EXECUTION OF CONTRACTUAL OBLIGATIONS IN A STATE OF EMERGENCY CONDITIONS. WHAT DOES THE LAW PROVIDES IN CONNECTION WITH THE MEASURES AND ACTIONS DURING THE STATE OF EMERGENCY?
Att. Hristo Koparanov and att. Tsvetelina Holiyanova answer frequently asked questions.
- The exercise of which rights or claims shall be impeded or delayed as a result of the pandemic and the state of emergency under Law on measures and actions during the state of emergency?
On March 13th 2020 a state of emergency was declared in Republic of Bulgaria on the basis on Art. 84, par. 12 of the Constitution of Republic of Bulgaria. The spread of COVID-19 and the measures, taken in order to limit the effects of the coronavirus worldwide and in Bulgaria, including the imposed restrictions and prohibitions, are the reason to face a variety of challenges and economic issues, which may affect on the fulfilling of the private legal obligations.
The Law on measures and actions during the state of emergency was promulgated in the
extraordinary issue of the State Gazette on March 24th, as the state of emergency was declared by the National Assembly on March 13th 2020. Most of the law rules enter into force retroactively as of March 13th 2020 and the others as of March 24th 2020. The Law on measures and actions during the state of emergency applies until the cancellation of the state of emergency. Given its content, some of the provisions shall be applied after that, because they are adopted due to the after effects of the state of emergency. At the moment, there is a legal ambiguity in this regard, which is likely to be resolved with an amendment of the Law.
The Law contains several groups of provisions, with regard to possibility of debt recovery. First of all, the debt recovery trough enforcement shall be restricted, because the following measures shall be in force during the state of emergency:
- to stop the attachments (distraints) of bank accounts of natural persons and medical entities;
- to stop the attachments (distraints) of salary earnings and pensions;
- to stop the precautionary measures against medical apparatus and equipment;
- to prohibit the carry out of inventory of movables and real property of natural persons, excluding maintenance obligations, for damage due to torts act and salary earnings.
The Law also suspends all public sale and possession procedures, announced by state or private bailiffs, until the state of emergency is terminated. After the state of emergency cancellation public sale and possession procedures shall be re-scheduled, with no new fees and charges.
Notarial proceedings are reduced to urgent cases, as they are carried out in compliance with certain health and hygiene requirements. The Notary Chamber shall provide notaries on duty with a ratio of at least one notary per 50 000 inhabitants for the current area. The list of all notaries on duty is published on the website of the Notary Chamber of the Republic of Bulgaria.
During the state of emergency period in courts shall not be heard cases, except those that are urgent and are strictly pointed in the instructions of the Supreme Judicial Council and the orders of the heads of the individual courts. For the period from March 13th until the state of emergency cancellation, the following terms shall not run:
- Ø All procedural time limits for pending court, arbitration, administrative and enforcement proceedings, except the criminal proceedings, under the Extradition Act and the European Arrest Warrant and proceedings, related to coercion measures.
- Ø Prescriptions and other terms, provided in normative acts, with the expiry of which rights are extinguished, terminated or obligations arise for individuals, except the Penal Code and Law on Administrative Offenses and Penalties terms.
- Ø Terms, needed for the implementation of instructions, given to the parties of the proceedings by an administrative authority, except of the Law on the Management of Funds from the European Structural and Investment Funds proceedings, as well as some terms under Anti-Corruption and Forfeiture Act illegally acquired property and the Judical System
Beyond these terms, the Act provides an one month extension from the state of emergency cancellation for all terms, defined in an Act and which expiry date is during the state of emergency and are related to exercising of rights or private parties obligations fulfilling, as well as one month extension for the еffect of administrative acts, which is time limited and expires during the state of emergency.
In this connection, the wording of par. 52 of the Transitional and Final Provisions of the Act stipulates that the Act shall apply until the state of emergency cancellation. In this way, although terms are defined, formally these terms еnd with the state of emergency cancellation. If we interpret the provision of the Act literally, the fact that the terms don’t run during the state of emergency shall be valid as long as it the Act applies. Also, the one month extension cannot be implemented because that would mean applying the Act after the term, defined in § 52. We believe that this is legislative imprecision, that should be corrected.
A general restriction due to exercise rights follows from Art. 6. of the new Act.Until the state of emergency is cancelled, the effects of late payments of private persons or entities, including interests and penalties for late payment, as well as non-monetary consequences, such as еarly chargeability. contract cancellation and seizure of property shall not apply. That means, that the person to whom a monetary obligation is owed is devoid of all of the possibilities, which the law gives him or her, to affect the debtor to fulfill its obligation, as that remains for the whole state of emergency period. Apart from those, listed in the Law, such possibilities are the right of property retention, refusal to fulfil a counterobligation in case of unfulfilled agreement objection etc. The way Art. 6 is defined, practically means that the fulfilling of monetary obligations depends on the will of the debtor during the state of emergency and the postponement of payments shall be sanctioned by the creditor after the state of emergency cancellation.
