) to unilaterally determine, as a matter of urgency:

(a)           The reduction or temporary suspension of their concessionaires’/subconcessionaires’ obligations, considering particularly the updated traffic and the minimum services that need to be ensured to adequately ensure road safety; and

(b)           In the contracts that set out payments to be made by the grantor/sub-grantor, the consequential proportionate reduction of the amounts payable to the concessionaires/subconcessionaires.

As such, (i) obligations in connection with the widening of roads, major repairs, road assistance and/or the compliance with quality control plans and operation and maintenance manuals can be suspended or reduced, and (ii) payments for availability and service can be reduced in proportion to the financial benefit resulting from the suspension or reduction of such obligations.

 

Outside of the context of a contractual relationship, can private parties claim damages arising from State acts or the acts of any other public entity aimed at preventing and fighting the COVID-19 pandemic?

DL 19 A/2020 sets aside any non-contractual liability of the State (as compensation for sacrifice) for damages caused by acts of the State or any other public entity aimed at preventing and fighting the COVID-19 pandemic, provided that those acts are duly performed within the scope of the powers vested by public health and civil defense legislation or as part of the emergency state.

 

In the event that a dispute arising from the application of this exceptional regime is referred to arbitration, can arbitral awards be challenged?

DL 19 A/2020 establishes that appeals may be filed with the Supreme Administrative Court on the merits of the claims even if a contract determines that an arbitral decision is definitive and unappealable.

 

What other measures does the exceptional regime foresee?

The procedures and formalities set forth in the Public and Private Partnerships Act for unilateral modifications that may be imposed by the public party were set aside.

 

When does this exceptional regime expire?

Decree 19 A/2020 will terminate upon the World Health Organization (“WHO”) determining that the SARS-Cov-2 virus’s epidemiological situation and the COVID-19 disease no longer qualify as a pandemic.

However, all effects that, given their nature, should occur or become effective after this WHO determination are safeguarded or upheld, such as (i) the exercise, at a later stage, of the right to a compensation grounded on the pandemic, (ii) the suspension or reduction beyond the term of this regime of obligations of road concessionaires/subconcessionaires and (iii) the reduction of payments resulting from such suspension or reduction of obligations that should survive this regime.

 

 

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This information is being updated on a regular basis.

All information contained herein and all opinions expressed are of a general nature and are not intended to substitute recourse to expert legal advice for the resolution of real cases.