NEW CONFLICT OF LAWS RULES ENACTED IN BULGARIA

The latest supplements (State Gazette № 19/2003) to the Bulgarian Obligations and Contracts Act (BOCA) enacted a new Part III – “Contractual Obligations Involving Conflict of Laws”. This was a long expected piece of legislation as so far Bulgarian law did not provide explicit rules on obligations involving conflict of laws, except for some specific rules of the Maritime Code, of the Commercial Act and of some other pieces of legislation. This situation had shifted the burden to civil theory and judicial practice to fill the legislation gap by relying on general principles of law and analogy. Therefore, the latest enactment deserves appreciation. Yet, it still leaves a gap in the legal framework of civil wrongs and other non-contractual obligations when conflict of laws is involved. The rules enacted are based mainly on the EC Convention on the Applicable Law to Contractual Obligations of 1980. This makes Bulgarian law of conflict of laws closer to the rest of the European legal systems.

The general principle now established is that the law chosen by the parties (termed lex voluntatis) governs a contract. This principle grants freedom to contracting parties to decide which law shall govern and construe their obligations. The parties should make their choice by express contractual provisions or, in failure of this, the terms of the contract or the circumstances of the case should demonstrate the choice with reasonable certainty. By their choice the parties can select the law applicable to the whole or a part of the contract only. If the parties choose laws of different countries to govern different parts of their contract, such contractual parts must be severable. For example, a contract may bind and eniure the parties under the laws of one country, while the parties may agree to settle any conflicts arising out of it under the laws of another country. The BOCA establishes a presumption that a custom is binding on the parties, where that custom is a/known or should be known to the parties, b/ generally known, and c/constantly observed by, parties to similar contracts in the same field of commerce. This rule refers to the so-called law merchant (lex mercatoria) and is not applicable to non-merchant obligations. The presumption grants binding force to customs, which can be disregarded only if the parties have explicitly agreed that such customs shall not apply. This would require degree of care and knowledge of the parties to avoid the situation where certain legal customs may be binding on them contrary to their actual will.

Generally, the above rules on choice of law apply to obligations, where the parties do not share common residence or to obligations that are otherwise connected with more than one country. However, these rules can be construed to allow Bulgarian parties to choose foreign law to govern their obligations, even though such obligations are in no way connected with any foreign country. In doing this Bulgarian parties cannot disregard any mandatory rules of the Bulgarian laws. This is provided by the BOCA stating that the choice of law shall not, where all the other elements relevant to the situation at the time of the choice are connected with one country only, prejudice the application of mandatory rules of the law of that country.

The BOCA also establishes rules on governing law where the parties have made no choice of law. In such cases, the law of the country with which the contract is most closely connected shall govern the contract. Nevertheless, the laws of such other country may by way of exception govern a severable part of the contract, which has a closer connection with another country. A “severable part” is a part of a contract having more or less independent character (e.g. terms and conditions providing a/obligations of the seller, b/obligations of the buyer, c/competent court, can be construed to be severable). The BOCA establishes a number of presumptions trying to facilitate the decision what law is most closely connected with a contract. It is presumed that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has, at the time of conclusion of the contract, his habitual residence, or its central administration. A “habitual residence” implies a natural person and disregards this same person’s citizenship (citizenship is regarded as not flexible enough). A “central administration” suggests the organs vested with power to govern a certain body corporate and may differ from the registered office. However, the BOCA seeks to determine which is the most proper and inherent to each independent case governing law. For this purpose, a number of exemptions are set forth. Firstly, the laws of that country in which the principal place of business is situated shall govern a contract entered in the course of a party’s trade or profession. Where under the terms of the contract the performance is to be effected through a place of business other than the principal place of business, the laws of the country in which that other place of business is situated shall apply. Secondly, where the subject matter of the contract is a right in immovable property or a right to use immovable property that contract is presumed most closely connected with the country where the immovable property is situated. Thirdly, a contract for the carriage of goods is also exempt from the said presumption. The presumption in such cases is that if the country in which, at the time the contract is concluded, the carrier has his principal place of business is also the country in which the place of loading or the place of discharge or the principal place of business of the consignor is situated, the contract is most closely connected with that country.

Notwithstanding any of the said rules determining applicable law, such application of foreign law shall be refused by Bulgarian courts where the application is manifestly incompatible with the public order of Bulgaria. “Public order” should be defined as a set of legal principles being fundamental to the Bulgarian legal system and constituting grounds for a court’s refusal to apply any foreign rule of law.