Being an EU member state and party to the New York Convention (NYC), the Republic of Bulgaria is an attractive destination to locate the seat of your arbitration proceedings. This is especially true if you are looking for a neutral location where travel, accommodation and other costs would be considerably lower than other European jurisdictions traditionally selected as favorable to arbitration to host international arbitration cases.
the Bulgarian Law on International Commercial Arbitration (ICAA) is based on the UNCITRAL Model Law. As discussed in previous posts on Kluwer Arbitration Blog (KAB), the latest changes to the ICAA date back to 2017, and the other major reform worthy of note took place in 1993. Thus, the legal framework is relatively constant and predictable, while sudden changes and drastic are rather rare.
Below is a list of top 10 things about arbitration in Bulgaria you probably don’t know, which can be useful if you are considering this option or if you are otherwise involved in arbitration concerning Bulgaria.
1) Arbitration seat
Art. 19 (2) of Bulgarian Code of Civil Procedure (CPC) provides that arbitration can take place abroad when at least one of the parties has:
- his usual residence,
- sits in accordance with its statutory acts, or
- place of effective management outside Bulgaria.
This rule can be interpreted as a prohibition to sit in an arbitration in a foreign country if none of the preconditions under (i) – (iii) are present. The ambiguities surrounding this limitation were subject to analysis on KAB before. Recent Bulgarian case law reaffirms that the said prohibition is mandatory, that it cannot be waived by agreement of the parties and that its violation may result in the nullity of the entire arbitration agreement. It should be clarified that the prohibition does not cover the agreement on institutional arbitration where the arbitral institution itself is located (established) abroad. Rather, the rule applies to the agreement on the seat of the arbitration abroad (i.e. the place where the arbitration proceedings will be legally deemed to be conducted) without the mentioned preconditions, thus avoiding the applicability of the ICAA and Bulgarian law to litigation and procedure. Simply put, although the ICC International Court of Arbitration sits in Paris, parties who do not meet the conditions set out in points (i) to (iii) can still agree to arbitration under the Rules of the Court. CCI with their headquarters in Sofia, Bulgaria, and this will be fully valid.
In one interesting case, a party requested the enforcement of an arbitral award founded by Austria in Bulgaria. The award was issued in a dispute between two wholly Bulgarian parties (without habitual residence, seat or place of management outside Bulgaria). The respondent argued that the award should not be enforced in Bulgaria due to a breach of public policy and the invalidity of the arbitration clause. The court held that the foreign award between two Bulgarian parties could not be considered to be contrary to public order, since the said CPC provision, although mandatory, did not have such public scope and the underlying dispute was , in principle, arbitrable. Nor should the validity of the clause be assessed in the light of art. 19 (2) of the CPC, because this question, according to the NYC, must be determined by the law chosen by the parties or the law of the country where the award was made (the law of the seat of the arbitration). In the said case, the two criteria led to the applicability of Austrian law, instead of Bulgarian law. Ultimately, the court ruled that the deviation from this rule could not be grounds for non-enforcement of the foreign award under the NYC.
The arbitrators can be Bulgarian or foreign citizens. In national arbitration proceedings (i.e. arbitration between parties domiciled or having their seat in Bulgaria), only Bulgarian citizens can act as arbitrators. Foreign citizens can only be arbitrators in a domestic arbitration when one of the parties to the dispute is a predominantly foreign-invested enterprise (i.e. the capital is owned by foreign majority shareholders) . In addition, people can be appointed arbitrators if they have:
- full legal capacity,
- not have been convicted of an intentional crime of a general nature,
- higher education,
- at least 8 years of professional experience, and
- high morality.
The law does not require arbitrators to have a law degree, thus opening up the possibility of appointing arbitrators with different skills depending on the nature of the dispute – engineers, architects, economists, computer scientists, scientists, etc.
3) National arbitration can be in Bulgarian language only
Unlike the legal regime applicable to international arbitration conducted in Bulgaria, where the parties are free to agree on the language of the proceedings, the national arbitration should be conducted in Bulgarian only. The ICAA does not allow the parties to agree otherwise, even if they are companies with predominantly foreign ownership or having some other connection with a foreign country.
4) Consumer disputes are not arbitrable
With the 2017 changes, the arbitrability rules have been further supplemented. Before these changes, art. 19 (1) of the CPC stipulated that all types of disputes concerning rights which could be assessed in monetary terms were arbitrable, except:
- disputes relating to absolute rights to a building or to the possession of a building,
- maintenance disputes, and
- labor disputes.
