The recently adopted (2003) Part III of the Bulgarian Law on Obligations and Contracts (LOC) regulating the law applicable to contracts with an international element is almost entirely based on the EC Convention on the Law Applicable to Contractual Obligations (Rome 1980) (“the Rome Convention”). The general opinion is that the new chapter of the LOC is a successful attempt of the Bulgarian legislator to codify this area of International Private Law and a positive step towards the upgrade of Bulgarian legal system to European and international standards. The LOC introduces the general principle of freedom of choice of applicable law. The limitations to this principle are mainly related to the application of mandatory rules of Bulgarian law, as well as to ‘ordre public’ exceptions. Regardless of the almost complete similarity of the new Bulgarian legal rules to the ones of the Rome Convention, in case of choice of foreign law in a contract that would be partially or entirely performed in Bulgaria, or when one of the parties is a Bulgarian entity or an individual having its habitual residence in Bulgaria, special attention shall be paid to the possible application of the following Bulgarian legal rules:

Consumer protection regulations will apply if one of the parties to the contract is a consumer having his/her habitual residence in Bulgaria. In such case the other party to the agreement shall abide to all Bulgarian regulatory requirements related to advertising, warranty obligations, announcement of prices and labeling of goods etc.

Bulgarian substantial and procedural laws will apply for any deals with immovable property located in Bulgaria and for any employment relationship in Bulgaria;

Bulgarian tax regulations will apply on any economic operation or income taxable in Bulgaria on the grounds of domicile or place of business;

Bulgarian customs regulations will apply for the import/export of goods and/or services from/to Bulgaria regardless of the choice of law in the agreement;

Bulgarian currency regulations will apply for payments and other financial operations performed in Bulgaria;

Bulgarian regulations will apply in case of public trading of securities in Bulgaria;

Regardless of the choice of court and the choice of law in an agreement, the Bulgarian courts will accept jurisdiction if the foreign party or both parties agree to submit the case to a Bulgarian court or if the dispute is related to an enterprise or an immovable property located in Bulgaria. In this case a possible application of Bulgarian law shall be envisaged as a subsequent choice of law, allowed by the LOC.

Possible application of Bulgarian law on part of the agreement. The LOC (art. 437) allows the choice of a different law for part(s) of the contract. A party to the agreement could claim application of Bulgarian law on part of a contract, for example on a specific delivery under a distribution agreement subject to foreign law.

Possible application of Bulgarian law in the absence of choice of law in the agreement. If no applicable law is specified by the parties, the LOC allows Bulgarian courts to examine the contract and its background in order to determine a possible applicability of foreign or of Bulgarian laws. Unless a specific claim for the application of foreign law is made by one of the parties to the agreement, the courts would normally apply Bulgarian law.

A case for evasion of a validly chosen foreign law and court between a Bulgarian and a foreign party is the bankruptcy procedure of the Bulgarian side. In that case the Bulgarian bankruptcy court will decide on the merits of the foreign party’s claim totally on the grounds of Bulgarian law and the foreign party’s appeal may amount to an implied waiver of the choice of foreign law and court.

Another possibility to evade a validly chosen foreign law and court between a Bulgarian and a foreign party would be the case where one of the parties initiates a proceeding at the Bulgarian Commission for Protection of Competition with the hope to obtain a ruling establishing a breach of competition (by unfair competition, dominant position or else), and on the basis of such ruling to seek tort liability that would fall under the jurisdiction of Bulgarian courts and that would be subject to Bulgarian law.

In order to avoid an unwanted interpretation of the contractual clauses determining choice of law and jurisdiction, such clauses should always be explicitly stated and should unambiguously apply on all parts of the contract including any attachments, schedules, etc., especially in cases of frame agreements or distribution agreements.

Kamen Tcholov,
Braykov’s Legal Office