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5.1 International Contracts and National Jurisdictions

Unless the parties have made a choice in favour of arbitration, possible disputes must be brought before national jurisdictions.

Since there is no special “transnational” jurisdiction for cross-border commercial disputes, reference must be made to the courts of the various countries, which will inevitably give rise to the following problems:

1. how to determine which court(s) have jurisdiction, i.e. which court(s) can deal with the case, and
2. how to determine if and how a judgment by the courts of one country can be recognized and enforced in other countries.

In principle, the answer to the question of whether a given court has jurisdiction over a certain dispute and how a judgment can be recognized and enforced abroad will be found in the rules on international procedure and jurisdiction of the various countries involved.

These rules are normally established unilaterally by each state, which means that each legal system will autonomously fix the boundaries of the jurisdiction of its courts with respect to disputes that involve other countries, such as those with foreign parties, and set out the conditions for the recognition and enforcement of foreign judgments.

In such a context it is, in principle, not excluded that the same claim may be brought before courts of several countries and that such courts may render conflicting judgments regarding the same dispute, as noted in the next paragraph.

At the same time, a trend can be observed, at least in certain geographic areas, towards the establishment of common rules on jurisdiction and recognition of foreign judgments. This is especially the case in the European area, where a common framework has been created through the Brussels and Lugano Conventions and Regulation 1215/2012 (infra, § 5.3).

A further important step towards uniform rules has been made by the 2005 Hague Convention on the Choice of Court Agreements, although such Convention has been ratified at present only by a very limited number of countries (infra, § 5.4).

5.2 The Domestic Rules on Jurisdiction

Where no international conventions or other rules establish a coordination between different states on the issue of international jurisdiction and recognition of judgments, one must consider separately the legal situation of each country involved in order to determine which court (or courts) may have jurisdiction with respect to a given dispute and where a judgment can be recognized and enforced.

It is impossible to give any general overview of the criteria adopted in the various legal systems for determining the jurisdiction of their courts and for fixing the conditions for the recognition of foreign judgments, since these vary substantially from case to case. For example, in many common law countries a court has jurisdiction over a foreigner if [Page94:]he is present in the forum at the time of the commencement of the proceedings,¹ while in some civil law countries it is sufficient that the claim be made by a national of that country² or that the disputed obligation has been performed, or is to be performed, in the country.

At most, one can distinguish in very general terms between a traditional approach, whereby states confer to their courts a wide ambit of jurisdiction against foreigners — and, at the same time severely limit the possibility of recognizing and enforcing foreign judgments — and a more “modern” approach, whereby the ambit of jurisdiction towards foreigners is more limited and recognition of foreign judgments is relatively easy.³

The traditional approach gives rise to a paradoxical situation: on the one hand, it is easy for a national to bring a foreign party before its courts, but on the other hand, it is almost impossible thereafter to enforce the judgment in the country of the counterpart.

Where this scheme is adopted, parties tend to have recourse to their own courts when they are in a defensive position and to bring disputes directly before the courts of the other party when they have a claim.

For many years, states have tried to at least partially overcome the uncoordinated situation described above by entering into bilateral treaties on the recognition and enforcement of judgments.

Currently, the most important step towards a common system of rules has been made in the European area,⁴ where a much closer coordination between the different jurisdictions has been established in the framework of the Brussels and Lugano Conventions (infra, § 5.3) and may change significantly in the future if the Hague Convention on choice of court agreements (infra, § 5.4) enters into force in a substantial number of countries.

5.3 The Rules Applicable in the European Area

In the European area, a new situation has emerged since the coming into force of the Brussels Convention of 1968. This Convention, originally entered into between the six founder states of the European Community, has led to substantial coordination between jurisdictions of the signatory countries through the introduction of:

• uniform rules of jurisdiction with respect to defendants of other signatory countries;
• the exclusion of jurisdiction when a dispute on the same claim is pending before a court of a signatory country (lis pendens);
• a very effective system of recognition and enforcement of judgments between the signatory countries.

The Brussels Convention has been extended to the countries that became part of the European Community in 1978 (United Kingdom, Ireland and Denmark), 1982 (Greece) and 1989 (Spain and Portugal).

In 1988, an almost identical convention (the Lugano Convention) was concluded between the 12 EC Member States of the European Community and six EFTA countries (Finland, Iceland, Norway, Austria, Sweden and Switzerland).⁵

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Thereafter, Austria, Finland and Sweden joined the European Union and acceded to the Brussels Convention, so that at present the Lugano Convention remains applicable to relations with Iceland, Norway and Switzerland.

In 2001, the Brussels Convention was replaced by EC Regulation 44/2001 (also called Brussels I Regulation), applicable in all Member States of the EU, and thereafter by Regulation 1215/2012, in force since 2015.

This means that there is at present a European Jurisdictional Area, comprising the greatest part of the continent (i.e. the EU countries, plus Iceland, Norway and Switzerland), where substantially similar rules apply with respect to jurisdiction, recognition and enforcement of judgments. Except for the rules of the Lugano Convention, these rules are submitted to the European Court of Justice for interpretation. The courts of the EC Member States can refer preliminary questions to the Court for the interpretation of the Brussels Convention and Regulations 44/2001 and 1215/2012.

