In the context of international trade, when a dispute cannot be resolved out of court, determining where legal proceedings should be brought becomes essential.
Indeed, a dispute does not necessarily have to be heard in the country where the problem arose, where the claimant company is established or even where the effects of the breach were felt.
A Portuguese company enters into a contract with a Spanish supplier. The goods are manufactured in Spain and subsequently delivered or used in Portugal. A dispute arises regarding the quality of the product, the performance of the contract or the resulting losses. Where should proceedings be brought? In Portugal or in Spain?
And what if a manufacturer carries on its business in Spain, sells its product to a Spanish company, which subsequently resells it to a Portuguese company? Can the manufacturer be required to defend proceedings before the Portuguese courts merely because its products ultimately came to be marketed in Portugal?
It is in this context that the EU rules on jurisdiction become particularly relevant.
Regulation (EU) No 1215/2012, commonly known as the Brussels I bis Regulation, lays down the criteria for determining the courts of which Member State have jurisdiction over a defendant, starting from a general rule: in principle, a person or company should be sued in the courts of the Member State in which it is domiciled.
In practice, however, cross-border commercial relationships are rarely so straightforward. The Regulation does not establish an absolute rule and provides for several grounds of special jurisdiction which, in certain circumstances, allow proceedings to be brought in a Member State other than the one in which the defendant is domiciled.
In contractual matters, Article 7(1) of the Regulation provides that a person domiciled in one Member State may be sued in another Member State before the courts for the place of performance of the obligation in question. The Regulation nevertheless distinguishes between contracts for the sale of goods and contracts for the provision of services.
In the case of the sale of goods, jurisdiction lies with the courts for the place where, under the contract, the goods were delivered or should have been delivered. In the case of the provision of services, jurisdiction lies with the courts for the place where, under the contract, the services were provided or should have been provided.
Where the contract giving rise to the dispute does not fall within either of these categories, jurisdiction will lie with the courts for the place where the obligation on which the claim is based was performed or should have been performed.
For companies entering international contracts, one of the most effective ways of preventing disputes over jurisdiction is to include a choice-of-court clause.
Article 25 of the Regulation expressly allows the parties, regardless of their domicile, to agree that the courts of a particular Member State shall have jurisdiction, provided that the applicable requirements are met, including those concerning the form of the agreement.
A properly drafted choice-of-court clause can therefore prevent a Portuguese company from having to litigate before foreign courts or, conversely, enable it to bring proceedings against a foreign business partner before the Portuguese courts, irrespective of the general rules on jurisdiction.
Not all international disputes, however, arise directly from a breach of contract. Where non-contractual liability is at issue, the Regulation also contains a special rule allowing proceedings to be brought before the courts for the place where the harmful event occurred or may occur.
Another situation that the firm encounters relatively frequently arises where a company that has already been sued wishes to bring into the proceedings a third party established in another Member State, on the grounds that the third party should bear all or part of the consequences of any judgment against it.
For example, a Portuguese company may sue a distributor in connection with defects in a particular product and the distributor may, in turn, seek to bring into the proceedings the foreign manufacturer from which it purchased that product.
Article 8 of the Brussels I bis Regulation lays down specific rules for certain proceedings involving third parties, including claims relating to warranties and guarantees. These rules should not, however, be regarded as an automatic means of subjecting any foreign company to the jurisdiction of the courts before which the main proceedings are pending.
In such cases, it is necessary to examine the legal relationships between the various companies, the subject matter of the main proceedings and the legal basis on which the third party is being brought into the proceedings.
Finally, the Regulation establishes certain grounds of exclusive jurisdiction, which apply irrespective of the parties’ domicile and cannot be derogated from by agreement.
Among the most relevant cases, particularly in corporate, real estate and intellectual property disputes, are proceedings concerning rights in rem in immovable property, which fall within the jurisdiction of the courts of the Member State in which the property is situated, proceedings concerning the validity of the constitution, nullity or dissolution of companies or other legal persons, or the validity of decisions taken by their governing bodies, which fall within the jurisdiction of the courts of the Member State in which the company or legal person has its seat, proceedings concerned with the registration or validity of patents, trademarks and other rights required to be registered, which fall within the jurisdiction of the courts of the Member State in which the deposit or registration has been applied for, has taken place or is deemed to have taken place.
To conclude, an important point should be emphasized: the determination of which courts have international jurisdiction must not be confused with the determination of the law applicable to the dispute.
These are two separate questions, governed by different rules, and they may point to different Member States.
Accordingly, the fact that the Portuguese courts have jurisdiction does not necessarily mean that the dispute will be decided under Portuguese law. Likewise, a Spanish court may, in certain circumstances, be required to apply Portuguese law.
Within the European Union, the law applicable to contractual obligations is determined in accordance with Regulation (EC) No 593/2008 (Rome I), while Regulation (EC) No 864/2007 (Rome II) is particularly relevant to non-contractual obligations.
The Litigation Department of Belzuz Abogados, S.L.P. has extensive experience in this field and understands, in an increasingly international business environment, identifying the competent jurisdiction at an early stage is not merely a procedural issue. It can provide a decisive strategic advantage in managing a dispute.