Vol. XVII No.1
January 2012


Arbitration in Romania

Arbitration in Romania

With the Romanian Courts hamstrung by procedural rules that often favor procrastination over justice, the speed and efficiency of alternative dispute resolution has made arbitration in Romania a more attractive substitute for judicial indecision. Arbitration is, indeed, a much quicker and less formal procedure. Arbitral awards are final and mandatory for the parties, and enjoy international recognition because Romania ratified the United Nations Convention for the recognition and enforcement of foreign arbitral awards, executed in New York in 1958. Additionally, arbitration benefits from the specialized competence of the arbitrators chosen by the parties and the confidentiality of the process as opposed to the public nature of courts.

Romania’s arbitral rules were first set forth in Book IV of the Civil Procedural Code (the “CPC”) in 1865. Almost one century later, in 1953, the Court of International Commercial Arbitration (the “CICA”) was established for the settlement of foreign trade disputes. The CICA was reorganized twice: first in 1990, after the fall of communism, and again in 2007. After the 2007 reorganization, the CICA emerged as a permanent, independent arbitral institution for the management of international as well as domestic arbitration and attached to the Chamber of Commerce and Industry of Romania.

The CICA is the most frequently used arbitral institution in Romania for both domestic and international disputes. The CICA is expressly authorized by law to develop its own set of arbitral rules (the “CICA Arbitration Rules”) and, unless these rules provide otherwise, the provisions of the CPC, the Geneva 1961 European Convention on International Commercial Arbitration, and the 1976 UNCITRAL Arbitration Rules remain applicable. It should also be noted that a new Civil Procedure Code, which provides more detailed provisions in relation to institutional arbitral procedures, is expected to become effective in July of 2012. Finally, the CICA is the arbitral institution in charge of the appointment of arbitrators, and the performance of all other aspects of arbitral procedure, including the management of secretarial matters.

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Forms of Arbitration
According to the provisions of the CPC, the parties to an agreement to arbitrate may select one or more persons to preside over their dispute and issue a final and mandatory decision. Additionally, the parties may agree that the arbitration be hosted by a permanent arbitral institution or a third party. The parties are entitled to choose between institutional or ad-hoc arbitration. Institutional arbitration takes place when the parties have entrusted a permanent arbitral institution to host the arbitration in accordance with its own set of rules. In Romania, institutional arbitration is hosted by the CICA in accordance with the CICA’s Arbitration Rules. Ad-hoc arbitration, on the contrary, takes place when the parties have full freedom to organize the arbitration and to establish its procedure. Thus, in ad-hoc arbitrations, the CICA’s competence is limited: it provides, at the arbitrators’ request, data or documentation regarding the applicable case-law; it ensures access to the institution’s secretarial services; it provides an adequate location for the arbitration to take place; it facilitates the arbitration, providing proper conditions and ascertaining that it is finalized in due time; and it examines, at the arbitral tribunal’s and the parties’ requests, the draft arbitral award with regard to form and certain legal aspects, but without having any impact over the arbitrators’ freedom of decision in the case.

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Disputes Subject to Arbitration
According to the CPC, only monetary disputes may be subject to arbitration. Where the parties have concluded a written arbitration agreement, the CICA is empowered to rule over commercial and civil disputes, either domestic or international, through either institutional or ad-hoc arbitration. According to the CPC and the CICA Arbitration Rules, the arbitration is considered international where the relationship between the parties falls within the private legal sphere and contains a foreign element, meaning any element that ties the legal relationship between the parties to several countries and consequently to several legal systems. This is the case, for example, when an individual party to an agreement is a foreign citizen, a legal entity party to the agreement is headquartered in a foreign country, or the transactions that form the basis for the arbitration agreement are to be performed in a foreign country.  

Furthermore, there are specific matters that cannot be the subject of arbitration, such as matters involving civil status, family relations, bankruptcy proceedings, and labor disputes, which are subject to special statutory provisions. Any arbitral award granted with regard to these matters is therefore null and void.

