Legal implications of Emergency Ordinance 29/21.03.2020 on contracts concluded by small and medium-sized enterprises

By Emergency Ordinance number 29/21.03.2020, the Government establishes a series of economic and fiscal budgetary measures to be applied as a priority during the state of emergency.

The Decree of the President of Romania no. 195/16.03.2020, which declared a state of emergency, required the adoption of two general measures for the period of the state of emergency, thus establishing guidelines for their adoption:

• First, emergency measures with direct and immediate applicability.
• First emergency measures with gradual implementation.

By Ordinance no. 29/21.03.2020, the Government establishes management for some categories of legal entities affected by the economic crisis. In the situation presented, a series of policies are imposed to support small and medium-sized institutions in terms of services that are a condition for maintaining economic activity.

The Government has decided that business activity will be supported by providing liquidity to small and medium-sized enterprises to continue the services supporting economic activity. An important perspective that the Government is imposing through this emergency ordinance is the approach to the execution of contracts to which small and medium-sized enterprises are a party.

“Art. X – (1) During the state of emergency, small and medium-sized enterprises, as defined by Law 346/2004 on stimulating the development and
small and medium-sized enterprises, as subsequently amended and supplemented, which have suspended all or part of their activities based on decisions issued by the public authorities
competent, according to the law, during the period of the state of emergency decreed and who hold the certificate of emergency issued by the Ministry of Economy, Energy, and Business Environment benefit from deferred payment for utilities – electricity, natural gas, water, telephone, and internet services, as well as deferred payment of rent for the building used as a registered office or secondary offices.

                (2) By way of derogation from other legal provisions in ongoing contracts, other than those referred to in paragraph 1, the following shall apply. (1) concluded by small or medium-sized enterprises referred to in paragraph 1. (1) force majeure may be invoked against them only after an attempt, evidenced by documents communicated between the parties by any means, including electronic means, to renegotiate the contract to adapt its terms to take account of the exceptional conditions created by the state of emergency.

                (3) It shall be presumed to constitute force majeure within this Emergency Ordinance,
the unforeseeable, absolutely unbeatable, and unavoidable circumstances referred to in Article 1.351 para. (2) of the Civil Code, resulting from an action by the authorities in applying the measures required to prevent and combat the pandemic caused by infection with the COVID-19 coronavirus, which has affected the activity of the small and medium-sized enterprises, as attested by the emergency certificate. The presumption may be rebutted by the party concerned by any means of evidence. The unforeseeable nature relates to the time when the affected legal relationship arose. The measures taken by the authorities in accordance with the legislative act establishing the state of emergency shall not be unforeseeable.”

Given the legal provisions governing this situation, the following considerations and conditions should be specified to invoke force majeure in a contract to which a small or medium-sized enterprise is a party:

Force majeure is governed by Article 1351(2) of the Civil Code, which is the legal basis defining how force majeure produces its effects in the common law. Emergency Ordinance No 29/21.03.2020 is a special rule that complements the application of the general rule in the extraordinary situation generated by the economic crisis caused by the spread of the COVID-19 virus at the national and European levels.

Thus, the special rule defines force majeure as an unforeseeable, unavoidable, and invincible circumstance resulting from an action by the authorities in the application of the measures required to prevent and combat the pandemic caused by the COVID-19 virus. The definition of force majeure by the special rule has priority over the ordinary law in situations in which the indicated companies find themselves due to the problem caused by the spread of the virus.

This emergency ordinance establishes two cases in which a small or medium-sized enterprise may invoke force majeure:

• Utility contracts, including rent

An undertaking may invoke force majeure in contracts concluded for the provision of utilities or services used in the ordinary course of business. The contracts concerned are those for telephone, internet, electricity, or natural gas.

In order to invoke force majeure, the company requesting the deferral of payment must have interrupted all or part of its activity by decision of a public authority during the state of emergency and must have obtained an emergency certificate issued by the Ministry of Economy, Energy, and Business Environment.

• Ongoing contracts

The invocation of force majeure can also be made in contracts other than utility contracts. Thus, a company whose activity has been interrupted in whole or in part by the decision of a public authority during a state of emergency may invoke force majeure in an ongoing contract, provided that before the invocation, it has attempted to renegotiate to adapt the contract. As provided for in the emergency ordinance, the attempt to renegotiate the contract may be proved by written documents communicated between the parties by any means, including electronic means.

Therefore, the economic crisis situation caused by the spread of the COVID-19 virus is felt on all levels of the business environment, so the Romanian Government is faced with the establishment of concrete fiscal and legislative policies that can maintain a balance of this environment. In this context, even if these measures were necessary and particularly important, we are waiting for the next series of directives to be adopted, given the need to constantly adapt to the dynamics of changes in the business environment in the current context.