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Where will the dispute arising from the contract concluded with a foreign contractor take place?

While concluding a contract with a foreign business partner, we rarely think about a dispute that may arise. Trading practice also shows that entrepreneurs repeatedly rely on the arrangements for their cooperation exchanged by e-mail, omitting the need to formalize them by concluding a written contract. They assume that they have agreed on the most important issues and there is nothing left but to start cooperation.

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?

What is jurisdiction?

Jurisdiction of a court is the general competence of courts to hear and decide specific cases. Therefore, this concept will answer the question: Where will the dispute with the foreign contractor take place?

How to establish jurisdiction?

Jurisdiction in B2B contracts concluded in the international trade is undoubtedly an element that is worth specifying while establishing cooperation with a foreign that has a stronger negotiating position.

The source of jurisdictional arrangements may be an agreement between the parties or, in case of its absence,  the provisions of relevant legal acts.

What are these regulations?

In relations between the Member States of the European Union, particular attention should be paid to the provisions of Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12th December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (so-called “Brussels I bis“). If the counterparty has its place of residence or registered office in a country which is not a member of the European Union, it may be necessary to refer to international agreements regulating relations with a given country. The provisions of the Code of Civil Procedure of particular country may also be used to determine jurisdiction, but we apply them only when the issue of jurisdiction is not determined on the basis of legal acts of higher rank, i.e. EU regulations or ratified international agreements.

Jurisdiction agreement and the purpose of its conclusion

The parties may independently determine the jurisdiction in the so-called jurisdiction agreement. This agreement may take the form of a separate document or constitute only one of the provisions of the relevant agreement.

The purpose of the jurisdiction agreement is to ensure that in case of a potential court dispute, this case will be heard by the court of a specific country. Conclusion of a jurisdiction agreement is not obligatory or absolutely required, and the decision is left to the parties. Failure to conclude a jurisdiction agreement will result in the need to determine the court competent to hear the case, based on the provisions of applicable law. The fact that the parties do not conclude an appropriate jurisdiction agreement does not mean that it is impossible to determine which court will be competent to hear a potential dispute.

Is it always possible to conclude a jurisdiction agreement?

The answer to this question is – no.

The Brussels I bis Regulation contains various types of jurisdiction provisions, and some of them prohibit the jurisdiction agreement from violating the applicable rules. Therefore, it is advisable to have a clear understanding of these regulations before entering into a jurisdiction agreement.

On the basis of the provisions of the Brussels I bis Regulation, we distinguish the following types of jurisdiction:

  • general jurisdiction,
  • special jurisdictions,
  • exclusive jurisdiction,
  • jurisdiction over individual employment contracts,
  • jurisdiction in insurance matters,
  • jurisdiction in consumer matters,
  • contractual jurisdiction and jurisdiction related to entering a dispute by the defendant.

General and special Jurisdiction

General jurisdiction refers to the authority of the courts of a Member State to adjudicate any legal disputes involving a defendant who is domiciled within its territory. This jurisdiction is applied when no other basis for jurisdiction exists. In other words, this rule follows the principle of “following the defendant.”

The Brussels I bis Regulation allows the claimant to choose between general and special jurisdiction in certain cases. Special jurisdiction is often applicable in contractual matters, and allows a defendant to be sued in the courts for the place of performance, even if they are domiciled in a different Member State. For instance, in the case of contracts for the sale of movable goods, the place of performance will be the Member State where the goods were or should have been delivered according to the contract.

Exclusive jurisdiction

Exclusive jurisdiction means that only the courts of a particular state have the authority to hear and decide on certain matters. Under the Brussels I bis Regulation, some matters fall under exclusive jurisdiction, including cases related to the validity, invalidity, or dissolution of a company or legal entity, as well as cases related to real estate rights and rental or lease of real estate.

For insurance matters, consumer matters, and individual employment contracts, the ability to establish a jurisdiction agreement may be limited due to the directive aimed at protecting the weaker party in a legal relation. It means that the parties may not be able to freely choose the court or jurisdiction that will hear and decide on any disputes that may arise.

The aim of concluding a jurisdiction agreement

In other cases, the parties are free to conclude a jurisdiction agreement, and its conclusion makes it possible to avoid doubts related to seeking an answer to the question before which court a potential dispute will be pending.

Contractual provisions regarding the jurisdiction of the court are undoubtedly one of the most important points to be agreed when concluding a contract with a foreign contractor. The negotiation power of the parties that are involved will impact the possibility of securing a favorable jurisdictional agreement. If the contract does not include any provisions regarding the jurisdiction of the court, it is important for the entrepreneur to be aware of the competent court under the applicable law in case of a dispute.

Joanna Lubecka
attorney

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