FORCE MAJEURE, COVID-19 AND THE STATE OF EMERGENCY

Force majeure is governed by Article 306 of the Commerce Act. It is an external and extraordinary event occurring after the conclusion of an agreement, which by its objective nature cannot be foreseen and prevented.. It has the effect of discharging the debtor from liability and suspending the performance of his obligations.

1. Are the coronavirus pandemic and the state of emergency consistent with the concept of force majeure?

To answer this question positively, the coronavirus pandemic and the state of emergency declared and the acts issued by the relevant authorities and institutions at the time, including the orders of the Ministry of Health, the acts of the World Health Organization (WHO), etc., must meet the characteristics of force majeure:

• Unforeseeability - i.e. the contracting parties could not and were not obliged to foresee the event. The parties to the agreement entered into it before the global spread of the coronavirus could hardly have foreseen the consequences of the contagion, including the declaration of a state of emergency involving restrictions that change with each passing day.
• Unavoidability  - neither the contagion nor the measures imposed during the state of emergency could have been prevented by the countries.
• Emergency nature - such a pandemic could be considered neither seasonal nor recurrent in nature. Not to mention that the state of emergency involves restrictions on people's right to move on social contacts, and on the economy.

2. When is force majeure applicable?

Force majeure can be applied if four other conditions are met.

First, the agreement must have been concluded before the force majeure occurred.As far as the pandemic is concerned, it was declared on 11 March by the WHO and the state of emergency in Bulgaria from 13 March to 13 April 2020. If the agreement has effect in the territory of another country, the date of the declared epidemic in them should be relevant - e.g. 20.01.2020 in China.

Second, a causation is required, i.e. the pandemic or state of emergency must be the cause of the non-performance.

Third , the debtor must not have already been in default. Otherwise, he could not invoke force majeure.

Fourth, the debtor who cannot fulfil his obligation must must inform the other party in writing and within a reasonable period of what the force majeure consists of and its possible consequences. In the absence of such notification, compensation for the resulting damage is due.

In order to facilitate proof of force majeure, a merchant may apply to the Bulgarian Chamber of Commerce and Industry for a force majeure certificate (https://www.bcci.bg/member-certificates-fm.html). Force majeure certificates issued by the BCCI are internationally recognized and accepted as evidence by international arbitration institutions.

3. What are the specific hypotheses that would qualify?

• Temporary inability to provide tourist services, including organized excursions, hotel accommodation, etc.
• Temporary inability to provide services involving the gathering of many people in one place - e.g. events, services held in a fitness center, cinema, museum, etc.
• Temporary inability to deliver goods from affected countries where borders are closed due to the pandemic, transportation is restricted, etc.

4. What are the consequences of invoking force majeure?

As the debtor is placed in a position of inability to perform its obligations, it will not be liable for the liquidated damages, interest, liability for loss of profits and damages provided for. The contractual relationship itself is put on hold until the pandemic is contained and/or the state of emergency is terminated, after which the debtor will owe the principal performance of the agreement. If the period is longer than expected before the situation returns to normal and the parties have no interest in performance at a later stage, or if they no longer have an interest in subsequent performance, they may terminate the agreement.

5. What if there is a force majeure clause in the agreement?

Force majeure clauses are more important in agreements with an international element as the regulation and consequences of such an event vary from country to country. Therefore, they must be specifically analyzed for their scope and effects.

It is not possible to exclude the effect of Article 306 of the Commerce Act by agreement. And if there is an enumeration in the contract of the circumstances that will be considered as force majeure, it is rather exemplary, and even if the present situation does not appear, it should be counted as force majeure as it meets the conditions under the law.

6. Can a merchant invoke on business frustration under Article 307 of the Commercial Act?

The difference with force majeure is that in the case of business frustration the performance of the agreement is possible but economically unprofitable. Another difference is that the invoking of force majeure allows the performance of the agreement to be suspended or terminated out of court, whereas business frustration provides for the possibility of amending or terminating the contract in court. 

The pandemic itself could not be defined as a situation of business frustration. However, as the situation develops, adverse economic conditions and even an economic crisis may arise. In such circumstances, it would already be possible for merchants to invoke on business frustration as long as they were not in default.