See you in court! Litigation levels leap up

Newsroom 04/04/2011 | 14:43

The sky-rocketing amount of litigation in which Romanian law firms were involved last year boosted their bottom line, with this area accounting for up to 40 percent of firms’ total turnover. Feeding the appetite for disputes were ordinance no 50/2010 on credit agreements and the revision of pension regulations, which made the front pages on various occasions last year.

Dana Verdes


“The litigation department had the greatest weight in the firm’s turnover, of about 38 percent, as it handled over 1,100 cases last year. The law firm registered a turnover of EUR 13.6 million in 2010,” Radu Damaschin, partner in the litigation department of NNDKP, told Business Review.

The recession combined with the unclear legislation put forward by the authorities boosted the number of law suits settled in court. Companies’ figures support the hypothesis. Aurora Damcali, managing partner at Leaua &Asociatii, told BR that last year the number of disputes on which the firm worked – mostly from the commercial, construction and employment areas – increased by approximately 50 percent from the previous year.

Christina Vladescu, associate lawyer at Tuca Zbarcea & Asociatii, told BR that in 2009, Tuca Zbarcea & Asociatii saw growth in number of litigation cases of some 70 percent compared to 2008.

“This growth continued in 2010, when the practice group at Tuca Zbarcea & Asociatii handled over 1,300 litigation cases in all fields, primarily dealing with matters such as tax litigation, labor disputes, debt recovery procedures and insolvency,” said Vladescu.

Meanwhile, Musat & Asociatii officials also say that the number of litigation cases has hiked recently. “In the last two years, our workload in dispute resolution files has seen an increase of 20 percent, mainly consisting of bankruptcy, criminal law, enforcements, employment litigation and insurance disputes. On the other hand, fields such as administrative litigation have stayed at the same level, while other segments have seen a decrease, such as land restitution court cases,” Gheorghe Buta, partner with Musat & Asociatii and head of the litigation & arbitration department, told Business Review.

He added: “Overall, there is a clear positive trend on this market which will also continue in 2011.” Other law firms agree.

According to Vladescu, “Strictly referring to the value of claims in the litigation and arbitration cases that are currently handled by our team’s lawyers, it exceeds EUR 500 million.”

 

Law changes spur litigation growth

One of the recent legislative amendments that have generated an increase in the litigation field is the enactment of the ordinance no 50/2010 regarding credit agreements, which has led to a series of law suits between banks and their clients, Buta said.

The NNDKP official added that another piece of legislation that has prompted large scale litigation is property restitution laws. And government decision no. 735/2010 on the recalculation of pensions in accordance with the law on state military and police pensions, plus those of prison workers, has also expanded litigation, added the Tuca Zbarcea & Asociatii associate lawyer.

“The government emergency ordinance no. 1/2011 concerning pensions for defense, law enforcement and national security workers has triggered a substantial number of court cases seeking annulment of the decisions to recalculate pensions. Last but not least law no. 118/2010 on measures to restore the budgetary balance has increased the amount of litigation in the past year,” added Vladescu.

Peggy Suica-Neagu, partner and coordinator of the litigation department at White & Case, summed up, “Often legislative changes generally create litigation, since certain rights and/or obligations/liabilities born under former legal provisions continue their existence/execution/effects under the new, modified legal provisions.”

 

The curious cases of Romanian law firms

The range of case files handled by Romanian law firms go from arbitration and bankruptcy to public procurement and fiscal disputes together with common practice in commercial litigation and real estate.

Musat & Asociatii is currently involved in more than 600 commercial, civil, criminal and administrative cases, at different judicial stages, with a total value amounting to EUR 3 billion. “Last year Musat & Asociatii was involved in high-profile litigation, such as representing Rompetrol in a major dispute against the Romanian state, in the context of the upcoming repayment by Rompetrol of a historical debt of EUR 570 million. The Rompetrol mandate is one of the most complex disputes in which we have assisted, considering its value and the parties involved,” said Buta.

He added that Musat & Asociatii is representing one of the biggest pharma producers in the insolvency proceeding initiated against a Romanian distributor of pharmaceutical products, to recover commercial debts amounting EUR 83 million.

