Blog Sofia

General

In response to the growing pandemic of COVID-19, a state of emergency throughout Bulgaria (the “Emergency”) has been declared from 13 March to 13 April 2020.

On 20 March, the Bulgarian Parliament adopted the Law on State of Emergency (the “Law”), promulgated in State Gazette on 24.03.2020.  The Law regulates the measures and actions during the Emergency in Bulgaria, as the Minister of Health may also introduce other temporary measures and restrictions.

Employment

The Law covers the following main subjects and measures which are relevant for employment:

  1. Remote working and working from home

Employers are allowed, depending on the nature of the work and possibility for remote working or working from home, to assign to employees without their consent remote working or working from home.  In such case only the workplace needs to be amended, the rest of the employment contracts` provisions remain unchanged.

  1. Suspension of work

Any employer or public authority may by an order suspend work at an enterprise or a part of it, or of individual employees until the end of the Emergency.  Where a public authority has suspended work, the employer is barred from allowing employees access to their workplaces.  Employers must pay 100% of the gross salary to all employees during the period of suspension of work, irrespective of the reasons for the suspension (decision of the employer or of a public authority).

  1. Obligation to grant leave

Where, due to the Emergency, or an order of a public authority, the employer has terminated the work of the enterprise, part of the enterprise or individual employees, the employer shall be entitled to grant paid annual leave to the employee without his or her consent, including to an employee who has not acquired 8 months of service.

Employers are obliged to allow the use of paid leave at the request of certain categories of employees such as pregnant employees, single parents, employees under age of 18 etc.  Employers can place unilaterally employees on up to one half of their annual paid leave, without their consent.

  1. Part-time working hours

Employers may introduce reduced working hours for the entire duration of the Emergency (for employees who work full time).

  1. State aid for employers

For a period of up to 3 months, the National Social Security Institute may transfer to an employer 60% of the amount of the individual social security income for January 2020 of certain employees based on criteria to be adopted further by the Bulgarian government.

Pursuant to Order РД -01-124 dated 13 March 2020 issued by the Minister of Health, all employers are instructed to transfer employees to remote working where possible.  Where not possible they must ensure the introduction of increased anti-epidemic measures, including filters, disinfection and regular airing of premises and instructions on personal hygiene to staff, and must not admit employees or visitors having symptoms of acute contagious diseases.

Implications for some procedural legal issues

Until the Emergency is lifted, the following shall cease to run:

  1. the procedural time-limits for judicial, arbitration and enforcement proceedings, other than time limits for criminal proceedings, under the Extradition Act and the European Arrest Warrant and proceedings related to coercive measures;
  2. the statute of limitations and other time limits provided for in statutory acts where rights are extinguished or terminated or obligations arise for individuals on their expiry, other than time limits under the Penal Code and the Law on Administrative Offenses and Penalties;
  3. the time-limits for implementing instructions given by an administrative authority to parties or participants in proceedings, other than proceedings under the European Structural and Investment Funds Management Act;
  4. the time limits under Chapter Five, Sections I and III, Chapter Eight, Section V, Chapter Ten and Chapter Twelve, Sections I, II and IV of the Anti-Corruption Law and the Forfeiture of Illegally Acquired Property, other than the term under Art. 38, para. 1, item 2 of that Law; and
  5. the time-limits under Art. 175c, para. 1 – 3 of the Judiciary Act, other than the term under Art. 175c, para. 1, item 2 of that Law.

The following shall be extended until one month after the lifting of the Emergency:

  1. legal time-limits which expire during the Emergency and relate to the exercise of rights or fulfilment of obligations of private entities (unless excepted as set out in paragraphs 1 – 5 above); and
  2. the regulation of administrative acts, which are limited in time and expire during the Emergency.

All public sale and entries into possession announced by state and private enforcement agents are suspended.  After the Emergency is lifted, public sales and entries into possession will be re-scheduled, with no new costs and charges;

No distraints shall be imposed on the bank accounts of individuals and medical establishments, distraints on salaries and pensions, security measures on medical apparatus and equipment, as well as the making of inventories of movable property and real estate owned by natural persons, except for maintenance obligations, damages for tangible property and claims for salaries.

Notarial proceedings are limited to urgent ones in compliance with the health and hygiene requirements.  The Notarial Chamber will provide duty notaries with a ratio of at least one notary per 50,000 inhabitants for the relevant area.

The effects of late payment on the obligations of individuals shall not apply until the Emergency is lifted, including interest and penalties for late payment, as well as non-monetary consequences such as early repayment, contract termination and seizure of property.

