Cross-border contract disputes and litigation
"Judicial cooperation in civil matters having cross-border implications... shall include the recognition and enforcement of decisions in civil and commercial cases."
- Art. 65(a) EU Treaty.
With EU accession comes greater access to a market of over 350 million consumers throughout the member states. Polish companies wishing to tap into this expanded market will, for the most part, have to comply with not only the acquis communautaire, the body of EU law, but also with each of the member states' legal systems, 25 in all. Much has been written about the free movement of goods, capital and people throughout the EU, and to a large degree most member states have sought to harmonize their individual laws to comply with this underlying principle, but issues remain regarding the resolution of contract disputes that involve cross-border transactions. For example, if a Polish meat producer ships five tonnes of beef to a supermarket chain in Portugal, and subsequently the Portuguese company refuses to pay, what are the remedies available to the Polish investor? In addition to the issue of remedies, the question arises as to where the Polish meat producer should file suit? In Poland? In Portugal? Or perhaps somewhere else? The answer, you may be surprised to learn, is not so clear.
First, let's take a look at the EU Treaty. Art. 61(c) empowers the Council to adopt measures to ensure judicial cooperation among member states regarding civil matters. Art. 65 further defines the scope of the EU's jurisdiction to enact legislation to improve and simplify the cross-border service of judicial documents, the collection of evidence, and the recognition and enforcement of judicial rulings in civil and commercial matters, in addition to harmonizing the rules on civil procedure in each of the member states. Building upon Art. 65, the Tampere European Council, held in October 1999, resolved to create a genuine "European area of justice" to ensure that European-based companies and individuals would not be hindered or discouraged from exercising their freedom of movement (including goods and capital investment) due to conflicting and complex legal systems across the member states. Specifically, the Tampere Council reiterated and reconfirmed the need for the mutual recognition of judicial decisions among member states. On November 30, 2000 the Justice and Home Affairs Council approved a series of measures to ensure the mutual recognition of judicial decisions in both civil and commercial matters.
Great, so now we know that a decision issued by a court in one member state may be recognized by a court in another member state. The question remains, however, which court should adjudicate the contractual dispute between our Polish meat producer and the Portuguese supermarket chain? The answer does not lie in the EU Treaty, but rather is provided for in a series of 'conventions.' Prior to joining the EU, the Lugano Convention applied to Poland, whereas, following accession, the answer may be found in the Brussels Convention, as amended by the Brussels I Regulation of December 22, 2000. The basic principle underlying the Brussels Convention is that jurisdiction is determined by the legal residence of the defendant. For an individual this means his or her residence. For a company this means either the location of its corporate headquarters or its principle place of business. With respect to contractual disputes, jurisdiction is generally determined by the location of performance of the contract, unless the parties specify in the contract which legal system will have jurisdiction in the event of a dispute. Our Polish meat producer, therefore, would most likely need to file suit in Portugal, the site of delivery, unless jurisdiction was limited to Poland (or even a third country) in the contract. As an aside, with respect to consumer contracts, jurisdiction is almost always determined by the residence of the consumer, regardless of what the contract may otherwise stipulate.
For the sake of this example, however, let's assume that the agreement between our Polish meat producer and the Portuguese supermarket chain provided for the jurisdiction of the Polish courts. And let's assume that the Polish company wins in court. The ruling instructs the Portuguese company to pay E5 million to our injured Polish meat producer. So now what? If any of my readers have ever been involved in litigation, you will surely know that obtaining a judicial ruling in your favor is only half the battle. Enforcement of the judgment, i.e. collecting payment, is an entirely different matter. The assets of the defendant are in Portugal, and the Polish court cannot compel the Portuguese defendant to pay. The answer, fortunately, is relatively simple. The Brussels I Regulation has streamlined the procedures to have a judgment recognized and enforced by a foreign court. Art. 33 requires the courts of one member state to automatically accept as valid a judgment issued by a court in other member states. Specifically, the courts of one member state are prohibited from reviewing the merits of a judgment issued by the courts of another member state. An exception to this is limited to judgments by default, meaning rulings issued against defendants who did not appear in their own defense. In this case, the validity of the judgment may be questioned. Enforcement of the judgment in another member state is accomplished by presenting a certificate confirming enforceability, prepared by the court which issued the decision, to the court designated by the other member state to examine such confirmations for accuracy. Once approved, our Polish meat producer may then utilize the Portuguese courts to enforce the judgment as if it were issued by a Portuguese court.
