Romania: Force majeure overview in the Covid-19 context

The rapid and unpredictable emergence and spread of the new SARS-CoV-2 virus (Covid-19) has been driving adoption of measures in order to limit increase of the spread. Current preventive measures and steps to limit the spread of the virus are having a significant impact both on the current activities of companies and on the conduct of commercial relationships.


The recent evolution of social and economic problems caused by Covid-19 has led to the Covid-19 epidemic being qualified as a pandemic by the World Health Organization and to the declaration of a State of Emergency in Romania.[1] In this context, these measures can influence companies both directly and indirectly, leading to delays in compliance, partial compliance or even inability to comply with contractual obligations.

With that in mind, this memorandum aims to provide a general overview of some of the possible legal institutions that can be considered depending on the specific factual and contractual context. In particular, we consider the possibility of invoking force majeure or unforeseeable circumstances preventing fulfilment of obligations assumed and the occurrence of hardship.

1. Impact of the Covid-19 virus on performance of obligations. Force majeure and unforeseeable circumstances preventing fulfilment of obligations

The State of Emergency does not automatically justify non-performance of any contractual obligation nor does it imply the existence of a force majeure situation for all legal relationships. Force majeure must be analysed specifically for each contract.

Under article 1634 of the Romanian Civil Code, „the obligor of an obligation that is impossible to perform is released when the obligation can no longer be executed due to force majeure or an unforeseeable circumstance or other similar events occurring before the obligor is notified of delay in performance.” Also, under article 1351 of the Romanian Civil Code, the title „Exonerating causes of liability” stipulates that in an event where „the law does not provide otherwise or the parties do not agree otherwise, liability is excluded when damage is caused by force majeure or by unforeseeable circumstances.

Force majeure is defined by the Romanian Civil Code as „an external event, unpredictable, absolutely unstoppable and inevitable”, and qualifying as force majeure events such as tornadoes, lightning, war, earthquake, terrorist attacks, and so on. Pandemics / epidemics have not traditionally been classified as force majeure events. However, we consider that the current circumstances caused by the Covid-19 virus can be ascribed on a case-by-case basis to the concept of force majeure by reference both to regulation under the Romanian Civil Code and to the specific situation. In order to determine if an event can be considered a force majeure event in relation to a specific situation and what legal consequences arise from this qualification, it is necessary to take into consideration ‒ in addition to the factual situation ‒ the terms of the contract between the parties.

In this regard, we presume that most contracts should include force majeure clauses. These specifically establish what happens when force majeure prevents one of the parties from fulfilling their contractual obligations. Some force majeure clauses are expressly stated in contracts so as to include epidemics and / or pandemics, while other clauses are merely limited to defining force majeure in a general manner, without specifically indicating the events which the parties qualify as force majeure, events that can lead to exemption from liability. In that second case, the clause could be interpreted as insufficiently defined and could be considered insufficient in order to enable exemption from liability of the party obliged to perform.

However, depending on the concrete factual situation, along with natural or social phenomena that can be ascribed to the notion of force majeure, there are decisions from judicial practice[2] by which other social phenomena, such as measures taken by competent national bodies, which prohibit the carrying out of certain activities (without the fault of the parties) if these measures lead to the impossibility of performing contractual obligations. For example a prohibition on carrying out certain transport activities, travel prohibitions, etc. may be considered as a force majeure event.

In relation to legal provisions, it may be that, depending on the specific situation, the pandemic caused by the Covid-19 virus may amount to force majeure, releasing the obligor from civil liability for non-performance of obligations, insofar as the situation or event fulfils the conditions set by law, as indicated above.

Under the Romanian Civil Code, an obligor cannot as a rule invoke unforeseeable circumstances preventing fulfilment of obligations if the obligation concerns generic goods (in Romanian: bunuri de gen; goods which in themselves possess common characteristics and can be replaced by other goods of the same type). However, we consider that this situation may also lead to derogations, given the current situation.

We also note that impossibility to perform obligations can be temporary or definitive. Insofar as impossibility to perform an obligation is temporary, performance of that obligation will be suspended. If impossibility is total and definitive, aiming at an important contractual obligation, the contract can even be terminated.

In any case, we draw to your attention that impossibility of performance, based on force majeure, must be approached with caution, since invoking and activating a force majeure clause will not automatically lead to exemption from liability of a party that does not perform or improperly performs its contractual obligations.

Thus, each particular situation requires in-depth analysis to determine a causal link between the event and unperformed obligations, also considering contractual formalities which the parties are obliged to perform in this case, such as notifying the counterparty within a certain period or survival of certain contractual obligations.

