Distribution law in Romania

Agency Agreements

Romanian law on Agency Agreements is set out in the Romanian Commercial Code, which, in Title IX, Chapter X (Articles 2072-2095), in particular implements the requirements of EU law on Commercial Agents.

Formation of Agency Agreement

Are there any formal requirements on concluding Agency Agreements?

Under Romanian law, an Agency Agreement can be entered into both verbally or in writing. There are no special formalities to take into account, as the Agency Agreement is consensual and its written form is necessary only ad probationem. Therefore, for evidentiary purposes, we recommend setting out the Agency Agreement in writing.

Are there any specific information obligations on concluding Agency Agreements?

Romanian law does provide for specific information obligations regarding Agency Agreements incumbent on the Commercial Agent, as well as the Principal.

Romanian law provides for the obligation of both the Commercial Agent and the Principal to act in good faith and loyalty. In particular, the Commercial Agent is obliged to procure and communicate to the Principal information which may interest the latter regarding the regions established in the contract, as well as to communicate all other necessary information he is aware of. The Principal is obliged to provide the Commercial Agent with all information and documentation, which are necessary for performing the contract, as well as to inform the Commercial Agent, within a reasonable period, when it anticipates that the volume of contracts will be significantly lower than the one that the Commercial Agent would normally anticipate.

Are there any specific pitfalls which need to be borne in mind when concluding Agency Agreements?

Romanian law differentiates between individually agreed agreements and standard terms and conditions.

Regarding standard terms and conditions, there are strict rules on the validity of certain contractual clauses considered “unusual” (e.g. penalties, limitation of liability, automatic renewal of contract, suspension of obligations, unilateral termination). Regarding individually agreed contracts, generally, a vast freedom of contract exists. However, this freedom in the field of Agency Agreements is limited as many rules are mandatory and cannot be deviated from contractually (neither in standard terms and conditions nor in individually agreed contracts). The rules on standard terms and conditions provided under Romanian law need to be considered when drafting Agency Agreements in order to avoid the invalidity of contractual provisions. For example, in addition to reflecting the mandatory requirements provided by the law specifically for Agency Agreements, the Agency Agreement needs to provide for express consent in relation to “unusual” clause of the type mentioned above. In practice, additional express clauses are reflected at the end of the contract, whereby the party undertaking the “unusual” obligations acknowledges and consents to them once again by reference to the clause number where they are already provided in the contract.

Standard terms and conditions are deemed to exist if (1) the contractual terms are imposed by one party on the respective other party without being open for negotiation and (2) the imposing party intends to use the contractual terms repeatedly. This means that in particular standard Agency Agreements used by Principals are often likely subject to Romanian law on standard terms and conditions.

Scope of Commercial Agency

Are the parties free to agree on the scope of the Commercial Agency?

The Principal and the Commercial Agent are free to agree on the scope of the Commercial Agency. In particular, the parties may decide on instructing the Commercial Agent (1) worldwide or for a certain geographic region, (2) for all or only for certain products of Principal, (3) for all or only certain customers of the Principal.

Romanian law provides for non-compete obligations of the Commercial Agent during the contractual term, as follows: (1) unless the Agency Agreement provides otherwise, the Commercial Agent cannot act for several competitor Principals, within the same region and for the same types of contracts; (2) the Commercial Agent cannot, without the Principal’s consent, negotiate or conclude for its own benefit, in the region covered by the Agency Agreement, contracts for the same or similar goods and services covered by the Agency Agreement.

A non-compete clause must be provided in writing, otherwise it will be invalid. (for a post-contractual non-compete obligation, see below)

In Romania, the EU regulation on vertical restraints (Commission Regulation No 330/2010) only plays a limited role in the field of Agency Agreements (in the field of Distribution Agreements it plays a significant role, see below). However, whether it could apply to the Commercial Agent in the individual case should be assessed at the beginning of a cooperation and this could have significant legal implications.

What are the primary obligations of the Commercial Agent and the Principal?

