Bulgaria: Force Majeure - Hardship in relation to Conflict and Sanctions

Bulgarian civil law does not provide for specific provisions addressing war or related sanctions.  Internationally imposed sanctions, which took effect over Bulgarian entities and/or natural persons, are subject to judicial review. However, restrictive measures imposed within the framework of the Common Foreign and Security Policy (CFSP) adopted by a decision of the European Council, or by means of a Regulation, are implemented directly in all member states.  

In any case, circumstances such as war or related sanctions may fall within the scope of force majeure as further elaborated below.  

Force majeure is a legal term defined in Article 306 of the Bulgarian Commerce Act as follows:

"Force majeure 

Article 306

1. A debtor in a commercial transaction shall not be liable for non-performance as a result of a force majeure. When the debtor was already in default, he is not allowed to invoke force majeure.
2. A force majeure shall be an unforeseen or unavoidable event of an extraordinary nature that has occurred after the conclusion of the contract.
3. The debtor, unable to perform the obligation thereof due to force majeure, shall notify the other party in writing within a reasonable time about the nature of the force majeure and its potential consequences for the performance of the contract. In case of failure to notify, compensation shall be due for the damages resulting from such failure.
4. The performance of the obligations and the related counter obligations shall be suspended for the duration of the force majeure.
5. If the duration of the force majeure makes the creditor no longer interested in the performance, the creditor may terminate the contract. The debtor shall also have the same right."

Yes, Bulgarian civil law provides for contractual relief for the counterparty affected by a force majeure event. For that relief to apply, certain mandatory circumstances should be evident:

• The force majeure event must have occurred after signing the agreement – the circumstance should be one adversely affecting the performance of the agreement;
• The circumstances triggering the force majeure must be of an accidental and unforeseeable nature, including inter alia earthquakes, floods, heavy snowfall, major droughts, war, embargo, strikes and other events;
• Most importantly, according to legal theory and case-law, the event must be unavoidable – the counterparty should not be objectively able to overcome it; and
• The event must be the direct cause of the impediment.  

According to Bulgarian case-law, there is no force majeure in case of changes in economic conditions such as inflation.

Furthermore, under Bulgarian legislation, the duty of performance cannot be discharged on the grounds of force majeure if the obligation is monetary since the impossibility of performance would not be objective.

While Bulgarian force majeure provisions are mandatory, they are still generic and to a certain extent open to interpretation. Therefore, in the last few years Bulgarian contract practice has adopted the principle of introducing more detailed and comprehensive force majeure clauses. Such clauses are often based on widely used material adverse effect clauses, but with a particular highlight on the unforeseeability and unavoidability of the events. However, the following should be considered:

• The listing of potential force majeure events is only for indicative purposes and should not be considered as exhaustive. In case there are circumstances that fall outside the scope of the contract clause, but bear the characteristics of a force majeure event as stipulated in the legislation, the debtor shall be released from liability. 
• Even if a specific circumstance occurs and it is listed in the contract clause as a potential force majeure event, this does not automatically mean that the debtor shall be released from liability. This would be the case only if the conditions of force majeure under the meaning of art. 306 of the Commerce Act are met. 
• It is not possible to envisage a clause by which the debtor will still be liable even if the performance of the contract is impeded due to force majeure. Such a clause would be null and void as contradictory to the mandatory rules and the principles of good faith and fairness.

Often force majeure clauses include the following: the steps of the notification procedure, specific deadlines for the notification to the creditor and how the force majeure event shall be established.

Notwithstanding the above, whether there is a force majeure event in place impeding the performance of the obligation and whether the debtor has notified the creditors within a reasonable time, a court will assess each incident on a case-by-case basis if there is a dispute.

Under Bulgarian law, the term “unforeseen circumstances” is not a self-standing legal principle, but is attributable to force majeure as defined by the Commerce Act. Force majeure may only be invoked insofar as an unforeseen or unavoidable event of an extraordinary nature has occurred.  

However, another principle that may pertain to the term unforeseen circumstances within the meaning of Bulgarian law is the general business frustration principle. Business frustration is, in fact, a force majeure event that does not make the performance impossible, but as a result of unforeseen changes in the economic conditions, the preservation of the contract becomes contrary to good faith and unreasonably burdensome for either party. In such a case, the counterparty affected by business frustration is entitled to request that the court modify or dissolve the contract partially or entirely. Business frustration shall apply regardless of whether the parties have stipulated any particular provisions in their agreement to that regard. In particular, the provision reads as follows:

Article 307 of the Commercial Act

"Business frustration

The court may, at the request of one of the parties, modify the consequences of a contract or dissolve it entirely or partially in an event which the parties cannot and were not obliged to foresee and where the preservation of the contract is contrary to the standards of reasonableness and fairness.”

If the law of a non-EU state governs a contract (and presumably its jurisdiction), then all matters related to the execution, validity, performance, and termination of the agreement should be resolved pursuant to the respective foreign law and the foreign court shall have jurisdiction except if the parties agreed otherwise. Should the party claiming breach of contract or any other applicable remedy, obtains a court decision in its favour and thereafter seeks to enforce this decision in Bulgaria, it should initiate a recognition of judgments (exequatur) procedure. Within exequatur procedure, a Bulgarian court will not per se re-examine the merits of a case, but shall only conduct a formal investigation if certain Bulgarian law mandatory requirements have been observed. 

To that end, it is noteworthy that Bulgarian law will not allow the enforcement of a foreign court decision if the latter is contrary to Bulgarian public policy. This notwithstanding, it is arguable if force majeure provisions, despite being mandatory in nature, may be considered a matter of Bulgarian public policy. 

As elaborated above, Bulgarian law has not expressly regulated commercial sanctions with respect to war, violations of human rights, state sovereignty or other similar events. Therefore, the position may vary subject to governing law and jurisdiction and any potential arbitration applicable to the dispute. 

If a party, domiciled in a sanctioned country (or a sanctioned party, for that matter), litigates before a Bulgarian court, the Bulgarian judge shall consider the admissibility of the claim on a case-by-case basis. If sanctions are imposed by a EU Regulation or any other act of a similar nature and has direct effect in the member states, the Bulgarian court shall dismiss the case as being in breach of EU law. 

Due to the obscurity of local legislation regarding sanctions and war-related matters, it is always advisable that contracting parties do not leave these matters unaddressed in contracts. It is a prudent business practice to expressly settle all (or at least most key points) when it comes to claiming an event of default, establishing contractual remedies, defining performance and respective stays on performance of obligations, and any possible objections thereto.

However, as explained above, the characteristics of force majeure in Bulgaria are stipulated in the legislation. In case of a dispute between parties, the assessment of whether the legal criteria of a force majeure are met lies with the courts.