Bulgaria passes reforms to curb arbitration fraud and strengthen safeguards

Bulgaria has taken action to address fraudulent arbitration practices by implementing amendments to the International Commercial Arbitration Act, which is now called the Arbitration Act. The reforms come in response to reports of predatory arbitration practices, including cases of legal entities and citizens who lost business and homes due to dubious arbitration awards.

The amendments are intended to prevent arbitration to be used in criminal schemes involving fraudulent claims against citizens and businesses.

The overarching objective of these reforms is to restore public confidence in arbitration as a legitimate mechanism for resolving commercial and property disputes while eliminating opportunities for abuse and corruption.

The key reforms implemented in Bulgaria include the following:

Mandatory registration: All arbitration courts must register with the Ministry of Justice. Unregistered arbitrations or arbitrators are prohibited from issuing binding decisions. 

Nullity of unregistered decisions: Decisions made by unregistered arbitrations are considered null and void. The Supreme Court of Cassation can declare such nullity without time limitations. 

Enhanced arbitrator qualifications: Stricter requirements are imposed on the professional and personal qualifications of arbitrators to ensure integrity and competence. 

Improved notification procedures: The process for serving summonses and legal documents has been tightened to prevent proceedings from occurring without the knowledge of the involved parties. 

Written consent requirement: Citizens cannot be subjected to arbitration unless they have provided explicit written consent. 

Judicial oversight: The Supreme Court of Cassation is empowered to overturn arbitration decisions that conflict with public policy in Bulgarian law, a power that was previously revoked. 

Suspension of enforcement: Enforcement of arbitration decisions can be suspended when there is convincing written evidence of grounds for setting aside. 

Transparency and record-keeping: Arbitration courts are required to maintain archives and provide real-time electronic access to case files for parties, arbitrators, and the Ministry of Justice. 

Random inspections: The Ministry of Justice's Inspectorate can conduct random checks on arbitration courts to ensure compliance with legal standards. 

Increased penalties: Financial penalties for violations by arbitration courts have been increased, with fines of up to BGN 25,000 and up to BGN 50,000 for legal entities with registered offices in Bulgaria for which they are established. 

Deregistration for violations: Arbitration courts that systematically violate the law can be deregistered upon the Minister of Justice's request.

For more information on these reforms and Bulgaria’s laws on arbitration, contact your CMS client partner or these CMS experts: Assen Georgiev.