Usually ‒ following concrete analysis of the factual situation in relation to the conditions listed above ‒ to the extent that it is found that contractual obligations cannot be performed due to the pandemic caused by the Covid-19 virus and / or for reasons related to measures taken by the authorities in order to limit the spread of the virus, it is initially necessary to notify the debtor about the existence of the event that is causing impossibility to perform obligations. We further recommend that any such notice should include a detailed description of the unforeseen event and a detailed description of its impact on performance of contractual obligations.

Force majeure presumption

The Government Emergency Ordinance 29/2020 on economic and financial-budgetary measures (“GEO 29/2020”) implements a form of economic protection with respect to the possibility of invoking force majeure against small and medium-sized companies[3].

With regard to ongoing contracts concluded by small or medium-sized companies (other than contracts for utility services, as well as tenancy agreements for main and secondary headquarters, where other measures apply), force majeure may be invoked (against small or medium-sized companies) only after an attempt to renegotiate the contract in order to adapt its terms to the exceptional circumstances generated by the state of emergency. This attempt to adapt the contract should be carefully carried out, as it must be proved with documents communicated between the parties by any means (including electronic means).

Moreover, GEO 29/2020 provides that, in the spirit of the ordinance, a force majeure event is presumed to be an unforeseen, absolutely unpredictable and inevitable event which results from action by the authorities to apply measures required for preventing and combating the spread of infection with Covid-19, that affects the activity of small and medium-sized companies, as certified by a certificate of an emergency situation issued by the Ministry of Economy, Energy and Business Environment.

According to GEO 29/2020, the unpredictable character refers to the moment when the affected legal relationship began. In other words, even in this situation, a rigorous analysis of contracts from which legal relationships arise is necessary, considering that some contracts may exclude or limit the applicability of force majeure effects.

It is important to highlight that only actions taken by the authorities in order to apply the measures imposed for prevention and spread of the pandemic may qualify as force majeure but not measures taken by the authorities under a normative act establishing a state of emergency.

Thus, under the conditions set by GEO 29/2020, in this case of impossibility to perform contractual obligations, there is no need to prove the existence of a force majeure event, as its existence is presumed.

Among fulfilment of all other conditions, in order for the presumption to operate, small and medium-sized companies must hold an emergency situation certificate to attest to the impact over their activity. However, a force majeure presumption can be overturned by the interested party by means of any evidence, even if an emergency certificate was obtained prior to this moment.

Additionally, we draw to your attention that if the requirements for a force majeure presumption under GEO 29/2020 and the requirements regarding issuance of an emergency situation certificate are not met, force majeure can be invoked only in line with the provisions of the Civil Code as generally applicable law.

2. Proof of impossibility of performance: evidence of force majeure.

Proof of impossibility to perform is the responsibility of the party who has to perform an impossible-to-perform obligation.[4]

In this context, the obligor must prove not only fulfilment of the conditions set by law for qualifying an event as force majeure (the existence of an external, unpredictable and absolutely unstoppable and inevitable event), but also compliance with the contractual provisions on following the applicable procedure for invoking force majeure, if and where appropriate, as well as the consequences of the event and the causal link between the event and non-performance of the obligation.

From case to case, contracts may provide that evidence of force majeure must be on the basis of a document issued by a third party, such as:

  • an opinion issued by the Romanian Chamber of Commerce and Industry (CCIR);
  • an opinion issued by County Chambers of Commerce
  • any other document issued by third parties (such as, for example, documents issued by public authorities, national institutions and so on).

We would mention that, in order to obtain an opinion issued by the Romanian Chamber of Commerce and Industry or by County Chambers of Commerce, it is necessary to carry out specific procedures, including a factual and detailed presentation of the event, its consequences in relation to the contractual partner, as well as legal arguments in order to demonstrate that the event invoked amounts to force majeure.

Emergency Situation Certificate

In accordance with Order 791/2020 concerning the grant of emergency certificates to economic agents whose activity is affected in the context of the SARS-CoV-2 pandemic („Order 791/2020”), an emergency situation certificate is issued by The Ministry of Economy, Energy and Business Environment, upon request by economic agents whose activity is affected in the context of the SARS-CoV-2 pandemic.

Under Emergency Ordinance 33/2020 regarding fiscal measures and amendment of normative acts, an emergency situation certificate, based on an affidavit by the economic agent (as applicant), establishes (i) a decrease of revenues of at least 25% compared to the average of revenues from January-February 2020 or (ii) partial or total interruption of activity based on lawful decisions issued by the competent public authorities during the period of the state of emergency.