The following paragraphs examine some of the main characteristics of the common European rules. These rules apply in principle only to relations between courts of those states that are part of the area, i.e. the Member States of the European Union (Regulation 44/2001), and the three remaining EFTA States (Lugano Convention). As regards relations with other countries, existing domestic rules continue to apply.

Although the Brussels Convention is no longer in force (it has been replaced in all Member States by Regulation 44/2001 and now Regulation 1215/2012), we will nevertheless take into account the case law developed by the Court of Justice under such Convention, when it refers to rules that have not substantially changed, and which is consequently still relevant for the interpretation of Regulation 1215/2012, and also for a better understanding of its rules.

5.3.1 The rules on international jurisdiction

The European rules establish common criteria of jurisdiction to be applied in case of disputes with persons domiciled in the European area.

This means that, within the European area, the issue of whether a claim can be brought before a given court is to be decided under the uniform rules of Regulation 1215/2012 and the Lugano Convention instead of the national rules on jurisdiction, which continue to apply with respect to disputes with parties from third countries.

5.3.1.1 The general rule: jurisdiction of the court of the defendant

The general rule, contained in Article 4 of Regulation 1215/2012 and Article 2 of the Lugano Convention, is that persons domiciled within their territorial ambit (European Union and Lugano countries) may in principle be sued only before the courts of their home country.

Article 4(1) of Regulation 1215/2012

Subject to this Regulation, persons domiciled in a Member State shall, whatever their nationality, be sued in the courts of that Member State.

This means that it is always possible to sue a party before the courts of its domicile.

There are a number of exceptions to the above rule.

Some of them concern special situations, such as insurance (Articles 10-16), consumer contracts (Articles 17-19) and individual employment contracts (Articles 20-23).

Other very important exceptions, which are frequently used by claimants who wish to attract foreign defendants before their own courts, are the option to sue the defendant before the courts of the place of performance of the contract and — with regard to non-contractual obligations — before the courts of the place where the harmful event occurred.

Finally, we should mention a further exception, i.e. the possibility of excluding the jurisdiction of the courts of the defendant through a choice of jurisdiction clause, infra, § 5.3.2. [Page96:]

5.3.1.2 Jurisdiction of the courts at the place of performance of contractual obligations (Article 7, No. 1)

The most important and most commonly used means for establishing the jurisdiction of its own courts against a foreign defendant is Article 7, No. 1, of Regulation 1215/2012 and Article 5.1 of the 2007 Lugano convention.

Article 7.1 of Regulation 1215/2012

A person domiciled in a Member State may be sued in another Member State:

1. in matters relating to a contract, in the courts for the place of performance of the obligation in question;
2. for the purpose of this provision and unless otherwise agreed, the place of performance of the obligation in question shall be:

• in the case of the sale of goods, the place in a Member State where, under the contract, the goods were delivered or should have been delivered,
• in the case of the provision of services, the place in a Member State where, under the contract, the services were provided or should have been provided;

3. if point (b) does not apply then point (a) applies.

This provision, which was introduced in the present text by Regulation 44/2001 as Article 5.1⁶ (and remained unchanged as Article 7.1 of Regulation 1215/2012) provides, in addition to the general rule of the place of performance, two specific rules for the contracts of sale and the contracts for the provision of services.

This means that with respect to the contracts of sale and for the provision of services, reference is made to the place indicated in sub-paragraph (b), without considering the place of performance of the specific obligation whose performance is sought in the proceedings. We will examine how Article 7.1 applies to three typical situations: commercial agency agreements, contracts of sale and distributorship contracts.

(a) Agency agreements

As regards commercial agency agreements, the courts of the place where the agent performs his activity will have jurisdiction under Article 7.1, whatever the obligation whose performance is sought in the proceedings may be.

As regards the arbitration, the answer is, of course, no, since there is no arbitration clause and it is rather unlikely that the agent might agree to such a clause after the dispute has arisen.

Concerning the possibility of bringing a claim in Malta, there would have been some space under Article 5.1 of the Brussels Convention, provided the principal could show that under the applicable law the agent was to pay the sums collected at the principal’s place of business in Malta.⁷ However, under Article 7.1(b) of Regulation 1215/2012, one must refer to the place where the agent provided his services (France).[Page97:]Consequently, the principal cannot avoid the agent bringing a claim before the French courts (which will apply French law in accordance with Article 4(1)(b) of the Rome I Regulation),⁸ and he knows that in case the outcome is successful for the agent, the judgment will be easily recognized in Malta.

It is therefore important to bear in mind that, whenever there is a contract for the provision of services, the party providing the service will always be able to bring the other party before the courts of the country where it performs its activity, unless otherwise agreed in a choice of forum clause: infra, § 5.3.2. On the contrary, the party receiving the service will never be able to bring its counterpart before its own courts unless through a choice of jurisdiction clause.

(b) Contracts of sale

As regards contracts for the sale of goods, Article 7.1(b) of Regulation 1215/2012 says that reference must be made to the place in a Member State where, under the contract, the goods were delivered or should have been delivered, without specifying whether “delivery” is intended in the strictly legal sense, as the place where the seller fulfils his delivery obligations (e.g. by delivering the goods to a carrier), or as the place where the goods are actually handed over to the buyer.

