Cooperation with foreign trade partners is currently the basis for many companies and individual entities. Entrepreneurs sell their products abroad, but also purchase and distribute foreign goods on European markets. The conducted cooperation often also concerns the provision of services.
The basis for cooperation with foreign entrepreneurs are various types of contracts. Sometimes they take the form of complex and multi-page contracts, the provisions of which are negotiated for months. Other times, the contract is concluded on the basis of an order document that is accepted by the other party. The common commercial practice is to communicate only in electronic form, through the exchange of e-mails. It should be remembered that in this case a contract is also concluded in the form of a commercial custom adopted by the parties.
While running a business in the international trade, it is worth answering the following questions:
The answers to the above questions are governed by the provisions of contracts concluded between business partners and the provisions of law regarding the jurisdiction of the court. These issues are usually settled in the final part of the contract. Despite placing them at the end of the agreementt, it is worth starting with them, as they may determine the interpretation of all other contractual provisions.
Why should we, in practice, pay particular attention to matters relating to court jurisdiction and applicable law? Because these regulations may determine where we will be forced to conduct a possible dispute with a foreign trading partner. If it is the country of a foreign contractor, we may be forced to come into contact with the provisions of a completely foreign legal system. The costs of handling this type of dispute will also increase significantly. Practice shows that many entrepreneurs faced with the need to conduct a dispute with a foreign business partner before the court of another country decide to settle it amicably, often at the cost of their own interest.
For this reason, it is worth paying attention to the regulations regarding the jurisdiction of the court and applicable law, making a conscious decision on the basis of cooperation in the international area.
3.1. Meaning
Jurisdiction of the courts is the general competence of the courts, or other authorities of a given state, to hear and resolve specific cases or to carry out other activities in civil proceedings. Therefore, it specifies where a potential dispute with a contractor from another country will take place, i.e. in Poland or abroad.
3.2. Legal regulation
In relations between the Member States of the European Union, the legal act regulating issues related to the jurisdiction of court is Regulation (EU) No. 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters. This is the so-called Brussels I bis Regulation.
While dealing with countries that are not part of the European Union, various factors such as international agreements, conventions, national laws, and specific contractual provisions must be considered. Additionally, the Incoterms rules, which are globally recognized commercial terms established by the International Chamber of Commerce (ICC), may also have an impact on determining the jurisdiction of a court in such cases.
3.3. Types of jurisdiction
On the basis of the Brussels I bis Regulation, i.e. the legal act regulating the issue of jurisdiction in relations between the Member States of the European Union, we distinguish several types of jurisdiction.
General Rule of Jurisdiction, which may apply in any case, indicates the possibility of suing a foreign contractor in the court of his place of residence. In the case of companies and legal persons, the place of residence should, as a rule, be understood as their registered office. However, it can be safely stated that an entrepreneur will rather try to avoid the need to conduct a dispute before a foreign court. Therefore, another solution is often looked for on the basis of the remaining rules of jurisdiction. However, it will not always be possible. As an example, in cases falling within the scope of exclusive jurisdiction, it is possible to handle a dispute only before a specific court of a given country, determined on the basis of the rules contained in the Brussels I bis Regulation. We will deal with exclusive jurisdiction, for example, in cases involving rights in rem on real estate.
Another type of jurisdiction regulated by the provisions of the regulation is jurisdiction in matters relating to insurance contracts, consumer contracts and individual employment contracts. Frequently, in national regulations, the “weaker party” involved in a legal relation – such as the insured, policyholder, beneficiary, consumer, or employee – may be afforded special protections in such cases. What is the enhanced protection? These entities have more freedom to decide where they will sue their counterparty, while the counterparty can only sue them in their state of residence. Deviations from this rule are subject to strict rigors.
Finally, there is the so-called a special jurisdiction that may be used but is not required to do so. In practice, special jurisdiction regulations are often used as a means of avoiding the inconvenience of litigating before a foreign court. We will deal with special jurisdiction, e.g. in matters relating to contracts. Article 7 of the Brussels I Regulation stipulates that in matters related to a contract, a person domiciled in a Member State may be sued in the courts of another Member State where the obligation in question was performed. The regulation specifies that the place of performance of the obligation is to be determined based on the agreement between the parties or, in the absence of such an agreement, by the applicable law:
The regulation distinguishes two types of contracts, i.e.: a contract for the sale of goods and a contract for the provision of services. It is important to remember that these terms do not have the meaning to which Polish entrepreneurs are accustomed under the provisions of Polish national law. They are subject to the so-called autonomous interpretation, which means that they have their own meaning – detached from national legal orders. The entity which makes such an interpretation is the Court of Justice of the European Union. The practical meaning of the autonomous interpretation agrees with the fact that all participants in EU trade understand a given concept in the same way. And not differently in Poland, differently in France, and still differently in Spain.
