The procedure for terminating a commercial contract in Romania is not always straightforward. For companies that are bound by long-term B2B contracts, the termination process can be complicated due to legal and judicial requirements. The process of termination is often made more complex if it is not well planned, thereby exposing the business to various risks.
The article aims at exploring the legal limits involved in the process of terminating business contracts in Romania, while at the same time providing insights on how to exit for businesses interested in ending their commercial contracts.
The legal framework for terminating commercial contracts in Romania
The process of terminating commercial contracts in Romania is generally governed by the Civil Code, which recognises the binding nature of commercial contracts and the general requirement of good faith in commercial transactions. In most instances, commercial contracts in Romania cannot be terminated unilaterally unless there is clear provision for such action in law or contract.
The process of termination is often made more complex by contractual termination with prior notice, termination for cause, and judicial termination in instances where unilateral termination is not permissible.
Terminating commercial contracts with notice in long-term B2B contracts
Long-term contracts frequently have termination for convenience clauses, and these allow a party to terminate a contract after a notice period. Although these clauses are useful, they do not provide absolute security.
The Romanian judiciary now closely examines termination with notice to ensure that it occurs in good faith and for its intended purpose. Even if a right to terminate exists, abusing that right may give rise to liability, especially if it has a disproportionate effect on the other party.
Compliance with notice periods and formalities is mandatory. Any deviation, no matter how trivial, may affect the validity of the termination and expose the terminating party to liability for damages.
Terminating commercial contracts for cause and breach-based exits
Without the termination for convenience right, companies turn to termination for cause. Under Romanian law, there must be a substantial breach that warrants the termination of the contractual relationship. Courts are not receptive to terminations on account of trivial or merely technical breaches.
In most instances, the party terminating must establish a causal nexus between the breach and the termination. Prior notice and an opportunity to remedy are usually required, unless the breach is sufficiently serious to render continued performance unreasonable.
Termination for cause is one of the most contested forms of exit in Romania, primarily because corporations undervalue the proof of breach required. Unsubstantiated claims of breach often result in claims of wrongful dismissal.
Judicial termination as a strategic alternative
In situations where unilateral termination is in doubt or prohibited by contract, judicial termination may present a more secure, if less expeditious, option. This requires filing a lawsuit and establishing a material breach or circumstances making performance impracticable or unreasonable.
While judicial termination presents increased timelines and litigation complexity, it can greatly mitigate the risk of damages in large-value contracts. From a risk management perspective, judicial termination permits the court to confirm the termination rather than leaving it open to dispute.
Damages and liability exposure following termination
Termination itself is not automatically unlawful under Romanian law. Liability is established where the termination is carried out without legal foundation, in bad faith, or in an abusive manner.
Claims for damages are usually limited to losses directly caused by the termination, such as loss of profit and other damage that can be foreseen. Notably, the claimant has the burden of proof to establish the existence of damage and the causal link between the termination and the damage.
This means that early legal analysis and planning of the exit strategy can significantly reduce financial risk.
Practical strategies for exiting unprofitable or risky contracts
Companies looking to exit unprofitable or risky contracts should therefore not make decisions based on a reactive approach. Planned and well-thought-out decisions, which are made well in advance and are in line with legal and commercial objectives, are more likely to yield positive results.
In most cases, the key decisions are made well before a termination notification is sent. Therefore, a review of termination clauses, documentation of breaches, and considering renegotiation options are key strategies for a smooth exit.
Key considerations for businesses operating in Romania
Termination of a commercial contract in Romania is more than simply looking for a clause. It is a structured approach, considering legal entitlement, evidence, and timing. However, a business looking at termination as a process rather than a formality is more likely to achieve success.