Romania: The Romanian litigation market is heating up

Author: | Published: 1 Apr 2009
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Romania, like most of the world, is going through tough economic times, times in which even long lasting commercial relations and most reputable companies are put to the test. The logical consequence is that the amount of commercial litigation has increased and is likely to increase further.

This article aims at giving a brief overview of the Romanian litigation market in the context of the economic crises. We shall also look at the long-anticipated enactment of the new Romanian Civil Procedure Code.

The Romanian litigation system

A time consuming process

Contentious procedures are regulated under the Civil Procedure Code. The jurisdiction system is organised under a three-phase plan: the first stage judgment, the first appeal and the second appeal. Thus, as a principle, any claim may undergo three stages until it may be deemed final. There are also exceptions to the rule (such as administrative litigation) or simplified debt recovery procedures where only one appeal is possible.

According to article six of the European Convention on Human Rights, to which Romania is a party, any person is entitled to a fair and reasonably time-limited trial. Nonetheless, the average duration of a trial in Romania, which has gone through all three jurisdiction stages, is between two and three years.

Thus, it is fair to say that, litigation in Romania is a relatively time-consuming process. Very often, the delays and postponements are caused by the parties themselves, mostly by the respondents, by using a series of procedural technicalities regulated under the existing Civil Procedure Code.

However, there has been some improvement in commercial and debt recovery matters. Thus, in commercial matters, the first instance court decision is enforceable, irrespective of the other party filling an appeal or not. It must also be pointed out that debt recovery procedures have been improved. Thus Ordinance 5/2001 regarding the "formal notice of payment" and Government Emergency Ordinance 119/2007, regarding the enforcement of commercial agreements, provide fast debt recovery contentious procedures, which usually last between 30 and 60 days.

Intricate competence rules

Usually competence in commercial litigations is regulated by following two rules, one regarding the personal competence which, as a principle, belongs to the courts of law with jurisdiction in the area where the defendant's headquarters are located and the second regarding the subject matter of the litigation, which is usually settled by taking into account the value of the claim. Nevertheless, one may find that establishing competence in matters related to commercial activity, such as labour, public procurement, insolvency, or administrative litigation is not that easy sometimes. By way of example, in public procurement or administrative complaints one must first undergo an administrative procedure and only subsequently address the matter to the courts of law.

Relatively high litigation costs

Although, as a constitutional principle, access to justice in Romania is free, it does not mean it is also free of charge. Thus, when filing a claim one will have to pay stamp duty. In monetary claims, or of claims the object of which can be evaluated in money, the stamp duty equals a percentage of the value of the respective claim (approximately 1% in case of larger claims). However, if the claimant wins the case, judicial stamp duty must be reimbursed by the respondent (together with other legal costs of the claimant).

As regards attorney's costs, these are highly variable, depending on the complexity of the case and the fee policy of the relevant attorney or law firm. Usually, the more complex cases that require a higher degree of specialisation (e.g. anti-trust litigation, IP litigation, tax litigation etc.) are handled by the big law firms, which have lawyers trained in the relevant fields. There are also many competent individual or small practices, which cover mostly civil, criminal and family law cases. In general, law firms (especially the big ones) tend to be more expensive than individual lawyers and small practices.

The judges are entitled to refuse the full reimbursement of the legal costs of the winning party from the opponent if they feel such costs are exaggerated. However, most judges do not use this right very frequently.

Improved insolvency regulations

A new insolvency procedure was enacted through Law 85/2006 prior to Romania's EU accession. Although far from perfect this procedure is a leap forward. By way of example, the procedural terms are shorter and the powers of the creditors and of the judicial receiver have been enlarged. Nonetheless, there are still shortcomings such as the low, €3,000 threshold above which any creditor can file an insolvency request against its debtor. Therefore in practice, this procedure is largely used as a pressure instrument by creditors, in order to recover their debts.

The arbitrage procedure – a feasible alternative

Although not yet used on a large scale (only about 3% of Romania's commercial disputes are solved through arbitrage), arbitration could prove a successful alternative.

There are a few quite significant advantages of so-called private justice over a judicial procedure. Notably the parties can decide the type of arbitrage procedure as well as the names of the arbiters. Furthermore, parties can arrange for their own arbitrage procedure or they can apply for an institutionalised one like the International Commercial Arbitration Court, which operates under the patronage the Chamber of Commerce and Industry of Romania.

Moreover, the procedure is much faster than a judicial one, not usually lasting more than five months. The arbitral decision may be subject to only one judicial appeal (which is limited to only few formal grounds), afterwards becoming final and binding.

Another advantage is that usually the arbiters are selected from legal personalities (such as highly reputable lawyers) that have more experience and knowledge of complex commercial matters than regular judges.

