Commercial arbitration in Romania is well developed for both private parties and state entities. In recent years, Romanian law, Romanian parties and Romania as a place of arbitration are mentioned among the most frequent laws, users or place of arbitration in ICC arbitration. Domestic arbitration, particularly organised by the courts of arbitration attached to the national and county chambers of commerce, is also widely used by Romanian companies. Moreover, for certain types of contract (public works contracts in infrastructure, awarded in a public procurement procedure), FIDIC forms of contract are mandatory and therefore the arbitration agreement included in this contract is constantly to be found in such contracts.
The legal framework regulating arbitration is modern. The Romanian New Civil Procedure Code, in force since 15 February 2013, regulates both domestic and international arbitration in a manner that is compatible with the UNCITRAL Model Law (although Romanian law on arbitration does not follow the text of the Model Law, the same main principles are to be found). Romania is a signatory party of the European Convention on International Commercial Arbitration (Geneva, 1961) and of the New York Convention for the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958).
Romanian courts of law are regularly addressing issues referring to arbitration in either annulment proceedings or when deciding on recognition and enforcement of foreign arbitral awards in Romania. This chapter will analyse a selection of the recent decisions (2015-2016) of the Romanian High Court of Cassation and Justice.
Limits of the power of the courts of law in annulment proceedings
Decision 551 of 18 February 2015 of the High Court of Cassation and Justice restates that the courts are not allowed to examine the arbitral award on the merits, the control of the court being one of legality only.
The High Court decided that the analyse of the evidence filed by the party as well as the decision on the need for further evidence belongs to the arbitrators and that the High Court may reconsider the evidence only if the arbitration award is set aside.
Such case law is to be seen in the context of the Romanian law giving prevalence to parties' will whenever consent to resort to arbitration is met.1
Alternative arbitration agreements. Implicit consent to arbitration
Decision 318 of 11 February 2016 of the High Court of Cassation and Justice addressed two issues: the validity of alternative arbitration agreements (where the choice belongs to the claimant) and the implicit consent to arbitration.
The High Court states that an alternative arbitration clause is not null and void, but it shall be construed in accordance with the general rules provided by the Civil Code to construe the agreements. The choice of an option is subject to the principle pacta sunt servanta, to the further agreement of the parties in favour of arbitration or national courts.
The situation in the case decided by the High Court was based on the fact that the claim was first filed with the national court, which admitted the plea for the lack of jurisdiction raised by the defendant. The litigation was then settled by the arbitral tribunal. The appellant did not raise a plea for the lack of jurisdiction of the arbitral tribunal. It raised such plea for the first time when it filed a request for the award to be set aside. In this context, the High Court of Cassation and Justice determined in the respective case that the conduct of the appellant during the proceedings was equivalent to consent to arbitration as it did not defend against the plea of lack of jurisdiction of the first court where the claim was filed and also it did not raise a plea for lack of jurisdiction before the arbitral tribunal.
This is to be seen in the context in which under Romanian law, a plea for lack of jurisdiction of an arbitral tribunal must be timely raised, doctrine considering the absence of such plea as implicit consent to arbitration. This case law is interesting as it shows how lack of objection to a plea of lack of jurisdiction of the courts of law, favouring the enforcement of an arbitration agreement, may be an equivalent of a tacit consent to arbitration.
Prevalence of the special law providing for an arbitration agreement over the general law providing the jurisdiction of the courts of law
As confirmed by Romanian doctrine and case law, whenever the law provides for the exclusive jurisdiction of the courts of law, arbitration is no longer possible, in spite of the parties' agreement. An interesting situation was decided by the High Court, when the signing of the arbitration agreement was not simply the result of the will of the parties, but of the application of another legal provision, which was imposing in that specific situation the use of FIDIC forms of contracts, including an arbitration agreement.
By Decision 1167 of 29 April 2015, the High Court of Cassation and Justice gave prevalence to the arbitration clause in a FIDIC-based contract and decided that the parties' litigation was to be solved by arbitration as an exception provided by the law from the general rule in force when the parties' contract was concluded.
The general rule in this case was provided by article 286 of the Government Emergency Ordinance 34/2006 (former Romanian public procurement law), which states that litigations on the procurement procedure and on the performance, nullity, annulment or termination of a public procurement agreement are under the jurisdiction of the administrative and fiscal litigation section of the competent court (tribunal) at the headquarters of the contracting authority.
However, apart from the general rule, a special rule was in force. When the parties signed their contract the Order of the Ministry of Economy and Finance 915/20082 was also in force, providing for the mandatory use of FIDIC forms of contracts, including an arbitration agreement, for all public works contracts. The High Court gave prevalence to the provisions of Order 915/2008 as the special rule applicable in the said case. It was held that the arbitration clause was not the result of the parties' free will but of their compliance with the mandatory law in force, namely Order 915/2008. The High Court stated that an analysis based on article 286 of the Government Emergency Ordinance should have occurred only if the arbitration clause was the parties' choice.
