Contracts with Extraterritorial Elements – Part 2

This blog today is a continuation of last week’s blog concerning EU law, its interaction with Romanian law and its application by lawyers in Romania.

Provisions that regulate the choice of the parties (also known as Lex Voluntatis)

As mentioned in part one the parties to a contract have the freedom of choosing the governing law. The choice of the parties can be expressed through a contractual stipulation or it can be an implied choice, such as by the action of the parties. However in the matter of implied choice this requires the proving of the choice of law beyond any doubt i.e. there must be certainty.

The law chosen by the parties can be applied to the whole of the contract or to a part provided that the parties have agreed. Further during the life of a contract the applicable law may be changed at any time, again provided the parties have agreed.

If the law chosen is that of a country other than that relating to where the contract is to be performed, the provisions of the law where the contract is to be performed must be respected. If the contract relates to one or more EU Member States, the applicable law chosen, other than that of a Member State, must not contradict the provisions of Community law.

In the event  the parties to the contract do not choose the applicable law, for contracts dealing with the sale of goods, provision of services, franchises or distribution agreements, then the law shall be that of the country of residence of the principal party who has to implement and carry out the contract.

There are separate rules for agreements that concern Romanian immovable property. In this case the law of the country where the property is located will be applicable. There is an exception to this in the cases of temporary and private tenancies (maximum six consecutive months). In these cases the applicable law can be the law of the landlord’s country of residence. When considering such a provision then it is important to consult with your local Romanian lawyer to clarify the position.

Regarding the sale of goods by auction in Romania, as the contract is to be performed here, the applicable law will be Romanian.

If there is a contract dealing with financial instruments governed by a single law, then the applicable law will be that law. It is not possible to have a number of financial instruments that are interconnected for example and to have the law of Romania govern one instrument and the law of Belgium to cover another instrument. This does not prevent having different financial instruments governed by different laws provided that the financial instruments do not directly or indirectly affect the terms of the other instruments.

If none or more than one of the above rules are not applied by the parties, then the applicable law will be determined based on the country of residence of the principal person carrying out the contract. However, in the event that the contract is more closely related to another country than that as provided by this rules, then the law of that country will be applied. The same test is applied when no applicable law can be determined from the wording of the contract and the parties have not expressed their intentions clearly.

Romanian lawyers are becoming well versed in these legal niceties and can therefore help foreign investors in Romania.

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