Corporate / M&A

Romania: Force Majeure in Complex Commercial Agreements

Force majeure allows a party to be exempted from liability if performance of its contractual obligations is hindered or prevented by events beyond the party’s control, such as earthquakes, floods and fire.

Background

The legal con­cept of force majeure dates back to the begin­ning of the Roman Empire and is present­ly reg­u­lat­ed by statu­to­ry laws in many Euro­pean juris­dic­tions.

Although there is no equiv­a­lent legal con­cept under com­mon law juris­dic­tions, par­ties also incor­po­rate force majeure claus­es into agree­ments gov­erned by such juris­dic­tions. This is because rely­ing on oth­er com­mon law doc­trines (eg, frus­tra­tion) may be in nei­ther party’s inter­est for many rea­sons, the most impor­tant being ter­mi­na­tion of the agree­ment.1

Arti­cle 1351(2) of the Roman­ian Civ­il Code defines force majeure as “any exter­nal, unpre­dictable, absolute­ly invin­ci­ble and inevitable event”. In a nar­row def­i­n­i­tion, only nat­ur­al dis­as­ters, with no human inter­ven­tion (eg, earth­quakes, floods, vol­canic erup­tions) are deemed force majeure events. Over time, legal schol­ars have extend­ed such events also to “col­lec­tive and anony­mous human inter­ven­tions under­tak­en on behalf of pub­lic author­i­ties hav­ing exten­sive and extreme­ly neg­a­tive con­se­quences” 2 (wars, nation­al emer­gency, gen­er­al strikes, lock­outs, etc.).

Consequences of force majeure

By effect of law, a con­trac­tu­al par­ty is auto­mat­i­cal­ly excused from per­form­ing its con­trac­tu­al oblig­a­tions if a force majeure event occurs. The agree­ment remains in force, but per­for­mance is sus­pend­ed for so long as the force majeure event hin­ders per­for­mance.

The re-acti­va­tion and safe­guard of the agree­ment is the nor­mal result of over­com­ing the force majeure. Only in par­tic­u­lar sit­u­a­tions (eg, per­for­mance of the oblig­a­tion becomes impos­si­ble and that oblig­a­tion was of the essence for the entire agree­ment) may force majeure ter­mi­nate the agree­ment.

Particularities under Romanian law

The par­ties to an agree­ment gov­erned by Roman­ian law are, how­ev­er, allowed to alter the statu­to­ry con­se­quences of force majeure.

Unlike oth­er juris­dic­tions, the Roman­ian Civ­il Code pro­vides “caz for­tu­it” as a dis­tinct legal con­cept from force majeure. Caz for­tu­it is a sit­u­a­tion between force majeure and breach. Like force majeure, caz for­tu­it is an exemp­tion from lia­bil­i­ty. The main dif­fer­ences from force majeure are: i) the cause of loss may be an inter­nal one (eg, a hid­den defect); ii) the event is rea­son­ably unpre­dictable; and iii) the event is inevitable in the giv­en cir­cum­stances (the judge assess­es this in con­cre­to).

Still, in Roma­nia, mod­ern com­mer­cial agree­ments fre­quent­ly fol­low the West­ern Euro­pean trend in legal draft­ing and incor­po­rate caz for­tu­it (entire­ly or for cer­tain events) with­in the pur­pose of force majeure clause.

Difficulties in practice; drafting tips

When draft­ing a force majeure clause for an agree­ment gov­erned by Roman­ian law, con­sid­er the fol­low­ing:

  • Avoid­ing boil­er­plate: Boil­er­plate claus­es are often sim­ply cut and past­ed from one agree­ment to anoth­er. A force majeure clause may be excel­lent in a phar­ma­ceu­ti­cal dis­tri­b­u­tion agree­ment, but lack­ing in an on-site indus­tri­al gas­es sup­ply agree­ment. The lawyers involved in draft­ing and nego­ti­at­ing the agree­ment have a duty to under­stand the par­tic­u­lar­i­ties for each busi­ness rela­tion­ship and to draft tai­lor-made claus­es.
  • List­ing force majeure events: When a force majeure clause is used in an agree­ment under the nar­row def­i­n­i­tion of the Roman­ian Civ­il Code, list­ing events that do not fall under this statu­to­ry def­i­n­i­tion should be avoid­ed. If events are list­ed for illus­tra­tion pur­pos­es, this should be strength­ened by using appro­pri­ate word­ing (eg, “includ­ing but not lim­it­ed to”, “eg”, “etc.”).
  • Con­se­quences of force majeure event: The par­ties may agree to sus­pend or alter the oblig­a­tions affect­ed by force majeure. Alter­na­tive­ly, the par­ties may agree to be released from such oblig­a­tions or, if the force majeure con­tin­ues beyond a cer­tain time peri­od, to ter­mi­nate the agree­ment.
  • Pro­ce­dure in case of force majeure: The par­ty affect­ed by a force majeure event must give notice to the oth­er par­ty with­in a cer­tain time. Fail­ing to do so should be express­ly treat­ed as a breach of agree­ment. The agree­ment should also pro­vide that the affect­ed par­ty under­takes to mit­i­gate the loss. The agree­ment may also pro­vide that the notice of a force majeure event must be sub­stan­ti­at­ed with evi­dence from rel­e­vant author­i­ties (police, fire depart­ment, etc.). The par­ties should avoid appoint­ing non-gov­ern­men­tal orga­ni­za­tions to assess/award on force majeure; court deci­sions are incon­sis­tent in this regard and such prac­tice may hin­der access to the court.

Conclusion

The Roman­ian Civ­il Code pro­vides an auto­mat­ic “relief-valve” for an agree­ment in case of force majeure. But in com­plex com­mer­cial agree­ments, it is not enough to rely on the gen­er­al pro­vi­sions of the law or on boil­er­plate claus­es. It is bet­ter to incor­po­rate care­ful­ly nego­ti­at­ed and tai­lor-made force majeure claus­es to reduce the risks asso­ci­at­ed with such events.

Modern commercial agreements frequently follow the Western European trend in legal drafting and incorporate caz fortuit (entirely or for certain events) within the purpose of force majeure clause.

1
For more details see A-Z Guide to Boil­er­plate and Com­mer­cial Claus­es, 2nd edi­tion, M. Ander­son & V. Warn­er (Blooms­bury Pro­fes­sion­al, 2006), 270 – 271.
2
L. Boilă in Noul Cod Civ­il: comen­tar­iu pe arti­cole, Fl. A. Baias et al. (C.H Beck, Bucharest 2012), 1407.