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The Arbitration Agreement
Under Romanian law, the arbitration agreement is the agreement by which the parties appoint one or more persons to settle a dispute and to adopt a final and binding decision. This may be achieved either by way of an arbitration clause included in the contract or by a separate agreement. An arbitration clause establishes that any dispute that may arise from the contract or in relation to it will be resolved through arbitration, as well as specifying the arbitrator’s name or the manner in which he or she will be selected. An arbitration agreement, on the other hand, is separately concluded for each individual dispute, and it must specify, under sanction of nullity, the subject matter of the dispute as well as the arbitrator’s name or the manner in which he or she will be selected.

The CICA has suggested the following text for a contractual arbitration clause:
“Any dispute under or related to this agreement, including with respect to the execution, performance or termination hereof, shall be settled by means of arbitration, by the Court of International Commercial Arbitration of the Romanian Chamber of Commerce and Industry, in compliance with the Court organization and operation rules, the Court procedural rules, and with Art. 4 of the European Convention on International Commercial Arbitration signed in Geneva on April 21, 1961.”

Although it is not mandatory to do so, parties who choose the CICA as their arbitral institution frequently utilize this specific text as the arbitration clause in their agreement so as to avoid a lack of any of the essential elements that must be included in the arbitration clause. In addition to these essential elements, the parties may also set the location of the arbitration and, with regard to international arbitration, the language to be employed in the debates and any written evidence, as well as the law applicable to the merits of the case.

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An arbitrator may be any natural person who, according to his or her domestic law, has full legal capacity to exercise rights and obligations. The CPC does not delineate any specific requirements to be an arbitrator; however, the parties may themselves choose to include specific conditions for an arbitrator’s eligibility in their contracts, such as conditions concerning the arbitrators’ professional qualifications or expertise. Arbitrators may either be Romanian or foreign nationals. Currently, the CICA’s roster includes 110 Romanian arbitrators and 42 foreign ones, whose names are maintained in two separate lists accessible at both the CICA facilities and through its website. The most notable characteristic of arbitrators is the fact that they are not the parties’ representatives; on the contrary, they are independent and impartial in the exercise of their functions.

The number of arbitrators is left to the parties’ discretion. However, arbitral tribunals comprised of three arbitrators are the most commonly used in both international arbitration and in arbitration proceedings hosted by the CICA. Also, where the parties have not specified the number of arbitrators, the arbitral tribunal will be comprised of three arbitrators by default.

Where the tribunal is to be comprised of three arbitrators, each party appoints its own arbitrator, while the third is appointed by the “nomination authority” (“autoritatea de nominare”), which, according to the CICA Arbitration Rules, is the president of the CICA’s Board of Directors. This rule is a product of a recent amendment adopted alongside the CICA’s new Arbitration Rules, which went into effect last March. According to the former rules, where an arbitral tribunal was to be comprised of three arbitrators, the third one was to be appointed by the two arbitrators previously selected by the parties. On the one hand, this recent amendment strengthens the role of the CICA within arbitral procedure, and many litigants perceive it as a reflection of the CICA’s objective approach to the selection of arbitrators. On the other hand, other litigants fear that the CICA’s involvement in the arbitrator selection process is an effective limitation of the parties’ right to freely select and appoint their own arbitrators in accordance with the CICA Arbitration Rules. Certainly, however, the “nomination authority” cannot appoint the third arbitrator unless there is full compliance with the parties’ wishes as expressed in the arbitration clause or the arbitration agreement.

Where the parties have selected an even number of arbitrators and the arbitrators’ opinions are divergent, the arbitral tribunal is supplemented with an additional arbitrator, appointed in accordance with the parties’ agreed-upon understanding. However, where the parties are unable to reach such an understanding, the additional arbitrator is appointed by a court of law.

The only situation in which the parties’ preferences with regard to the selection of arbitrators are unrestricted is where the parties have agreed on a single-arbitrator tribunal. Provided that the respective arbitrator is included in the arbitral institution’s roster of arbitrators, and provided that there is no conflict affecting that specific arbitrator, there is no way in which the nomination authority may intervene in the parties’ selection of the respective arbitrator.

Regardless of the number of arbitrators, however, all arbitrators must be included on the CICA’s roster of arbitrators if an institutional arbitration is to take place. Where the parties intend to appoint additional arbitrators who are not included on the CICA’s roster, they must resort to ad-hoc arbitration.

