20 years together

October 2013

31 October 2013

Comment on mandatory practice of the Arbitration Court at BCCI

The Court of Arbitration at the Bulgarian Chamber of Commerce and Industry (BCCI) is an institution with a long tradition in the field of dispute resolution. It is the successor of the commercial arbitration established within BCCI in the late 19th century (1897), which functioned until World War II.

After its official reestablishment in 1953 the Court of Arbitration at the BCCI (initially called "Foreign Trade Arbitration Commission") managed to gain recognition over a short period of time as one of the most powerful judicial institutions in Bulgaria, whose legal practice enjoys a good reputation among the representatives of the business and the legal profession. The Moscow Convention of 1972 significantly expanded the compulsory jurisdiction of the Arbitration Court at BCCI which includes all disputes with an international element between business companies with registered address in member states of the Council for Mutual Economic Assistance (CMEA). The Arbitration Court in the country of the defendant’s registered address is defined as the competent authority. Moreover, the court of Arbitration at the BCCI acts as a voluntary international court of arbitration in cases of disputes between Bulgarian business companies and companies from countries outside of the CMEA.

As a result of an adequate and timely response to the new conditions reflecting the economic changes after 1989, the Court of Arbitration at the BCCI adopted a new Statute and Regulations applicable both to international and to domestic disputes. Outside of the Arbitration’s court jurisdiction remain only disputes regarding real estate rights, sustentation rights or rights arising from individual labour contracts, as well as moral and family disputes. The Arbitration Court at the BCCI decides between 250 and 300 disputes per year – both international and domestic. 82% of the domestic disputes are resolved within 9 months, and 66% of the disputes with an international element are resolved within 12 months. At the same time, the court of Arbitration at the BCCI is actively engaged in improving the legislation on arbitration. Amendments to the International Commercial Arbitration Act (ICAA) were developed and adopted and as a result ICAA became fully compliant with the international standards, whereas the arbitration decisions gained a high degree of stability. The decisions of the court of Arbitration at the BCCI are currently subject to review by a single-instance authority – the Supreme Court of the Republic of Bulgaria, similarly to the arbitration decisions under the Swiss law. Regulations for accelerated procedures were developed and adopted and are applied as of January 1, 2005. The new Regulations create an opportunity for expeditious and less expensive hearing of arbitration cases which is considered especially suitable for resolving disputes for a lower price.

One of the most significant things introduced by the new Statute of the court of Arbitration at the BCCI is related to the possibility for establishing a mandatory practice for arbitrators. According to Art. 8, Para. 1, Item 3 of the Statute of the court of Arbitration at the BCCI, all arbitrators form an arbitrate division that discusses the Court's application practice of the regulations, applied to both domestic and international disputes, in order to harmonize and align the regulations. The decisions of the Arbitrative division under the preceding sentence shall be mandatory for all the arbitrators, if  more than half of the arbitrators, included in the list of arbitrators in domestic cases, voted for the respective decisions. This option is similar to the option for creating interpretative decisions by the divisions of judges in the Supreme Administrative Court (SAC) and the Supreme Court of Cassation (SCC).

Currently the court of Arbitration at the BCCI has adopted two decisions on the basis of Art. 8, paragraph 1, item 3 of its Statute which are mandatory to the arbitrators. The first of these decisions was adopted on March 18, 2009 and concerns the application of Art. 301 of the Commercial Act (CA). The provision of Art. 301 of the Commercial Act provides that actions carried out on behalf of the merchant  by a person who does not have representative authority, are duly completed, if the merchant does not oppose to them immediately after becoming aware. This practically means that a person who is not duly authorized by the merchant may perform actions on behalf of the merchant and these actions are considered legal if the merchant does not oppose to them immediately after becoming aware. The court of Arbitration at the BCCI adopts that the provision of Art. 301 of the Commercial Act shall be also applicable to an arbitration agreement, including when it is in the form of a clause in a contract concluded by a person without representative authority.

A key element in the aforesaid case is the clarification of the term "oppose immediately after becoming aware".  Here we have a significant difference between commercial law and civil law. In civil law, the undertaking of legal actions by a person without representative authority or exceeding the given authority does not cause legal consequences until the person, on behalf of whom those actions were made, provides an explicit confirmation /pending invalidity of the transaction – Art. 42, Para. 2 of the Obligations and Contracts Act/. In the case of commercial transactions, the legislator treats the silence of the ostensibly represented merchant as consent, thus, confirming the transaction in the absence of explicit opposition immediately after the merchant becomes aware of the undertaken legal action in the event of a false representative or of exceeding the limits of the representative authority. There is a “pending invalidity of the transactions” in commercial law, as well, but only until the moment of gaining awareness and making no explicit opposition to the transaction made on behalf of the merchant by a person with no representative authority or, in other words, until the eventual confirmation of the transaction. The legislature has equated the immediate opposition on behalf of the merchant regarding a transaction executed without representative authority or exceeding the given authority with the moment of becoming aware of the transaction. So – Decision № 202 of February 6, 2012 on commercial case № 87/2011, at SCC.

Practically, the decision of the Arbitration Court at the BCCI of March 18, 2009 creates a mandatory practice for the arbitrators according to which the provisions of Art. 301 of the Commercial Act are also applicable to an arbitration agreement concluded by a person who was not duly authorized by the merchant. Art. 301 of the Commercial Act is also applicable in the case when the arbitration agreement is in the form of a clause in a contract concluded by a person without representative authority. Furthermore, according to the decision of the AC at BCCI of March 18 2009, the arbitration clause included in the contract between the assignor and the debtor is also effective in the relations between the assignee and the debtor. When transferring rights via an assignment agreement, the holder of a right over a receivable (assignor), ensuing from a contract, transfers the right to another person (assignee).   If the contract, under which the right of the assignor originated, includes an arbitration clause with the debtor, it will be also applicable in the relations between the assignee and the debtor.

On March 1, 2010 the Court of Arbitration at the BCCI adopted a new decision No. 2, which creates a mandatory practice for the arbitrators regarding the application of Art. 86 of the Obligations and Contracts Act (OCA). It concerns the agreed upon penalty for delayed payment of a pecuniary obligation. According to Art. 86 of the OCA in case of failure to perform a pecuniary obligation the debtor shall owe compensation to the amount of the legal interest incurred as of the day of delay. The creditor may request compensation for actual damages of greater extent in accordance with the general rules. The amount of the legal interest rate shall be defined by the Council of Ministers. The decision of the Arbitration Court at the BCCI of March 1, 2010 provides that if the two parties agree upon a valid compensation for delayed payment of a pecuniary obligation, the rule of Art. 86 of the OCA should not apply. Furthermore, the agreed upon compensation continues to be due until the amount of the obligation is paid in full. If, in the meantime, the creditor initiates legal proceedings against the debtor, the compensation may not be transformed into legal interest. The Arbitration division of the Arbitration court at the BCCI in decision No. 2 adopted that such a penalty may be canceled due to conflict with morality only if this conclusion is reached on the basis of the clause itself, without taking into consideration additional facts that may have occurred.

As stated in all decisions, the latter have more than half of the votes of the arbitrators from the list for domestic cases. According to Art. 8, Para 1, Item 3 of the Statute of the Court of Arbitration at the BCCI these decisions are mandatory for the arbitrators.
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