3.4. Jurisdiction Agreement
It is worth pointing out that all doubts related to determining and analyzing before which court a dispute with a foreign contractor will be pending can be avoided in a very simple way, namely by concluding a jurisdiction agreement. This jurisdiction will be exclusive unless otherwise agreed by the parties.
This agreement may be concluded:
Of course, whether it will be possible to conclude a favorable jurisdictional agreement in a particular case will depend on the negotiating power of the entrepreneur.
3.5. Practical examples
EXAMPLE 1
The Polish company XYZ. manufactures and sells goods in the form of furniture for a German entrepreneur. The parties did not conclude a jurisdiction agreement, but agreed that the agreement would be performed upon delivery of the goods to the registered office of the German entrepreneur in Berlin. The goods were delivered in accordance with the contract, but the Polish company XYZ didn’t receive the payment. Calls for payment addressed to the German entrepreneur and attempts to settle the matter amicably did not lead to any results. The company XYZ. is determined to take legal action for payment. Where will the dispute take place? In Poland or in Germany?
The answer: In Germany. It is indicated by both the general rule of jurisdiction and the provisions governing special jurisdiction in matters relating to contracts (the place where the goods were delivered).
EXAMPLE 2
The Polish company XYZ manufactures and sells goods in the form of furniture for a German entrepreneur. Prior to the commencement of cooperation, the parties concluded a jurisdiction agreement, granting Polish courts the jurisdiction to hear any disputes that may arise from the concluded agreement. The parties also agreed that the contract will be performed upon delivery of the goods to the registered office of the German entrepreneur in Berlin. The goods were delivered in accordance with the contract, but the Polish company XYZ didn’t receive the payment. Calls for payment addressed to the German entrepreneur and attempts to settle the matter amicably did not bring any results. The company XYZ is determined to take legal action for payment. Where will the dispute take place? In Poland or in Germany?
The answer: In this case, the dispute will be pending before a Polish court. The company XYZ ensured proper protection of its interests and concluded a jurisdiction agreement.
EXAMPLE 3
The Polish company XYZ manufactures and sells goods in the form of furniture for a German entrepreneur. The parties did not conclude a jurisdiction agreement, but they agreed that the delivery would be fulfilled after handing over the manufactured goods to the carrier at the registered office of the Polish company located in Wrocław. This arrangement was additionally confirmed by the Incoterms rule adopted by the parties. The goods were delivered in accordance with the contract, but the Polish company XYZ did not receive the payment. Calls for payment addressed to the German entrepreneur and attempts to settle the matter amicably did not bring any results. The company XYZ is determined to take legal action for payment. Where will the dispute take place? In Poland or in Germany?
The answer: The Polish company has the option to initiate legal proceedings in Poland due to a specific jurisdictional rule concerning contract matters. This rule permits legal action to be taken in the location where the goods were delivered, which, in this scenario, is in Poland.
While establishing cooperation with a foreign business partner, it should be remembered that the international trade is governed by slightly different laws than domestic trade. It is worth securing your interest in case of a possible future dispute – even if it never happens. The conclusion of a jurisdiction agreement allows you to avoid any doubts as to where the dispute arising from a specific contractual relation will take place.
Joanna Lubecka
adwokat
However, when there is a dispute in the court, the basic practical difficulty leads to answering the question - where will such a dispute take place. In the contractor country or abroad? Can it be secured somehow?
One of the most important points that needs to be clarified in a B2B contract concluded with a foreign contractor are the terms of payment of the agreed remuneration. Payment after delivery of the subject of the contract or prepayment? And if so, what should be its amount? Which solution to choose? Read below.
Regardless of the form in which the agreement with a foreign partner is concluded, it is important that the parties agree on the most crucial elements of the contract. Incorporating these clauses will enable the parties to execute the contract in a transparent manner, without any ambiguity or uncertainties.
When force majeure events occur in international trade contracts, significant problems may arise in the process of its performance. However, including appropriate clauses in the contract that address such issues can help to manage the situation in a controlled and orderly manner.
As it is for the pandemic the world is slowly returning to normality, and there is much less talking about coronavirus cases, many entrepreneurs still feel the severe effects caused by the pandemic, including: disruptions in supply chains, lack of availability of materials or lack of components.
Case study. Check what Adam forgot when negotiating a contract with a foreign contractor
Although the indicated issues should be clearly regulated in each contract on the basis of which the guarantee is granted, in the case of foreign deliveries they are particularly important.
Below you will find some useful information on how to negotiate contracts concluded with a foreign business partner.
The purpose of the NDA is to secure the confidential nature of information that is provided to the other party in connection with the commencement of negotiations, determining the terms of possible cooperation between the parties, the concluded contract, cooperation or employment.
The standard practice is to start reading each document from the beginning. In the case of B2B contracts concluded with a foreign contractor, it is worth reversing this order.