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Arbitral Procedure
General aspects
Arbitral procedure must ensure full compliance with the principle of equality of treatment and the right to legal defense as guaranteed by the Romanian Constitution, and it must be designated by the parties’ arbitration agreement. Where an ad-hoc arbitration is to take place, the parties’ freedom in constructing their procedural guidelines is restricted by compliance with public order, morality, and imperative legal provisions. Where an institutional arbitration is to take place, however, the parties have basically agreed, by their appointment of a particular arbitral institution, to their compliance with its arbitration rules. Where the parties have not agreed to the applicable arbitration rules it will be the arbitrators’ responsibility to establish them. However, regardless of the specific form of arbitration, the procedural rules are quite clear and provide for a much less bureaucratic procedure than the common law would.

The CICA Arbitration Rules expressly state the arbitral tribunal’s obligation to ensure the confidentiality of the arbitration. A breach of this obligation by one of the arbitrators is grounds for removal of the respective arbitrator. The confidentiality obligation covers all matters and information included in the proceedings; the members of the arbitral tribunal are not allowed to divulge any information they come across during the exercise of their function as arbitrators. Moreover, the confidentiality obligation covers the arbitral file itself—no one, aside from those persons directly involved in the proceedings, is allowed access to the respective file without the parties’ written consent. The confidentiality obligation is even more robust, since it also covers arbitral awards, which cannot be published in full without the parties’ consent—they may only be published in part or as a summary without mentioning the parties’ names or any other information that may compromise the parties’ interests. Arbitral files may be examined, but only with the prior authorization of the President of the Arbitral Court, or, in his absence, of the First-Vice-President of the Arbitral Court, exclusively for technical or documentary purposes, and only after the respective arbitral awards have become final.

The robustness of the confidentiality obligation has been heralded as a great advantage of arbitration proceedings, as opposed to the public nature of common law proceedings. As global companies are very much aware, professional secrets are essential to the survival and success of any business these days, and their breach may cause losses that such businesses cannot afford. In this context, arbitration proceedings, which are able to ensure the required degree of confidentiality, seem like the best alternative.

Rules of evidence
Where neither the arbitration agreement nor the tribunal has established the rules of evidence, the general rules as stated in the provisions of the CPC are applicable. Basically, according to the general rules of the CPC, any party is entitled to produce evidence in support of its arguments; both parties have access to evidence submitted by the other party and are entitled to produce counter-evidence; and the arbitral tribunal is entitled to decide upon the admissibility of any type of evidence allowed by law. Even though this may work well in theory, it may prove to be difficult in practice, since any evidence beyond ordinary written documentation may be difficult for the arbitral tribunal to properly manage. Additionally, since the arbitral tribunal lacks the authority to adopt coercive measures against any experts or witnesses brought by the parties, the tribunal must resort to a regular court of law to enforce such measures, which may burden the otherwise non-bureaucratic and relatively short arbitration proceedings.

Oral arguments
Oral arguments with regard to the dispute are to take place in the parties’ agreed-upon language. Where the parties have failed to assign the language of choice for the arbitration proceedings, the language of the contract or another international language, as established by the arbitral tribunal, will apply.

The parties’ failure to be present at the hearing will not prevent oral arguments from taking place, except for where the parties have requested the arbitral tribunal to grant an adjournment, but only for cause. Such a delay in the proceedings may be granted only once by the arbitral tribunal, which significantly shortens the proceedings as a whole. Moreover, the arbitral tribunal has to issue its decision no later than five months following its appointment, and to determine the award and communicate it to the parties within one month of its issuance. Compared to the numerous years of common law trials, the option of having final and binding decisions in one year (at most) seems extremely appealing to many litigants.

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The Arbitral Award: Cancellation
As mentioned above, the arbitral award is final and binding upon the parties. On the one hand, this is perceived to be a great advantage of arbitration by most potential litigants trying to avoid the bureaucratic and often cumbersome common law proceedings. On the other hand, this may be a source of concern to other potential litigants, since they have to run the risk of not being able to appeal a potentially unfavorable decision.

