Romania has a history in commercial arbitration, both Old Civil Procedure Codes (starting with 1865) and New Civil Procedure Code (entered into force as of 15 February 2013) contain special provisions regulating arbitration. Romanian legal provisions applicable to domestic and international arbitration are compatible with the UNCITRAL Model Law as they are based on the same main principles, but without following the text of the Model Law.
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).
The modern legal framework contributed to the development of international and domestic arbitration not only for private parties but also for state entities. This enhanced the use of arbitration over time and, nowadays, Romania is a place of arbitration for many cases under ICC arbitration. Romanian parties are present in front of many arbitration courts and Romanian law is frequently the governing law in ICC arbitration.
Domestic arbitration is also frequently used by Romanian companies. The national and all county chambers of commerce have attached courts of arbitration. As FIDIC forms of contract are mandatory for certain types of agreements for public works contracts in infrastructure (awarded in a public procurement procedure), these contracts generally contain arbitration clauses in line with the FIDIC arbitration clause.
Apart from the modern legal framework, 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 article will analyse a selection of the recent decisions of the Romanian High Court of Cassation and Justice.
Application of the principle accesorium sequitur principale from the perspective of the arbitration clause
Recent decisions of the High Court of Cassation and Justice address the application of the principle accesorium sequitur principale from the perspective of the arbitration clause with respect to the main contract and the ancillary agreements. There are two decisions of the High Court of Cassation and Justice of interest on this topic, one dealing with the public contract and the parties’ hidden act (simulation) and the other with the main contract and the ancillary agreements. In both cases only the public/main contract contained an arbitration clause while the hidden agreement and the ancillary agreement did not. As it shall be detailed below the High Court of Cassation and Justice gave different solutions in these cases. Although, at first sight, it appears to have contradictory approaches when analysing the basis of these solutions it is obvious that such are due to the nature of legal institutions object to the analysis of the High Court of Cassation and Justice, which eventually gave prevalence to the main legal principles applicable in each case.
In case of simulation, the High Court of Cassation and Justice decided that the arbitration clause in the public agreement applies also to simulation and it impedes a national court to render a decision based on the hidden agreement of the parties
In its Decision, no 2043 of 7 December 2016, the High Court of Cassation and Justice found that when the parties concluded two agreements, out of which one is public and known and the other is hidden and only known by its parties, an arbitration clause in the public agreement also applies to the request to declare the simulation of the public agreement because both the public and the hidden agreements of the parties are part of the simulation. The request to declare the simulation of the public agreement is the juridical mean to invoke and request for the application of the hidden agreement instead of the public agreement of the parties.
In this case, the High Court of Cassation and Justice had to decide the recourse (second appeal) in a case where a party filed a request to declare the simulation of a public agreement, namely a management agreement, because a hidden agreement was also concluded by the parties (an agreement which was not known to the public) and requested for damages based on the hidden agreement.
The public agreement of the parties contained an arbitration clause stipulating that any misunderstanding and dispute born or related to the said agreement, regarding without limitation its validity, interpretation, implementation or termination, if not amicably settled shall be deferred to arbitration, while the hidden agreement did not contain an arbitration clause.
The High Court of Cassation and Justice explained that the purpose of the request to declare simulation is to demonstrate the fictitious character of a deed/legal operation in order to become applicable the agreement corresponding to the real will of the parties, namely the hidden agreement. Therefore, the claimant will start from the very provisions of the public agreement to demonstrate that this does not represent the parties’ will. As any matter related to the public agreement is deferred to arbitration, whether the public agreement represents or not the will of the parties is a matter to be decided by arbitration. Accordingly, the arbitration clause shall apply to a request to declare the simulation of that public agreement.
The High Court of Cassation and Justice reiterated that according to Romanian Civil Procedure Code a national court is obligated to verify its jurisdiction in the presence of an arbitration clause. This rule is contained in Article 343 index 3 (1) of the Old Romanian Civil Code, now Articles 553 of the New Romanian Civil Procedure Code, providing that an arbitration agreement excludes the jurisdiction of national courts. Article 554 of the New Romanian Civil Code provides that the national court is compound to verify its jurisdiction and shall only deny its jurisdiction if one of the parties raises an objection of lack of jurisdiction of national courts based on an arbitration clause. The obligation of the national courts to verify their jurisdiction is in place before administering any evidence, as any act performed by a court without jurisdiction is null and void. Thus, the objection of jurisdiction in the said case could not be decided together with the merits of the case, as it was requested by claimant.
The High Court of Cassation and Justice validated the decisions of both the Tribunal (first court) and the Court of Appeal which decided that the national courts do not have jurisdiction in this case (both for the request to declare the simulation of the public agreement and for the request for damages based on the hidden agreement of the parties) based on the arbitration clause in the public agreement.
Consequently, in a case where the parties conclude two contracts, one public and the other one only known by them, according to the recent case law above presented, the jurisdiction will be decided in accordance with the provisions of the public agreement, irrespective of a jurisdiction clause providing otherwise in the hidden agreement.
In case of ancillary agreements, the High Court of Cassation and Justice decided that the arbitration clause in the main agreement may not be extended to ancillary agreements
In its Decision, no 1876 of 9 November 2016, the High Court of Cassation and Justice decided that an arbitration clause contained in the main agreement does not extend to its ancillary agreements, as well. The High Court of Cassation and Justice explained that the principle accesorium sequitur principale represents the rule of law according to which the ancillary agreement has the same legal faith as the main agreement, namely that if the latter is terminated then the ancillary agreement would also be terminated. But, there is no rule of law according to which the clauses of the main agreement would apply to the ancillary agreement.
