Order for payment procedures and arbitration clauses – Recent trends in Romanian practice

1. Order for payment procedures and arbitration clauses – Recent trends in Romanian practice Dan Cristea Associate Competence – Competence Principle. Recurring Issues ICC YAF Conference, Bucharest 27 September 2010

2. Applicable legislation • Romanian Civil Proceedings Code • Government Ordinance no. 5/2001 regarding injunction for payment (“G.O. no. 5/2001”) • Government Emergency Ordinance no. 119/2007 regarding measures to prevent delays in execution of payments deriving from commercial contracts (“G.E.O. no. 119/2007”) • Regulation (EC) No 1896/2006 of the European Parliament and of the Council of 12 December 2006 creating a European order for payment procedure

3. Applicable legislation • G.O. no. 5/2001, art. 1 (1): “The injunction for payment procedure is performed at the request of the creditor, in the purpose of recovery of debt that is certain, liquid and outstanding, based on a contract or a written statement acknowledged by the parties”. • G.E.O. no. 119/2007, art. 2 (1): “The present ordinance applies to receivables that are certain, liquid and outstanding, and represent duties to pay sums of money, as resulting from commercial contracts”. • Regulation (EC) No 1896/2006, art. 4: “The European order for payment procedure shall be established for the collection of pecuniary claims for a specific amount that have fallen due at the time when the application for a European order for payment is submitted.”

4. What are we going to discuss today… • Existing jurisprudence on possibility of Romanian courts to withhold jurisdiction in presence of arbitration clause. • Critique of existing jurisprudence. • Applicable tests in order to establish jurisdiction in case of orders for payments submitted in the presence of an arbitration clause. • Applicable solutions for Romanian courts faced with arbitration clause in order for payment procedures.

5. Existing Romanian jurisprudence on-topic • “Every time parties have agreed that disputes stemming from the execution of their contractual rights and obligations are to be submitted to arbitration, court jurisdiction is excluded by the disposition of art. 3433 of the Civil Proceedings Code, irrespective of the general or special character of the judicial procedure.” (Constanța Tribunal, civil sentence no. 3610/2001) • “In the presence of an arbitration clause, courts do not have jurisdiction over the dispute, irrespective of applicable procedure, be it common procedure or a special order for payment procedure.” (Cluj Court of Appeals, commercial sentence no. 571/2003)

6. Existing Romanian jurisprudence on-topic (2) • “In the case of injunction for payments, as regulated by G.O. no. 5/2001, even if parties have opted for an arbitration clause, G.O. no. 5/2001 institutes a special procedure, including in relation to material jurisdiction. These special norms depart from both common procedural law and the convention of the parties; the court has no reason to decline jurisdiction in such a matter” (Bucharest Court of Appeals, commercial sentence no. 1689/2002) • “Given the fact that art. 2 alin. (1) of G.O. no. 5/2001 establishes exclusive jurisdiction in favor of courts in solving requests for payment injunctions, in view of the general law principle specialia generalibus derogant, arbitration courts cannot have jurisdiction over injunctions for payment.” (Bucharest Tribunal, commercial sentence no. 6005/2002)

7. Proposed criteria for establishing jurisdiction • The “binding nature of contractual clauses test” (art. 969 Civil Code) • The “preservation of status quo" test • The “contentious nature of dispute” test • The “derogatory character” test

8. 1. The “binding nature of contractual clauses” test • Fundamental assumption: courts may issue injunctive relief only if the contract between the parties so provides • Legal ground: pacta sunt servanda • Common law precedents: Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Hovey, 726 F.2d 1286 (8th Cir. 1984) – “if there is an enforceable arbitration agreement between the parties that does not explicitly authorize judicially ordered injunctive relief, all remedies, including preliminary injunctions, are for the arbitrator to decide”

9. 2. The “preservation of status quo” test • Fundamental assumption: preliminary injunctions for payment empty the substance of possible subsequent arbitration • Legal ground: art. 3433 (1) of Civil proceedings Code: “an arbitration clause excludes jurisdiction of courts, for disputes relating to its object” • Common law precedents: Guinness-Harp Corp. v. Jos. Schlitz Brewing Co., 613 F.2d 468 (2nd Cir. 1980) – “as a practical matter the preliminary injunction award should be more properly classified as a final injunction, since its issuance was not dependent on any subsequent confirmation by the arbitrators. By construing the arbitration clause of the agreement to explicitly preclude termination prior to arbitration, the court finds Guinness’s petition for provisional relief as nothing more than a suit for specific performance of a contractual term”

10. 3. The “contentious nature of dispute” test • Fundamental assumption: arbitration courts can judge only upon disputes. • Legal ground: art. 340 of Civil proceedings Code: “an arbitration clause excludes jurisdiction of courts, for disputes relating to its object” • Do order for payment procedures hold a contentious character? • Distinction between contentious nature and contradictoriality of proceedings • Should a distinction be made between G.O. no. 5/2001 and G.E.O. no. 119/2007? • Majority of jurisprudence as to uncontentious character of orders for payment: • “The procedure of injunction for payment, as regulated by G.O. no. 5/2001 is an uncontentious one” (Bucharest Tribunal, Sentence no. 4779/23.11.2005). • “The norms of G.O. no. 5/2001 institute an uncontentious procedure, and according to the provision of art. 335 of the Civil proceedings code, “if the request, through its mere content, or due to parties’ objections, achieves a contentious nature, the court will reject it””. • Courts retain sole jurisdiction over uncontentious matters.

11. 4. The “derogatory character” test • Fundamental assumption: preliminary injunctions for payment depart from common law provisions, and cannot be judged by the same jurisdiction standards • Legal ground: scope of application of order for payment legal provisions • Does the “special” character of a procedure prevent arbitrability? • Concept of abstract non arbitrability • Derogatory competence norms. • Tacit consent to relinquish special procedures possibly provided by common law

12. Solution for courts faced with an order for payment, in case of applicability of arbitration clause • Declinatory plea “After admitting its lack of jurisdiction, the tribunal erroneously rejected as inadmissible the request of the claimant, ignoring the provisions of art. 158 para. (1) and (3) of the Civil Proceedings Code, according to which, when confronted with a jurisdiction incident, the court is obliged to identify the organ who has authority over the case” (Timisoara Court of Appeals, commercial Decision no. 40/2009) • Rejection of claim, for general lack of jurisdiction of Romanian courts “Observing its lack of jurisdiction, due to the arbitration clause, the court will only be able to annull the order for payment, without declining jurisdiction to any other organ. This is because a civil court can only decline jurisdiction to another civil court, and, anyway, an arbitration court cannot become competent in this way, because arbitration is performed through specific rules that must be established or accepted by parties, when they are not established through contract (concerning place of arbitration, constitution of tribunal, rules of dispute)” (Cluj Court of Appeals, decision no. 1472/10.10.2002).

13. Miscellaneous topics for discussion • Can arbitration courts judge cases on basis of the provision of G.O. no. 5/2001 or G.E.O. no. 119/2007? • Does the use of one of the ordinances stated above confer any advantage/disadvantage in what concerns arbitrability and jurisdiction? 3. Delege ferenda proposals.

14. Competence – Competence Principle. Recurring IssuesICC YAF Conference, 27 September 2010, Bucharest, Romania Dan CRISTEA Associate E-mail: dan.cristea@tuca.ro  Tel: (40-21) 204 88 90 Web: www.tuca.ro