Before you can start legal proceedings against a foreign customer, there are two questions that are important to consider:
- Which court has jurisdiction? In other words: Which court is competent to judge the conflict?
- Which law is applicable? Under which law should the competent court judge the case?
It is important to make good agreements about this in a business contract, otherwise there may be unpleasant consequences. Many companies who conduct international business do not always consider the risks involved in international agreements. In this article I will explain how the lack of good agreements and the questions considered above may lead to very complicated situation, by using an example.
What is going on?
One of my Belgian customers made a purchase agreement whereby textiles were bought and delivered. The textiles are manufactured and delivered in their factory in Romania. The buyer of this textile is located in the Netherlands and collects the goods in Romania. Both parties have not provided written confirmation. However, the Belgian supplier does apply general terms and conditions, which have been printed behind the invoices.
A dispute arose between the two parties concerning the payment of the invoices. The Belgian party then knocked on our door of the Belgian Desk for advice. He wondered whether he had a chance of getting his claim settled, but also which judge should rule on this matter: the Dutch judge or the Belgian one? In addition, another question that had to be addressed, was which law was applicable.
My Belgian client obviously felt that Belgian law applied and that the Belgian court had jurisdiction. After all, this was stated in his general terms and conditions. Unfortunately, I had to break the reality to him. It isn’t as simple.
Which court is competent and what is the applicable law?
Have the parties not composed a written agreement? Have no clear agreements been made regarding where they will litigate in the event of a dispute and what law should be applied? Then you are dependent on the legal system that have been established by the European Union and sometimes even different laws may be applicable.
My example concerns an international sales agreement, which means that the Vienna Sales Convention also applies. This treaty affects the substantive assessment of the case.
The Dutch court must judge according to Belgian law
The court that has jurisdiction and the applicable law is based on European directives. Currently, the EEX Regulation Brussels I BIS (1215/2012 EU) determines which court has jurisdiction. In order to determine which law is applicable, the Regulation (EC) No 593/2008, also known as Rome I, should be taken into account.
In short, in my case it came down to the fact that Belgian law was applicable, and the Dutch court had jurisdiction. In other words: the Dutch court had to judge the case according to Belgian law.
Whether this is a desirable situation differs in each case. The advice that I usually give to my clients is to determine the competent court and the applicable law in clear and written confirmation. This can be done in the quotation, the agreement or in the confirmation of the order.
Explain where you are going to litigate: in Belgium or in the Netherlands
Whether the choice is made between the Belgian judge who must apply Belgian law or the Dutch judge who must apply Dutch law, I don't believe that is very exciting. Both countries have a good democratic legal process with similar costs. After all, Napoleon visited both countries.
However, it may be undesirable to have the Dutch judge apply Belgian law, or vice versa. This regularly happens in practice. My colleagues in other international desks often experience this as well.
They have noticed that they must explain to clients why it is advised to make as clear written contracts as possible concerning international agreements (purchase agreements, distribution agreements, agency agreements). Otherwise you are dependent on the legal regime and this can lead to unpleasant consequences that may also be more expensive.
New process agreements with the counter party
I wanted to avoid this for my client. In this case I solved this for my client by making new progress agreements with the lawyer of the Dutch buyer. It was agreed that we would apply Dutch law (despite the fact that Belgian law was actually applicable) by the already competent Dutch court.
This is the most organised solution and prevents the parties from dealing with all kinds of formal objections that one court does not have jurisdiction and the other law should have been applied. This may take a very long time and often it is in no one's interest to extend this for a very period (in some cases it is).
Therefore, we will soon go to the Dutch court so that the Dutch judge can make a ruling on this case. The outcome of this conflict I can only share with you at a later stage. Nonetheless, the first obstacle (where to litigate and under which law) has been taken care of.
Avoid unnecessary lengthy judicial processes
Do you wish to avoid ending up in a similar situation as my Belgian customer? Then make clear agreements prior to concluding an agreement. That is the moment when you can and must make clear choices. Don't put yourself and your organisation on a slippery path with many pitfalls and uncertain outcomes. After all, you can learn how to draft a contract and if it is too complicated, you can contact one of our specialists. We will be happy to help you with solid contracts.
Author: Pim van Zwijndregt