Tax and Accounting matters

The Law provides for extension of particular terms related to tax and accountancy requirements, namely:

  • The term for submission of annual financial reports of the companies is extended to 30 September 2020.  Annual financial reports may be signed only by electronic signature.  If all the signatures on the annual financial report and the audit report are electronic signatures, the professional seal of the registered auditor is not required.  In this case, the registration number of the auditor shall be indicated;
  • The term for filing the annual tax declaration for 2019 for natural persons as well as for payment of the tax due on the declaration on the annual tax is extended to 30 June 2020.  The discount under the Personal Income Tax Act may be used if the declaration is filed and the tax is paid by 31 May 2020;
  • In 2020, advance payments under the Law on Corporate Income Tax shall be made under the terms and procedure of that Law but taking into account the following particulars:

1. if, before the entry into force of the Law, the annual tax return for 2019 is filed, the advance payments shall be made in the amount as declared; if necessary, the companies may file a corrective declaration;

2. if the annual tax return for 2019 is submitted by 15 April 2020, the advance payments shall be made in the amount as declared;

3. if the annual tax return for 2019 has not been submitted by 15 April 2020, advance payments shall be declared in the model of the annual tax return by 15 April 2020, with only that part relating to the declaration of advance payments completed.

  • The limitation period for all public liabilities under the Law on Tax-Insurance Procedure is suspended until the end of the Emergency.  All existing enforcement procedures are also suspended.  Actions carried out until the stop are maintained but after the suspension, the public executor may not carry out new enforcement actions, but may perform actions to secure the claim as well as the distribution of sums received in the enforcement case.  Enforcement proceedings shall resume after the end of the Emergency.
  • No new enforcement procedures under the Law on Tax-Insurance Procedure shall be initiated.

Quarantine and healthcare and anti-epidemic measures

The Law makes several amendments in the Law on Health, namely:

  • In the event of a threat to the health of citizens from diseases, the Minister of Health may order compulsory isolation of patients, infectious agents, contact persons and persons who have entered the territory of the country from other countries.  Isolation and treatment may be carried out at home following an assessment of the existing epidemic risk by the treating physician or after consultation with an epidemiologist or infectious disease specialist;
  • Compulsory isolation and treatment shall be performed by an order of the head of the relevant medical institution at the proposal of the treating physician or the doctor who referred the patient for hospitalisation.  The order is subject to immediate execution and the making of an appeal does not prevent it taking effect.
  • The Minister of Health may introduce anti-epidemic measures in the country or in a particular region.  Measures may also include temporary restriction of movement within the country, as well as temporary suspension or limitation of the operation or mode of operation of public buildings and / or other objects or services provided to citizens during the Emergency.  In the event of introduction of anti-epidemic measures any contacts of patients with communicable diseases may not refuse to tests to establish whether they are carriers of an infectious disease.
  • In the event of violation or failure to implement the anti-epidemic measures introduced by an act of the Minister of Health or director of a regional health inspection, the fine shall be BGN 5,000.  In the event the violation is made by a legal entity, a sanction in the amount of BGN 15,000 is imposed.
  • Data kept by the electronic communications providers (the telecoms) may also be granted to the enforcement authorities for the purposes of enforcing the healthcare and anti-epidemic measures.

Since the announcement of the Emergency, the Bulgarian Ministry of Health has issued several orders, restricting the free movement of people and goods.  The main measures provided for in the said orders that may affect the commercial activity of companies are as follows:

  1. All employers are instructed to transfer employees to a regime of remote working, where possible.  Where not possible they must ensure the introduction of increased anti-epidemic measures, including filters, disinfection and regular airing of premises, instructions on personal hygiene to staff, and must not admit employees or visitors having symptoms of acute contagious diseases.
  2. Checkpoints are established at the entry and exit points of each of the 27 regional centres of Bulgaria (including Sofia).  Travel through the checkpoints is only allowed for urgent reasons, related to work in the relevant settlement, health reasons of the traveller or close relatives, or to return to the place of current or permanent residence.  The reasons for travel must be evidenced by a document: certificate issued by the employer, work identification card, medical document, ID document.
  3. The town and major ski resort of Bansko is fully quarantined until 17 March 2020.  All entry to or exit of persons located in Bansko is prohibited.  All persons located in the town are quarantined for 14 days and cannot leave their homes except to procure food or medicinal products, or to use the services of banks, insurers or gas stations, or to seek medical help.  Exceptions apply to certain medical, police, fire department, and other essential services personnel.  Extensive restrictions to commercial activities apply.
  4. Non-Bulgarian nationals, arriving from China, Iran, Bangladesh, India, the Maldives, Nepal, Sri Lanka, Spain, Italy, South Korea, North Korea, France, Germany, the Netherlands, Switzerland and the UK are to be refused entry into Bulgaria.

Bulgarian nationals, foreign nationals with permanent or temporary residence in Bulgaria, and members of their family entering the country from the above-listed countries are mandatory quarantined for 14 days.

EU nationals and nationals of Schengen Member States and members of their family arriving from the above high-risk countries, are allowed to enter Bulgaria for transit to their country of residence only.