The Court of Justice has decided in favour of the second interpretation in a dispute between an Italian buyer (KeySafety) and a German manufacturer (Car Trim). When KeySafety terminated the contract, Car Trim brought an action for damages before the court of its seat (Chemnitz). The court of Chemnitz declined jurisdiction and the case was brought before the Bundesgerichtshof which decided to stay proceedings and to ask the Court of Justice whether the place of delivery is the place of physical transfer to the purchaser or the place where the goods are handed over to the first carrier. The Court decided as follows:

Court of Justice, 25 February 2010, KeySafety/Car TrimPlace of delivery under Article 5(1)(b), Regulation 44/2001

The first indent of Article 5(1)(b) of Regulation No 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters must be interpreted as meaning that, in the case of a sale involving carriage of goods, the place where, under the contract, the goods sold were delivered or should have been delivered must be determined on the basis of the provisions of that contract.

Where it is impossible to determine the place of delivery on that basis, without reference to the substantive law applicable to the contract, that place is the place where the physical transfer of the goods took place, as a result of which the purchaser obtained, or should have obtained, actual power of disposal over those goods at the final destination of the sales transaction.

Thus the Court decided in favour of the physical transfer of the goods, which implies that in principle the court of the place of destination of the goods will have jurisdiction under Article 5.1 (now 7.1 of Regulation 1215/2012).⁹

However, at the same time the Court said very clearly that this rule applies only if it is impossible to determine the place of delivery on the basis of the contract clauses, i.e. when it is necessary to have recourse to the legal rules in order to find out where delivery is to be made.

This means that the main issue will be to decide whether the parties have determined the place of delivery in the contract. If the seller is able to prove that he agreed in the contract that delivery would be made at his premises, he will be able to bring a claim before his courts under Article 5.1 and the buyer will not be entitled to make a claim before the courts of his place of business.

For the purpose of determining the place of delivery a possible reference to the Incoterms® may play an important role, as decided by the Court of Justice in the Electrosteel case.

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Court of Justice, 9 June 2011, Electrosteel Europe/Edil Centro

In order to verify whether the place of delivery is determined ‘under the contract’, the national court seised must take account of all the relevant terms and clauses of that contract which are capable of clearly identifying that place, including terms and clauses which are generally recognised and applied through the usages of international trade or commerce, such as the Incoterms® drawn up by the International Chamber of Commerce in the version published in 2000.¹⁰

We can therefore conclude that a reference in the contract to an Incoterm implying delivery at the seller's domicile (like Ex works, FCA, CIP) or at a place in the seller’s country (like FOB or CIF) will entitle the seller to claim before the courts of his country, while, on the contrary, a clause providing for delivery at destination (like DAP) will entitle the buyer to claim before his courts.

(c) Distributorship contracts

With respect to contracts with resellers, the critical issue is whether they should be qualified as contracts of sale (where the reseller acts mainly as buyer) or as distributorship contracts (where the reseller actually performs services regarding the distribution of the supplier’s products. This issue arises in particular in the absence of a written contract, where the relationship evolved from a simple sale-purchase relationship to a more complex relationship where the reseller assumed a number of obligations regarding the distribution of the products, such as participation to fairs, advertising, etc.

The Court of Justice dealt with this issue in the Corman-Collins case¹¹where the French company “Maison du Whisky” had a commercial relationship for approximately 10 years with the Belgian company Corman-Collins, which used to buy from the former various brands of whisky, for reselling them in the Belgian market. During such period, Corman-Collins used the appellation “Maison du Whisky Belgique” and an Internet site called www.whisky.be, without causing any reaction from the French company. In December 2010, La Maison du Whisky informed Corman-Collins that it would confer the distribution of two whisky brands to another company and banned it from using the appellation “Maison du Whisky Belgique”. Corman-Collins sued La Maison du Whisky before the Tribunal of Verviers on the basis of the Belgian law of 1961, seeking an order for payment of compensation due to distributors under such law, and the Tribunal asked the ECJ whether the contract in question should be regarded as a contract for sale or as a contract for the provision of services, which would have given Corman Collins the right to sue the supplier before his own courts, on the basis of Article 5.1(b), second indent, of Regulation 44/2001 (now Art. 7.1(b) of Regulation 1215/2012).

The Court stated that, if the relationship is limited to the provision of products, even through a long term commercial relationship, it should be considered as a contract of sale, but, on the contrary, this is would not be the case if the contract corresponds “to the general scheme of a typical distribution agreement, characterized by a framework agreement, the aim of which is an undertaking for supply and provision concluded for the future by two economic operators, including specific contractual provisions regarding the distribution by the distributor of goods sold by the grantor”^.12

In other words, if the reseller undertakes specific obligations concerning the distribution of products, it should be considered as a distributorship contract, to be classified as a contract for the provision of services. On the same line, the Court decided in the Granarolo case¹³ that a long-standing business relationship between a supplier and a purchaser who resells the goods, is to be classified as a “contract for the sale of goods” if the characteristic obligation of the contract at issue is the supply of goods or as a “contract for the provision of services” if the characteristic obligation is a supply of services.