The upcoming litigation rules

When to expect them

On February 25 2009 the Romanian Government passed a new Criminal Code, Criminal Procedure Code and Civil Procedure Code and sent them to the Romanian Parliament for approval. According to the current politic decision makers it seems that the Government is pushing things forward extremely fast, as the Ministry of Justice declared that the three aforementioned codes, along with a new Civil Code will be enacted early this summer.

What to expect

The new Civil Procedure Code promises to bring some major changes to the current Romanian litigation system.

One of the key issues that the new code is aiming to solve is the length of court proceedings. The new code brings in some daring innovations in this respect. For example, the length of time of a trial will have to be estimated by the judges, right from its start and special procedures will be enacted for cases in which the parties try to postpone the resolution of the litigation.

As the Romanian legal system does not recognise a binding force to precedent court decisions, there are often inconsistent decisions by different courts of law, when it comes to interpreting legal provisions. Under the new code, the judges may suspend any proceedings and ask for the opinion of the Supreme Court of Justice in respect of a certain legal issue. Here the decision of the Supreme Court will be mandatory for that trial and for all other judgments on the same matter, from then on.

The new code also brings other important amendments such as changes of competence rules, the improvement of the debt recovery procedure, the modernisation of service rules (by using modern correspondence techniques such as e-mail or fax) and others.

Economic crises heat up litigation

Overview of the legal market

With annual growth rates between 30% and 50%, the Romanian legal market seemed to be moving upwards at a fast pace. According to information made public by the Romanian business press, in 2008 the legal market reached an estimated value of over €200 million. Although, for the time being, the Romanian economic crisis does not seem as grim as in other countries, some sectors of the legal market, such as real estate, inevitably slowed down. However, many lawyers see the current economy as a business development opportunity. In this respect, the litigation market has a great potential and has grown significantly in 2008 and, according to 2009 preliminary figures, is still growing. According to the statistics, the amount of commercial litigation almost doubled in 2008, from 163,651 cases in 2007 to 302,999 in 2008.

As regards the structure of the offer of litigation services, although in terms of volume the Romanian litigation market is dominated by small law practices, corporate clients normally use medium and large law firms, some of which have very strong litigation departments. Among the law firms which are the most active on the Romanian litigation market, national firms are predominant, while international law firms that have a presence on the market focus more on sectors such as M&A and Banking and Finance, rather than litigation.

Opportunity for litigation lawyers

It is only reasonable to predict that the economic environment will generate more contentious cases than economic boom did, many of which will end up in court. Furthermore, a growing number of businesses are likely to become subject to insolvency procedures. As cynical as it may sound, this context presents an opportunity for litigation lawyers.

Thus, as a market trend, it is clear that some undertakings will no longer be able to fulfil their outstanding contractual obligations and will try to exit or alter deals which, just one year ago, seemed to be extremely profitable. The normal consequence is that creditors and debtors end up in disagreement and therefore take the path of a judiciary or arbitration procedure. For example, on the real estate market, a lot of investors concluded sale-purchase pre-contracts in respect of under-development projects by paying a down payment (somewhere between 10% and 25% of the total price); at the time financing was not an issue. Now, as the projects approach completion, some of those investors cannot finance the final instalment. Such investors will look to the courts of law or arbitration tribunals to recover at least a part of the amount they put forward. On the other hand, the developers, which are themselves pressed by their creditors (especially banks and financial institutions), will try to recover in court the full amount of the purchase price relying on the provisions of the pre-contracts.

Instead of conclusion

Although the legal profession will be not be spared the financial troubles of the world economy, some practice areas, such as litigation, are likely to benefit from this economy. As far as litigators are concerned, this may help bring back at least partially the glory they lost in the past decade to business lawyers.

Author biographies

Valentin Berea

Bulboaca & Asociatii SCA

Valentin Berea is a partner at Bulboaca & Asociatii SCA.

Before joining Bulboaca & Asociatii, Berea was an associate with the competition and litigation practice of the Bucharest office of a magic circle law firm.

He specialises in litigation, intellectual property, competition, real estate and general corporate work. Berea was involved among others in the largest IP litigation to date in Romania as well as in a large number of complex real estate transactions. Berea is a licensed patents and trademarks attorney with the State Office for Inventions and Trademarks and an assisting professor with the Bucharest University Law School, teaching contracts law to third-year students.

He graduated from the Law School of the Bucharest University and from the University of Paris I, Pantheone – Sorbonne, Faculty of European Law. He is a member of the Romanian Bar Association. He is fluent in English and French.

Alexandru Mocanescu

Bulboaca & Asociatii SCA

Alexandru Mocanescu is a junior associate at Bulboaca & Asociatii SCA.

He is a member of the litigation, real estate and energy teams. He also gained experience in competition and intellectual property practice areas.

Mocanescu graduated from the Law School of the Bucharest University in 2008 and became a member of the Bucharest Bar on January 1 2009.