Liquidated Damages in Latvian Law

The present article addresses the question of whether liquidated damages are allowed under Latvian legislation. The topicality of this question was raised by a recent judgment of the Senate of the Republic of Latvia (hereinafter – the Senate), wherein it – as a surprise to many – concluded that liquidated damages are in fact prohibited within Latvian jurisdiction. The author of the present publication challenges the foregoing conclusion. He analyses the approach of several comparable jurisdictions on the matter of liquidated damages. Most of these jurisdictions do not impose similar restrictions upon liquidated damages. Following this analysis, the author examines whether the said finding of the Senate could be supported in light of the system of Latvian civil law. The final answer, based on interpretation of relevant legal provisions in conjunction with relevant legal doctrine, is negative. Finally, the author considers the distinction between liquidated damages and contractual penalties, and, inspired by findings in other jurisdictions of Continental Europe, provides suggestions for amendments to the Latvian Civil Law, which may combat misuse of liquidated damages in the future.