This article is a follow-up to our publication from 20 March 2020 “COVID-19: Terms and conditions to invoke force majeure”. In the following lines we will clarify to what extent the end of the state of emergency and the changes in the legislation introduced by the Law for amendment and supplement of the Health Act (State Gazette, edition 44, 13.05.2020), affect the possibility of traders to invoke force majeure because of the COVID-19 restrictions.
The state of emergency, declared in Bulgaria on 13 March 2020, ended on 13 May 2020, replaced on 14 May 2020 by a new regime based on the latest amendment to the Health Act – an emergency epidemic situation, declared by Decision №325 of the Council of Ministers and in force until 14 June 2020. It enabled the government to maintain existing and/or introduce new restrictions related to the subsequent management of measures to counter COVID-19. Following the amendments to the Health Act, a series of acts ensued, with which a large part of the introduced anti-epidemic measures were repealed or mitigated. However, there are still some restrictions that hinder the normal activities of individual traders (e.g. owners of discos, piano bars and nightclubs, organizers of sports events with an audience, etc.). In order to assess if it is possible to invoke force majeure, it remains necessary in any case to check whether the elements of the factual composition under Art. 306 of the Commercial Act are present, namely:
1. There must be force majeure, which in substance, requires the following:
1/ Unforeseen event: The circumstance that impedes the debtor’s performance should not have been foreseeable by the parties at the time of concluding the contract. If the contract is concluded after the declaration of the state of emergency and the introduction of the restriction that impedes the performance of the trader, this requirement will not be present.
2/ Unavoidable event: Even with the necessary care, the debtor could not avoid default (e.g. the owner of a sports hall to provide it for use for a sports or music event with an audience). In any case, this condition is not present in case of non-fulfillment of monetary obligations, as according to Art. 81, Para. 2 of the Obligations and Contracts Act, the fact that the debtor does not have the funds to fulfill his obligation does not release him from liability. For this reason, during the state of emergency, it was prohibited to charge interest for delay and penalties, to declare liabilities due ahead of term, as well as to terminate contracts due to non-performance. This prohibition remains in force for a further two months after the end of the state of emergency (i.e. until 13 July 2020).
3/ Extraordinary nature of the event: Undoubtedly, the declared state of emergency, as well as the emergency epidemic situation afterwards, are of an extraordinary nature.
4. The circumstance that impedes the performance should have happened after the conclusion of the contract.
2. There must be a causal link between the force majeure and the impossibility of performance – the debtor is unable to perform his obligation precisely because of force majeure and not due to another circumstance, such as a decrease in sales revenue.
In addition, two other conditions should be met: first, the debtor should have not been in delay in the event of force majeure; second, the debtor should have notified the creditor in writing of the force majeure and the possible consequences thereof for the performance of the contract. The notification should have been made within a reasonable time (i.e. two weeks, according to current case law, if the parties have not agreed otherwise in their contract). In this sense, if force majeure has already occurred when the state of emergency was declared on 13 March and the creditor has not yet been notified, this precondition for invoking force majeure will not be met.
If the above prerequisites are present, the fulfillment of the obligations of both parties shall be suspended as long as the force majeure lasts. If force majeure occurred at the beginning of the state of emergency and continues up to this day, the parties may no longer have an interest in the performance of the contract, in which case each of them has the right to terminate it without bearing the consequences of culpable default – interest, penalties, damages.
In conclusion, as the anti-epidemic measures are being cancelled, the scope of force majeure related to the COVID-19 restrictions is respectively diminishing and each case requires careful consideration of all circumstances involved. Should you wish to estimate your chances of successfully invoking of the force majeure clause for your business, we would be delighted to support you.