Drd. Eugen Sârbu, attorney-at-Law
1. Current Crises and Their Direct Impact on Commercial Contracts
Businesses are currently operating in an economic environment characterised by heightened uncertainty, driven by the convergence of multiple geopolitical crises with direct repercussions on the marketplace.
On the one hand, the ongoing effects of the war in Ukraine continue to exert sustained pressure on operating costs, reflected in persistent inflation, volatility in the energy markets, and fluctuating prices of raw materials, including construction materials, steel and agricultural commodities.
On the other hand, escalating tensions in the Middle East and the Gulf region have significantly disrupted global supply chains. Maritime shipping routes have been reconfigured, resulting in a sharp increase in freight costs and substantial delays in delivery schedules.
For corporate management, the consequences are immediate and tangible: performing contracts under the terms and prices originally agreed has, in many cases, become commercially unsustainable.
The key question is no longer whether a contract will be affected, but rather how this contractual imbalance can be managed from a legal perspective in order to protect the company against unjustified losses.
2. The Legal Characterisation of Economic Disruptions
When the performance of a contract becomes financially burdensome or can no longer be completed within the agreed timeframe, the underlying commercial realities – such as price increases and delivery delays – must be translated into legally sound arguments.
A common mistake in business practice is to invoke the “global situation” as a generic justification for suspending deliveries or withholding payment. To benefit from legal protection, a company must correctly identify the legal nature of the issue.
From a legal standpoint, such difficulties generally fall within one of the following three categories:
- Force Majeure: where contractual performance has become objectively impossible.
- Hardship: where performance remains possible but has become excessively onerous.
- Wrongful Non-Performance (Contractual Breach): where the refusal to perform lacks a valid legal basis.
3. Invoking the Appropriate Legal Grounds
Sound business decisions require a clear understanding of these legal concepts and the manner in which they operate.
- Force Majeure
- Definition: Under Romanian law, force majeure is defined as an external, unforeseeable, absolutely invincible and unavoidable event. By its very nature, force majeure encompasses events such as natural disasters, armed conflicts, epidemics or other extraordinary occurrences beyond human control. Under international commercial law, Article 7.1.7 of the UNIDROIT Principles of International Commercial Contracts defines force majeure as an exemption from liability where non-performance is caused by an impediment beyond the obligor’s control that could not reasonably have been foreseen at the time of the conclusion of the contract, nor avoided or overcome.
- Conditions for Application: The event must render the performance of the contractual obligations objectively impossible, whether temporarily or permanently.
- Legal Effect: The affected party is relieved from contractual liability for its failure to perform.
- Practical Implications: A mere increase in transportation costs or delays in maritime shipping does not constitute force majeure. The goods may still be delivered, albeit through a more expensive alternative route; therefore, performance is not impossible. Force majeure may apply, for example, where the supplier’s manufacturing facility has been destroyed as a direct consequence of armed conflict.
- Hardship
- Definition: Hardship arises where exceptional and unforeseeable events occurring after the conclusion of the contract render performance excessively onerous for one of the parties, without making it impossible. Under international commercial practice, hardship exists where supervening events fundamentally alter the contractual equilibrium upon which the parties relied when entering into the agreement.
- Conditions for Application: Performance remains physically possible, but the cost of performance has become grossly disproportionate and manifestly unfair compared to the circumstances existing at the time the contract was executed.
- Legal Effect: Hardship may justify the adaptation of the contract through renegotiation of prices, deadlines or other contractual terms and, where renegotiation fails, may ultimately lead to termination of the contract.
- Practical Implications: Hardship is the appropriate legal mechanism for companies facing dramatic increases in supply chain costs or the effects of inflation on long-term fixed-price contracts, such as construction agreements or long-term supply contracts.
- Wrongful Non-Performance (Contractual Breach)
- Definition: Wrongful non-performance occurs where a debtor expressly or implicitly manifests its intention not to perform its contractual obligations without any legal or contractual justification for doing so.
- Conditions for Application: Neither force majeure nor hardship applies to excuse or justify the non-performance.
- Legal Effect: Where a party fails to perform its contractual obligations—for example, under an international sale of goods agreement—the other party may pursue the contractual and legal remedies available under the applicable law in order to restore the contractual balance.
- Practical Implications: A company that simply suspends contractual performance by generally invoking ”the crisis”, without complying with contractual notice requirements and without substantiating a valid force majeure or hardship claim, exposes itself to liability for breach of contract. The immediate consequences may include claims for damages, enforcement of contractual guarantees, and other contractual remedies.
4. The Importance of Early Specialist Legal Assistance
To prevent commercial difficulties from developing into costly and unsuccessful disputes, legal counsel should be engaged proactively rather than reactively.
- Early Intervention: Commercial contracts – particularly international agreements, FIDIC-based contracts, contracts governed by Government Decision No. 1/2018, and public procurement contracts – typically contain strict notice procedures and short contractual limitation periods, sometimes requiring notification within only a few days. Specialist legal advisers ensure that such notices are prepared accurately and served within the prescribed deadlines, properly documenting the hardship event and creating the legal framework for meaningful renegotiations. Failure to comply with these procedural requirements may permanently deprive a party of its right to seek price adjustments or extensions of time.
- Building the Right Litigation Strategy: Where negotiations fail and the dispute proceeds before a court or an arbitral tribunal, the legal characterisation of the underlying facts becomes critical. Misclassifying the situation – for example, relying on force majeure when the circumstances clearly constitute hardship – may significantly weaken a company’s legal position. Specialised representation in commercial litigation and international arbitration ensures that the economic realities affecting the business are translated into legally persuasive arguments and procedural strategies, thereby maximising the prospects of a favourable outcome.
Sarbu Partners provides legal advice and representation to domestic and international companies in accordance with the highest professional standards, offering pragmatic solutions for contractual risk management, complex commercial disputes and international arbitration.
If your business is facing contractual disruptions or performance challenges, our team is ready to assist you in identifying the most effective legal solutions tailored to your specific circumstances.