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5.3.2 Choice of jurisdiction clauses

Article 25 of Regulation 1215/2012 (which replaces Article 23 of Regulation 44/2001 and Art. 17 of the Brussels Convention and the Lugano Convention) fully recognizes the parties’ freedom to choose a particular jurisdiction within the EU, by stating the following:

1. If the parties, regardless of their domicile, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction, unless the agreement is null and void as to its substantive validity under the law of that Member State. Such jurisdiction shall be exclusive unless the parties have agreed otherwise. The agreement conferring jurisdiction shall be either:

1. in writing or evidenced in writing;
2. in a form which accords with practices which the parties have established between themselves; or
3. in international trade or commerce, in a form which accords with a usage of which the parties are or ought to have been aware and which in such trade or commerce is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade or commerce concerned.

2. Any communication by electronic means which provides a durable record of the agreement shall be equivalent to ‘writing’.

This means that, except for the matters for which the jurisdiction is exclusively reserved to certain courts (e.g. consumer contracts or individual contracts with employees) the parties are free to choose the jurisdiction, even when this conflicts with a domestic rule providing for the exclusive jurisdiction of its courts.¹⁴

In principle, the clause must be in writing or evidenced in writing. This requirement of form can be overcome only in specific cases, such as an established practice binding the parties, or regularly observed international usages.

The issue that arises most frequently is whether a choice of court clause contained in general conditions of a party has been validly concluded.

In case of the written acceptance of a proposal (e.g. an order or a confirmation of order) that contains the general conditions, including the choice of court clause, the answer is yes. Thus, in one of the first cases decided by the Court of Justice,¹⁵ it was decided that:

… where a clause conferring jurisdiction is included among the general conditions of sale of one of the parties, printed on the back of a contract, the requirement of a writing under the first paragraph of article 17 of the Convention of 27 September 1968 on jurisdiction and the enforcement of judgments in civil and commercial matters is fulfilled only if the contract signed by both parties contains an express reference to those general conditions.

When the document proposed by one party and accepted in writing by the other does not contain the choice of forum clause, but only a reference to general conditions that include such clause, the answer is less certain. Some courts require that the clause that makes reference to the general conditions expressly state that such general conditions contain a choice of forum clause; other courts will verify whether the general conditions have actually been transmitted to the party in question.

However, the most critical situation arises when the proposal containing the general conditions (or referring to them) is tacitly accepted, as is frequently the case.

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Example 5-3 – Jurisdiction clause tacitly accepted

An Italian company, Società Esercizio Cantieri, purchased certain mechanical products from a German manufacturer.

The German manufacturer sent a confirmation of order, which contained its general conditions of sale. Article 13 of such conditions indicated the exclusive jurisdiction of the courts of the manufacturer’s place of business.

The Italian buyer did not object to the above confirmation of order and took delivery of the goods and paid them.

When some defects arose, the purchaser made a claim before the courts of his place of business, and the seller objected that his courts (in Germany) had jurisdiction due to the choice of forum clause.

The Court of Cassation (Italy)¹⁶ decided that the tacit acceptance of the general conditions by the purchaser did not amount to an acceptance in writing and that, consequently, the choice of forum clause was not valid.

The above example shows that choice of forum clauses contained in one party’s contract proposals will, in most cases, be ineffective due to the lack of acceptance in writing.

The result might be different if the interested party can rely on the provisions of Article 25(1)(b) and 25(1)(c)¹⁷and is able to show that:

• a practice has been established between the parties, according to Article 25(1)(b) of Regulation 1215/2012, to consider the general conditions and the choice of court clause as applicable to their future contracts,¹⁸ or
• a tacit acceptance of the choice of forum clause corresponds to a usage in international trade, as admitted under Article 25(1)(c) of Regulation 1215/2012.

With respect to usage in international trade, the Court of Justice has stated¹⁹ the following principles:

Court of Justice, 16 March 1999, Trasporti Castelletti/Hugo Trumpy

The ‘contracting parties’ consent to the jurisdiction clause is presumed to exist where their conduct is consistent with a usage which governs the area of international trade or commerce in which they operate and of which they are, or ought to have been, aware.

The existence of a usage, which must be determined in relation to the branch of trade or commerce in which the parties to the contract operate, is established where a particular course of conduct is generally and regularly followed by operators in that branch when concluding contracts of a particular type.

This means that it is not easy for a party to prove the existence of a usage whereby a jurisdiction clause can be accepted tacitly by performing the contract.

It is interesting to note that under Article 25(2) of Regulation 1215/2012 communication by electronic means is also considered to be “in writing” where such communication provides “a durable record of the agreement”.

The territorial ambit of application of the rule on choice of forum also extends to parties of third countries, provided the forum chosen is within the territory covered by the Regulation. Thus, a clause in a contract between an Australian company and a Belgian party providing for the exclusive jurisdiction of the courts of Brussels, will be valid under Article 25 of Regulation 1215/2012.