  1. The entry of all non-EU and non-Schengen nationals into Bulgaria is prohibited until 17 April 2020, but there are exceptions to this:
  • Medical staff, medical investigators, and senior adults care specialists.
  • Transport personnel, engaged in the carriage of goods, aircraft crew members, engaged in air transport and other transport personnel, as necessary.
  • Diplomatic staff, staff of international organisations, military and humanitarian personnel, for the discharge of their duties.
  • Persons travelling for humanitarian reasons.
  • EU nationals and nationals of Schengen Member States and members of their families.
  • Third country nationals having long-term residence permits in an EU Member State for the purpose of transit through Bulgaria to their country of residence or establishment.
  • Citizens of Turkey and the Republic of North Macedonia and members of their family are allowed to enter Bulgaria for transit to their country of residence.
  1. Bulgarian nationals – truck drivers, arriving from China, Iran, Bangladesh, India, Maldives, Nepal, Sri Lanka, Spain, Italy, Korea, UK, France, Germany, the Netherlands and Switzerland are subject to special quarantine requirements as follows:

Truck drivers who are not planning a new departure in the next few days (until 14 days) must remain quarantined at home for 14 days (following the general quarantine rule).

Truck drivers who are planning a new departure in the next few days (until 14 days), must remain quarantined for the period until their next departure (but not for the full period of 14 days).  During this period truck drivers are allowed to load and unload goods, drive the truck and to the leave the country for international transport.

  1. The time for Bulgarian nationals-truck drivers to go through the country cannot exceed 24 hours.
  2. Non-Bulgarian nationals – truck drivers, who are nationals of or are arriving from China, Bangladesh, India, the Maldives, Nepal, Sri Lanka, Spain, Italy, South Korea, North Korea, France, Germany, the Netherlands, Switzerland or the United Kingdom may enter the country, in order to deliver the loaded goods and then leave Bulgaria immediately (the time spent in Bulgaria cannot exceed 24 hours).
  3. Trucks arriving from Iran or having Iranian registration plates are not permitted to enter the country in general, including for transit purposes.
  4. Temporary units for health control are established at Bulgarian borders.

Implementation of Force Majeure clauses in commercial contracts in view of the Emergency

The following shall be taken into account with regard to concluded commercial agreements governed by Bulgarian law:

The COVID-19 outbreak may be qualified as a force majeure.

The consequences of such force majeure may differ, such as: lack of raw materials and other materials required for manufacturing of goods due to restrictions imposed on import and export in certain geographical regions, delay of deliveries of goods due to closed borders, closing of trade centres, public restaurants, etc., which may lead to breach of concluded agreements like breach of terms for deliveries, for payment of lease etc.

In such cases the parties to a valid commercial agreement governed by Bulgarian law are usually not held liable for whole or partial non-performance of their obligations when this non-performance is due to force majeure.

Under the Bulgarian Commerce Act, a debtor to a commercial agreement cannot be held liable for such non-performance caused by force majeure.  Where the debtor was already in default, he may not invoke force majeure.  A force majeure is an unforeseen or unavoidable event of an extraordinary nature which has occurred after the conclusion of the agreement.

In such scenarios, the performance of the concluded agreements shall be suspended and shall be delayed for the duration of the event, qualified as force majeure.  These general rules are applicable if the party who has invoked on the force majeure event notifies the other party in written in order to release itself from an eventual claim for compensation for the damage occurred, for payment of penalties, interest, etc.  It is necessary the other party to the agreement to be notified in an appropriate term about the force majeure and the possible consequences for this party with regard the performance of the agreement.

In this regard, if due to the COVID-19 force majeure circumstance, a company which cannot fulfil certain obligations to its partners, shall immediately notify its partners in writing of the existence and respectively applicability of the force majeure and to take the necessary steps to obtain a certificate for force majeure if needed.

Should the duration of the force majeure be such that the creditor no longer has an interest in the performance, he/ she shall be entitled to terminate the contract.  The debtor shall also have the same right.

The parties to commercial agreements may also reach a mutual agreement to suspend the latter for a certain period of time, one, two or more months without paying penalties and damages.

General

This review of measures to cope with the Emergency reflects the situation in law and in practice as at the time of writing.  It is not intended to be comprehensive and should not be used as a substitute for specific professional advice which should be taken before any proposed investment is made or other action taken.

 1.Please refer to section Currently issued orders by the Ministry of Health
2.  The COVID-19 outbreak may force companies to request the Bulgarian Chamber of Commerce & Industry to issue certificates for force majeure, which to be presented to their partners (in case of disagreement) in order to be released from liability for delay of the performance of concluded commercial agreements, i.e. payment of rents, distribution of goods, etc.  In this regard the BCCI has the right to request from the respective authorities copies of all documents imposing different restrictions.