In this case, the High Court of Cassation and Justice had to decide the recourse (second appeal) in a case where a party filed a request for damages based on a corporate guarantee provided by the respondent for the benefit of a lessee who concluded a lease agreement and a management agreement with the claimant. Respondent raised, inter alia, an objection of jurisdiction of the Romanian courts based on the existence of arbitration clauses in both the lease agreement and the management agreement. This objection was raised for the first time during the appeal.
The decision and justification of both the High Court of Cassation and Justice and the Court of Appeal of Bucharest were two folded.
On the one part, both courts maintained that an ancillary agreement has to provide for an arbitration clause itself in order to exclude the jurisdiction of national courts. In this case, there is no arbitration clause inserted in the corporate guarantee. The respondent was not a party to the main agreements and, consequently, it may not invoke the applicability of the arbitration clause in those agreements to it.
On the other hand, both courts observed that the respondent raised for the first time the request to apply the arbitration clause during the appeal (the third litigation cycle). Or, according to Romanian law when the respondent makes its defence on the merits without raising a plea for lack of jurisdiction, the national court will maintain its jurisdiction. The rule of law that the national court will have jurisdiction, if the respondent files its defence on the merits without any plea for lack of jurisdiction, is provided for in article 343 index 4 of the Old Romanian Civil Procedure Code and article 554 (2) of the New Civil Procedure Code
Consequently, in a case where the parties conclude main and ancillary agreements, according to the recent case law above presented, the jurisdiction will be decided for each agreement in accordance with its own provisions.
Public order rules in insolvency law in annulment proceeding.
High Court of Cassation and Justice ruled in its Decision, no 1491 of September 2016, with respect to the mandatory nature of certain provisions of the Insolvency Law.
In this case, the High Court of Cassation and Justice had to decide the recourse (second appeal) in a case where the respondents filed a request for the annulment of an arbitral award (of 14 March 2013) criticising the part obliging them to pay certain amounts of money. The Court of Appeal of Bucharest dismissed the request for the annulment of the award. The High Court of Cassation and Justice granted the recourse of respondents and resent the case to the Court of Appeal of Bucharest to apply the provisions of Article 36 of the Insolvency Law. Article 36 of the Law no 85/2006 (applicable in that case) provides that:
[a]s of the date of commencing the procedure shall be de iure suspended all legal court, off-court actions or enforcement procedures to accomplish receivables upon the debtor or his assets
The High Court of Cassation and Justice took notice that the Tribunal of Bucharest opened the insolvency proceedings against respondents as of 28 May 2014 (one year after the arbitral award was granted).
The High Court of Cassation and Justice construed that article 36 of the Insolvency Law renders the collective and concursual character of the insolvency procedure and all creditors have to file their claims within this procedure. Further, it is forbidden any individual enforcement against debtor. As in this case the respondents criticised the dispositions obliging them to pay to the claimant certain amounts of money, their claim falls under article 36 of the Insolvency Law and the Court of Appeal was compelled to suspend the proceedings.
The arbitration costs are subject to the arbitration rules applied and not to the mandatory provisions of the Romanian Civil Procedure Code
The High Court of Cassation and Justice decided in its Decision, no 1467 of 22 September 2016, that as long as the parties agreed for ICC Rules to apply to the resolution of their disputes, they implicitly agreed that the arbitration costs shall be established based on these rules.
In this case, the High Court of Cassation and Justice had to decide the recourse (second appeal) in a case where both parties filed a request for the annulment of an arbitral award and one of the parties’ criticism was that the arbitral tribunal did not apply the provisions of the Romanian Procedure Civil Code when deciding the arbitration costs for each party.
The High Court of Cassation and Justice decided that the arbitral tribunal did not breach a mandatory rule of the Romanian law because there are express provisions in the Romanian Civil Procedure Code allowing the parties to agree in their arbitration convention the procedural rules to be followed by the arbitral tribunal, including the way the arbitration costs are divided between the parties. Both the Old Civil Procedure Code (article 341 (2)) and the New Romanian Civil Code (article 541 (2)) contain provisions in this regard.
Alternative jurisdiction. The arbitration clause must have a clear wording in order to apply
The High Court of Cassation and Justice ruled in its Decision no 1832 of 3 November 2016 in a case where both parties filed requests for the annulment of an arbitral award. The Court of Appeal of Ploiesti set aside the award and ruled itself on the merits. Against this decision of the Court of Appeal the parties filed recourse. The respondent claimed, inter alia, that there was no arbitration clause in the parties’ agreement and, consequently, the decision of the Court of Appeal should be set aside as well, as it dismissed respondent’s plea for the lack of jurisdiction of the arbitral tribunal.
The High Court of Cassation and Justice decided that the jurisdiction clause was two folded. A first thesis provided that the litigations between the parties shall be amicably solved or shall be deferred to arbitration, while the second thesis provided that lacking an arbitration clause, the litigations shall be deferred to the competent courts of law. The High Court of Cassation and Justice found that it was unequivocal that the first thesis is not an arbitration clause, given the express provisions of the second thesis and that the will of the parties when concluding the contract was that the courts of law have jurisdiction to solve their litigations. The High Court of Cassation and Justice partially set aside the decision of the Court of Appeal and sent the case to the competent court of law, namely the First Court Ramnicu Valcea.
Consequently, the jurisdiction clause in the contract should unequivocally refer to arbitration as chosen by the parties to apply to their disputes. According to Romanian law an arbitration clause should provide for the appointment of the arbitrators or provide for a certain court of arbitration and its rules in order to be valid.
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.
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