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Of course, the courts of the other party in Australia will not be bound by Regulation 1215/2012.²⁰However, the court chosen will determine its jurisdiction under the “European” rules — instead of the domestic rules, which would normally be applicable when dealing with a party of a third country — and the courts of other countries of the “European” area will also be bound Regulation 1215/2012.

5.3.3 The rules regarding lis pendens

A very important feature of the European jurisdictional system is the rule contained in Article 29 of Regulation 1215/2012, according to which:

1. Without prejudice to Article 31(2), where proceedings involving the same cause of action and between the same parties are brought in the courts of different Member States, any court other than the court first seized shall of its own motion stay its proceedings until such time as the jurisdiction of the court first seized is established.
2. In cases referred to in paragraph 1, upon request by a court seised of the dispute, any other court seised shall without delay inform the former court of the date when it was seised in accordance with Article 32.
3. Where the jurisdiction of the court first seised is established, any court other than the court first seised shall decline jurisdiction in favour of that court.

This means that no space is left in the European area²¹ for parallel proceedings before courts of different countries. In all cases where more than one court could have jurisdiction, only one of them (i.e. the first one to have been seized) will be competent, and all of the others will be excluded. Therefore, if a party succeeds in seizing its own courts before the other party can do the same, it can obtain a significant strategic advantage in the litigation.

Since this principle could severely affect the effectiveness of choice of court clauses, by claiming first before the court of a country where justice is slow (like for instance Italy: for this reason this strategy has been called the “Italian torpedo”) in order to avoid the jurisdiction of the court designated in the forum selection clause, Regulation 1215/2012 has introduced the rule according to which the jurisdiction of the court designated in the choice of court agreement always prevails over that of other courts.

This principle is stated in Article 31(2) of Regulation 1215/2012, where it is said that:

… where a court of a Member State on which an agreement as referred to in Article 25 confers exclusive jurisdiction is seised, any court of another Member State shall stay the proceedings until such time as the court seised on the basis of the agreement declares that it has no jurisdiction under the agreement.

This means that, when a party wishing to avoid the court designated in the jurisdiction agreement brings a claim before another court and thereafter the other party seizes the court designated in the agreement, the first one must stay proceedings and the designated court will have the exclusive jurisdiction to decide whether the choice of court agreement is valid and effective.

Finally, Article 25 of the new Regulation expressly provides that the designated court will decide on the substantive validity of the agreement under its own law (the lex fori).

The following example shows how the issue would be dealt with under Regulation 44/2001 and under Regulation 1215/2012.

When a situation of this type arises, where both courts may have good reasons for accepting jurisdiction, each party will be put in a more advantageous situation if it can succeed in bringing the claim before its court first, because this will prevent the other party from doing the same. Of course, where, as in this case, the outcome of the issue on jurisdiction is not certain, it may be that the court seized will decline jurisdiction (and in this case the other court will have jurisdiction), but it is already an advantage to have this issue decided by its own courts and not by the courts of the other party’s country.

Thus, under Regulation 44/2001, the party being able to first bring the claim before its courts, could exclude the jurisdiction of the courts of the other party (at least until the Court first seized would declare that it has no jurisdiction).

Under Regulation 1215/2012 the situation is quite different. If Rossi brings a claim before the Italian court before Olympia, the latter will always have the right to claim before the court designated in the choice of jurisdiction clause and that court will be the only one to decide, under its own law, whether the jurisdiction agreement has been validly concluded.

It is important to stress that the new rules introduced by Regulation 1215/2012 strengthen the effectiveness of the jurisdiction clauses, not only against those who disregard them without any valid reason (i.e. for the only purpose of delaying proceedings), but also against those who have sound objective reasons to believe that the clause is ineffective. This may be a further reason for advising parties to use, to the extent possible, choice of jurisdiction clauses in their contracts.

5.4 The Hague Convention of 2005 on Choice of Court Agreements

It has been noted that, except for the special regime of the European area analyzed in the previous paragraph, there is little space for the recognition of choice of court agreements and court judgments between different countries.

This situation may substantially change if the Hague Convention of 30 June 2005 on choice of court agreements, in force since 1 October 2015, will be ratified by a large number of countries. At present the Convention has been ratified by the Member States of the EU, Mexico and Singapore. Since the Convention does not apply to the relations between EU countries, its present importance is very limited, but this situation might change if the United States, which signed the Convention, decides to ratify it. [Page103:]

The 2005 Hague Convention provides an important means of establishing uniform rules for the recognition and enforcement of judgments between different countries.

It should be said from the outset, however, that the 2005 Hague Convention has a more limited scope than the European rules examined above, because it applies only to situations where the parties have agreed upon a choice of court agreement, while the Brussels and Lugano Conventions and Regulation 1215/2012 apply generally to all disputes in civil and commercial matters.

The original project prepared by the Hague Conference on Private International Law, i.e. the Preliminary Draft Convention on Jurisdiction and Foreign Judgments in Civil and Commercial Matters of 1999, had a much broader scope, more similar to the Brussels and Lugano Conventions. However, it appeared that this project was too ambitious and would not receive sufficient support by Member States. It was then decided prepare a draft to cover only those situations in which the parties have agreed upon a choice of court (forum selection clause). Of course, this is a substantial difference from that of the European system.