Third-party intervention in annulment proceedings. Justification of the interest as a requirement for civil action
Under Romanian law, a third party may intervene in a litigation for one of the litigating parties if it meets the admissibility criteria and proves that it has its own direct interest in the decision settling the respective litigation. A claim has to meet a number of mandatory requirements for its admissibility:3 procedural capacity, procedural standing, formulates a claim,4 and justifies an interest.5
In Decision 2216 of 3 November 2016 the High Court of Cassation and Justice addressed two interesting issues: the possibility of third-party intervention in the proceedings of annulment of an arbitral award and the specificity of the analysis to be made on the interest of such third party.
In the said case, the third party filed a request to intervene in court in favour of the litigating party against which the annulment of an arbitral award was requested. The arbitral award decided to terminate the concession agreement for land. The third party wanted to obtain the concession of the respective land. With this aim, it contacted the successful party in the arbitration file to organise a tender for the purpose of awarding the concession. The third party admitted, however, that even if this tender were to be organised it might not win it.
The High Court found that this party had no interest, as a mandatory condition to file a claim, as it had no subjective right which was threatened and it was in no danger for an imminent prejudice. Thus, the respective third party did not have a born nor an actual interest but merely an eventual one.
To decide like this, the High Court referred to the provisions of thesis 2 of article 33 of the New Civil Procedure Code according to which, when there is no born or actual interest, a claim may still be filed if it prevents the breach of a threatened subjective right or to prevent an imminent prejudice that may not be repaired. The High Court concluded that an eventual interest does not fall under thesis 2 of article 33 of the New Civil Procedure Code.
The High Court stated in its decision that, to fulfil the admissibility requirement to have an interest to file its request, a third party who wants to intervene in a litigation for one of the parties has to obtain a direct and immediate practical benefit from the ruling in favour of the party for which it intervenes. The third party would thus be certain that its rights related to the object of the litigation shall not be affected.
One should also note that it was previously held by the Romanian High Court of Cassation and Justice in Decision 1122/2008 that, ‘by imposing the condition of the interest not only the avoidance of litigations useless for the party, purely vexatious, is aimed at but, at the same time, sparing the time of the judges and the finances of the state or, as the situation in the present case, avoiding the gratuitous dilatation of the judicial time.'
Suspension of a decision to recognise and enforce a foreign arbitral award in Romania
Decision 826 of 20 April 2016 of the High Court of Cassation and Justice upheld the decision of the Cluj Court of Appeal to suspend, by way of a special procedure, the effects of the decision to recognise and enforce an arbitral award in Romania until the appeal against the recognition and enforcement decision shall be decided in court. The decision to suspend the effects of the recognition of the award by the first court was based on a prima facie scrutiny of the case.
In short, the arbitration case dealt with events that were related to a criminal trial in Romania following the collapse of the roof of the building subject to arbitration. The criminal trial had as its object felonies provided by the law regarding the quality in the construction work and the party seeking for the recognition of the arbitral award in Romania was a civil responsible party in the criminal trial. This party invoked in the criminal trial its lack of liability based on the arbitral award and requested its recognition.
The Cluj Court of Appeal found, among others, that the effects of the recognition decision would be immediate and they could damage the party requesting for suspension, and might have also influenced the proceedings of the criminal suit, before the appeal against the recognition decision was decided upon.
The Cluj Court of Appeal stated that the suspension was required to prevent a breach of article 6 of the European Human Rights Convention due to irreversible effects of the recognition decision in the respective case. This decision was upheld by the High Court of Cassation and Justice, which maintained that the effects of the recognition of the arbitral award were both patrimonial and non-patrimonial, due to the incontestable link between the civil and criminal procedure.
Preliminary proceedings to litigation - are they mandatory?
This particular decision of the High Court is not an issue in the context of arbitration, but in the context of a regular court case. However, the reasoning may impact the situation of the multi-tier arbitration agreements and for this reason we consider it interesting.
In its Decision No. 1021 of 1 June 2016, the Romanian High Court of Cassation and Justice referred to the mandatory direct conciliation provided by article 720¹ of the Old Romanian Civil Procedure Code as a preliminary procedure for monetary claims in commercial disputes. This represents a guideline for the interpretation and application of mandatory preliminary procedures in case of disputes.
