Economic development undoubtedly promotes trade. For this reason, many Polish entrepreneurs are entering into more extensive cooperation with foreign entities. However, the new opportunities also come with risks. Particularly with regard to the enforcement of receivables. Cooperation is not always successful. It is worth preparing for such situations, when recovery of receivables from EU counterparties will become our problem. Adequate knowledge will ensure that we are well prepared when a dispute with the other party goes to court.
Very often Polish entrepreneurs do not know what steps they should take to protect their interests in a conflict with a foreign entity. Fortunately, appropriate mechanisms have been developed within the European Union in this regard. In the next two articles, I will present to you the most important issues concerning:
- Jurisdiction of courts in cross-border disputes,
- the law applicable to legal relations between counterparties from different EU countries,
- the European order for payment and
- small claims procedure.
Today, I will talk about the rules applicable when determining the competent court to hear disputes with a cross-border element. I will also indicate which country's law should be applied. Taking into account the intentions of the parties and their obligations under the agreement.
The second article in the series can be found here: Recovery of debts from EU counterparties part 2.
Jurisdiction of the court
The EU Regulation of 12 December 2012 No. 1215/2012, known as 'Brussels I bis', will apply in civil cases between counterparties from different EU countries. You can find it here. The aim of this regulation is to facilitate access to the rapid recognition and enforcement of judgments in civil and commercial matters issued in EU Member States.
In accordance with the general principle of the said regulation:
, "Judgments given in one Member State shall be recognised in other Member States without the need for any special procedure."
Jurisdiction of the court
Brussels I bis further specifies which courts of a Member State have jurisdiction. Jurisdiction is the right to adjudicate. Brussels I bis regulates jurisdiction in civil and commercial matters.
General principle and special provisions
In accordance with the general principle of the Regulation:
, "A person may be sued at his place of residence or registered office."
However, the legislation provides for special arrangements in certain situations. On the basis of these, a dispute may be brought in accordance with the jurisdiction:
- general, or
- alternate.
For example, among the special provisions in this area are employee cases. In such cases, a dispute may be brought not only at the place where the employer is established, but also at the place where the employee habitually carried out his or her work. If the employee did not habitually work in any Member State, the dispute may be brought at the place of the employer's place of business where the employee worked.
Recovery of debts from EU counterparties - choice of court by the parties
It may therefore happen that we will be litigating in a country whose laws we are not familiar with. As a result, it will be necessary to use a foreign lawyer, which in turn is associated with additional costs.
The solution to this problem is to include a jurisdiction clause in the content of the contract with the counterparty. It allows us to stipulate that in the case of a dispute, the competent court is the Polish court. This type of provision will allow us to avoid unnecessary problems.
The jurisdiction agreement is governed by Article 25 Brussels I bis according to which:
"If the parties, irrespective of their domicile, have agreed that a court or the courts of a Member State should have jurisdiction to settle a dispute which has already arisen or a future dispute which may arise out of a particular legal relationship, the court or the courts of that State shall have jurisdiction, unless the agreement is null and void as to substance under the law of the Member State concerned. Such jurisdiction shall be exclusive unless the parties have agreed otherwise."
For evidentiary reasons, the best solution is to put the jurisdiction clause in writing.
It will not be possible in all situations for the parties to choose the competent court to resolve disputes arising from a given legal transaction. This is because the Regulation indicates so-called exclusive jurisdiction. What does this mean?
Limitations on contractual jurisdiction
A provision establishing the court's jurisdiction must not conflict with the Brussels I bis provisions on exclusive jurisdiction. An example of this is the exclusive jurisdiction of a court of a Member State:
- in which the property is situated, or
- in the territory of which the company or legal person has its seat in cases involving the validity, nullity or dissolution of the company or legal person or the validity of the decisions of their organs.
Recovery from EU counterparties - law applicable to a cross-border contract
The judicial jurisdiction referred to above is one thing. The law applicable to the legal relationship is another. If the parties have not regulated in the contract the applicable law to which the legal relationship is to be governed, e.g. the contract, then the EU Regulation will apply:
- Rome I, for legal relations under contracts (https://eur-lex.europa.eu/legal-content/PL/TXT/?uri=CELEX%3A32008R0593) or
- Rome II, for legal relations arising from non-contractual relationships (https://eur-lex.europa.eu/legal-content/pl/TXT/?uri=CELEX%3A32007R0864)
Example
Pursuant to Article 4(1)(a) of the Rome I Regulation, a contract for the sale of goods is governed by the law of the country in which the seller has his habitual residence.
In our example, we have two contractors:
- furniture manufacturer from Poland and
- furniture recipient - shop in Berlin
The above entities entered into a contract for the sale of furniture. In the contract, the manufacturer also undertook to deliver the goods to the recipient. Pursuant to the Rome I Regulation, in matters of contracts of sale, the applicable law under which the contract of sale between our counterparties will be interpreted will be Polish law. This is of course the case if the parties to the contract do not choose the applicable law. This means that all matters not regulated in the contract will be governed by Polish law. Including international agreements ratified by Poland. Furthermore, the very intention of the parties and the provisions of the contract will be subject to Polish law. If the seller has its registered office in Poland and the parties have not made a choice of law, Polish law will apply.
Other agreements with EU counterparties
With regard to other contracts and in the absence of a choice of applicable law in accordance with Rome I, the contract:
- service provision shall be governed by the law of the country in which the service provider has his habitual residence,
- the object of which is a right in rem in immovable property or a right to use immovable property, shall be governed by the law of the country in which the immovable property is situated,
- concerning the temporary use of immovable property for personal use, concluded for a period of no more than six consecutive months, shall be governed by the law of the country in which the person making the property available for use has his habitual residence, provided that the person making the use is a natural person and has his habitual residence in the same country,
- The franchise is governed by the law of the country in which the franchisee is habitually resident,
- distribution shall be governed by the law of the country in which the distributor has his habitual residence,
- the sale of goods by auction shall be governed by the law of the country in which the auction takes place, if that place can be determined.
Where a contract concluded contains elements of two or more of the contracts indicated above, it shall be governed by the law of the country in which the party required to perform has his habitual residence. If, however, it appears from the circumstances that the contract is manifestly more closely connected with a country other than that indicated according to the foregoing, the law of that other country shall apply.
Rome I also contains references to other contracts. The most important of these are the contract of carriage, the employment contract or consumer contracts.
Recovery of receivables from EU counterparties. Summary
It is worth looking into this regulation in order to be aware that signing a contract in Poland does not at all mean that Polish law will apply to that contract. If the parties to the agreement do not choose the applicable law, in the case of a dispute it may turn out that the court will examine the case under the provisions of a country other than Poland. Under regulations which we do not know and which may not necessarily turn out to be more favourable to us.
The correct construction of contracts in cross-border relations often avoids many unnecessary hassles and makes life easier for the entrepreneur. This leaves more free time to develop the business and enjoy the results.
