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Q&A on Distribution Agreements

Part 1: Legislative framework

Q1. Please specify the legislative framework generally applicable to the conclusion and execution of distribution agreements (a)? Please include a link to the official publication of the applicable rules (e.g., relevant link to the Official Gazette) (b) and, if available, to the English translation of the legislative framework (c).

a.  Legislative framework

Competition Law no.21/1996, republished and amended (hereinafter, the “Competition Law”)

Romanian Civil Code – Book V, Title II, Chapter 1: The Contract

Romanian Civil Code – Book V, Title IX, Chapter 3: The Supply agreement

Romanian Civil Code – Book, Title IX, Chapter 1: The Sale Agreement

Law no.321/2009 regarding trade of food products, as republished and amended

Law no. 11/1991 regarding unfair competition, as amended (the “Unfair Competition Law”)

There is no definition of “distribution agreement” in the Romanian legislation. However, distribution agreements fall within the scope of the general provisions applicable to contracts included in the Romanian Civil Code, more specifically the provisions on supply contracts and sales contracts. Parties can derogate from these provisions by explicit agreement.

It is worth noting that, starting August 2010, under the amendments of the Competition Law, almost all of the Romanian Competition Council’s secondary legislation was repealed. Since then, the European Commission’s block exemption regulations are applicable as if embodied in the national legislation. There are however specific domestic guidelines issued by the Romanian Competition Council (RCC), such as the RCC Guidelines on the definition of the relevant market and the RCC 2020 Guide on vertical agreements.

Other rules are provided in certain highly regulated business sectors, which may subject distribution activity to licencing from relevant authorities or to other conditions.

b. Link(s) to official publication

The Romanian Civil Code is accessible via this link.

The Competition Law is accessible via this link.  

The Law no.321/2009 is accessible via this link

The Law no.11/1991 is accessible via this link

The RCC Guidelines on relevant market definition is accessible via this link.

The RCC 2020 Guide on vertical agreements is accessible via this link

c. Link(s) to English translation

An English translation of the Competition Law is accessible via this link.

Q2. Other than for agency agreements pursuant to Directive 86/653 (EEC) on the coordination of the laws of the Member States relating to self-employed commercial agents, are there specific rules depending on the distribution format (e.g. franchising, exclusive distribution)?

Yes.

Which specific rules apply (a)? Where available, please also include a link to the official publication of the applicable rules (b) and, if available, to the English translation of the legislative framework (c).

a. Specific rules 

Under Romanian law there are specific rules for franchising. Therefore, franchise agreements fall under the scope of Government Ordinance no. 52/1997 on the legal regime of franchise agreements (hereinafter the “GO on Franchise Agreements”). This general legal framework is also supplemented by the relevant provisions of the Romanian Civil Code, the Fiscal Code as well as the Competition Law.

When reviewing a vertical agreement from a legal point of view, the relevant authorities and the competent courts of law will also refer to the RCC’s Guidelines on the definition of relevant markets and the RCC 2020 Guide on vertical agreements.

b. Link to official publication of the applicable rules 

The GO on Franchise Agreements is accessible via this link.

The Fiscal Code is accessible via this link

c. English translation of the legislative framework 

Not available.

Q3. Other than general contract law and competition law, are there other rules which may generally restrict the parties when drafting and concluding distribution agreements (e.g., rules in relation to unfair contract terms in B2B contracts, specific requirements in the context of a prohibition of abuse of economic dependence)?

Yes. 

Which general rules apply (a)? Where available, please also include a link to the official publication of the applicable rules (b) and to the English translation of the regulatory framework (c).

a. General rules

1. The Unfair Competition Law

The Unfair Competition Law aims at protecting fair competition, by requiring the contract to be drafted in compliance with fair practices and the good-faith principle, in the interest of all the parties involved, including the consumers.

The law prohibits commercial practices which are contrary to fair practices and to the general principle of good-faith, and which generate or can generate damage to any market players.

2. Law no. 321/2009

This law applies exclusively to commercial relations concerning food products and aims at offering increased protection to suppliers in their relations with larger retailers.

The law includes provisions on (i) protection against anticompetitive agreements and practices, (ii) payment obligations between the trader and the supplier of food products and (iii) special obligations of the trader (retailer).

