The competent court in cross border disputes: home advantage or an away game?

3 min.

Conducting business internationally is a matter-of-course for many entrepreneurs. But what to do if a dispute arises with a foreign business partner and it concerns a breach of contract? Can this dispute be brought before the Dutch Court or do legal proceedings need to take place in the opposing party’s country? The answer to this question may be the deciding factor when making up one’s mind whether starting up legal proceedings against a foreign opposing party would be worthwhile from an economic point of view.

To determine which Court is competent, it is necessary to first investigate whether the parties have made an agreement regarding the resolution of any potential disputes. This is called a jurisdiction clause.

Jurisdiction clause

A jurisdiction clause is a contractual stipulation indicating how the settlement of a dispute needs to take place. This clause states the type and location of the competent Court. Agreeing to such a choice of forum may be advisable to those who are party to an international business relationship, but this is often not feasible. After all, who would voluntarily agree to a Court in Nowheresville?

Therefore, such clauses are often “hidden” in the general conditions of the offer, order forms, order confirmations, or invoices. In practice, however, this has the opposite effect. Because then, prior to the main proceedings, proceedings have to be conducted regarding the applicability of the general conditions. Establishing the applicability of the general conditions and its provisions on jurisdiction is fairly complicated when dealing with international commercial relations.

Only if there is a clear, unambiguous, and allowable agreement in writing regarding the competent Court, both parties can go directly to the designated Court. A dispute regarding jurisdiction is then no longer necessary.

No (valid) jurisdiction clause

If the parties have not entered into an agreement concerning which Court has jurisdiction, jurisdiction has to be established based on national and international regulations.

With regard to commercial agreements concerning the rendering of services or the sale of moveable goods in Europe, the competent court is designated by Council Regulation (EC) No 44/2001, also called the “Brussels I” regulation. In accordance with this regulation, proceedings need to take place at the location where the characteristic performance should have been carried out. But where exactly is that, when you are dealing with a situation in which a German supermarket chain has ordered vegetables from a Dutch vegetable producer?

Agreement to designate the location of the characteristic performance.

The location of the characteristic performance of an agreement will initially be determined by what the parties have agreed upon.

As far as that, express stipulations regarding the location of the characteristic performance do not lead to any problems. If the location of the characteristic performance is not clearly established, this may also be determined by means of the usual terms of trade, such as Incoterms (International Commercial Terms). Sometimes, this happens without the parties even being aware of this. The so-called term of collection “EXW” (Ex Works) indicates, for example, that the place of the characteristic performance – and thus the competent Court — is at the (factory of the) seller. Conversely, the term “DDP” (Delivered Duty Paid) usually means that the location of the characteristic performance is the (delivery) address of the buyer.

No implementation agreement

If the parties did not agree upon a location for the characteristic performance, then this location depends on the nature of the characteristic obligation. In the “Brussels I” area of applicability, the location of the performance of commercial sales agreements is autonomously defined as the location where the moveable goods were delivered or should have been delivered in accordance with the agreement. The determining factor, therefore, is the agreed upon location of the physical transfer of the goods.

If, in our example, the Dutch vegetable producer had to deliver in Germany, and the German buyer subsequently refuses the goods or payment, then a German Court will be competent to settle this dispute.

So, if an exporting Dutch company wants to avail itself of the home advantage of a Dutch Court when it comes to international legal disputes, it will need good contractual agreements. Otherwise, as a rule, it will be an away game at the Court of the buyer.

Our attorneys would be glad to assist you in recovering your international claims. We would also be pleased to help you draft and revise your (international) sales and delivery conditions.