Whilst not specifically part of the initial contract negotiations the introduction of lawyers into the negotiations will add a further dynamic. Depending on the size of the company the legal department may have been part of the original negotiating team and this can be both a hindrance and a help.
The majority of larger companies in Romania will have a legal advisor who works “in house”. The legal advisor is not usually a currently practising Romanian bar lawyer although this is not always the case. Their role is to ensure that the Romanian company is fully compliant with the legal requirements.
As an international law firm in Romania, we have had many negotiations and discussions with the in house legal team. In many cases, the Romanian company is reluctant to appoint outside legal counsel as they feel that their own legal team should be able to cope. It is this attitude that can cause a problem especially if the legal advisor is not experienced in dealing with international contacts and international law.
There are a number of issues which can cause problems but if approached properly can be reduced. Once the business terms of the contract have been sorted then the question of reducing the contract into writing has to be faced. It is important for investors coming from outside mainland Europe to Romania that the legal system in Romania is a Code based system. The importance of this is that in many cases the rights and obligations of the parties are fixed in the Law or the Romanian Commercial Code and are not therefore written in the contract.
For a western investor who is used to seeing a twenty or thirty-page contract to be when confronted with a document of one, three or four pages this will come as a shock and they will wonder what is missing and why. Be prepared for this type of short contract. Ensure that you get your Romanian lawyers to explain fully to you what is included in the contract by implication and what Romanian lawyers to be changed, and more importantly can be changed.
The Choice of applicable Law is also important. Naturally, the Romanian party will want Romanian law to be the governing law with all actions heard in Romania. Although improving the Romanian legal system still leaves much to be desired. The courts are slow and often do not understand the legal implications of commercial transactions; also, more importantly, some judges do not recognise EU Regulations and Directives and will allow Romanian law to override these provisions.
As most international commerce is still carried out under English or New York law you should try and insist on one of these being the governing law but be prepared for resistance. The refusal to accept a foreign law is often because of ignorance as to what this entails. Often a compromise can be for any disputes to be dealt with by arbitration rather than by a court of law and keeping the law of the contract as either New York law or English law. Be prepared to have good arguments as to why it should not be Romanian law. The Romanians may see this requirement as a deal-breaker.
Another aspect to be considered is the language of the contract. Most government agencies insist that they will only review a contract in the Romanian language. For this reason, many Romanian companies refuse to sign a non-Romanian language contract. Even if the Romanian party agrees on an English language version of the contract, should the parties become involved in litigation in Romania then the judge will require a translation be obtained from an authorised translator? Our experience is that some translations leave a lot to be desired. Once entered into the court record it is hard to argue with an approved translation.
One remedy is for the parties to sign a dual language document with a provision that the English version will prevail. If this is not acceptable then the Romanian version will apply. In this case, the translation will be in an agreed form acceptable to both parties as to language and meaning.
Another factor which we as foreign lawyers in Romania have had to contend with is the redraft of a contract. As I have mentioned in previous posts many Romanian lawyers believe it is their duty to re-write a contract often changing the whole meaning of clauses and the contract. The Romanian partner may have asked for the foreigner to submit a draft and then the lawyer redrafts the whole document.
These redrafts need to be avoided as they are often a waste of time and money. The Client has to decide whether to continue with the original contract or the re-draft which can delay the negotiation and conclusion of the contract.
From the above, it will be seen that the preparation and drafting of the contract is a continuation of the original contract negotiations and therefore can lead to renegotiation of other terms of the contract. As in previous articles the point to be made that often patience is required to close the contract the drafting of the contract.
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