Antonia Peeva
Antonia Peeva

The law envisages re-registration of the non-profit legal entities

The latest amendments in the Non-Profit Legal Entities Act (“the NPLEA”) bring significant change in the regime of associations and foundations, as they provide for that their incorporation and registration of circumstances shall be implemented by the Registry Agency, instead of as now – by the respective district court under the seat and address of the non-profit legal entity („NPLE“). The idea of the process of transferring of re-registration of NPLE is to follow the model of re-registration of the commercial companies, effective as of 2008. In this regard, a new Non-Profit Legal Entities Register (“the Register”) being an electronic data base, similar to the Commercial Register, shall be created, containing all circumstances subject to registration, and acts subject to announcement regarding the NPLE and the branches of foreign NPLE under the law. Under the new regime the scope of additional commercial activity and the names of the members of the managing board shall be also publicly announced in the Register in addition to the main circumstances describing the associations and foundations currently subject to registration in the registries of the district courts.

A novelty is that the status of the NPLE performing activities of public benefit will occur automatically as of the moment of their registration in the Register kept by the registry Agency. Thus, there is no longer a necessity for maintaining a second special register – the Central register of the NPLEs performing activities of public benefit kept by the Ministry of Justice, where currently these particular NPLEs are subject to secondary registration. As a consequence, the mandatory financial reports and the report on the activity of the NPLEs performing activities of public benefit will be announced only in the Register. The term for their announcement, as the term for announcement of the annual financial reports of the commercial companies, is until 30th of June of the year, following the year they refer to. The purpose is the transparency, accountability and control over these organizations which receive part of the funding from the state to be improved. In this regard, there is a specific liability of NPLE who fails to announce within the term its financial reports and the report on its activity. In such cases the law provides for the status of NPLE as performing activities of public benefit to be waived and the Registry agency ex officio to register the NPLE as association or foundation with “temporary suspended status of public benefit”. The persistent failure of this obligation on the other side is a ground for termination of the legal entity.

Due to the amendments in the NPLEA the current mandatory procedure for registration in Register BULSTAT will be no longer needed, as with the registration in the new Register, associations and foundations will receive a Unified Identification Code (UIC), similar as the UIC of the commercial companies. The BULSTAT number of the already incorporated associations and foundations after their re-registration will be considered as their UIC. Another significant amendment in the current legislation is the creation of a Civil Society Development Board to the Council of Ministers, whose activity shall be related with the support of the State in order to conduct policy for encouragement of the development of the civil society organizations and creation of conditions for promotion and financial support of civil initiatives as well as support and promotion of the NPLE performing activities of public benefit by the state through tax and other financial and economic relief. It shall however be pointed out that this support should be carried out in strict compliance with the rules for granting state aid.

An interesting fact is that these amendments were reached after analysing the implementation of NPLEA in the recent years, showing a number of deficiencies in the present legal framework. The particular issues are related to the current different treatment of the non-profit legal entities and the commercial companies. The practice shows that up to date, the registration of NPLE in the district courts is often times more expensive than the registration of the companies. Further, the registration of NPLE takes more than 10 times longer – approximately one month for the NPLE, against approximately 3 days for the commercial companies. There is no possibility for electronic submission and receipt of documents and records of NPLE. Although the court registries are open to public, the procedures for receiving of certificates and for searches are difficult. There is no publicly available information about NPLEs and their activities, which prejudice the control by the citizens and institutions, and which often leads to doubts about their transparency. Main criticism of the current regime is the lack of uniform templates and procedures that allows arbitrary interpretation and application of the NPLEA and leads to contradictory and inconsistent practice of the district courts.

The amendments in the NPLEA were adopted and promulgated in State Gazette in September 2016, however the latter will apply as of 1st of January 2018. During this time, the institutions should establish the necessary organization and the Registry Agency should develop the technical means for the smooth functioning of the new Register. All NPLEs and branches of foreign non-profit legal entities welded to the date of entry into force of the amendments will reserve their capacity and status of private or of public benefit. However, the NPLEs entered in the registers of the district court are obliged to file an application for their re-registration to the Registry Agency until 31st of December 2020, as the re-registration procedure will be free of charge. At this stage it remains unclear what will happen with the NPLEs which do not meet the statutory 3 year deadline for re-registration since the law does not explicitly set out such a case, as it was envisaged in 2008 for commercial companies. Following their model and analogy, it is possible to arrive to subsequent deletion of non-profit legal entities after the expiry of the term. The re-registration procedure, similarly to the procedure for re-registration of the commercial companies, shall be implemented based on an application and certificate of good standing, issued after 1st of January 2018, containing full details of the current registered circumstances and the BULSTAT code of the NPLE. Associations and foundations should also submit the registered effective Memorandum of incorporation of the NPLE certified by the registration court or by the legal representative. With the re-registration, the NPLE shall be registered in the Register kept by the Registry Agency with its current name. Here, however, we could face a case of matching names of commercial companies and NPLEs, as after the new amendments in the NPLEA both structures will be entered in registers kept by the Registry Agency, and such hypothesis and its settlement again is not provided by law.