With the adoption of the amendments, another type of dispute has been declared non-arbitrable, namely (iv) disputes in which one of the parties is a consumer. Consumer protection legislation has also been amended – any clause in a contract concluded between a trader and a consumer by which the parties entrust an arbitral tribunal with the resolution of a dispute between them, apart from the special settlement procedures alternative consumer disputes under the consumer. legislation, was declared null and void. Non-arbitrability according to case law affects not only the future, but also the awards already rendered in consumer disputes – they have been declared null and void, whether or not they are favorable to the consumer.
5) Special arbitrability for concessions
The Bulgarian Law on Concessions (CA) contains a special rule (art. 154 (3)) which complements the general notion of arbitrability envisaged in the CPC. According to this rule, only disputes relating to a concession contract whose value is greater than the âEuropean thresholdâ can be resolved by arbitration. As of January 1, 2020, said threshold is set by the European Commission at 5,350,000 euros (amount valid in November 2021). If the concession contract is less than this value, disputes relating to it can only be resolved by state courts under the general rules of civil procedure (art. 154 (2) of the LC).
6) Some arbitral awards are null and void
Arbitral awards rendered in non-arbitrable disputes are not subject to traditional set-aside procedures. They are directly declared null and void. A ex officio inspection of the validity of the award is regulated when issuing warrants for enforcement and courts should refuse enforcement if they find the respective award null and void.
7) Public order is no longer a ground for annulment of national arbitral awards
Believe it or not, a breach of public order cannot be invoked as a basis for appealing against the sentence. Bulgaria is probably a unique example in this regard, at least as a country where arbitration law is based on the UNCITRAL Model Law. It is still unclear whether this amendment was deliberate, as some believed that public order was a concept inherent in private international law only and therefore should not be applied to Bulgarian arbitrations at all (i.e. say to arbitrations sitting in Bulgaria), or if it was an unintentional legislative error. Whatever the reason for this unfortunate legislative failure, you must find other grounds to justify your request for annulment of a national Bulgarian award in the event of flagrant violations of fundamental legal principles and notions of fairness.
8) Administrative control over arbitration
The Minister of Justice, through his Inspectorate, is empowered to exercise control over arbitral institutions and arbitrators for compliance with the ICAA. Inspection can be started ex officio or upon complaint from an interested party. The president of the inspected arbitral institution is required to ensure free access to official premises and official archives for the purpose of inspection. The Minister of Justice can issue binding instructions to arbitral institutions and arbitrators to remedy proven violations of the law. Examples of such violations are the failure to keep the documents of closed cases in the archives of the arbitral institution, as required by the ICAA (the entire file must be kept for 10 years from the close of the case. procedure and after the expiry of this period, only the awards, the reasons for them and the amicable agreements concluded must be kept), the maintenance of the lists of arbitrators not meeting the legislative criteria (see 2) above ), the resolution of non-arbitrable disputes, etc. In any event, this administrative control concerns the general activity of arbitration institutions and arbitrators related to the administration of disputes and compliance with the ICAA and should not affect the substance of an ongoing dispute. .
9) Administrative fines for arbitrators and financial penalties for arbitral institutions
Arbitrators and arbitral institutions that render an arbitration award in a dispute with a consumer may be subject to sanctions. For referees, the penalties vary from approx. 255 euros at approx. EUR 1,275 and for legal persons they amount to approx. â¬ 2,555. In the event of repeated infringement, the penalties are tripled. An arbitrator or a legal person who does not comply with the instructions of the Minister of Justice may be sanctioned with a penalty of up to approx. 1,275 euros.
10) Arbitration Bulgaria
A group of enthusiasts recently launched a new Blog on arbitration in Bulgaria. Anyone interested in arbitration in Bulgaria can find useful information in English, such as:
- extracts from the main legal acts governing arbitration in that jurisdiction,
- FAQs relating to the entire arbitration process – from the very conclusion of the arbitration agreement and the form of its validity, through the particulars of the procedure, obtaining, pronouncing, canceling and l ‘execution of arbitral awards, and
- short regular updates in plain language on the latest news, trends and case law.
The views and opinions expressed here are those of the author and do not necessarily reflect those of Dimitrov. Petrov & Co., its affiliates or employees.