Emergency certificates are issued in two specific forms:

  1. TYPE 1 (BLUE) – issued for applicants based on an affidavit attesting to total or partial interruption of activity as a result of decisions lawfully issued by the competent public authorities during the state of emergency;
  2. TYPE 2 (YELLOW) – issued for applicants based on an affidavit attesting to a revenue decrease in March 2020 of at least 25% compared to average revenue from January to February 2020.

After obtaining an emergency situation certificate in compliance with the requirements and formalities imposed by law, the certificate may be used by economic agents:

  • in relations with public institutions to obtain facilities / support measures;
  • in commercial relations, according to the law (e.g. as evidence in order to invoke force majeure in accordance with GEO 29/2020).

Thus, the purpose of an emergency situation certificate is to serve as a validating document regarding a pre-existing legal situation upon its issuance. In this respect, the certificate confirms, in relation to public institutions, as well as in commercial relations, in certain conditions, the affected activity of economic agents (by way of total or partial interruption of activity, or by way of a decrease of income or revenues).

In this regard, given concrete factual situations that satisfy all the requirements necessary to constitute cases of force majeure, we consider that as long as the contract allows proof of cases of force majeure through documents issued by third parties, an emergency situation certificate may represent a form of evidence that may serve as proof of the existence of force majeure, assuming observance of all applicable legal provisions.

In addition, we would mention that in some situations, when events as well as their character are widely known (for example, a state of war or strike), an obligor may benefit from a waiver of evidence. Thus, assuming that a certain fact or event is a matter of public knowledge or is undeniable, the court may decide that it is no longer necessary to prove that fact or event. However, mention should be made that, in the absence of judicial practice in the current situation caused by the Covid – 19 pandemic, it is not possible to say with certainty how a waiver of evidence applies to the current context.

3. Hardship

Regarding hardship, as a rule[5] the parties must perform their obligations, even if performance has become more onerous, either due to an increase in the costs involved in performing their own obligation or due to a decrease in the value of counter performance.

However, if performance of a contract has become excessively onerous due to an exceptional change of circumstances which would make it manifestly unjust to require the obligor to perform, the court may decide either (i) to adapt the contract, to equitably distribute the losses and benefits resulting from the change of circumstances, or (ii) to terminate the contract at a time and under conditions on terms to be decided by the court.

In this respect, both adaptation and termination of the contract can be decided by the court exclusively with respect to the following cumulative conditions:

  • the intervention of exceptional circumstances after conclusion of the contract;
  • the change of circumstances and its extent were not and could not reasonably have been envisaged by the obligor at the moment of conclusion of the contract;
  • the obligor did not assume the risk of change of circumstances and could not reasonably be considered to have assumed such a risk at the moment of concluding the contract;
  • forcing the obligor to perform has become manifestly unfair;
  • the obligor has tried, within a reasonable period and in good faith, to negotiate a reasonable and equitable adaptation of the contract.

 

In conclusion, please note that any measures or approaches taken regarding contractual relationships in the current context must be aligned with both applicable legal provisions and with existing contractual provisions. Therefore, we recommend analysing ongoing contracts in terms of the possibility of invoking delayed performance or justified non-performance.

In this regard, in order to ease fulfilment of the burden of evidence in the event of contractual conflicts, we also recommend that all measures or approaches taken should be documented in writing to minimize negative legal or financial effects.

In addition, for contracts concluded during this period or which are already in the course of pre-contractual negotiations, we recommend increased attention to drafting the contractual clauses and in particular to drafting and negotiating force majeure clauses for which we recommend expressly stipulating how and in what events such clauses operate.

We also recommend providing contractual risk mitigation mechanisms, for example the possibility of adapting a contract by modifying its terms, inserting grounds for suspension and termination, as well as other measures aimed at mitigating potential risks.

 

[1] Decree no. 195/16.03.2020 of the President of Romania.

[2] The Court of Appeal of Constanta, Commercial Litigation Department, Decision no. 214/1999

[3] Small and medium-sized companies are defined as those companies that cumulatively fulfil two conditions: they (i) have an annual average number of employees less than 250 and (ii) have an annual net turnover up to Euro 50 million, in RON equivalent, (before the new provisions the turnover had to be Euro 8 million), or to hold aggregate assets not exceeding Euro 43 million in RON equivalent, according to the last approved financial statement, in accordance with law no. 346/2004 on stimulating and developing small and medium-sized companies.

[4] Under art. 1634 para. (4) of the Romanian Civil Code.

[5] Under art. 1271 of the Civil Code

Zapisz się do newslettera

Klikając 'Zapisz się' wyrażasz zgodę na nasze warunki przetwarzania danych