To put it in a nutshell, the transfer of the registration of NPLEs at the Registry Agency at the Ministry of Justice will abolish the existing heavy and expensive procedures for registration of NPLEs in various institutions (district courts, BULSTAT and Central Registry for organizations in public benefit), it would help to align the practice of applying the NPLEA, and it is likely to provide greater transparency in the activities of associations and foundations. The ability to file documents electronically with an electronic signature at the Registry Agency (including applications for registration, change in circumstances and announcing of acts), and the increasing preference of this method by applicants, will improve access, will speed up the procedures and is likely to reduce significantly the queues at the Registry Agency.

The article has been published in Bulgarian, in Capital Daily.

How to protect against unsolicited commercial communications

“I am the nephew of the shot dead King of Nicaragua, we have a big amount of money and we ask you to help us to transfer the funds in Europe!” Congratulations! You have just won … “ Do you recognize this? There is hardly any internet user who has not received such an email.

Spam is a phenomenon with many faces. We may summarize it as a collective term for all forms of unsolicited communications, thrusted on consumers, circulated in social networks, as instant messaging (ICQ, Skype, etc.), SMS, calls and others. The most popular form of spam which is in focus in this article is the spam received by e-mails. I will also consider communications and calls received for direct marketing purposes.

Spam is a global issue which requires adequate protection mechanisms.

Practical protection

Before analyzing in details the applicable regulation regimes, I will discuss briefly the practical protections mechanisms used for “filtering” an e-mail, by the service providers as well as by the users themselves. In the so-called “black lists” after receiving an unsolicited communication the user may add e-mail address, IP address, or other characteristics of the message in the “black list”. When consumer receives again similar message corresponding to the set criterion, the message will not reach the consumer. Other mechanism is to introduce a list of banned words and phrases. Bulgarian consumers came to the inventive method to identify and block the phrase “unsolicited commercial communication” to protect against the “legitimate Bulgarian spam”. In order to be effective; it is recommendable the phrase to be written into the message header.

Who decides which message is solicited or not?

If filtering is performed by the service provider, and not by the user himself, this may lead to the consumer not receiving the solicited correspondence. Analyzing the content of the sent personal and official correspondence represents a disclosure of information, which breaches the freedom and privacy of correspondence, guaranteed by the supreme law – the Constitution.

Based on the practice, it may be considered that the said mechanisms reduce significantly the unsolicited messages received by the consumers.

Protection by law – the „legitimate Bulgarian spam“

The Electronic Commerce Act in force as of 24.12.2006 („ECA”) does not use the term “spam”. Instead, it regulates the “unsolicited commercial communications”, defined as: advertising or other messages to promote, directly or indirectly, goods, services or reputation of a person carrying out a commercial or craft activity or practicing a regulated profession, sent via e-mail without the prior consent of the recipient.

I will consider here the main legislative protection mechanisms.

Mechanism for consumer protection

According to the ECA, sending of unsolicited commercial communication to consumers without their prior consent is prohibited. The term “consumer” is defined in the Consumer Protection Act as any individual who acquires goods or uses services that are not intended for commercial or professional activity, as well as any natural person who, as a party to a contract under this law, acts beyond the range of his/her commercial or professional activity. The Law sets out the type of restrictive regime, the so-called opt-in.

On the other hand, the ECA treats the important case of an already established contact between the sender and recipient of the commercial communications. The law provides that calling, messaging or e-mailing with or without human interference for the purposes of direct marketing and advertising are permitted only with the prior consent of the consumer. The consent can be withdrawn at any time. The ability of each recipient to disagree with future receipt of such messages is the so-called “unsubscribe” procedure (e.g. promotional activities in which the participants can disagree through link placed at the end of the message or through calling the promotional organizers). In any case, the sending of messages for marketing and promotional purposes is prohibited, unless it can identify the person who sent the message or does not include a valid electronic address to which the recipient may send a request to cancel future messages.

Mechanism for legal entity protection

Here I will focus on the free regime or the so-called “opt-out” set out by Law. This regime applies for the recipients- legal entities. In this case, the law does not require prior consent, for example given by the legal representative/manager of the company. ECA has provided a mechanism for protection in the form of Register of legal entities within the Commission for Consumer Protection. The law prohibits expressly sending of unsolicited messages to the e-mail addresses entered into the register. The nature of the register raises questions in the field of the national legislation on personal data protection. For example, the Commission of Personal Data Protection has been approached in connection with a case in which the entity has registered a domain name in the Register of legal entities within the Commission for Consumer Protection, including personal e-mail addresses. As a result all personal e-mail addresses using the same domain names will appear in the register, without explicit consent given by the individuals. The Commission in its Statement 1 concluded that the information regarding a personal e-mail address of an individual does not constitute personal data and, therefore, does not constitute a violation under the Law on Protection of Personal Data. A search within the database of the register indicates that it cannot be determined whether an e-mail entered into the register is used for the purposes of an individual or a legal entity. The entry into the register is an effective option the legal entity to be protected from unsolicited commercial communications as far as the law provides penalties. A service provider who commits or permits a violation shall be penalized with up to BGN 2000, and, the penalty could reach BGN 4000 for repeated violation.
Regardless of whether the regime for consumer or that for legal entities applies, the ECA introduces a general provision that the senders of unsolicited commercial communications by e-mail without the prior consent of the recipient are obliged to ensure that the messages are clearly and unambiguously identifiable as unsolicited as soon as they are received by the recipient. The said provision is a typical expression of the “opt-out” regime.