(i) Protection against anticompetitive agreements and practices

The law includes specific prohibitions related to: (a) the parties’ possibility to directly/indirectly undertake obligations to buy or sell from/to a third party, (b) the requiring, by the retailer, that the supplier pays taxes and services unrelated to their commercial relations, (c) the sale of products at a loss, and (d) the imposing of an obligation on the supplier not to sell to other retailers at a lower or similar price.

(ii) Payment obligations and other special obligations

The law stipulates amongst others that the payment term to be set in the sale agreement for fresh products cannot exceed 14 days and that the trader/retailer can agree on setting distinct shelf spaces by country of origin of the product.

(iii) Abuse of dominant position

Abusive practices by dominant market players are prohibited under the Competition Law. The dominant company must refrain from distorting competition when choosing its commercial partners and negotiating the contractual terms.

b. Link(s) to official publication 

The Unfair Competition Law is accessible via this link.

The Law no.321/2009 is accessible via this link.

The Competition Law is accessible via this link

c. Link(s) to English translation 

The English translation of the Competition Law is accessible via this link.

Part 2: Pre-contractual phase

Q4. Are there mandatory provisions in relation to the disclosure of pre-contractual information prior to concluding and/or executing distribution agreements?

Yes 

Which mandatory provisions apply (a) and which information must be disclosed (b)? Where available, please also include a link to the official publication of the applicable rules (c) and, if available, to the English translation of the regulatory framework (d).

a. Mandatory provisions

Art. 2 GO on Franchise Agreements

b. Information to be disclosed 

Under Romanian Civil Code rules there is a general obligation of the potential contracting parties to provide accurate and complete information about the relevant and necessary aspects of the agreement. This obligation stems from the prerequisite of obtaining a clear and valid consent from the other contracting party to enter into the agreement and from the good-faith obligation generally applicable to all contracting parties.

The conclusion of distribution agreements is therefore not subject to specific formal pre-contractual conditions.

The GO on Franchise Agreements sets out specific obligations on the part of the franchisor regarding disclosure of information. More precisely, the above-mentioned legal provisions require a disclosure document to be drafted and to include certain information for the franchisee.

The purpose of the disclosure document is to provide the franchisee with the relevant information allowing him to make informed decisions regarding the conclusion of a franchise contract. Therefore, the disclosure document must include general information, such as: experience and history of the franchisor; details about the identity of the franchise management; list of litigations involving the franchisor and its management; initial amount which must be invested by the franchisee; copies of the financial results of the franchisor during the previous year; information on the pilot unit.

c. Link(s) to official publication 

The Romanian Civil Code is accessible via this link.

Art. 2 GO on Franchise Agreements is accessible via this link.

d. Link(s) to English translation 

Not available.

Q5. Is there a standstill obligation linked to the requirements imposed for the pre-contractual phase?

No.

Q6. Does the relevant regulatory framework impose sanctions if the pre-contractual obligations are not (fully) respected?

Yes.

Which sanctions apply (e.g., nullity of contract, penalty payment)?

As a general rule, a contract cannot be valid and binding if the contracting parties have not consented to the terms and conditions of the contract. It can be inferred from this that, if a party did not disclose a sufficient amount of information as to allow the other contracting parties to make a valid decision whether to execute the contract or not, the contract is null and void. The same applies in relation to the good-faith general principle of law. If one of the contracting parties does not carry out the negotiations in good faith, the contract eventually executed is null and void. Compensation for the damages incurred by the other party (such as an incurred loss) may be ordered by a court of law. 

The franchisor’s failure to comply with its pre-contractual obligations may not trigger contractual liability, but may be subject to general tort liability and trigger a claim for damages under the Romanian Civil Code.

A dominant market player negotiating in bad faith (especially where such bad faith consists in the conducting/maintaining negotiations when such market player knows it has no intention of contracting) could also be qualified as abusive conduct falling foul of competition law.

Q7. Can a party be held liable if it terminates the pre-contractual negotiations?

Yes.

On what grounds (a); under what conditions (b); and what consequences are generally linked to such liability (c)?

a. Grounds for pre-contractual liability

- Art. 1170, Romanian Civil Code

- Art. 1183, paragraphs 3 and 4, Romanian Civil Code

- Art. 1184, Romanian Civil Code

- Art. 6, Competition Law

b. Conditions for pre-contractual liability 

Good faith in the negotiation, execution and performance of the contracts is clearly required under Romanian law. Thus, Art. 1183 Romanian Civil Code provides for the obligation to negotiate in good-faith and the consequences of the failure to do so.

