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Business Relations in time of State of Emergency

business relations

BUSINESS RELATIONS IN TIME OF STATE OF EMERGENCY 

By virtue of a decision dated 13 March 2020, the National Assembly of Republic of Bulgaria declared a state of emergency for a period of one month, namely until 13 April 2020. For the period of emergency, which may continue beyond the originally announced date, various measures have been introduced to prevent, limit and overcome the effects of the coronavirus COVID-19. As a result of the introduced measures, a large part of the business in the country is affected, with some of the traders unable to carry on their business and others unable to fulfil their obligations under concluded contracts.
Below we present a brief summary of the most common issues on the topic and possible solutions under current legislation.

I. Negative effects of the state of emergency on business
In recent days the world has been in a state of pandemic. However, the very spread of the coronavirus does not directly affect business as much as it is affected by measures taken by governments to limit the disease. Among the most common measures taken, including in Bulgaria, are the closure of borders for citizens of certain countries, the restriction of the activity of a number of retailers in the country, as well as changes in the organization and conditions of the work process. As a result of the measures adopted, the following negative effects on the business may occur:

1. Supply interruptions from certain countries
By order of the Minister of Healthcare of 19.03.2020, the entry into the country is prohibited for citizens of certain countries of the European Union (Italy, Spain, France, Great Britain and Northern Ireland, Germany, the Netherlands and Switzerland), as well as citizens of all non-EU countries. The order explicitly states that it does not cover transport personnel engaged in the carriage of goods, however, delays in delivery schedules are possible. Supply interruptions may be required in connection with the border restrictions imposed by other European countries.

  2. Suspension of the activity of certain retailers
Again, by order of the Minister of Healthcare, the suspension of visits to entertainment and gaming halls, discos, bars, restaurants, fast food establishments, drinking establishments, coffee shops and large shopping centers Mall-like was ordered, except for banking and insurance offices, food shops and pharmacies in them. This means that these sites should suspend their activity or, where possible, transform it into online commerce and supplies with strict compliance with sanitary and hygiene requirements. In view of the ban on holding any kind of mass events, including sports, cultural, entertainment and scientific activities, cinemas, theaters, museums, sport and SPA centers, gyms and more are closed.
Commercial activities that are not related to holding mass events and are not explicitly specified in the Minister's order may continue in strict compliance with the sanitary and hygiene requirements and in accordance with the Minister's instructions regarding the organization of the work process (concerning remote work and work on the premises of the employer with increased anti-epidemic measures).

  3. Decrease in revenue from commercial activity
In view of the state of emergency in the country, revenues from certain commercial activities are likely to decrease. The reasons for this may be directly related to the measures taken to limit the coronavirus or may be indirectly the result of large groups of users being voluntarily isolated or quarantined. Under these conditions, it is also possible that demand for some goods and services may decline at the expense of others.

II. Legal mechanisms for overcoming the negative effects on business
1. Force Majeure

The force majeure is an unforeseen or unforeseeable event of an extraordinary nature occurring after the conclusion of the contract. The occurrence of force majeure is grounds for discharge and is associated with the occurrence of an objective, time-consuming inability to fulfill a contractual obligation. In order to have the effect of force majeure, the following conditions must be present:
circumstances / events occurring after the conclusion of the contract;
these circumstances are unforeseen or unforeseeable;
of extraordinary nature;
there must be a causal link between them and the objective inability to fulfill the contractual obligation over time;
the party seeking to invoke force majeure must not be in delay at the time of occurring of force majeure;
the party seeking to invoke force majeure must send a written notice with specific content to the other party.
If all the above prerequisites are met, the performance of the obligation shall be suspended and deferred in proportion to the time during which the force majeure was in force. In the event that force majeure lasts so long that one of the parties no longer has an interest in maintaining the contract, that party may terminate the contract.
It should be noted that the application of force majeure depends on the terms of each particular contract and the specific circumstances of the parties' obligations. Blank reference to force majeure is not a valid ground for default and discharge and may give rise to future court disputes between the parties.

  2. Negotiating contractual relationships
Given the willingness of the parties to maintain good commercial relations, there is the possibility, in situations where the institute of force majeure cannot be formally applied, to modify contracts between the parties so that the parties can effectively perform them. Such changes may affect terms and conditions of payments and deliveries, waiver of penalties, grant periods, etc. according to the specific needs and interests of both parties. In many cases, this method is most favorable for its voluntary nature.

  3. Economic intolerance
Economic intolerance enables one party to terminate the contract, which is affected by circumstances that it could not or should not have foreseen at the time the contract was concluded. Unlike the force majeure hypothesis, in this case the fulfillment of the obligation is possible, but in view of the new circumstances the maintenance of the validity of the contract is contrary to fairness and good faith. This prerequisite would be fulfilled if, due to circumstances arising after the conclusion of the contract, the equivalence of the benefits has been impaired, i.e. the contract has become extremely economically disadvantageous to one of the parties due to the changed situation.
The effect of economic intolerance is that the party concerned may apply to the court to modify the terms of the contract or to terminate it.

III. Next steps
In order to evaluate which of the existing mechanisms for reducing the negative effect on a particular business is to be applied, a precise analysis of the contractual relations and the facts should be made on a case by case basis.

For questions and legal assistance in commercial or contractual cases, do not hesitate to contact Colliers' experienced Legal Department. Send your enquiry at: bulgaria@colliers.com or +359 896 777 654.

[1] Up-to-date as at 20.03.2020. Changes are expected.

 

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