The Romanian High Court of Cassation and Justice, in full accord with the Constitutional Court of Romania, stated that this preliminary procedure was meant to allow the parties to settle between themselves the claimant's claims, in a quick manner and without the intervention of a court. The Romanian High Court of Cassation and Justice, in line with its former case law, gave prevalence to the principle that the direct conciliation is not a mere formality but it has to effectively lead to a settlement of the parties' dispute. A plea for the lack of this preliminary procedure may only be raised in connection with the actual possibility to reach an amicable settlement and with damage to the other party caused by not allowing such possibility.
Further, the Romanian High Court of Cassation and Justice stated that the possibility itself to reach an amicable settlement existed during the entire period from the filing of the claim to the date the plea for the lack of direct conciliation was raised by the defendant.
The yardstick used by the Romanian High Court of Cassation and Justice for analysing whether the defendant wanted to amicably settle the litigation or, otherwise, to detour the scope of the direct conciliation and delay the proceedings, was mainly the attitude of the defendant itself during the court proceedings. The Romanian High Court of Cassation and Justice decided that the defendant could have either recognised the claimant's claims or amicably settled the litigation during the court proceedings. To the contrary, according to the Romanian High Court of Cassation and Justice the defendant's conduct of reiterating its plea during proceedings together with the claimant's reiteration of its claims represented proof that there may not be a successful direct conciliation between the parties and, consequently, a plea for the lack of direct conciliation is a procedural abuse.
The most recent decision of the High Court of Cassation and Justice concludes that there is no reasonable rationale to force the parties to proceed with the direct conciliation as long as they know their claims and put forth their arguments during the litigation in court. The Romanian High Court of Cassation and Justice firmly affirms that to decide otherwise would force the parties to proceed with an extrajudicial procedure without any finality with consequences on the principles of due process and reasonable term to solve a dispute.
To sum up, the High Court considered that the preliminary procedures to litigation have to effectively lead to amicable settlement. The defendant should actively participate in amicable settlement and allow for the parties' reconciliation in order to prove that it was damaged by the lack of undergoing a preliminary procedure. Irreconcilable positions of the parties during litigation are construed as proof that a preliminary procedure was not able to lead to an amicable settlement. Forcing parties to proceed with preliminary proceedings in this context is considered a matter of due process.
This straightforward interpretation of the Romanian High Court of Cassation and Justice with respect to the practical application of a procedure mandatory and thoroughly regulated by the law is relevant with respect to the position of the High Court with respect to preliminary procedures in general (be it in conciliation or be it before litigation or arbitration).
The link made between the principles of due process and solving a litigation within a reasonable time frame makes this most recent decision of the Romanian High Court of Cassation and Justice even more relevant to arbitration seated or seeking recognition in Romania, where due process is considered a matter of public policy and therefore addressed in both annulment proceedings and in proceedings for recognition and enforcement of foreign arbitral awards.
Article 553 of the New Romanian Civil Procedure Code provides that an arbitration agreement excludes the jurisdiction of national courts.
The Order of the Ministry of Economy and Finance, the Ministry of Transportation and of the Ministry of Development, Public Works and Accomodation 915/465/415/2008 for the approval of the general and special conditions for public works approved the conditions of the FIDIC contract for public works. This Order was cancelled by Order 555/1059/306 of 2009. New legislation was further adopted on this issue by the Ministry of Transportation.
Article 32 of the Romanian New Civil Procedure Code.
Article 36 of the Romanian New Civil Code provides that the procedural standing results from the identity between the parties and the subjects of the litigious legal relationship, as it is presented in court, while the existence or inexistence of the affirmed rights and obligations represents a matter of the merits of the case.
According to article 33 of the New Civil Procedure Code the interest to file a claim has to be determined, legitimate, personal, born and actual. Although, even when the interest is neither born nor actual, a claim may be filed with the purpose of preventing the breach of a threatened subjective right or to prevent an imminent damage that may not be repaired.
Leaua & Asociatii
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Tel: +40 31 405 4304 / +40 21 312 5513
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Leaua & Asociatii specialises in various alternative dispute resolution methods under Romanian law: arbitration, mediation, conciliation, dispute adjudication boards and international arbitration.
The lawyers of Leaua & Asociatii have assisted parties or acted as arbitrators or experts in numerous international arbitrations under the rules of bodies such as ICSID, ICC Paris, WIPO Arbitration and Mediation Centre, VIAC - Vienna, the Court of International Commercial Arbitration by the Romanian Chamber of Commerce and Industry, the Danish Arbitration Institute and the Court of International Arbitration by the Bulgarian Chamber of Commerce and Industry.
The firm has been recognised for its activity in international commercial arbitration as one of the best Romanian law firms in various areas of the law in 2008, 2009 and 2010 at the Top Lawyers' Gala, organised by Finmedia Publishing Group.