From a commercial perspective, seizing jurisdiction in your chosen court will in all likelihood give you the tactical advantage over settlement discussions with the opponent: a party is likely to be keener to settle a dispute then have the appetite to challenge jurisdiction in a foreign state.
The development and expansion of the European Union (“EU”) over the last few decades has resulted in a boom of international trade and business. The use of agents and distributors is a good example of this. But, as with all relationships, there is always the risk of it going sour. If a business is embroiled in a dispute with another EU company, then the issue of jurisdiction arises: which country’s court should deal with the dispute?
When a dispute arises: initial considerations
In the unfortunate event that you find yourself in a dispute with a company in another EU member state, consideration should immediately be given to the courts in which the dispute can be heard and which court would be more preferable to you.
EU law governs civil and commercial disputes within the EU (and includes Iceland, Norway and Switzerland) which take precedence over the usual member states’ own rules on jurisdiction. EU law sets out the rules on jurisdiction to assess which courts have jurisdiction over a dispute and importantly, gives priority to courts that are ‘first seized’.
Under EU law, the general position is that a defendant must be sued in his own country. However, there are exceptions. For example:
- Is there an exclusive jurisdiction clause in the agreement? If the parties have agreed to disputes being submitted to a particular jurisdiction, you are generally bound by that provision (save in certain circumstances, such as intellectual property or real property disputes).
- The country in which the contract was performed will be critical where there is no exclusive jurisdiction clause.
- In a claim for negligence or breach of duty, where did the harmful event take place?
In some circumstances, more than one court may have jurisdiction. The first court to receive the claim is the court first seized. That court will decide upon any jurisdictional challenges in accordance with its own rules. So, for the dispute to be heard in your chosen court, you need to move fast.
Why should it matter which country deals with the dispute?
Apart from the inconvenience and cost of having to instruct local lawyers in another country as well as the travel costs of witnesses, the procedural powers of courts vary from country to country. For example, does the court have the power to order interim measures such as injunctions or the power to dispose of a case before trial. How long does it take for a case to get to trial? Most importantly, what remedies can the court order? Can it make adverse costs orders – unlike the English courts, some member state courts do not have the power to order a party to pay the other party’s costs.
If you have a choice of countries in which to commence a claim or if there is a risk of a claim being commenced in another jurisdiction, careful thought must be given to which jurisdiction is most advantageous to your position. Also consider your opponent’s position – are they likely to commence a claim against you in a jurisdiction most advantageous to them?
So when could jurisdiction be an issue?
Parties will generally want their local courts to have jurisdiction over their dispute, or will want it dealt with by a jurisdiction most beneficial to them.
Even if there is an exclusive jurisdiction clause in the agreement, this will not necessarily stop a party trying to bring claim against you elsewhere.
If one party commences proceedings in a jurisdiction other than the one agreed between the parties, or if there is no agreement on jurisdiction and a party commences a claim against you in a jurisdiction which is not the appropriate forum to hear the dispute in accordance with EU law, then your choices are to either:
- accept the dispute being held in that country’s court (called ‘submitting to the jurisdiction’, and this is generally done by simply responding to the claim and not indicating that you wish to challenge the jurisdiction of the court); or
- apply to challenge the jurisdiction of that court.
In the English courts, a challenge to jurisdiction is resolved very early on in proceedings. Other member states may not have this option, which could mean being engaged in litigation in another country for some time, incurring time and costs, just to resolve the jurisdiction dispute.
Tactically, if there is going to be a challenge to jurisdiction, you want it to be in your choice of courts.
Seizing jurisdiction – what does it mean?
The court which first receives the claim is known as the court first seized. That court then has priority over all other courts. If there is any challenge to the jurisdiction the court first seized decides on whether to hear the claim or refer it to another court.
Once a claim is commenced in one member state’s courts, you cannot issue fresh proceedings elsewhere involving the same parties and the same cause of action; if you do, the second court in which the claim is brought must automatically stay the claim. Even if there is argument in favour of the court second seized, that court must await the decision on jurisdiction of the court first seized.
If you bring a claim in a court which is connected to an action already being brought in another member state’s court (so is not exactly the same), there is no mandatory stay. Instead, the second court has the discretion to stay the proceedings or decline jurisdiction. The test for whether matters are connected is, if both proceedings continued, is there a risk of irreconcilable judgments? i.e. one court finding a party has breached the contract, and the other court finding that the contract is void.
But what steps, in practice, seizes the court? The EU law defines when a court is seized: the definition is designed to capture the different procedures for commencing a claim that vary from member state to member state.
In England, the court is seized once the claim is issued at court, as long as the claim is properly served on the Defendant. Therefore, once the claim is served on the Defendant, the date of seizure is that of the date of issue. The English court will be seized even if service happens after a related claim is launched in another member state.
In other member states, the procedure for commencing a claim is that the claim must be first served before being issued at court. In this situation, the date of seizure is the date of service, providing that the claim is then properly issued at the court. Therefore, the key factor is to carry out all the steps required by the court so that proceedings are launched. This is demonstrated in a recent case which held that, although a claim was first commenced in a Czech court before a related claim was issued in an English court and served on the opponent, England was in fact held to be the court first seized because non-payment of the Czech court fee amounted to a failure to take required step for service under Czech procedural law.
Final thought – always be prepared
Be prepared for the opponent to challenge the jurisdiction of your chosen court. If you lose the challenge, you may be faced with a costs order against you. So be confident that your chosen court does have jurisdiction to hear the dispute.
Evie Meleagros is an associate in Dispute Resolution Department of Fox Williams and is a member of the agentlaw team.