Public concerns regarding some arbitration institutions have become a key catalyst for the planned reform of the Law on International Commercial Arbitration (“LICA”).
The bill amending LICA (the “Draft Law”), published on the Public Consultation Portal, represents an effort to improve the regulatory framework of arbitration proceedings - a valuable means of resolving disputes before a neutral, non-state jurisdiction selected by the parties themselves. Arbitration clauses are a common feature in commercial relations, as they provide for faster resolution of disputes, typically before experienced professionals, in contrast to the often time-consuming judicial proceedings.
Of significant practical importance is the expansion of the grounds for revoking an arbitral award. The Draft Law reinstates a ground removed in 2017 - the possibility to annul an arbitral award if it contradicts public order in Bulgaria, namely - where imperative norms of fundamental importance to Bulgarian law have been violated.
A new annulment/revocation ground is added - when it is judicially established that the award was based on false evidence or when a crime was committed by a party, its representative, an arbitrator, or arbitration staff in connection with the dispute resolution. This aims to counteract abuses of arbitral awards observed in recent years.
One of the more contentious topics is the so-called “implied arbitration agreement” - the possibility for arbitration proceedings to commence even in the absence of a written arbitration agreement, provided the defendant's actions manifest consent for the dispute to be examined by a specific arbitration institution. For example, if the respondent appears at the arbitration hearing or performs other procedural actions without challenging the tribunal's competence.
According to the Draft Law, this possibility will not apply where the respondent is a natural person, unless they are a sole trader, entrepreneur, partner/shareholder, or have guaranteed a trader’s or entrepreneur’s obligation, when that obligation is the subject of the dispute.
Until now, LICA regulated two types of arbitration — domestic (where both parties have residence or seat in Bulgaria) and international (when at least one party is domiciled or headquartered abroad). However, the legislative act bears the misleading title “Law on International Commercial Arbitration”. Therefore, to ensure consistency and coherence, it is proposed the law to be renamed “Law on Arbitration”.
Cases of abuse of arbitration and the limited scope for subsequent judicial review have motivated the creation of a unified arbitration register, to be maintained by the Ministry of Justice. The register will contain information on permanent arbitration institutions based in Bulgaria, as well as details on proceedings initiated before ad hoc arbitration tribunals (established for a specific dispute) or before permanent arbitration institutions based abroad. Registration will be a mandatory condition for lawfully conducting arbitration activities.
To further protect the defendant, additional safeguards are introduced to ensure proper delivery of key case documents, including the statement of claim and subpoenas of scheduled open hearings. If the initial attempt to serve the documents by registered post fails, delivery will be carried out by a notary or a private enforcement agent.
The Draft Law also provides for the nullity of arbitral awards rendered by arbitrators or tribunals not registered in the new registry, or in cases involving non-arbitrable disputes. Courts will be authorized to declare such nullity ex officio when a request for annulment has been filed.
More flexible rules are introduced regarding the suspension of the enforcement of arbitral awards. The current law requires security equal to the material interest of the dispute to suspend enforcement, which often deters parties from appealing in event of high-value claims. Under the new rules, suspension will also be possible upon submission of convincing written evidence for the existence of a valid ground for annulment. This change clearly benefits the party alleging a deficit in the arbitral award, as it removes the burden of providing potentially unaffordable security. The approach also ensures greater oversight of arbitral decisions.
It is also important to note that arbitration clauses for domestic ad hoc arbitration will be deemed terminated once the new law enters into force. Parties wishing to maintain the option of such arbitration are advised to conclude a new arbitration agreement.
The upcoming changes to the arbitration framework are of critical importance to every company that relies on fast, predictable, and less formal dispute resolution mechanisms. The new register, the additional safeguards for party protection, and the more flexible approach to challenging arbitral awards jointly establish a more secure and democratic legal environment. However, it is crucial that businesses promptly review the arbitration clauses in their current contracts to ensure compliance with the new legal requirements. Timely legal advice in this process is not just advisable - it is a strategic necessity.
