On 12 January 2017, the Bulgarian Parliament adopted an amendment to Article 19 of the Civil Procedure Code, entering into force on 24 January 2017, which excludes disputes involving consumers from arbitration (State Gazette 8/24.01.2017). The amendment also affects the International Commercial Arbitration Act and the Consumer Protection Act. The amendment is a result of heated discussions about the increasing number of newly established arbitral institutions in Bulgaria dealing mainly with disputes between consumers and service providers (electricity, heating, water, etc.).

Prohibition on arbitration of consumer disputes

Moreover, there has been a growing negative social attitude towards the practices of such institutions, especially with regard to professional qualities of arbitrators and allegations for unduly service of documents. This led to the proposition that consumer disputes should be excluded from the scope of arbitration under Bulgarian law in order to prevent potential abuse on consumers as weaker parties. The Parliament has adopted amendment to Article 19 of the Civil Procedure Code according to which disputes with parties that may be qualified as “consumers” according to the Consumer Protection Act (“any natural person who acquires products or uses services for purposes that do not fall within the sphere of his or her commercial or professional activity, and any natural person who, as a party to a contract, acts outside his or her commercial or professional capacity”), cannot be subject to arbitration. As of 24 January 2017, all pending arbitration proceedings involving consumers will be terminated and arbitration agreements providing for arbitration between consumers and commercial parties shall be null and void, unless the dispute is referred to an alternative dispute resolution procedure under the Consumer Protection Act.

No tacit agreement to arbitration

The amendment introduces a number of changes to the arbitration procedure regulated by the International Commercial Arbitration Act. One of the main changes relates to how respondents will be deemed to agree to arbitration agreements. The law used to allow that in the absence of explicit opposition by the respondent, the respondent should be considered to have accepted the arbitration agreement. This was thought to open the door for abuse. Under the new regime, a party shall be deemed to have agreed to an arbitration agreement only when it participates in the procedure without objecting to the jurisdiction of the arbitral tribunal by undertaking specific actions, such as responding to the statement of claim, submitting evidence, filing a counterclaim, or appearing in an open hearing related to the case. The respondent’s silence will not count as tacit acceptance.

Restricted grounds for setting aside

The grounds for setting aside arbitral awards are also changed. After the newly introduced amendments, arbitral awards rendered by tribunals seated in Bulgaria will not be able to be set aside due to breach of public policy. The previous law reflected the UNCITRAL Model Law on International Commercial Arbitration and permitted awards to be set aside due to contravention of the public policy.

Control by state courts on issuing of writ of execution

The amendment brings two key changes related to issuing writs of execution for arbitral awards, which are needed for the award-creditor to enforce the arbitral award. First, the district court at the debtor’s domicile will now be competent to issue the writ of execution for the award. Previously, the Sofia City Court was the only court able to issue writs of execution for arbitral awards. Second, when issuing a writ of execution, the court must now examine whether the case was properly subject to arbitration, if not, the writ of execution should not be issued. In practice, the state court will have to assess whether the arbitral tribunal properly ascertained its own jurisdiction, which is a form of state control over arbitration.

State supervisory functions and arbitrator qualifications

The amended law provides some new requirements on the operation of arbitrators and arbitral institutions in Bulgaria. Arbitrators must now hold a university degree, at least eight years of professional experience, high moral qualities and should not have prior criminal convictions. The previous law did not contain any requirements for arbitrators. Further, the Minister of Justice may now supervise the compliance of arbitrators and arbitral institutions with the law. Arbitrators and institutions that consider cases with consumers as parties in violation of the prohibition are subject to pecuniary fines. The Inspectorate at the Ministry of Justice may control and give compulsory instructions where non-compliance with the law is established.

Although these amendments aim to resolve recent dubious practices, they also introduce some restrictions on the freedom and choice that lie at the heart of arbitration. The viability of this reform will be tested against the background of developing case law.