Besides the fact that we are subject of unsolicited commercial communication, we are often attacked by unsolicited SMS. It is expected soon that the Commission for Consumer Protection will rule on the case with the so-called “unsolicited SMS”, which is a famous practice of mobile operators to include users in various games or services, and in order to exit the game, the user is obliged to send paid SMS. Currently, the Commission for Consumer Protection developed the so-called territory of unsolicited SMS, which scope and protection will be considered further.

Lyuba Bozova

McGregor & Partners

The article has been published in Bulgarian, in Capital Daily:

http://www.capital.bg/biznes/konsult/2016/09/11/2825298_poluchih_spam_a_sega_kakvo/

1Statement of the Commission of Personal Data Protection reg. № П-7552/2014

The new Insurance Code provides privileges for the insurance companies

In the first day of the New Year, when the sound of the New Year’s Eve fireworks had not faded yet, the new Insurance Code quietly entered into force. Some of the analysts called it lobbying, others just labelled it as “biased”, but the truth is that we will have to wait and see what the real consequences of its implementation are going to be.

As long as the insurance guild was glossing over the eyes of the users of insurance services, that the new code should have been implemented following the need of standardization of the local law with the European law provisions, the new amendments, which could be deemed as disadvantages for the insured persons, were left in the background. Such amendments are, as follows: longer terms for the insurers for pronouncing over insurance claims, limiting of the possibility the insured persons to submit claims directly before the courts, non-payment of some of the legal interests over the insurance claims, as well as provision in favour of the insurers a scope for interpretation of the insurance contracts and subsequent refusals for payment of insurance compensations.

Longer terms

The local legislator unquestionably tied the hands of the insured regarding the obligations of the insurers to pronounce on insurance claims. While under the repealed Insurance Code the insurer was obliged to pay the insurance compensation within 15 days since all the requested documents, related to the insurance event, are presented, the new Insurance Code extended this term up to 3 months, concerning the compulsory insurance “civil liability of motorists”, and up to 6 months concerning the property insurances – car insurances, real estate insurances etc.

The above-mentioned amendments reasonably led to undermining of the confidence in the current insurance system, and more people started questioning themselves whose interests the new Insurance Code defends – those of the insured persons, mainly citizens, who are deemed to be the economically weaker party within the insurance relationship, or rather the interest of the insurer prevails, who in this case is the stronger party.

The court has to wait

The new Insurance Code restricts significantly the right of adequate justice of citizens and companies and turns them into hostages of their insurers. According to the practice under the repealed Insurance Code the insured and/or the injured people from traffic accidents were allowed to seek their rights directly in court as a preventive measure against abuses and unfair procedural tricks of the insurers. Since the new Insurance Code has entered into force, this possibility does not exist anymore. After a careful and thorough analysis of the applicable legal provisions, we will realize, that the persons have to submit firstly their claims before the insurers, then to wait a while (up to 6 months for some specific cases) and if the insurer does not pronounce on the insurance claim or offers an insurance compensation in unsatisfactory amounts, they could file their claims in the court.

Saving the legal interest

By implementing the new Code the legislator actually tended to ignore main principles of compensating the damages of delicts, provided by the Obligations and Contracts Act, namely that regarding the delicts the debtor owes legal interest since the day of the occurrence of the insurance event without sending any subsequent invitation for voluntary payment. According to the current compulsory practice of the Supreme Cassation Court, the injured people were entitled to be paid a legal interest from the insurer of the guilty driver since the day of the accident until the final payment of the insurance compensation.

The new Insurance Code is rather harmful than defensive for the rights of the injured people, as the insurer shall be in default and owe a legal interest just after the expiring of the terms for pronouncing on the insurance claims. Who will lose from this, therefore? In case of any car accident, the injured ones shall wait until the investigation and the penal procedures are over, and only after the judicial act against the guilty driver enters into force to seek a claim for payment of insurance compensation for the injuries occurred before the relevant civil court. The penal procedures are not completed so fast and depending on the severity of the injuries and the presence of controversial facts regarding the accident, they could be extended up to couple of years.

Up to now, the injured people were compensated with the legal interest for this period, accrued over the insurance compensation, in accordance with the main legal principles for compensation of damages, occurred due to delicts.

Lack of compulsory court practice

Currently, it is rather unclear how the courts are going to interpret the new legal provisions in the field of the insurance. According to the Transitional provisions of the new Insurance Code, the repealed code applies for relations concerning the insurance contracts, concluded before 01.01.2016. Because of that there is no consistent and compulsory case-law of the local courts regarding the controversial provisions of the new code yet, but such is eagerly expected by all concerned parties.