- Which private legal obligations fulfilling could be rejected or postponed as a result of the pandemic and the state of emergency? What is the procedure for this to happen?
- What is a force majeure?
The legal concept of the force majeure is an insurmountable force, as this is an unforeseen or unforeseeable event of extraordinary nature, occurred after the contract conclusion.
The contract between the parties may provide a force majeure clause, which shall stipulate the circumstances, in the presence of which the parties may refer to that clause. Even if such clause is not incorporated in the contract, if it is stipulated in the contract that the Bulgarian law applies, the parties may refer to force majeure. In other cases, it is important and relevant what is incorporated in the contract and in the applicable legal system.
In relation to the COVID-19, a force majeure may exist, on the one hand, because of the spread of the virus, and on the other hand, because of the imposed prohibitions and restrictions (the so called „act of power“).
- Is there a force majeure in terms of the COVID-19 pandemic?
The worldwide Coronavirus epidemic is an insurmountable force – a force majeure, which could fall under the hypothesis of Art. 306 of the Commercial Act.
The global infection with COVID-19 is undoubtedly unforeseen, i.e. the contractors could not and were not required to divine it. It can be also defined as unavoidable event. Their extraordinary nature can also be justified (a phenomenon different from the everyday or from which Is usually repeated).
- Is there a force majeure in terms of an “act of power”?
By Order № RD-01-124/13.03.2020, as well as by a number of subsequent orders, the Minister of Health introduced anti-epidemic measures on the territory of the Republic of Bulgaria. The adopted Act explicitly confirmed this power of the minister. New orders of that kind are still to be adopted. A large part of the measures in practice are related to the work termination of many commercial outlets and business activities, specified in the relevant acts. This termination shall face a huge part of the businesses before the impossibility to meet their monetary and non-monetary obligations. Same consequences may also have certain law provisions.
State acts (such as the law and the orders of the Minister) qualify in principle as a force majeure (Art. 306 of the Commercial act). This practically means that if an obligation cannot be fulfilled, because someone has referred to the adopted legal acts, that person is not responsible for the failure to fulfill these obligations.
In each particular situation the real reason for the non-fulfillment shall be observed and also certain conditions to be met, in order the force majeure reference to be valid. In general, the extraordinary circumstances must have arisen after the contract conclusion and the non-fulfillment – after they have occurred. Attention must be paid to the fact that the force majeure is applicable to commercial deals and not to persons, who are not traders. For them the issue shall be resolved according to the „subsequent inability to fulfillment“.
What rights have a trader, who cannot fulfill the conditions of the concluded contracts in connection with COVID-19 force majeure condition? What are the options for refusing to fulfill a monetary obligation?
If an objective impossibility is proved in a commercial deal, the fulfillment of the obligations and the related counter obligations shall be postponed until the force majeure passes. All terms, related to the unfulfilled obligations shall not run. Neither the obligation, which cannot be fulfilled, nor the counter pay obligation shall be fulfilled.
What about if under a deal`s conditions, a non-monetary obligation is
enforceable, but the person, who shall pay the current price cannot do it or has difficulties to do it? The general rule is that an impossibility assertion cannot be made for monetary obligations, including for a force majeure reasons. Art. 6. of the new Law, as indicated above, gives a possibility to the debtor to postpone the payment until the state of emergency cancellation, without negative consequences to arise.
This text has a wide scope and includes any delayed monetary obligations of citizens and companies to other companies. The Act does not provide a possibility to the other party to suspend the provision of a good or a service even if the traders do not fulfill their counter monetary obligations, neither have the possibility to claim interest and penalty for a delay. This way the buyer shall not endure any negative consequences if he does not pay for already delivered but unpaid goods. Banks and quick loans companies shall not charge delayed loans installments penalties for the state of emergency period.
The fact that under the provision of Art. 6 all consequences of the default of obligations by traders are suspended, as that raises an interesting question of whether the non-monetary debtor (who shall deliver or do something) have the possibility to refer to so called Business Frustration, because in the case of absence of any consequences of non-payment, fulfilling obligations without receiving payments for them could be economically insufferable t.
In principle, in case of „Business Frustration“, at the request of one the parties, the court could amend or terminate the contract in certain circumstances, if the contract become contrary to accepted principles of morality and fairness. It may become apparent insufferable and unfair for the one party to supply periodical and the other party not to pay for it.
An interesting question in this regard is whether the contract cancellation or part of it as a result of an „Business Frustration“ in this situation could be interpreted as a „non-monetary consequence of non-payment“, as in this case a refer to the economic intolerance would be impossible, because of the Art. 6 of the Law.
It is though important to know that the unpaid contributions could not be remitted. They shall be fully paid after the state of emergency cancellation. Interests and penalties shall run after the state of emergency cancellation, as well as the other consequences of non-payment shall be applied.
