ROMANIA: An Introduction to Dispute Resolution
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Romania: Dispute Resolution Overview
The year 2022, regarding Dispute Resolution in Romania, is expected to be at least as dynamic and filled with cases as the previous one, with the judicial system being at full throttle.
In order to understand the evolution of Dispute Resolution in the upcoming year, we should take a brief look at last year’s events. For the second consecutive year, in 2021 the worldwide economic activity continued to be dictated by the pandemic, with SARS COV-2 virus waves hitting Romania multiple times, with episodes of varying severity. Therefore, the economic activity developed in some areas with different limitations inflicted by the sanitary measures meant to stop the spread of the virus (limitations of the allowed number of persons, lockdown periods, etc.).
According to the data gathered by the National Institute of Statistics, even though the GDP increased by 7.1% compared to the year 2020, this economic growth was quickly shadowed by the rising inflation, the aggregated consumer price manifesting an increase of 7.94% in October 2021, due to the price elevation of energy products. This was mainly caused by the price liberalization of electricity prices, which entered into force in Romania on January 1st, 2021 and resulted in the liberalization of natural gas prices from 2020.
As a consequence, the annual increase of electricity prices reached 24.7%, and the natural gas prices increased by 46.1%. Moreover, the fuel price rose by 23.5% due to increasing international quotations.
Even if this information should predict a year with multiple economic challenges to overcome, the European Commission’s European Economic Forecast Autumn 2021 anticipates that, “despite mounting headwinds, the EU economy is projected to keep expanding over the forecast horizon. Most member states are expected to reach the pre-pandemic volume of output by the end of 2021, while a few others will fully recover in 2022”. This prediction includes Romania as well, the charts stating that for the year to come the GDP should grow, inflation should be kept in check and the unemployment rate should slightly decrease.
Moreover, besides the Recovery and Resilience Mechanism approved by the European Parliament in 2020, through which Romania has obtained funding worth EUR30.5 billion, in the same year the new Multiannual Financial Framework (for the period 2021-2027) was also implemented. Regarding the European Union’s budget, it is worth highlighting that it is 63% bigger than the one from the previous period, an increase which is expected to bring a series of positive effects for the local economy as well.
Therefore, the economic situation of Romania has an optimistic forecast, with multiple sources of growth accessible for both the public and the private sectors. However, the uncertainties caused by some ambiguities in the local legislation is generating, and will continue to generate, multiple disputes on varied legal areas of practice.
Firstly, at the end of the last year, the government implemented a law that amends the tax amnesty for the primary fiscal obligations due since the beginning of the pandemic, which extended the term in which the ancillary obligations (delay penalties, interest, etc.) can be avoided. In simpler terms, the tax contributors can now pay the taxes they owe since March 31st 2020, without having to pay the delay penalties till June 30th 2022.
However, the authorities will probably have different methods to interpret the appliance of this tax amnesty, a fact that will generate a good range of disputes between the private contributors and the public authority that rejects the possibility for the former to benefit from this amnesty.
Moreover, from January 1st 2022 the obligation to fill in and transmit the SFA-T form became mandatory for the big contributors. The SFA-T is meant to be an electronic instrument of communication between the fiscal authority and the contributor that has the purpose to facilitate the exchange of accounting data.
Even if the implementation of this instrument is only mandatory for the big contributors for now, it is important to mention that in 2022 3,000 companies were included in this category, of which approximately 1,800 are found for the first time in the list. Therefore, we estimate that an important number of fiscal litigations will arise because of the lack of experience among these companies of how to fulfill the tax obligations and the ambiguity of the fiscal authorities in explaining what, how and when certain steps need to be done.
Secondly, commercial disputes are also expected to increase, based on more factors, some of which were already mentioned. In this matter, the most discussed subject at the moment that will definitely generate an important number of disputes is the inability of many public and private entities to pay the utility bills (energy and natural gases) due to the significant increase of their prices.
In this respect, besides the predictable litigations between the suppliers of the utility and the beneficiaries, that will arise from the failure of paying the bills, there will be a fair amount of insolvency procedures initiated at least throughout the first half of the year because of the private companies’ inability to pay their debts.
Considering the fact that, in general, companies rely on each other’s survival and prosperity because each one is positioned in the commercial chain between a supplier and a distributor/buyer, the energy price increase will affect the productivity of a lot of companies. Therefore, certain litigations will appear because of the failure of some parties to deliver the obligations they are obliged to fulfill.
To continue the domino effect, even if the contractual party will not be directly affected by the utility bills, the energy price increase will be reflected in all the products. Therefore, all the raw or processed materials will suffer an increase in price, a fact which will determine that some entities are not able to afford the same quantities, qualities or the same products at all.
As a temporary solution, the government assured the public that it will regulate the energy price again, temporarily, in order to improve the control system of the energy supplier and to prevent them from abusing their freedom on the market. Although the Directive (EU) no. 2019/944 on common rules for the internal market for electricity allows the national authority of a member state to intervene in the liberated market, this set of measures can only be applied temporarily and only once. Therefore, if the government decides to regulate the market again, it is expected for it to find better means to control and stimulate competition on the energy market.
Given the fact that many contracts concluded between big players on the market or with public authorities have an arbitration clause inserted, the most ‘popular’ alternative dispute resolution method elected by Romanian parties is represented by arbitration under the rules of the Court of International Commercial Arbitration attached to the Chamber of Commerce and Industry of Romania or under the Rules of the International Chamber of Commerce.
Thirdly, the pandemic has accelerated the digitalization of all activities, including in both the public and the private sector, from commerce to banking. In this context, there is a high pressure on the security of the online activity, while the Authority for Data Protection is closely analyzing any potential data breaches. Consequently, we are expecting an increase in sanctions imposed on the grounds of the General Data Protection Regulation which could also lead to challenges initiated by the companies that consider that they have been wrongly sanctioned.
Furthermore, the digitalization of work has led to the expansion of teleworking (working from home). The employers were required to quickly adjust and regulate the new working regime and, in cases where companies with a large number of employees failed to establish internal regulations corresponding with the perspective of their employees and the legal requirements, the employers are also facing labor lawsuits with respect to the working conditions.
However, all these changes, combined with the financial difficulties mentioned before (increase in prices, interdictions imposed, etc.) have led to restructuring and personnel downsizing. In many cases, former employees have already challenged and will also challenge in 2022 the termination of their work contracts, thus resulting in another category of litigation expected to grow this year. In this context, the current unemployment rate remains around 5%.
Therefore, we can also expect an increase in labor law disputes, arising from a wide range of measures such as payment cuts, suspensions or terminations of employment contracts that have not been performed in accordance with the requirements of the law.
To sum up, 2022 is expected to be a year of recovery from the pandemic, which had a severe impact on the global economy, the countries being expected to grow from this point of view. However, given the 'hot spots' mentioned above (and not only) that could intervene and slow down the recovery process, both attorneys and clients need to elaborate the best legal formulas to avoid such impediments, using the dispute resolution methods as a means to attain their targets.