Under Romanian law, it is not the failure to negotiate, but the eventual failure to conclude the contract that might be sanctioned, as long as the negotiation process has been conducted in bad faith.

The Romanian Civil Code expressly provides for three behaviours that may amount to pre-contractual bad-faith, namely: (i) initiating or carrying out negotiations without the actual intent to eventually sign the final contract, (ii) unexpected termination of negotiations, and (iii) breach of the confidentiality obligation by disclosing or using for one’s interest the confidential information obtained from the other party during negotiations.

Additionally, it must be underlined that the will of the other party to sign the contract must be obtained under lawful means/circumstances by providing all the relevant information regarding the nature of the contract, the nature of the products and services.

c. Consequences of pre-contractual liability 

According to the provisions of the Romanian Civil Code, the damaged party can recover the costs or expenses incurred in relation with the negotiations carried out in bad faith by the other party, together with the damage stemming from the rejection of other offers (loss of chance).

In case of abusive interruption of negotiations, the liability of the party is civil in nature and based on the requirements of good faith. This liability may be contractual (in the event that the negotiating parties have concluded a preparatory contract), or tortious (in the event that the pre-contractual stage has not been regulated by the parties through such preparatory contracts).

Thus, the only remedy that the court can order is the payment of the damages incurred by the other party.

The damages may refer to the expenses incurred during the negotiation phase and the loss resulted from the illicit deeds in the pre-contractual phase. It has been pointed out that this pecuniary damage may be more serious if it results from the non-extension of an existing contract.

The missed benefit could consist in missing the chance to conclude other contracts (similar or complementary to the one subject to the negotiation), or in the refusal of existing offers, and in the failure to get the benefits expected from the negotiated contract. The extent to which the missed benefit can be attributed to the party acting in bad faith depends on the degree of certainty of its accomplishment. This degree of certainty is dependent on the advancement of the negotiations. Ceasing the negotiations in an advanced stage will create the premise of a higher certainty that the benefit would have accrued to the injured party. However, no matter how advanced the negotiations stage when the breakdown occurs, the missed benefit can never be equal to the whole benefit which would have accrued to the injured party had the negotiations not been broken down.

Courts of law will assess the factual background, by taking into consideration any formal negotiations, lack of intention to conclude the contract, the status of negotiations, as well as any other external relevant circumstances. The damage must be proven in order to obtain compensation.

In the specific cases involving a refusal to supply in the context of an abuse of a dominant position, the RCC or the competent courts can order the execution of the distribution agreement under terms equivalent to the ones usually applied by the dominant company in relation with its partners.

Q8. Are there other relevant rules and/or restrictions that apply during pre-contractual negotiations between supplier and distributor?  

No.

Part 3: Contractual phase

A. Form of distribution agreements

Q9. Must a distribution agreement be executed in writing to be valid and enforceable?

Only in certain instances.

If only in certain instances, please explain when a written agreement is required.

There are no formal requirements for the conclusion of distribution agreements, as they can be entered into both verbally or in writing. However, according to the Romanian Civil Code, the agreement must be concluded in writing in order to validly constitute legal proof of its content. In any case, the GO on Franchise Agreements provides that the franchise contract must define in a clear and unambiguous manner each party’s rights and obligations and liabilities, as well as any other clauses regarding the parties’ collaboration. In that sense, the agreement must contain provisions regarding the: (i) object of the agreement; (ii) parties’ rights and obligations; (iii) financial conditions; (iv) duration of the agreement; (v) conditions for amendment, renewal and termination. Thus, although not expressly provided for, the requirement for a franchise agreement to be concluded in writing can be implicitly inferred from the existing provisions of the law.

Q10. Are there any (other) requirements as to the form of the distribution agreement for it to be valid and enforceable?

No.

B. Content of distribution agreements

Q.11 Other than restrictions imposed by EU competition law (including Regulation (EU) 330/2010), do specific rules and/or restrictions apply in distribution agreements with respect to

  • the territory in which or the customers to whom the goods/services will be sold;
  • an exclusivity granted to the distributor;
  • (exclusive) sourcing/purchasing obligations;
  • resale prices;
  • non-compete clauses

Yes specific rules apply to (i) obligations of the supplier vis-à-vis the distributor, including in relation to the remuneration of the distributor and (ii) obligations of the distributor vis-à-vis the supplier or vice versa.