At present the Hague Conference is reconsidering a Judgments Project.²²

In the European area, a claimant knows he can bring a claim on the basis of the grounds of jurisdiction established in this common system of rules (e.g. before the court where the goods are delivered in case of a sales contract: supra, § 5.3.1.2), and he knows that these rules are the same in all countries included in the area (since the European rules have replaced domestic rules on jurisdiction), and that the judgment of the competent court will be recognized and enforced in all countries within it.

In the framework of the 2005 Hague Convention, the above uniformity and “free circulation” of judgments only applies when the parties have agreed upon a choice of court agreement, and consequently the Convention is of no use in any cases where the parties are unable to agree upon a selection of forum clause.

This being said, the fact remains that even with this limitation, the 2005 Hague Convention constitutes a substantial step forward in favouring the recognition of judgments in wider geographical areas.

5.4.1 Scope of application

The Convention applies “in international cases to exclusive choice of court agreements concluded in civil or commercial matters” (Article 1(1)), with the exclusion of consumer and employment contracts and a number of matters indicated in Article 2(2) such as, inter alia, family law matters, wills and succession, insolvency, carriage of persons and goods, antitrust (competition) matters, validity of intellectual property rights other than copyright or related rights, infringement of intellectual property rights other than copyright or related rights, except where infringement proceedings are brought for breach of a contract between the parties relating to such rights.

Article 2(3), however, expressly states that:

Notwithstanding paragraph 2, proceedings are not excluded from the scope of this Convention where a matter excluded under that paragraph arises merely as a preliminary question and not as an object of the proceedings. In particular, the mere fact that a matter excluded under paragraph 2 arises by way of defence does not exclude proceedings from the Convention, if that matter is not an object of the proceedings.

This means that those matters excluded from the scope of the Convention under Article 2(2) may also be dealt with in a judicial proceeding falling under the Convention, provided that they do not constitute the subject matter of the proceeding. For example, if a party sues someone under a contract and the defendant claims that such contract is void because it infringes the antitrust rules, the proceedings are not outside the scope of the Convention, because the principal issue concerns the breach of the contract and not the antitrust issue.

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5.4.2 Exclusive choice of court agreements

The Convention applies, as noted, to exclusive choice of courts agreements. An “exclusive choice of court agreement” is defined in Article 3(a) as:

… an agreement concluded by two or more parties that meets the requirements of paragraph c) and designates, for the purpose of deciding disputes which have arisen or may arise in connection with a particular legal relationship, the courts of one Contracting State or one or more specific courts in one Contracting State to the exclusion of the jurisdiction of any other courts.

Paragraph c) defines the formal requirements of a choice of court agreement, stating that it must be concluded or documented in writing, or by any other means of communication which renders information accessible so as to be usable for subsequent reference. The last sentence should make clear that choice of court agreements could be validly concluded by fax or e-mail.

There are two principal effects of a choice of court agreement:

• The court chosen shall have jurisdiction to decide the dispute,²³ and consequently cannot decline jurisdiction in favour of another court²⁴(Article 5);
• The court not chosen shall refrain from hearing the case, even if it would have had jurisdiction under its national law (Article 6).

However, the obligation of the court not chosen to refuse jurisdiction is subject to a number of exceptions that may substantially limit the effectiveness of this principle, in particular, those under Article 6 (c) and (d), which refer to situations where:

c) giving effect to the agreement would lead to a manifest injustice or would be manifestly contrary to the public policy of the state of the court seised;

d) for exceptional reasons beyond the control of the parties, the agreement cannot reasonably be performed.

It is difficult to foresee how these rather broad exceptions may be interpreted in the future by courts in the contracting states.

5.4.3 Recognition and enforcement

Article 8(1) of the Convention provides that:

A judgment given by a court of a Contracting State designated in an exclusive choice of court agreement shall be recognized and enforced in other Contracting States in accordance with this Chapter. Recognition or enforcement may be refused only on the grounds specified in this Convention.

This principle is subject to a number of exceptions listed in Article 9 regarding: the validity of the choice of court agreement and the capacity of the parties to conclude it, improper notification of the proceedings, public policy of the requested state and inconsistency with other judgments between the same parties.

5.4.4 Conclusions

If it is ratified by a significant number of states, the 2005 Hague Convention may become a powerful instrument for favouring international trade by making the resolution of disputes through national courts more effective and foreseeable, particularly by enhancing certainty in international litigation before national jurisdictions.

At present, however, it is difficult to foresee the future of the Convention as regards its acceptance by the states and its application thereafter.

Considering the substantial importance of this tool for the progress of international law, hopefully it will receive the widest possible acceptance around the world.

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5.5 Strategies for the Appropriate Choice of Jurisdiction

If the parties wish to increase the predictability and certainty of their deals, they should try to determine beforehand how possible disputes should be resolved, by agreeing on arbitration, or — if they wish to have recourse to ordinary courts — by inserting a choice of forum clause into their contract.

At first sight, the most appropriate solution for a party is a choice in favour of its own courts.

In fact, the other two possible alternatives — courts of the other party or of a third country — are, in most cases, less appropriate.

