Force Majeure and loss of the basis for business in Bulgaria

When does the obligation to perform the contract cease to apply?

In Bulgarian contract law, the obligation to perform the contract lapses if the obligations of one of the parties lapse due to the impossibility of performance. In these cases, the contract shall be deemed terminated. According to applicable case law, monetary payments are always possible and in such cases one of the parties cannot plead impossibility of performance. For transactions under commercial law, an objective impossibility of performance is also established in the event of force majeure, and the respective course of action is regulated by law. In this case, the debtor is only liable if they were already in default before. Force majeure is understood to mean an unforeseeable or an unpreventable event of an extraordinary nature that has occurred after the conclusion of the contract. In civil law transactions, the parties may agree on a clause to this effect. Bulgarian case law sets out in detail which events may be considered force majeure.

When may a withdrawal or an adjustment of the contractual relationship be considered?

Adjustments to civil law contracts can usually be made after mutual agreement between the parties or if a unilateral option is provided for in the contract itself. In the case of contracts under commercial law, the contract may be partially or wholly adjusted or even terminated by court order at the request of one of the parties on the grounds of commercial impracticability, if circumstances of this nature have arisen which the parties could not foresee or were not obliged to foresee, and if continued performance of the contract is contrary to justice and good faith. Unilateral withdrawal without liability from contractual relationships under civil law and from contractual relationships under commercial law is regulated by law in very few cases and mainly concerns specific types of contracts. Such withdrawal is also possible if the relevant passage is agreed in the contract, in some cases also against payment of a contractual penalty.

How can future contractual relationships be optimally structured?

A concrete legal alternative regulation in contract law cannot be used as a safe solution at the moment. With reference to the current war conditions and the emerging economic crisis, a clause covering, e.g. warlike circumstances as force majeure might not be helpful under Bulgarian law, since these circumstances did not exist at the time of the conclusion of the contract according to Bulgarian law, as already indicated above. Therefore, in the run-up to signing the contract, it is advisable to negotiate appropriate contractual (withdrawal and adjustment) provisions, formulate suitable clauses in the general terms and conditions, as well as accept appropriate warranties, such as performance insurance or securities and guarantees, as well as longer performance periods or at least deadline extension options.

Autor: Cornelia Draganova