Aurora Damcali, managing partner at Leaua & Asociatii, told Business Review that her law firm had obtained an unusual solution from the Romanian courts for the first time, concerning the possibility of repealing legal judgment decisions that are the result of a simulated trial.

“In traditional practice, the ‘simulation’ of a legal situation was considered to be specific to contracts. However when the parties attempt to avoid a contract, hiding it under the semblance of a trial, with the very aim of involving a court of law to make the transaction look like a trial, it is still simulation,” said Damcali.

She expanded: “For example, when the parties, instead of concluding a sale-purchase deed, which cannot be concluded because the estate is in dispute with another person who demands the property, make only a promise, and subsequently ask the court to rule in lieu of a sale-purchase deed. In court, the defendant does not defend him or herself, but actually hopes to have the sale approved, in order to be rid of the dispute it had concerning the estate.”

Leaua & Asociatii successfully argued before the High Court of Cassation and Justice that a claim declaring the fictitious trial null and void is admissible, and the court threw out the agreement between the parties as it had been hidden under the semblance of a legal judgment decision.

Lawsuits of vast proportions resulting from differing points of view on the application and interpretation of legislation concerning consumer loan protection are, of course, one particularly interesting project, said the NNDKP representative.

“The origins of these disputes can be traced back to complex matters such as legal inconsistency, the effects of the economic crisis, the relevant public authorities’ overzealousness and borrowers being misguided in unreasonable hopes,” said Damaschin.

 

Insolvency for some, solvency for others

Due to the economic climate, the cases of insolvency, bankruptcy and legal restructuring have become significantly more frequent, reaching 20-25 percent of Musat & Asociatii’s litigation portfolio. And specialists say there is more than meets the eye to bankruptcy.

“Bankruptcy proceedings are less of a judicial dispute and more of a collective proceeding in which the creditors’ goal is to maximize the recovery of their claims against the debtor. It is not uncommon that one ends up involved in a bankruptcy without necessarily having intended to trigger such proceedings,” said Damian. From this broader perspective, insolvency cases account for 25 percent of NNDKP’s litigation practice.

Also, lawyers say that there are two ways to initiate insolvency proceedings. Creditors may demand the commencement of this procedure when their debtors cannot pay. And debtors can apply voluntarily for insolvency if they cannot make their repayments.

“The second way was not very common until two-three years ago. I noticed that the benefits conferred by the law on insolvency, within the procedure of reorganization, made companies take this opportunity more often. The main advantages are the freeze in penalties on the date when the procedure begins, which means that once insolvency is declared by the courts, penalties are no longer based on the outstanding payable amounts and the option to pay debts in installments, according to a reorganization plan, is more viable,” said Damcali. The share of the insolvency cases taken on by Leaua & Associates is up to 10 percent of its entire handled disputes. The law firm reported a turnover of EUR 5.3 million last year.

 

Snags for litigators

The White & Case official says that some of the main issues lawyers are confronted with in litigation include “the lack of judicial infrastructure resulting in long delays granted by the courts until the first hearing, as well as delays between the hearings, the lack of unified practice in similar/connected issues of law or abundant and instable pieces of applicable legislation.”

Moreover, judges are being flooded with an overwhelming number of cases which presents another difficulty for litigators, the NNDKP representative said. “As law no. 202/2010 on the acceleration of judicial proceedings has only solved a limited proportion of the issues, there are still courts that have to deal with more than 100 cases per session. In this environment, hearings tend to become a mere formality in the process,” said Damaschin.

The Musat & Asociatii representative also bemoaned the unpredictability and instability of the legal framework. “This combined with the Constitutional Court’s decision to invalidate some of the legislative solutions proposed by Law no 221/2009 on the compensation for political convictions it is a clear example in this respect,” said Buta.

He added that lawyers have restricted access to court files, even though the IT system which registers all the files, official documents and information related to the case in the courts, prosecutor offices and Ministry of Justice (ECRIS) should allow them to study the files at home or in the office.

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