A choice in favour of the courts of the other party is not normally advantageous²⁵ and will be accepted by a party only if the other party requests it and the matter appears to be non-negotiable.

As regards the choice of a neutral forum, i.e. of the courts of one country other than those of the two parties involved, such a solution is not frequent, probably because it is considered to be inappropriate to submit disputes to courts that have no connection with the case and that could easily refuse to accept jurisdiction. In fact, where there is a great need for a neutral solution, the most common recourse will be to refer the matter to arbitration, which is the most appropriate tool warranting the highest level of neutrality.

5.5.1 Choice of forum in favour of its own courts

As noted previously, the most obvious solution for a party when negotiating a choice of court agreement is to give exclusive jurisdiction to the courts of its country.

In doing so, the party in question wants to make sure that possible disputes will be decided under a well-known procedural system, by judges who use the same language, with the assistance of lawyers it is familiar with, etc.

However, even when the other party is willing to accept this solution, agreeing upon the exclusive jurisdiction of its own court is not always the most appropriate choice.

Thus, in cases where it is unlikely that a judgment by the courts of the country of a party would be recognized and enforced in the country of the other party, the choice of forum clause may become a handicap, as shown in the following example.

It is not certain that the court of the licensee will accept this paradoxical solution; it might also decide that it is not bound to respect the jurisdiction clause. But the fact remains that the exclusive jurisdiction clause is not appropriate in the above situation. The licensor should at least have tried to negotiate a clause whereby he reserved the right to claim in the licensee’s country, as described in § 5.5.3.

One can therefore draw a first conclusion, i.e. that a choice of forum in favour of the courts of one party may not be appropriate for such party if the judgments of the chosen court are not easily enforceable in the country of the other party.

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However, this is only relevant when a party expects that it may need to enforce a possible judgment in the other party’s country. If, on the contrary, a party is in a situation, or has created a situation, in which it will not need to claim against the other party, but rather to defend itself against a possible claim, the enforceability of a possible judgment in the other party’s country will not be relevant.

For example, in the context of a commercial agency agreement, the principal knows that in case of contract termination he will mainly have to defend himself against claims for payment of commission, goodwill indemnity, etc., while it is unlikely that he will need to make claims against the agent. Or, if we take the example of a sales contract providing for payment by documentary credit, the seller will normally not need to take the initiative against the purchaser.

When a party envisages situations of this kind, it may choose the exclusive jurisdiction of its own courts, even when it knows that possible judgments would not be recognized and enforced in the other party’s country.

The above judgment would not be enforceable in Italy: first, because the choice of jurisdiction clause, with a commercial agent acting as individual, is not valid in Italy (due to the exclusive jurisdiction of “labour courts”, which cannot be excluded), and second, because denying the indemnity would be against public policy. However, this is not a problem for the US principal, since he does not need to enforce the judgment in Italy.

The situation might, however, become less secure for the American party if the Italian agent decided to bring an action before his own courts. Although it is very unlikely, if not impossible, that the agent would succeed in enforcing in New York an Italian judgment condemning the principal to pay the goodwill indemnity, he could try to satisfy himself on goods or credits of the principal in Italy, by obtaining an attachment on sums owed to the principal by Italian purchasers.

The above example shows that the “defensive strategy” described above is fully effective only when it is certain that the choice of court agreement will be respected by the courts of the country of the counterpart. Where this is not the case, the party choosing the jurisdiction of its own court must consider the possibility of defending itself against a claim in the country of the other party.

However, it should not be forgotten that in areas where choice of jurisdiction clauses are fully effective and recognition and enforcement of judgments is warranted (as in the European area described in § 5.3), the above problems do not arise, and there are practically no objections to a choice of forum in a party’s own country, as shown in the following example.

Of course, the solution envisaged in this example puts the seller in a very favourable position and would, in principle, be his preferred choice, while the buyer would prefer the opposite solution, i.e. a jurisdiction clause in favour of its own courts.

5.5.2 Exclusive and non-exclusive jurisdiction clauses

A choice of jurisdiction clause can be exclusive or non-exclusive.

With an exclusive choice of forum clause, the parties intend to give jurisdiction to a given court and to exclude the jurisdiction of any other court.

A non-exclusive clause only gives jurisdiction to the court indicated in the clause in order to make sure that such court is entitled to decide the case, but does not exclude that the parties may make a claim before other competent courts.

Some laws provide that a clause not specifying its exclusive or non-exclusive character must be considered as exclusive. This is the case under Regulation 1215/2012. In particular, its Article 25 provides that when parties agree that the court or the courts of a Member State are to have jurisdiction, such jurisdiction shall be exclusive unless the parties have agreed otherwise.

A similar rule is contained in the 2005 Hague Convention on choice of court agreements. Article 3(b) of the Convention expressly states that:

a choice of court agreement which designates the courts of one Contracting State or one or more specific courts in one Contracting State shall be deemed to be exclusive unless the parties have expressly provided otherwise.

Other laws, however, do not take this position, so that a clause not specifying that the chosen forum is exclusive may leave the parties free to claim before other jurisdictions.

This is why parties should, in any case, clarify this point in the clause itself by expressly stating if they wish the chosen court to have exclusive jurisdiction.