The arbitral award may only be cancelled by way of a “claim for cancellation” (“actiune in anulare”), which may be submitted within one month of the award’s announcement to the court superior to the court that had been competent to preside over the respective file. However, such a claim for cancellation of the arbitral award may be submitted only based on the specific grounds set by the provisions of the CPC, which may be either procedural or substantive. Procedural grounds cover potential flaws in the arbitration proceedings, such as where: the arbitral tribunal ruled over the proceedings while there was no arbitration agreement or the tribunal’s jurisdiction was based on a null or inoperable arbitration agreement; the arbitral tribunal was not set up in compliance with the arbitration agreement; or the arbitral award did not include the decision itself, did not mention the date and location of the issuance of the award, or is not signed by the arbitrators. Substantive grounds for a claim for cancellation of the arbitral award apply where such an award breaches morality, interferes with the public order or clashes with any imperative legal provisions. However, regardless of the grounds of such a claim for cancellation, the claimant must understand that, even if such a claim were successful, this would not trigger a second analysis of the case. This is a risk that the claimant must undertake.

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Enforcement of the Arbitral Award
The arbitral award is mandatory with regard to the parties to the arbitration, and it must be enforced either willingly by the parties, or, where this is not possible, by way of an enforcement procedure. The enforcement of the arbitral award depends on whether the award is domestic or international. A domestic arbitral award is an award issued based on arbitration proceedings that have taken place in Romania, and its enforcement follows the basic rules for enforcement as set by the CPC. Basically, domestic awards are binding upon the parties. Where the parties have not willingly complied with the award, then the injured party may obtain a “writ of enforcement” in order to be able to enforce the award.

The enforcement of an international arbitral award depends on whether the award was issued in a European Union Member State or outside the European Union. In the first scenario, the provisions of EU Regulation no. 44/2001 are applicable. Although it is rather simple, the procedure set by this regulation entails both the recognition and the enforcement of the respective award in Romania. In the second scenario, the provisions of Law no. 105/1992 are applicable, which provide for the recognition of the arbitral award subsequently followed by its enforcement. The basic legal grounds for the recognition and enforcement of international arbitral awards may be found in the 1958 New York Convention, to which Romania is a party.

The duration of the recognition and enforcement of an international arbitral award is hard to estimate, considering that this largely depends on the workload of the court competent to rule over it, on the evidence submitted in support of the procedure, and on the level of communication between the Romanian court and the courts of the country where the arbitral award was issued (where any flaws in the documentation submitted in the file require such communication between the courts).

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On the one hand, there are some widely recognized advantages to arbitration proceedings, such as the somewhat less stringent formalities, the duration of the proceedings, and the opportunity to appoint arbitrators. Even the possibility of obtaining a final and binding award is seen by most as a great advantage. On the other hand, this may be also seen as a limitation of the right to appeal an unfavorable decision, which is derived from the Constitutional rights to “free access to justice” and the “right to defense.” Consequently parties must be intently aware of the full implications of arbitration proceedings. Moreover, the costs involved in arbitration proceedings are often considered to be extremely high, as their calculation encompasses both the litigation itself and the arbitrators’ fees. Arbitration certainly provides for a flexible and quick means for the settlement of disputes, but it is also clear that the parties must pay close attention to the manner in which the arbitration clause or the arbitral agreement is drafted. The parties must also be vigilant throughout the proceedings and closely observe all the applicable rules, preferably with the support and assistance of specialized counsel active in the field. In the absence of the parties’ proactive and alert behavior, an otherwise good cause—having disputes resolved more quickly through arbitration—would become a nullity, and the recourse to arbitration would not fulfill the purpose for which arbitration was initially created—resolving parties’ pecuniary problems in a more efficient manner.

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Editors Note: It is our policy not to mention our clients by name in The Romanian Digest™ or discuss their business unless it is a matter of public record and our clients approve. The information herein is correct to the best of our knowledge and belief at press time. Specific advice should be sought from us, however, before investment or other decisions are made.

Copyright 2012 Rubin Meyer Doru & Trandafir, societate civila de avocati. All rights reserved. No part of The Romanian Digest™ may be reproduced, reused or redistributed in any form without prior written permission from the publisher.

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