As a general principle, the Commercial Agent has the following primary obligations based on Romanian law:

  • to acquire business for the Principal;
  • to provide the Principal with the opportunity to enter into contracts with customers or even negotiate and conclude such contracts itself in the name of the Principal;
  • to provide the Principal with relevant information (as detailed in the previous answer above);
  • to act according to the Principal’s instructions;
  • to keep separate records for contracts concerning each Principal;
  • to store goods and samples in a manner that enables their identification;

As a general principle, the Principal has the following primary obligations based on Romanian law:

  • to support the Commercial Agent with respect to the Principal's business (for example in providing brochures, price lists etc.); and
  • to provide the Commercial Agent with relevant information (as detailed in the previous answer above);
  • to pay commission to Commercial Agent (see below).

We strongly advise detailing in the Agency Agreement the obligations of the Commercial Agent and the Principal, in accordance with mandatory provisions of Romanian law, as well as judicial and standard commercial practice to avoid legal uncertainty for the parties.

How is the Commercial Agent paid?

Generally, the Commercial Agent is entitled to remuneration for business transactions between the Principal and customers within the scope of the Commercial Agent's instruction. Remuneration may be fixed or variable, when it depends on the number of contracts or their value, when it is called commission.

During the contractual term, in the absence of a contractual agreement to the contrary, the Commercial Agent can claim commission if:

  • the business transaction has been concluded as a result of its action;
  • the business transaction has been concluded with customers that were previously assigned to the Principal by the Commercial Agent for similar contracts (in such case even for business transactions concluded without the Commercial Agent's involvement); or
  • the business transaction has been concluded within a territory or customer group that was assigned to the Commercial Agent (in such case, even for transactions concluded without the Commercial Agent's involvement).

For business transactions which are concluded after the contractual term has ended, in the absence of a contractual agreement to the contrary, the Commercial Agent can claim commission if:

  • the business transaction is mainly attributable to the Commercial Agent's efforts during the contractual term and if the business transaction was entered into within a reasonable period after the end of the contractual term; or
  • the customer's offer to enter into a contract with the Principal was received by the Commercial Agent or the Principal prior to the Agency Agreement's end.

The statutory rules on the Commercial Agent's remuneration are not mandatory. The parties should reflect detailed rules in the Agency Agreement on the calculation of the commission.

Term and Termination of Agency Agreement

Term of the Agency Agreement

Romanian law does not provide rules on mandatory term of the Agency Agreement and may freely agree on a fixed term or an indefinite term or a combination for the Agency Agreement.

If the parties agree on a fixed term and, after the expiry of the fixed term, continue to perform the Agency Agreement, the Agency Agreement is considered to have been tacitly renewed for an indefinite term.

Termination of the Agency Agreement

If the Agency Agreement has been entered into for a fixed term, as a general principle, the Agency Agreement may only be terminated extraordinarily for good cause. As an exception, during a fixed contractual term, termination for convenience is admissible only if the parties expressly provided a clause in the Agency Agreement whereby anticipated unilateral termination is possible.

If the Agency Agreement has been entered into for an indefinite term, it may be terminated extraordinarily for good cause and for convenience by complying with certain minimum notice periods. Romanian law sets out the following minimum notice periods (depending on the actual duration of the Agency Agreement in question):

  • during the first contractual year, a minimum notice period of one month with effect to the end of the month must be complied with;
  • during the subsequent contractual years, the minimum notice period is of one additional month/year up to a maximum of 6 months with effect to the end of the last month.

The notice periods may not be shortened. The notice periods may be extended by contractual agreement, provided, however, the notice period for the Commercial Agent is at least of the same length as the notice period of the Principal.

Although Romanian only provides for a written form requirement with respect to the notice for unilateral termination due to exceptional circumstances, for evidentiary purposes, we recommend setting out the same requirement in the Agency Agreement and in any case terminating the Agency Agreement in writing with confirmation of receipt.

The indemnification claim as main consequence of the Agency Agreement's termination

The main consequence of the Agency's Agreements termination under Romanian law is that – unless there are certain precluding circumstances – it triggers the Commercial Agent's entitlement to financial compensation in the form of an indemnification claim (Romania opted for the indemnification claim model out of the two possible consequences under EU law on Commercial Agents).