5.5.3 Drafting choice of forum clauses

An example of a simple exclusive forum clause, in line with the prevailing practice in Europe, is the following:

In principle, a clause such as the above should be sufficient. However, in some countries, lawyers may prefer to set out a number of additional issues. An interesting example of this type of approach is the following clause of American origin:²⁷

Sometimes, the parties agree upon a clause that grants exclusive jurisdiction to the courts of one of their countries (normally those of the party having more bargaining power), but which at the same time gives that party the option of claiming before the courts of the other party.

The following is an example of this type of clause:

Under this clause, party B can only sue party A before the courts of the latter’s place of business, while party A has a choice between his own courts and the courts of party B’s place of business.

A clause of this type is certainly unbalanced to the disadvantage of one of the parties.²⁸ In fact, the French Court of Cassation2⁹ invalidated the following unilateral jurisdiction clause:

Potential disputes between the client and the Bank shall be subject to the exclusive jurisdiction of the Courts of Luxembourg. In the event the Bank does not rely on such jurisdiction, the Bank reserves the right to bring an action before the Courts of the client’s domicile or any other court of competent jurisdiction.

It could be argued that the clause should nevertheless be valid, particularly in the context of the Brussels and 1988 Lugano Conventions, where Article 17(4) says that:

If an agreement conferring jurisdiction was concluded for the benefit of only one of the parties, that party shall retain the right to bring proceedings in any other court which has jurisdiction by virtue of this Convention.

In fact, since the two Conventions admit that a clause can be for the benefit of one party only — even where this is not expressly stated in the clause itself, but it clearly results from the contract or other circumstances)³⁰ — there should be no doubt about the validity of a clause explicitly affirming the same principle At the same time it should be noted that the provision of Article 17(4) has not been included in the corresponding provision (Article 23) of Regulation 44/2001, in Article 25 of Regulation 1215/2012 and in Art. 23 of the new Lugano Convention.

Finally, under Regulation 1215/2012, a clause of this kind might prevent the application of Article 31(2), which recognizes the exclusive jurisdiction of the court designated in the jurisdiction agreement, since it could be argued that the clause does not provide such exclusive jurisdiction for both parties.

Considering the above, utmost caution is required when choosing this type of unilateral clauses.

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5.5.4 Formal requirements of jurisdiction clauses

Since choice of jurisdiction clauses may have the effect of excluding the jurisdiction of a court that would otherwise be competent, legislators tend to include formal requirements in order to warrant that the parties are well aware of their choice.

This is why most legislations require the written form for a clause to be valid.

As noted before (supra, § 5.3.2), also Regulation 1215/2012, requires the written form or equivalent solutions.

This is very important when parties include the clause in general conditions, considering that in most cases these conditions are not accepted in writing and consequently the choice of forum clause will not be validly concluded if the strict interpretation of the requirement of the written form is followed.

5.5.5 Effectiveness of the choice of forum clauses

One of the purposes of a choice of jurisdiction clause is to prevent the parties from bringing their claim before other courts. However, this result can only be obtained if the courts that would otherwise have jurisdiction over the case are willing to respect the clause and to decline jurisdiction.

In many countries, choice of forum clauses do not oblige the courts to refuse jurisdiction in favour of the forum selected by the parties, but reserve to themselves a discretionary power to decide if it is appropriate to follow the indications of the clause.

Moreover, even countries that recognize in principle the effectiveness of a choice of jurisdiction clause in favour of foreign courts will not be bound by the clause if the subject matter of the dispute is reserved to the jurisdiction of the courts of that country. Consequently, some legal systems provide for the exclusive jurisdiction of specialized courts (labour tribunals) for contracts of employment and sometimes also for agency contracts with individuals, which normally implies that disputes reserved to these special courts cannot be validly submitted to foreign courts. Similar rules exist whereby special protection is granted to the “weaker party” in certain contracts, for example, distributors in Belgium and Lebanon.

In European Union countries and for signatories of the Lugano Convention, however, choice of jurisdiction clauses are admitted in general terms, provided that they respect the formal requirements described in the preceding paragraph, with the exception of particular types of contracts (insurance, consumer and employment contracts).

This means that in all other cases, the choice of jurisdiction will be fully effective, even if this goes against a domestic rule reserving certain matters to its own courts.

For example, a clause in a contract with a Belgian distributor establishing the exclusive jurisdiction of the courts of another Member State of the European Union will be valid and effective, even though Belgian law does not permit excluding the jurisdiction of its courts for disputes with Belgian concessionnaires. The same applies to Italian self-employed agents falling under the exclusive competence of labour courts.

This is a fundamental difference with respect to arbitration where the dispute subjected to the exclusive jurisdiction of local courts is considered to be non-arbitrable, which will normally be the case when a certain type of dispute is reserved to the local courts. These courts will affirm their jurisdiction and disregard the arbitration clause. For example, in the case of a Belgian distributor, an arbitration clause will not prevent Belgian courts from affirming their jurisdiction, while a jurisdiction clause in favour of a court of a country of the European Union (or covered by the Lugano Convention) will be valid and effective, because the EU Regulation or international convention prevails over the domestic law.

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