Choice of Law

One of the many things that Romanian lawyers have had to cope with over the last twenty years has been the influence on the Romanian legal system of foreign lawyers and foreign legal systems.

The majority of Romanian lawyers were educated in a system that did not recognize the influence of foreign law on the Romanian jurisprudence. They would have been aware of the changes and influences on the jurisprudence of the Codes but only after the events of 1989 did they become aware of the impact of foreign law in a wider sense.

Primarily the only lawyers who were exposed to a foreign legal system prior to 1989 where the lawyers who worked for the foreign trade companies. By dealing with foreign companies and importers they were aware of what was required by foreigners investing in Romania from the legal perspective.

When Romania joined the EU on 1st January 2007, it had to adopt the Acquis Communitaire – the body of EU law with effect from that date, except were they had negotiated delay in full implementation. There was for example a seven year delay in the requirement that EU citizens would have the right to own land.

Prior to 2007 Romania had adapted and adopted its laws to conform to the acquis. Many Romanian lawyers were not aware at that time of the impact that these changes would have on the Romanian legal system and the practice of law. Another drawback was that they had no experience in applying the acquis and its far reaching consequences. This meant that when Romanian lawyers were faced with a foreign investor or a commercial matter or transactions in Romania which required a choice of law, they would require the law to be Romanian law, whether or not it was adequate for the purpose. This caused conflicts in a negotiation as the foreign partner did not know Romanian law and was therefore reluctant to accept this choice of law.

Since 2007 Romanian lawyers have become more versed in the impact of EU law and are now taught about it and its impact in law schools. This means though that are still a large number of lawyers and judges who have had to learn by experience about the impact of foreign law since 2007.

Romania has not only been influenced by EU legislation but also by different legal systems. Both the United Kingdom and US legal system are based on the common law system of jurisprudence which is very different from the Code law of the EU. As many foreign investors are used to the common law system they wish to adopt it in commercial transactions in Romania rather than a code system.

All this has led to there being disputes during contract negotiations where both parties have insisted on their choice of law being applicable.

As a Romanian law firm who deal with international matters we are often asked to advise as to what should be the law of the contract. With our knowledge as a Romanian International law firm we are able to draw on our experience to try to assist in this matter. This requires a detailed examination not only of the client’s requirements but also understanding of the Romanian partners. Wherever possible we work to have the Romanian partner accept the foreign law, but there are times when Romanian law has to be accepted, for example when dealing with Romanian law and Romanian companies and their structure. Whilst sometimes the use of Romanian law is acceptable it is true to say that the Romanian court system is still in certain areas subject to influence and should therefore be avoided. As the new judges understand more their role the problem of lack of knowledge should diminish, but will never be eradicated.

To ensure that negotiations proceed quickly and amicably we advise that the question of the relevant law be raised early in the discussions. I have seen transactions which are commercially beneficial for both parties fail at a later stage because the question of the choice of law was not considered early in the negotiations. Both parties assume that their law will apply and therefore when it is raised there is the question of trust.

If properly analyzed and discussed the question of law should not be a major issue and used properly can improve the transaction. This is where the choice of good legal advisors in Romania is important to explain to both parties the issues involved and to work with them to arrive at a mutually acceptable solution.

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