The Costaș, Negru & Associates team has recently obtained a favourable decision in a case which tackled the contractual liability of an accounting services provider. The case has reached the final phase of the extraordinary appeal before the High Court of Cassation and Justice, the extraordinary appeal having been rendered void by the High Court.
Essentially, the claimant, a company which conducts transportation activities and whose activity is coordinated by a Danish director, has concluded a contract for the provision of accounting services with the defendant. The latter is specialised in accounting and taxation. The contract has been written both in Romanian and in English, given the foreign nationality of the claimant.
The purpose of this contract was to delegate the accounting to the defendant and to offer assistance and consultancy in taxation regarding any aspect, including potential procedures which could be classified as optional by the Romanian Tax Code, such as the VAT reimbursement procedure. Furthermore, by virtue of the contract, the service provider has agreed to file tax records, however the contract does not define the notion of ‚tax records’. As a result, given the consideration for concluding the contract from the claimant’s perspective, these tax records included any other claims or forms regulated by the Tax Code, which could bring a benefit to them.
For the tax year 2019, at the express request of the former director of the claimant, the defendent has initiated the VAT reimbursement procedure for the VAT paid in other Member States of the European Union, which has been successful. However, for the tax year 2020, the defendent has not initiated it and has not inquired the claimant in regard to this procedure, which has caused a loss for the claimant amounting up to 600.000 lei, representing VAT which they could have obtained following the reimbursement. In this context, given the agremeent between the parties and the consideration of the contract, the claimaint has sued the defendant for contractual liability. The main argument is that the defendant had the obligation to initiate this procedure, by virtue of their expertise in the domain, which was taken into account when the claimant concluded the contract and helped to form their consideration.
In our client’s defense, we have argued that what is essential to determine the defendant’s obligations is the interpretation of the contract considering its express clauses, but also the parties’ conduct after the contract was concluded. Both the clauses in the contract and the defendant’s decision to initiate the reimbursement procedure for 2019 confirm that they have agreed to at least inform the claimant regarding this procedure.
The first instance has rejected the claim, on the ground that the VAT reimbursement claim does not constituie a ‚tax return’ by virtue of article 110 of the Tax Procedure Code, namely the returns which the taxpayer has to file for the calculation of income tax. In this case, the court has interpreted the contract in an excessively formalistic manner by only pertaining to the express clauses of the contract. In other words, the court has not interpreted the contract in light of its cause, but only by virtue of its form, without taking each party’s consideration into account.
We have then filed an appeal against this decision and have brought forward additional arguments in favour of our client’s position. On one hand, the clauses of the contract both in Romanian and in English confirm the fact that, from the claimant’s point of view, the cause (or the purpose) of the contract was to fully delegate the accounting tasks. The service provider has agreed to file any tax report necessary for the claimant to comply with the relevant tax provisions and to assisst and consult the claimant in any tax matters. On the other hand, in the English version of the contract, which was relevant for the interpretation of the contract on behalf of the claimant, the notion ‚tax returns’ was actually transposed as ‚tax reports’, not ‚tax returns’, as the first notion includes any requests, files or claims regulated by the relevant tax provisions and not the claims or filings which the taxpayer has to compulsorily file.
Furthermore, by providing the same services for the tax year 2019, for which the defendant has requested a price, they have agreed to at least inform the defendant about the possibility of initiating the VAT reimbursement procedure in the other Member States. The performance of this obligation was essential, especially since the claimant had nominated a new director in the meantime and the new director did not possess any experience or knowledge in the financial or taxation field.
The Cluj Court of Appeal has admitted the claimant’s appeal and, after rejudging the case, has admitted the initial claim. The court has validated all the arguments we have brought forward in favour of the client, which highlighted the proper way of interpreting the contract. The court has held that from the perspective of the claimant, the consideration for the contract was to delegate all the tasks relating to the accounting of the company, given that the claimant did not have any experience or technical knowledge in this domain and the company was managed by a foreign citizen, who was not aware or knowledgeable regarding the local tax regulations. In this context, the court has analysed the real will of the parties, especially the claimant’s and the defendant’s behaviour and has confirmed that the defendant had to at least inform the claimant in regard to the VAT reimbursement procedure in the other Member States for the tax year 2020 and to request all the documents necessary for initiating this procedure. Therefore, the court has held the defendant liable and obliged them to pay a sum equivalent to the VAT which the claimant was entitled to receive, which amounted up to 600.000 lei. Additionally, the defendant was obliged to pay the related interest.
The defendant has filed an extraordinary appeal against a solution, on the basis of Art. 488(1) point 6 and point 8 of the Civil Procedure Code, for two distinct reasons: the decision allegedly contained contradictory statements and reasonings and the Court of Appeal has breached the Civil Code provisions applicable to the interpretation of contracts in its judgement. Essentially, they have argued that the appellate court has injustly established an additional obligation for the defendant, despite the mai none being the obligation to file all the compulsory tax returns. Thus, the court has improperly applied the principles regarding contract interpretation from the Civil code. Furthermore, the reimbursement procedure was not compulsory, it was optional for the taxpayer, therefore the claimant had the duty to inform the defendant about their intention to obtain the reimbursements of the VAT paid in other Member States and to provide the supporting documents for the procedure.
In the claimant’s defence, we have argued the appeal is void, since the defendant’s arguments tackled the way the appellate court has assessed the facts of the case and the evidence, which is not permitted in this phase. The extraordinary appeal involves the analysis of the decision only through the leans of legality. The High Court of Cassation and Justice has validated our arguments and rendered the extraordinary appeal as void. Thus, the decision of the Cluj Court of Appeal has been maintained and the claimant has obtained a final victory in this cause.
We applaud both the Cluj Court of Appeal’s interpretation of the contract and the High Court of Cassation and Justice’s solution. On one hand, the appellate court has demonstrated that they have understood and properly applied the principles for the interpretation of contracts enshrined in the Civil Code, namely the real will of the parties principle and the prevalance of substance over form. On the other hand, the extraordinary appeal court cannot reassess the interpretation of the contract in this context, since it would imply the court has to analyse all the facts of the case and the evidence.
This article was prepared for the blog of the law firm Costaș, Negru & Asociații by lwy. Mihuță Miruna, from the Arad Bar Association.
Costaș, Negru & Asociații is a law firm with offices in Cluj-Napoca, Bucharest and Arad, which provides assistance, legal representation and advice in several practice areas through a team of 16 lawyers and consultants. Details of the legal services and the composition of the team can be found at https://www.costas-negru.ro. All rights for materials published on the company’s website and via social media belong to Costaș, Negru & Asociații, reproduction is permitted for information purposes only and with full and correct citation of the source.
