The hazards of choice of forum clauses in favor of foreign courts
When entering into a contract, the parties usually negotiate a choice of forum clause that stipulates the court before which any possible dispute arising between the parties shall be litigated. It is quite common that each party seeks to impose in such clauses the jurisdiction of the courts that are most beneficial to them, either because of the geographical convenience or because they believe that such court would tend to be more favorable to their position. In many cases, such express choice of forum is suggested without considering the possibility that, in that specific case, the agreement on the choice of forum can be declared null or ineffective in a jurisdiction other than the one referred to in the agreement.
Within Europe, we can clearly differentiate between the choice of forum made in favor of courts belonging to a Member State (intra-EU courts), which is governed by Regulation 1215/2012 on jurisdiction, recognition and enforcement of judgments in civil and commercial matters (known as Brussels I Regulation, which revoked in January 2015 the Regulation 44/2001); and the choice of forum made in favor of courts belonging to Third States (extra-EU courts), which is governed by the Rules on jurisdiction of each Member State laws. The difference in the regulations is important: while the choice of forum clauses of the intra-EU courts is subject to a single regulation, those choices of forum clauses of the extra-EU courts are subject to 28 different legal rules. This involves a serious risk, particularly for the companies located in third States which want to include a choice of forum clause in favor of their home courts.
By virtue of article 25 of Brussels I, for an effective choice of forum clause in favor of intra-EU courts, the following should be needed:
- That the agreement is made in writing, (also understood as such those agreements provided in a durable medium); or orally with written confirmation; or pursuant to the practices established by the parties, or to the usage in international commerce within the sector at issue.
- That the agreement is not null and void as to its substantive validity under the law of the Member State whose courts are chosen.
- That the dispute is not related to a matter that falls within an exclusive jurisdiction (art. 24). In this sense, it should be mentioned that art. 24.4 states as exclusive jurisdiction the validity and registration of intellectual property rights, which is a competence that shall be interpreted with restrictive effects and does not involve actions arising from the infringement of such rights.
- When dealing with insurance, consumer or workers contracts, the express choice of forum is subject to additional conditions.
It must be pointed out that in the new wording of art. 25 it is not required that at least one party is domiciled in the European Union. The reason for this is to align the text of Regulation with the Hague Convention of 2005 on choice of forum agreements which is entering into force next October of 2015. In any case the practical implementation of this convention will be very low for the time being provided that it has only been ratified by the EU and Mexico.
As per the explicit choice of forum in favor of extra-EU courts, it can be seen that the Brussels I Regulation does not consider such possibility because it is just limited to rule the cases in which the choice of forum is made in favor of the courts of the Member States. Is this omitted by chance or is it the intention of the European legislator not to protect such situations? According to the doctrine´s opinion, the omission is intentioned. Such omission is been used since the initial drafting of the Brussels Convention in 1968 and follows the path of its system: it only rules matters that affect the European internal market, which is not affected by the validity or not of the choice of forum clauses of any third State. Therefore, the decision whether these clauses are effective or not is left to the Member States. Any attempt to justify the validity or nullity of any choice of forum clause in favor of extra-EU courts provided for in article 25 of the Brussels I Regulation is destined to fail. It is necessary to turn to the country regulations on international jurisdiction of the Member State in which the litigation takes place.
Thus, in the event that a lawsuit is brought before Spanish Court in connection with a contract including a choice of forum clause in favor of the courts of a third State, the court must take a decision about the validity thereof pursuant to the Spanish regulation on international jurisdiction. The lack of specific regulation on this matter by the Organic Law on the Judiciary has caused uncertainty that seems to have ended thanks to the recent amendment of the jurisdiction rules carried out by the Law 7/2015 (in Spanish). Concretely, the new article 22.ter explicitly points out that the jurisdiction of the Spanish courts “may be excluded by means of an agreement on the choice of forum in favor of a foreign court. In such case, the Courts shall suspend the proceeding and they shall solely be aware of the cause of action in the event that the appointed foreign court declines its jurisdiction”. Therefore, contrary to what happened before, it cannot be stated any longer that the principle of legality that governs the jurisdiction rules obliges the Spanish judge to declare its competence when the conditions for the application of one of the established choices of forum are met, even if there is an express agreement on the choice of forum in favor of the courts of a non-EU State.
The wording of article 22.ter of the Organic Law on the Judiciary only finds two limits: a) when the Spanish court jurisdiction is exclusive (art. 22); b) when the choice of forum is aimed at excluding the jurisdiction of the Spanish courts in those matters that cannot be heard by them” (art. 22.ter.5 of the Organic Law on the Judiciary).
In accordance with this last provision, there are some cases in which the derogation fori cannot be admitted by the Spanish Courts. Particularly, the jurisdiction of the Spanish courts cannot be derogated when the dispute is related to a contract with a weaker party domiciled in Spain: consumers, insurance contracts (expressly provided for in art. 22.d Organic Law on the Judiciary), workers (art. 25 of Organic Law on the Judiciary) and in mercantile matters, commercial agents. In this regard, stress should be laid on the regulation contained in the Spanish Act on commercial agents (in Spanish), by means which of the agent is protected as the weaker party of the contract. Pursuant to Additional Provision 1 of such Law, the choice of forum in favor of extra-EU courts is null when the agent´s domicile is located in Spain. Following this statement, the Court of First Instance of Alicante passed the court order number 92/2008 dated May 28 of 2008 (available in CENDOJ, reference ECLI:ES:APA:2008:76A) to annul a forum-choice agreement included in a contract between a US company and an agent domiciled in Spain.
This case law shall be taken into consideration by the companies placed outside the European Union when negotiating with companies domiciled in Spain or any other European country. Even more if when it’s becoming usual practice to apply by analogy the legal protection granted to commercial agents to other distribution agreements in which the distributor is considered to be the weaker party.
It is logic that when these companies have to negotiate the choice of forum clauses, they rather want the jurisdiction of their home courts in order to concentrate the legal defense of their international business. Even more if these are companies that, due to their turnover are considered to be in a position to impose their conditions to the members of their worldwide distribution network. However, the price to be paid can be very high. For this reason, as far as it is possible, it is advisable that these companies use choice of forum clauses in favor of some member state courts in which they have a subsidiary company, which is very common nowadays. Thanks to this, the validity of the agreement is ensured due to the application of Art.25 of Brussels I Regulation which is not influenced by the existence of a weaker party. This is not the best solution but it ends with the legal uncertainty caused by the lack of a unified regulation by the Brussels I Regulation on the choice of forum clauses in favor of extra-EU courts.
Related Posts:
- CJEU Judgment “Brogsitter”: Is It Possible to File an Extracontractual Action when the Parties under Litigation are Linked by an Intellectual Property License?
- Trademark Coexistence Agreements and International Jurisdiction
- On the Different Interpretation of Forum Delicti Commissi in Relation to EU Trademarks and National Trademarks
- AG Opinion on “Solvay”: cross-border interim measures in patent disputes