The Commercial Agent is, upon the Agency Agreement's end, entitled to an indemnification claim, if:

  • during the contractual term, the Commercial Agent has acquired business with new customers or significantly in-creased business with existing customers of the Principal and the Principal continues to derive substantial bene-fits from such business; and
  • payment of indemnity is equitable having regard to all the circumstances of the individual case and, in particular, the commission lost by the Commercial Agent.

The amount of the Commercial Agent's indemnity is capped: it may not exceed the Commercial Agent's average annual remuneration over the preceding five years (or the actual term, if it was less than five years).

The indemnification claim is precluded, if:

  • the Agency Agreement was terminated by the Principal for good cause which was attributable to the Commercial Agent;
  • the Agency Agreement was terminated by the Commercial Agent (unless the termination is justified by circumstances attributable to the Principal or the continuation of the Agency is unreasonable to the Commercial Agent due to its age or an illness);
  • a third party succeeds to the Commercial Agent by way of assignment or novation of the Agency Agreement (this will require an agreement from all parties concerned (i.e. Principal, Commercial Agent and the third party), setting out the succession); or
  • The indemnification claim was not invoked as against the Principal at the latest one year from the Agency Agreement's end.

The rules on the Commercial Agent's indemnification claim are mandatory and may not be contractually excluded. However, the parties can provide for detailed rules in the Agency Agreement addressing the risk of an indemnification claim and its value.

Other consequences of the Agency Agreement's termination

Romanian law does not stipulate a post-contractual non-compete obligation of the Commercial Agent. Romanian law, however, allows an agreement on such post-contractual non-compete obligation of the Commercial Agent for a period of maximum two years calculated from the end of the Agency Agreement. Although Romanian law does not expressly provide for the Commercial Agent’s right to financial compensation if such post-contractual non-compete obligation has been agreed, the Commercial Agent may claim such compensation based on general law provisions, unless the Principal in writing waives this obligation prior to the contractual end. It is, however, possible that the parties expressly agree that no financial compensation other than the remuneration generally provided in the Agency Agreement is granted for post term non-compete obligations undertaken by the Commercial Agent.

Any claim arising from an Agency Agreement – also the indemnification claim – is subject to a three-year limitation period, starting at the end of the year during which the claim arose and the creditor (e.g. the Commercial Agent) gained knowledge (or did not gain knowledge due to its gross negligence) of the debtor and the circumstances creating the obligation.

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Distribution Agreements

Distribution Agreements are not specifically regulated under Romanian law. As a category of a sales agreement, the statutory rules applicable to sales agreements pursuant to the Romanian Civil Code also apply to Distribution Agreements (Title IX, Chapter 1, Section 1, Sub-section 1, Articles 1650-1740). As a matter of principle, the Romanian law on Commercial Agents does not apply by way of analogy to Distribution Agreements.

Formation of Distribution Agreement

Are there any formal requirements on concluding Distribution Agreements?

Under Romanian law, a Distribution Agreement can be entered into both verbally or in writing. There are no special formalities to take into account. For evidentiary purposes, we recommend setting out the Distribution Agreement in writing.

Are there any specific information obligations on concluding Distribution Agreements?

Romanian law does not provide for any specific information obligations regarding Distribution Agreements.

Under Romanian law, a general obligation exists to provide correct and complete information to the other contracting party as relevant and necessary when entering into an agreement.

Are there any specific pitfalls which need to be borne in mind when concluding Distribution Agreements?

Romanian law differentiates between individually agreed agreements and standard terms and conditions.

Regarding standard terms and conditions, there are strict rules on the validity of certain contractual clauses considered “unusual” (e.g. penalties, limitation of liability, automatic renewal of contract, suspension of obligations, unilateral termination). Regarding individually agreed contracts, generally, a vast freedom of contract exists. This freedom in the field of Distribution Agreements is more permissive than in the case of Agency Agreements, however there are certain statutory rules, which remain mandatory and cannot be deviated from contractually (neither in standard terms and conditions nor in individually agreed contracts). The rules on standard terms and conditions provided under Romanian law need to be considered when drafting Distribution Agreements in order to avoid the invalidity of contractual provisions. For example, the Distribution Agreement needs to provide for express consent in relation to “unusual” clauses of the type mentioned above. In practice, additional express clauses are reflected at the end of the contract, whereby the party undertaking the “unusual” obligations acknowledges and consents to them once again by reference to the clause number where they are already provided in the contract.