The article has been published in Bulgarian, in Capital Daily:

http://www.capital.bg/biznes/konsult/2016/08/07/2807572_v_kapana_na_zastrahovkata/

The peculiarities of Bulgarian Law

There are a number of forms of intellectual property rights to protect software depending on its specifics. Subject to this article will be the protection by copyright in computer programs, which is most commonly applied under Bulgarian Law. The owner of copyright in software has various exclusive rights, including to use, reproduce (or “copy”) and distribute it, and to allow or prohibit these acts to third parties. The rule seems simple, as long as we can establish whether there is a copyrightable subject matter, who is the author pursuant to the law and in which cases another person holds the exclusive rights. These questions are often at issue in court battles about intellectual property. In Oracle v. Google the U.S. court had to rule whether the Java APIs (Application Programming Interfaces) are subject to copyright. What is the position in the U.S., however, would not matter in case that Bulgarian Law is applicable, as copyright is governed by the principle of territoriality. Despite that the rules regarding computer programs are harmonized to a large extent in the EUi, the Bulgarian legislation and case law has its own peculiarities.

A computer program is protected when it is “original” and recorded in material form. In respect of the first requirement no qualitative or aesthetic characteristics are assessed. The criterion is the program to be the author’s own intellectual creation. Only the expression of the program which allows its reproduction is protected, while its underlying ideas and principles, functions, as well as algorithms and programming languages are not subject to copyright. According to this principle CJEU found that the source code, object code and also the preparatory design work which may result in the creation of a program at a later stage are protected by copyright, but not the graphic user interfaceii (the latter may be protected as another work, if it is original). In another case CJEU concluded that a company which purchased a licence for the software of a competitor and developed a rival program, did not infringe the copyright of the owner, insofar as it only observed and tested the software and did not have access to its source codeiii .

Copyright arises automatically upon the creation of the work (in our case the computer program), without being necessary to perform any registration or other formality. However, to ascertain since when the copyright has arisen and who owns it, it is important to be able to prove these circumstances with the proper documents.

Author of the software is the person who has written it and according to the general rule he will also be the holder of the copyright. It is possible, however, that the person has made the program as part of his employment duties or has been commissioned to develop it. In these cases special rules apply regarding the ownership of copyright. Pursuant to Bulgarian Law it will vest in the employer if the computer program has been created in the course of the employment, in the absence of an agreement to the contraryiv. A question arises what “in the course of employment” means and a guideline can be found in the European directive which says that the program has to be created by the employee in the execution of his duties or following the instructions given by his employerv. Generally, to prove his ownership the employer has to establish that the software has been written by his employee, whose employment characteristic include duties of development of software, and that there is not an agreement that the copyright remains with the employee. It is possible, however, that the employee has made its own software after work or at weekends and that the employer pretends ownership in it, because the person is his employee and has used company’s equipment. In this case it would be decisive whether the employer has ordered the creation and delivery of this type of software to his employee – if not, then the copyright could be with the developer, although he has been in employment relationship at that time. In the opposite scenario, even if the employee has written the software outside his working hours and at his own equipment, in case that his employment duties include the development of similar programs, then the copyright will probably vest in the employer. It is, therefore, advisable to define clearly the duties of the employee and to provide expressly in his employment contract clauses governing the copyright in the results from his work.

Things look different when the software has been commissioned, for example a company has ordered this to an external developer or to a software company. In this case according to Bulgarian Law the copyright is held by the author (i.e. the developer) unless in the contract for commissioning the parties have agreed that the client will be the rightholdervi. Even if copyright remains with the author, however, the Law introduces a presumption that the commissioning party is entitled to use the work without the permission of the author for the purpose, for which it has been ordered, unless otherwise is agreedvii. It happens that the contract does not have terms regarding copyright, i.e. there is no “otherwise agreed” by the parties, in which case the general rule applies. The latter used to raise a number of questions to academics and courts, and namely whether the commissioning party has an exclusive or non-exclusive right to use the works, whether this right is limited by term and territory and whether the “otherwise agreed” has to be a provision in the contract for commissioning or could be set out in another contract. The answers to these questions are of particular importance, because the difference between exclusive and non-exclusive right of use is that if the first is granted only the client will be entitled to exploit the product, while the non-exclusive right entitles the author to use it together with him, as well as to grant rights to third parties. Moreover, only the owner and the exclusive user may claim damages for infringement of their copyright before the court. In previous legal cases Bulgarian courts and arbitral tribunals held that in the absence of “otherwise agreed” the commissioning party who assigned the development of computer program had the non-exclusive right to use it for a period of 3 years. Judgment of the Supreme Cassation Court of May 13, 2016 reverses such case-law and gives answers to the controversial questions, which are mandatory for the first instance and the appeal courts. The Supreme Cassation Court (SCC) ruled that if there is nothing agreed in the contract for commissioning, the client has an exclusive right to use the material result without permission of the author for the purpose for which it has been ordered. It also follows from the Judgment of SCC that this right is not limited by term. The parties, however, may agree on other terms and conditions in the contract, such as non-exclusive right of use, a limited period or territory, or other restrictions for the commissioning party. According to SCC the “otherwise agreed” could be a clause in the contract for commissioning or provided in another contract, which re-arranges the relationship of the parties. Last but not least, SCC confirms that the use of the work under the contract for commissioning should be against consideration, even if such has not been agreed in the contract.

