There are in the main two types of foreign investors in the Romanian economy. Those who form a Romanian company and make a direct investment into Romania, and those who “invest” long distance in Romania and its market. By that I mean people who carry on business in Romania but do not have an office or permanent establishment in Romania.
All foreign investors into Romania know and are used to the law of their home jurisdictions. This is natural. When they move abroad then things start to change. They have to cope with a different system, language, culture and attitudes. In respect of Romania I would refer you to a very interesting article I read yesterday on Romanian culture which in my experience is very close to reality. This is an interesting article both for those of us who live here, as well as those who only work here for a short space of time.
One of the matters we, as a law firm based in Romania are often asked to deal with is the adaptation of contracts drafted in accordance with the law of another jurisdiction, to make them workable in Romania and Romanian law compliant. Usually the clients have taken their current existing contracts and tried to amend it to be Romanian law compliant. As mentioned in the previous blog this is only part of the problem on choice of law.
Romanian law has incorporated EU law and has also recently amended the Romanian Civil Code and the Romanian Civil Procedure Code. These changes have helped foreign investors not based in Romania in relation to the law of the contract. The Civil Code allows parties who are based in Romania to choose the law of their contract. This can be any law, not necessarily Romanian law. This means that the parties can choose the law of another jurisdiction if they agree. This is important in respect of choice of dispute venues for arbitration, choice of law and governing law. Often English law is chosen in Romania; the language is English and the venue is in London. Many contracts with a cross-border element include these choices. Despite this, the general rule is that for clients who have a Romanian based entity the choice of law will be Romanian law for obvious reasons especially if they are only trading in Romania.
The problem that arises is where you are have a client who does not have a permanent establishment in Romania, but who then wishes to use his own contracts for obvious reasons. This arises most commonly when you have a non-resident Romanian client who is selling goods into Romania. They are doing this directly or through a Romanian distributor. There is no hard and fast rule in these cases and any such contract needs to be reviewed by a Romanian lawyer who is aware of the issues arising out of such contracts.
Romanian law does not prohibit such contracts under another law except where the contract contains terms which are contrary to public order; public policy and morality and breach specific provisions of Romanian law. For example a contract that removes consumer rights from a Romanian consumer would not be acceptable and would be struck out. A clause removing any Romanian statutory liability would be treated the same. Each contract should be carefully examined from the Romanian law perspective and any such provisions re-written as far as possible to give the foreign client the protection they want if possible.
The choice of law as I referred to in the earlier blog is a matter which both parties should consider early in the transaction. Depending upon the party’s position it may very well be that Romanian law gives more protection to the foreign partner than his own local law. So in this case Romanian law would be a better law. So if you are a non-resident Romanian organization whether in the EU or not, then there are times when you can use your local law. Consider all these points carefully before you make a final decision.
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