- When a trader has no right to grant discharge from the contract, referring to force majeure?
If the trader has delayed the contract execution before the impossibility to arise (the pandemic itself or the current prohibitions), it would be impossible to refer to force majeure.
If the trader has concluded the contract after the spread of COVID-19 or the quarantine, it shall be deemed that the trader should have foreseen the consequences or to avoid the risk by not conclude any contracts during the state of emergency and the referring to force majeure won`t be possible.
The following is important – the obligation must have become really impossible, not just difficult.
A debtor, who owes and have monetary obligation has not the possibility to refer to force majeure. That person owes the payment, but negative consequences shall not arise if the payment is delayed until the state of emergency cancellation.
- Must consumers pay their electricity and water bills during the declared state of emergency?
The Law provides the possibility of delaying certain utility bills. So, due to the state of emergency the electricity payment terms for „household customers“ are extended from 10 to 20 days. These terms could be amended with an order of the Minister of Energy on proposal from the National Operational Headquarters, as the financial stability of the „Еnergy“ sector shall be taken into account, in order to guarantee of the energy security. In this regard, the official position of the Energy and Water Regulatory Commission is that the Commission shall implement due to its powers all possible measures and shall control all electricity companies if they take into consideration these measures. Art. 6 should be mentioned again, as according to its provision there must have no consequences of non-payment during the state of emergency. The bills for water supply shall have certain discounts, as that is declared by the water supply company in Sofia. Customer water reports shall be made by the citizens, who shall submit the results by phone or mail, as the Water suppliers shall not visit households. It is advisable to follow the specific practices of each particular supplier in the case.
- Must traders continue to pay their credits?
The Act does not provide the right to not pay credits. Under the current legislation, the fact that the debtor does not have money, does not relieve him of the obligation to fulfill his monetary obligations. It is regulated that way, although the trader does not generate income during the state of emergency and as a result of all the restrictive acts and measures, so he has difficulties. Events, related to the unfavourable effects in the economic situation, may also be treated as cases in which a possibility is given to the creditor to declare the credit collectable ahead of schedule. It is advisable in this situation for the debtors who are unable to fulfill their credit obligations to maintain good relations with the creditors and to negotiate the necessary extension of terms.
Although the Act does not provide the right to not pay credit installments, in accordance with the provision of Art.6, it can be concluded that there won`t be any penalties for the debtors for any credit types, since the creditor (for example a bank) has no legal mechanisms in order to force the debtor to pay during the state of emergency. It is explicitly stated that the credits cannot be declared as collectable ahead of schedule during the state of emergency. However, the obligation to pay the installments still exist and must be paid, as if that does not happen after the state of emergency cancellation, all the negative consequences of non-payment shall occur.
- Must the trader still pay the agreed monthly rent for the premises he cannot use?
The inability of traders to carry out their business due to prohibitions about closing the commercial outlets shall reduce or even stop their revenues for the state of emergency period. Practically the proper use of the premises is forbidden. In this situation, negotiating with the lеssors is the best option. In cases when the lessors have a prohibition to function at all (for example big trade centers), the lessors are not in the case of fault of the lessor, because there is a force majeure and the reason for the use inability is not causal by the lessors. Insofar the tenants obligation Is monetary, they cannot refer to force majeure, but the Commercial Act provides that during the force majeure conditions the contract performance is suspended for all of the parties, as well a possibility is given to the tenant – if the force majeure conditions last longer and the tenant has no interest in the performance, to terminate the contract. In this case Art. 6 of the Law on Measures and Actions during the State of Emergency won`t be applied, because under the Commercial Act the tenant is not obliged to perform.
However, when the lessor has no difficulties to provide the premises, but the tenant has no right to use them, the situation Is different. In this case, the impossible subject of the contract maybe can be used as a ground on which the tenant won`t pay, even if there is not a force majeure for the lessor.
Most interesting is the question related to the cases, when there is no prohibition about the use the premises, as well as for carrying out the activity of the tenant, but the tenant is for example with reduced revenues. In this case Art. 6 of the Law on Measures and Actions during the State of Emergency is applicable and if the tenant does not pay on time, that person shall not suffer negative consequences (interest, penalties, contract termination due to fault). As indicated in such case it may occur „Business frustration“ for the lessor, as result of which that person has not the possibility to provide the premises, but not to receive anything against it and in this case is unclear if the contract could be terminated by the court. Anyway, during the COVID-19 state of emergency courts don`t heard cases.
This statement gives an overview of the general principles in the current legislation and the expected amendments at the publication date – dynamic because of the state of emergency. This publication is not in conformity with a particular case specifics, is not a legal advice and shall be revised in accordance with the future legislation amendments.
If you need an advice in connection with a contract and its implementation in a state of emergency, you should contact Att. Hristo Koparanov, Partner and head of Competition and Consumer Law Practice, e-mail email@example.com