Jurisdiction and applicable law in disputes within the EU

Jurisdiction and applicable law in disputes within the EU. The establishment of trade cooperation within the EU has caused not only new business opportunities but also forced usage of new law – the community law.

Entrepreneurs who cooperate with foreign countries  are not always aware of legal consequences of agreements concluded with foreign entities. When entrepreneurs are forced to pursue their claims in court, the question will arise which court is relevent for the particular case. Also, the  issue will be to choose  the law of a Member State that will be applicable to the agreement.

The entrepreneurs, while entering into an agreement with a foreign partner, often focuse only on negotiating of appropriate financial conditions and are not aware of  other important issues. They sign a simple contract, which lacks of  basic provisions to protect their interests in a proper manner.

In each agreement foreign parties should take care of the two regulations.

First of all, it is all about choice of the Member State before which entrepreneurs will be able to enforce their rights, so-called  choice of national jurisdiction.

Secondly, the party needs to choose the law applicable to the agreement.

European Union law leaves to the parties the freedom to make choices both the national jurisdiction of the courts and the law applicable to the contract.

In the absence of these choices, the answer to the questions which courts will have jurisdiction and which law will be applicable, can be found in the provisions of the relevant EU regulations as follow below.

In terms of national jurisdiction the provisions of Regulation of the European Parliament and of the Council (EU) No 1215/2012 on jurisdiction and the recognition of judgments and their enforcement in civil and commercial matters is applicable. This regulation is applicble in civil and commercial matters, with the exception of revenue, customs or administrative matters.

For example, in the case of the sale of goods the competent court shall be the court in the Member State where, under the contract, the delivery of goods has or should have take place while in the case of the provision of services – in the Member State in which the services, under the contract, were or  have been provided.

The law applicable to the contract concluded by the entrepreneus determines the EU Regulation of the European Parliament and Council Regulation (EC) No 593/2008 on the law applicable to contractual obligations. The provisions of this Regulation, by their nature and importance in the system of legal acts in force in the territory of the Union, are directly applicable.

If the parties have not chosen applicable law or have made such a choice, but in inproper way (choice is invalid or ineffective), or made a partial selection, the art. 4 of the Regulation or one of the art. 5-8 of regulation for particular types of contracts will be applicable. So in the case of a contract for sale of goods – the contract shall be governed by the law of the country in which the sellers have their habitual residence, while considering service contract – a contract subject to the law of the country where the service providers have their habitual residence.

It must be concluded that in the case of disputes between entities in different Member States to determine the proper court and the law is very difficult. Companies should, therefore, pay greater attention  to the content of signed contracts in international commercial relations relating to the above mentioned  issue. Also, it is adviseable to use  legal support provided by specialized Law.