Bulgarian Parliament Ordered to Pay Damages to a Private Entity23 September 2022
Corporate Disputes, Private Equity, Private companies, News
In a judgment of the Bulgarian Supreme Court of Cassation (SCC), the Bulgarian Parliament was found in breach of EU law. They were ordered to pay BGN 200,000 (approximately EUR 102,000) in damages plus interest to the claimant who was a private entity.
This is particularly noteworthy as part of a larger trend of democratising the Bulgarian legal system whereby the legislature is increasingly found liable for damages.
Between 2006 and 2015, there was legal provision allowing the state to place a mortgage over the property of undertakings which had been privatised to guarantee its due receivables. The state acted through its Agency for Post-Privatisation Control (APPC). The EU Commission found that this legal provision infringed upon freedoms of establishment and the movement of capital (Arts. 49 and 63 TFEU), as it could dissuade potential investors from other Member States.
Therefore, in 2012, proceedings were issued against Bulgaria on this matter. However, the Bulgarian Parliament did not repeal the law until 2015.
In 2007, the APPC had placed a mortgage over the properties of an undertaking whose privatising owner owed instalments and liquidated damages to the state. The undertaking suffered damages in the amount of BGN 120,000 (approximately EUR 61,000) and so, in 2015 after the repeal of the law, it filed a claim against Parliament and the APPC, jointly and severally.This claim challenged Parliament’s failure to repeal the law when Bulgaria had acceded to the EU in 2007, and for not directly applying the provision of EU law which was contradicted by a national law.
In a nutshell, the current Parliament argued that it could not be held liable for laws passed by previous assemblies. It also submitted that it had no legal initiative and that no actual obstruction of the flow of foreign capitals had in fact materialised.
The APPC argued, inter alia, that it had applied the national law and that it could not have done otherwise. After seven years, the case progressed to the highest civil court in Bulgaria (the SCC), in which the defendants’ arguments were rejected.
The SCC recalled the principle of state liability developed in the Francovich, Brasserie du Pêcheur, Factortame and other seminal cases of the Court of Justice of the EU. This principle establishes that EU law confers a right to reparation where three conditions are met:
(1) the rule of law infringed must be intended to confer rights on individuals;
(2) the breach must be sufficiently serious; and
(3) there must be a direct causal link between the breach of the obligation resting on the State and the damage sustained by the injured parties.
It was held to be sufficient that the law in this case could dissuade potential investors.. Also, the state was found liable regardless of which of its bodies had committed the infringement. It was held to be no defence that previous assemblies had passed the law in question. Indeed, the Bulgarian Parliament is a contiguous body of state power and it was responsible for maintaining the law.
Finally, under the principle of primacy, it was held that the APPC ought to have applied EU law directly and refused to apply the contradicting national provision. This principle was first heralded in the case of Costa, as early as the 1960’s.
Thus, the SCC found the defendants jointly and severally liable and ordered them to pay damages plus interest to the claimant undertaking.
The bigger picture
This judgment is part of a larger trend of democratisation. Historically, claims against the highest Bulgarian public bodies for actions within the scope of their constitutional powers have been considered inadmissible. Lower bodies have been reluctant to disapply national laws despite the Constitution expressly giving intergovernmental agreements primacy and EU law later imposing its own primacy over the whole of the national legal system. However, within the last decade, private claimants have been increasingly willing to seek their rights in court against the Bulgarian Parliament.
As a part of this trend, in 2019, amendments to the State and Municipalities’ Liability for Damages Act 1988 were introduced, which laid down the procedure for damages arising where the state infringes EU law (the novel s 2c).
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