Bulgarian Authority on Indemnification for Breach of R&Ws

Bulgarian law of contract does not expressly recognize representations and warranties (“R&Ws”) nor the consequences of their breach, including related indemnification. While well-established and undisputed contractual mechanism in the international M&A practice in English law-governed share-purchase agreements (“SPA”), until now such liability had not been tested with Bulgarian courts under Bulgarian-law governed SPA.

We are pleased to announce that our litigation team contributed to the establishment of a precedent-setting court practice regarding the liability of the seller for breach of R&Ws it had provided to the purchaser under a Bulgarian law governed SPA, in respect of the target subsidiary companies.

It was particularly challenging to define the overall applicability of the concept, the scope of such liability and the amount of the compensation due by the seller before the Bulgarian courts, especially as under Bulgarian law: (i) “contract”-based compensations are granted on the basis of a breach by a party of its immediate obligations under the agreement; and, (ii) the amount of compensation for the breach is determined in reference to the value of damages suffered by the immediate party to that agreement; while in the case of breach of R&Ws: (i) the liability for the seller arises as a result of a deficiency in the assets of a target company (i.e., a third party) and (ii) the amount of the compensation due to the seller is determined in reference to the value of damages, suffered by such third party. The court found that a contractual clause, providing that the Seller shall compensate the Purchaser for any damages caused to the Purchaser and/or any of its subsidiaries (whose shares were sold under the SPA) resulting from a breach of the seller’s R&Ws, given in the Bulgarian law SPA, is valid clause and the claim of our client, based on such clause, was upheld in its entirety.

Boyko Bratanov and Kremena Yaneva-Ivanova advised and represented the client in all stages of the court proceedings.

Date: May 2019

Source: Spasov & Bratanov Lawyers' Partnership

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