What do these specific rules and/or restrictions entail?

While there are no specific rules with respect to distribution agreements, the GO on Franchise Agreements provides for some specific obligations of the franchisor towards the franchisee (to provide the franchisee with initial training, as well as permanent commercial and/or technical assistance, throughout the duration of the contract) and of the franchisee towards the franchisor (to develop the franchise network and maintain its common identity, as well as its reputation; to provide the franchisor with any information likely to facilitate the knowledge and analysis of the performance and the real financial situation, in order to ensure an efficient management in connection with the franchise; not to disclose to third parties the know-how provided by the franchisor, both during the performance of the franchise contract and afterwards).

C. Term and termination

Q13. Are there particular rules and/or restrictions in relation to the term (incl. renewal) of distribution agreements?

Yes.

What do these specific rules and/or restrictions entail? 

The GO on Franchise Agreements requires that the duration of the agreement needs to be expressly provided within the contract itself and, additionally, even though the law does not impose a minimum or maximum duration for the agreement, it does require that the duration is not less than the time needed for depreciation of the franchisee’s investment.

Q14. Are there any specific rules and/or restrictions with respect to the termination of distribution agreements (e.g. minimum notice period, statutory right to compensation (goodwill or other))?

Yes. 

What do these specific rules and/or restrictions entail (a)? Please include whether these specific rules and/or restrictions differ depending on whether the distribution agreement is of definite or indefinite duration (b) or whether the distribution agreement is terminated by one party for convenience or for breach by the other party (c).

a. What do these specific rules and/or restrictions entail

The GO on Franchise Agreements provides that the contract needs to clearly identify the circumstances in which termination with no prior notice may take place. Moreover, the franchisor must inform the franchisee of its intention not to renew or sign a new contract with a reasonable notice period. There are however no specific rules regarding the determination of the minimum notice period. 

There is also no specific indication in case-law as to the circumstances that the court will take into account to determine the reasonableness of the notice period for agreements with an indefinite term. The court enjoys discretion on this and evaluates on a case-by-case basis. However, we expect the reasonable character of the notice period to take into account the specific aspects of the distribution agreement and especially the liabilities which the parties accept due to the existing distribution relationship. Thus, the degree of reliance on the existing relationship for the assumption of such liabilities would normally be considered, all within the normal commercial practices within the scope of activities covered by the distribution agreement.

Where unilateral termination is possible, such can’t be censured by the courts but liability for damages caused by the termination shall also be assessed by reference to the moment when such termination was undertaken (i.e. if termination is undertaken with such notice period as to cause damages to the other party beyond those which that party would normally have expected based on fair commercial practices in that type of activity, the notice period would normally be considered unreasonable and insufficient).

b. If applicable, differences dependent on whether the distribution agreement is of definite or indefinite duration

There are no specific provisions, other than those under general contract law, differentiating between termination of contracts concluded for limited or unlimited duration.

c. If applicable, differences dependent on whether the distribution agreement is terminated by one party for convenience or for breach by the other party

Romanian law does not provide any specific rules in this regard.

Q15. Is it possible to terminate the distribution agreement based on certain grounds for termination (breach or other) included in the distribution agreement?

Yes.

If yes, is prior judicial intervention required in order for the termination of the agreement to take effect?

No.

Part 4: Post-contractual phase

Q16. Is the supplier required to repurchase the stock that is still at the distributor’s disposal when the distribution agreement ends?

No.

Q17. Are there other post-contractual obligations that generally apply to either of the parties in the context of the termination of the distribution agreement?

No.

Part 5: Dispute resolution

Q18. Do specific rules and/or restrictions apply as regards the choice of forum and/or jurisdiction?

No.

Q35. Can the parties opt for arbitration?

Yes.

Q19. If yes, are there any rules and/or restrictions as regards the enforceability of arbitration clauses in distribution agreements?

No.

Q20. What is the statute of limitations applicable to claims regarding the performance of a distribution agreement?

Any claim regarding the performance of the distribution agreement is subject to a three-year limitation period, starting, depending on the claim made, (i) from the day the claimant is aware or should have been aware of their right; (ii) from the day the claimant is aware or should have been aware of the damage and the party who is responsible for it; or (iii) from the day the obligation becomes due and payable.

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