In our view SCC has been quite categorical and ultimate in its position which could hardly be grounded under the effective Bulgarian legislation. We find a good example in the English case law, where in the absence of express provision in the contract, the court may rule that there are implied terms of either assignment or licence of the copyright in favour of the commissioning partyviii. The test is what is the necessity of the client in relation to the exploitation of the copyrighted work in the circumstances – whether he will be satisfied only with the right to use it, or he has to be the owner in order to be eligible to benefit from the commissioned work. Relevant factors would be the price paid under the contract and the impact on the contractor, and namely whether the intention of the parties was the contractor to exploit the work. Certainly, we should not forget that the Bulgarian courts do not have freedom to create the rule of law, as it is in common law systems, however, they can make an interpretation of legal provisions which becomes mandatory. Ultimately, authors of software and their clients are advised to define expressly their rights in the contract.

Asya Vladimirova,

Partner

McGregor & Partners

The article has been published in Bulgarian, in Capital Daily: www.capital.bg

i Directive2009/24/EC of the European Parliament and of the Council of 23 April 2009 on the legal protection of computer programs

iiBezpečnostní softwarová asociace – Svaz softwarové ochrany v Ministerstvo kultury, Case C-393/09 Judgment 2010 (CJEU)

iiiSAS Institute Inc. v World Programming Ltd., Case C-406/10 Judgment 2012 (CJEU)

ivArticle 14 of the Law on Copyright and Related Rights

vArticle 2, point 3 of Directive 2009/24/ЕО

viArticle 42 (1) of the Law on Copyright and Related Rights

viiArticle 42 (2) of the Law on Copyright and Related Rights

viiiRobin Ray v Classic FM [1998] FSR 622

2016 June/July, Issue 5

Highlights in Bulgarian legislation and court practise

Energy companies must disclose information to FSC

According to the latest changes of the Public Offering of Securities Act (POSA) of June 2016 the companies, whose activity is regulated by the Energy Act, should disclose certain information to the Financial Supervision Commission and to the public. The amendments affect energy companies (including renewable energy producers), which meet two of the following three criteria: (1) average number of personnel in the year – equal and more than 10 persons; (2) book value of assets as of 31 December – equal and more than BGN 700 000; (3) net income from sales in the year – equal and more than BGN 300 000.

The companies, which meet the above-mentioned criteria, must submit to the Financial Supervision Commission (FSC) a number of documents and information provided in POSA and Ordinance № 2 from 17.09.2003 on the prospectuses for the public offering and admission to trading on a regulated market of securities and disclosure of information by public companies and other issuers of securities (Ordinance № 2). The first set of documents and information, including an interim financial report, covering the first 6 months of the financial year, should be filed with the Financial Supervision Commission by 30 July 2016. We note that the Financial Supervision Commission has published on its website a bill for Ordinance amending and supplementing Ordinance № 2. Such changes of Ordinance № 2 have not been promulgated in State gazette yet. Hence, they will become effective after three days as of the promulgation, unless the Ordinance provides another term. Until the entry into force of the changes, companies should comply with the current Ordinance № 2.

The disclosure of information to FSC and the public seems to be a quite onerous requirement for energy companies, which are not publicly traded. Nevertheless, those who meet the above-mentioned criteria are advised to comply with the new rules within the statutory terms, as severe sanctions are provided in case of breach of such obligations.

Damages from illegal regulations cannot be sought from the State and the municipalitiesOn June 27, 2016 the Supreme Administrative Court with its Interpretative Decision held that citizens and legal entities are not entitled to seek compensation under the Law on the liability of the State and municipalities for damages (LLSMD) for the damages caused as effect of illegal decrees, ordinances, regulations or tariffs.

The decision was issued due to the contradictory case law on the question: Should the damage caused to citizens and legal entities related to the implementation/ effect/ of a by-law in the period before it was cancelled as unlawful or declared void be subject to compensation pursuant to LLSMD?

The main reasoning of the decisive panel is as follows: the decision by virtue of which a by-law is cancelled as unlawful or is declared void, has no retroactive effect under the Administrative Procedure Code. Until its cancellation the by-law produces its legal effects and the existence of these legal consequences are not affected by the cancellation. According to the explicit provisions of the legislation any relations derived by act up to the time of its cancellation or declaration as void are considered lawful. According to the Supreme Administrative Court, therefore, one of the prerequisites for compensation of damages caused by illegal act of the State or the municipalities under LLSMD is not met, namely the damages are not caused by an unlawful by-law while the latter was effective.