Standard terms and conditions are deemed to exist if (1) the contractual terms are imposed by one party on the respective other party without being open for negotiation and (2) the imposing party intends to use the contractual terms repeatedly.

Scope of Distributor's instruction

Are the parties free to agree on the scope of the Distribution Agreement?

There are statutory limits to the Principal's and the Distributor's freedom to agree on the scope of the Distribution Agreement, mainly by reference to Romanian and EU Competition law.

In Romania, the EU regulation on vertical restraints (Commission Regulation No 330/2010) applies both in relation to vertical restraints with an EU as well as national dimension (i.e. by reference to both national and EU Competition law rules). Consequently, certain limitations (such as limitation of the geographic region in which the Distributor may (or may not) sell the products and the customers to which it may (or may not) sell them) are admissible only under specific requirements which need to be assessed in the individual case pursuant to the rules set forth by the EU regulation on vertical restraints.

Similarly, agreements with respect to the amounts of products the Distributor must source from the Principal is subject to national and EU Competition law: contractual provisions which require the Distributor to source 80% or more of its demand in products solely from the Principal may only be agreed for five years.

Non-compete obligations may be agreed, however, as a general rule based on national and EU Competition law, only for five years (for a post-contractual non-compete obligation, see below).

The Principal is generally not allowed to influence the Distributor's resale price of the products, according to rules prohibiting resale price maintenance. The Principal may, however, recommend prices to the Distributor, provided that the recommendation is not associated with other measures that may lead to it becoming mandatory for the Distributor. Principals should take great care when performing any activities which could be construed as an attempt (even indirectly) to influence the Distributor's freedom to determine the resale price.

What are the primary obligations of the Distributor and the Principal?

Pursuant to Romanian law, the Distributor has the following primary obligations stemming from the sales nature of the Distribution Agreement:

  • to distribute the products;
  • to pay the Principal the price of the purchased products;
  • all other obligations resulting from the Distribution Agreement (e.g. providing the Principal with relevant information regarding the market, (potential) customers and requirements concerning the products, to diligently safeguard the interests of the Principal in all business respects; to maintain confidentiality as applicable).

Pursuant to Romanian law, the Principal has the following primary obligations:

  • to deliver all products ordered by Distributor in accordance with the Distribution Agreement;
  • all other obligations resulting from the Distribution Agreement (e.g. to support the Distributor with respect to the Principal's business (for example in providing brochures, etc.); to grant the agreed rebate to the Distributor, as applicable).

We strongly recommend setting out in the Distribution Agreement the obligations of the Distributor and the Principal. As no specific law on Distributors exists, this is important to avoid disadvantages.

How is the Distributor paid?

As a general principle, the Distributor is not entitled to a specific remuneration for its distribution activities. As a matter of practice and agreement of the parties reflected in Distribution Agreements, the remuneration of the Distributor may consist in the profit it generates in purchasing the Principal's product with a rebate and selling them to its customers at a higher price. As no specific law on Distributors exists, the parties should, following the principle of freedom of contract, agree in detail on the terms and conditions regulating remuneration for the Distributor.

Term and Termination of Distribution Agreement

Term of the Distribution Agreement

There are no statutory provisions under Romanian law on the term of Distribution Agreements. As a general principle, the parties are free to set out the parameters of the contractual term, for example in agreeing on a fixed term or an indefinite term or a combination.

If the parties agree on a fixed term and, after the expiry of the fixed term, continue to perform the Distribution Agreement, the Distribution Agreement is considered to have been tacitly renewed for an indefinite term.

Termination of the Distribution Agreement

If the Distribution Agreement has been entered into for a fixed term, as a general principle, the Distribution Agreement may only be terminated extraordinarily for good cause. During a fixed contractual term, no termination for convenience is admissible. Distribution Agreements exceeding five years must be thoroughly assessed in light of the competition law limitations referred to above, particularly when the Distribution Agreements includes non-compete obligations and exclusivity rights.

