The COVID-19 pandemic created numerous challenges for businesses in Bulgaria and abroad, leading to the impossibility of performing concluded contracts on account of the restrictive measures imposed by the State authorities. Nevertheless, not every situation permits reliance on force majeure in order to be released from liability for non-performance.
On 13 March 2020, the National Assembly of the Republic of Bulgaria adopted a decision declaring a state of emergency, and the ensuing restrictions on businesses and citizens were established through a series of orders of the Minister of Health and other authorities. This created a unique legal and factual situation, giving rise to a number of legal questions that will shape future case law. An important role here is played by the force majeure clauses in contracts and, for contracts with an international element, by the applicable law. If the contract contains a force majeure clause, it will determine whether and how the release from liability applies.
The nature of force majeure
Force majeure (from the French: force majeure) is an event that is unforeseeable, insurmountable and of an extraordinary character. Under Bulgarian law, the following conditions must be met in order to establish force majeure:
- Unforeseeability of the event;
- Extraordinary character of the circumstances;
- Causal link between the event and the impossibility of performance.
The state of emergency declared on account of the COVID-19 pandemic satisfies these conditions. Even in the absence of an express force majeure clause, the parties may rely on Article 306 of the Commerce Act (ТЗ), according to which the debtor is not liable for non-performance where it is caused by force majeure. This provision, however, applies only if Bulgarian law is applicable to the contract.
Application of Article 306 of the Commerce Act
In order to rely on Article 306 of the ТЗ as a ground for non-performance, it is necessary that:
- The debtor was not in default at the time the force majeure event arose.
- The force majeure arose after the conclusion of the contract.
For example, if the contract was concluded on 14 March 2020, the party will not be able to rely on the state of emergency as force majeure for non-performance. Moreover, if the obligation had already not been performed, no release may be sought on this ground. In such a case, the party may rely on economic hardship (Article 307 of the ТЗ), which permits the amendment or termination of the contract in the absence of agreement between the parties and under economic conditions creating unfairness.
Notification in the event of force majeure
Where the debtor is prevented by a force majeure event, it must promptly notify the other party in writing of the nature of the event and its possible consequences for the performance of the contract. If no such notification is given, the debtor is obliged to compensate the damage arising therefrom.
The notification, however, does not in itself automatically release the debtor from liability; in order to be valid, all the requirements of Article 306 of the ТЗ must be met.
Temporary suspension of obligations in the event of force majeure
According to the Commerce Act, for as long as the force majeure situation lasts, the obligations under the contract are frozen. If the event continues for a long time, the creditor, as well as the debtor, may terminate the contract when it no longer has an interest in its performance.
Evidence and case law
Case law requires the debtor to prove that it made every possible effort to perform the obligation but that the event was insurmountable. Proving the causal link between the force majeure and the impossibility of performance is key. The court has the right to decide whether a given event may be accepted as force majeure, analysing also the conduct of the debtor after the occurrence of the event.
Special arrangements and renegotiation
If the terms of the contract have already been amended on account of an insurmountable event, the party may not rely again on the same event for release from liability. For this reason, it is important to assess whether it is preferable to achieve a renegotiation or to suspend performance temporarily.
Application of civil law
In civil law there is a general provision – Article 81 of the Obligations and Contracts Act (ЗЗД) – which provides that the debtor is not liable if the impossibility of performance is due to a cause that cannot be imputed to its fault. The circumstance that the debtor does not have sufficient monetary funds does not constitute force majeure and does not release it from liability (Article 81(2) of the ЗЗД).
Force majeure certificate from the Bulgarian Chamber of Commerce and Industry (БТПП)
In the event of force majeure, Bulgarian traders may obtain a certificate from the БТПП, which proves the impossibility of performing contractual obligations due to unforeseen and insurmountable circumstances. This certificate is issued on the basis of an application and may be in Bulgarian, English, French, German, Russian or another language.
The force majeure certificates from the БТПП are internationally recognised and are accepted as evidence by arbitration institutions. They are valid for both domestic and international contracts. In the context of the state of emergency imposed on account of COVID-19, such a document may serve as an official attestation of force majeure, which is useful for Bulgarian companies in their relations with foreign partners.
Should you need a consultation regarding non-performance of a contract or assistance in obtaining a force majeure certificate, contact us on tel.: 0887550706 or by e-mail: [email protected]