If the Distribution Agreement has been entered into for an indefinite term, it may be terminated extraordinarily for good cause and for convenience by complying with certain minimum notice periods. Romanian law does not provide for minimum notice periods applicable for termination of Distribution Agreements. However, in practice, the minimum notice periods provided by the law for Commercial Agents (which depend on the actual term of the Agency Agreement in question, see above, and range between one and six months) are applied as point of reference also for Distributors, unless in the individual case a longer notice period is required for equitable reasons (for example because the Distributor made substantial investments when entering into the Distribution Agreement).

Romanian law does not provide for a written form requirement with respect to the termination notice. For evidentiary purposes, we recommend setting out such requirement in the Distribution Agreement and in any case terminating the Distribution Agreement in writing with confirmation of receipt.

The indemnification claim as main consequence of the Distribution Agreement's termination

As opposed to the indemnification claim of the Commercial Agent (the main consequence of an Agency Agreement's termination), Romanian law does not provide for the same entitlement to an indemnification claim for Distributors. Moreover, statutory provisions applicable to Commercial Agents cannot be applied by analogy to Distributors.

The parties can and should regulate in detail in the Distribution Agreement the consequences (including indemnification claims) of the Distribution Agreement’s termination (e.g. limitation of liability clauses, penalty clauses, indemnification etc.). If no provision has been reflected in the Distribution Agreement to this effect, the Distributor may be entitled to indemnification in the event of termination of the Distribution Agreement based on general law provisions by way of a damages claim against the Principal and subject to the latter’s liability being substantiated by evidence. A damages claim may be based on a breach of contract or tort.

Pursuant to settled case law, under contractual liability rules, a party will be liable for the loss caused to the other party, as this was provided under the contract or may have been reasonably foreseen at the time of conclusion of the contract. In order to be awarded damages, the party claiming indemnification by way of damages needs to prove: (1) the Contract; (2) a default under the contract (i.e. a lack of performance or a delayed performance) by the defaulting party; (3) the extent of the loss; and (4) the causation link between the loss/damages claimed and the party’s default.

Similarly, under tort liability, the party claiming indemnification by way of damages needs to prove: (1) the extent of the loss incurred; (2) the illicit act which generated the loss; (3) intention, negligence or gross negligence of the party; (4) the causation link between the loss/damages claimed and the party’s illicit act.

Under Romanian law, liability is limited to the prejudice caused by the defaulting party. As a rule, damages may be awarded to allow for the full recovery of the prejudice suffered by the entitled person and include: (1) recovery of effective loss incurred by the harmed party; (2) recovery of unrealised gains or loss of profit or loss of opportunity (i.e. benefits that the harmed person would have been able to obtain if the other party’s default would not have prevented it); (2) expenses incurred by the harmed party for avoiding or limiting the loss.

Other consequences of the Distribution Agreement's termination

Romanian law does not provide for a post-contractual non-compete clause. Both national and EU Competition law, as a general principle, considers a post-contractual non-compete clause as invalid and only allows for such under certain exceptional circumstances. If a post-contractual non-compete clause has been validly agreed (complying with EU and national Competition law), the Distributor may be entitled to a reasonable financial compensation, provided this has been agreed between the Principal and the Distributor in the Distribution Agreement. We note that the statutory provisions applicable to Commercial Agents and non-compete obligations provided in an Agency Agreement cannot automatically be applied by analogy to Distributors. Pursuant to Romanian competition law, post-term non-compete obligations are acceptable for a maximum term of one year and in limited circumstances (as provided in the EU regulation on vertical restraints). Post-term non-compete obligations exceeding one-year need to be assessed on a case by case basis to determine whether they may restrict competition on the relevant market.

Considering that Romanian law does not specifically regulate Distribution Agreements, the parties enjoy wide freedom to negotiate their contractual obligations for the purpose of their distribution relationship. We recommend that the parties negotiate and agree detailed contractual terms and conditions to be reflected in the Distribution Agreement in order to address all matters relevant for the distribution relationship, in order to avoid undesired consequences that will be judged by a court of law according to general statutory rules and commercial practice.

Any claim arising from a Distribution Agreement – including the indemnification claim – is subject to a three-year limitation period, starting at the end of the year during which the claim arose and the creditor (e.g. the Distributor) gained knowledge (or did not gain knowledge due to its gross negligence) of the debtor and the circumstances creating the obligation.

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Gabriel Sidere