Paul Fogo is a senior attorney with Miller Canfield W. Babicki & Partners.
- Art. 65(a) EU Treaty.
With EU accession comes greater access to a market of over 350 million consumers throughout the member states. Polish companies wishing to tap into this expanded market will, for the most part, have to comply with not only the acquis communautaire, the body of EU law, but also with each of the member states' legal systems, 25 in all. Much has been written about the free movement of goods, capital and people throughout the EU, and to a large degree most member states have sought to harmonize their individual laws to comply with this underlying principle, but issues remain regarding the resolution of contract disputes that involve cross-border transactions. For example, if a Polish meat producer ships five tonnes of beef to a supermarket chain in Portugal, and subsequently the Portuguese company refuses to pay, what are the remedies available to the Polish investor? In addition to the issue of remedies, the question arises as to where the Polish meat producer should file suit? In Poland? In Portugal? Or perhaps somewhere else? The answer, you may be surprised to learn, is not so clear.
First, let's take a look at the EU Treaty. Art. 61(c) empowers the Council to adopt measures to ensure judicial cooperation among member states regarding civil matters. Art. 65 further defines the scope of the EU's jurisdiction to enact legislation to improve and simplify the cross-border service of judicial documents, the collection of evidence, and the recognition and enforcement of judicial rulings in civil and commercial matters, in addition to harmonizing the rules on civil procedure in each of the member states. Building upon Art. 65, the Tampere European Council, held in October 1999, resolved to create a genuine "European area of justice" to ensure that European-based companies and individuals would not be hindered or discouraged from exercising their freedom of movement (including goods and capital investment) due to conflicting and complex legal systems across the member states. Specifically, the Tampere Council reiterated and reconfirmed the need for the mutual recognition of judicial decisions among member states. On November 30, 2000 the Justice and Home Affairs Council approved a series of measures to ensure the mutual recognition of judicial decisions in both civil and commercial matters.
Great, so now we know that a decision issued by a court in one member state may be recognized by a court in another member state. The question remains, however, which court should adjudicate the contractual dispute between our Polish meat producer and the Portuguese supermarket chain? The answer does not lie in the EU Treaty, but rather is provided for in a series of 'conventions.' Prior to joining the EU, the Lugano Convention applied to Poland, whereas, following accession, the answer may be found in the Brussels Convention, as amended by the Brussels I Regulation of December 22, 2000. The basic principle underlying the Brussels Convention is that jurisdiction is determined by the legal residence of the defendant. For an individual this means his or her residence. For a company this means either the location of its corporate headquarters or its principle place of business. With respect to contractual disputes, jurisdiction is generally determined by the location of performance of the contract, unless the parties specify in the contract which legal system will have jurisdiction in the event of a dispute. Our Polish meat producer, therefore, would most likely need to file suit in Portugal, the site of delivery, unless jurisdiction was limited to Poland (or even a third country) in the contract. As an aside, with respect to consumer contracts, jurisdiction is almost always determined by the residence of the consumer, regardless of what the contract may otherwise stipulate.
For the sake of this example, however, let's assume that the agreement between our Polish meat producer and the Portuguese supermarket chain provided for the jurisdiction of the Polish courts. And let's assume that the Polish company wins in court. The ruling instructs the Portuguese company to pay E5 million to our injured Polish meat producer. So now what? If any of my readers have ever been involved in litigation, you will surely know that obtaining a judicial ruling in your favor is only half the battle. Enforcement of the judgment, i.e. collecting payment, is an entirely different matter. The assets of the defendant are in Portugal, and the Polish court cannot compel the Portuguese defendant to pay. The answer, fortunately, is relatively simple. The Brussels I Regulation has streamlined the procedures to have a judgment recognized and enforced by a foreign court. Art. 33 requires the courts of one member state to automatically accept as valid a judgment issued by a court in other member states. Specifically, the courts of one member state are prohibited from reviewing the merits of a judgment issued by the courts of another member state. An exception to this is limited to judgments by default, meaning rulings issued against defendants who did not appear in their own defense. In this case, the validity of the judgment may be questioned. Enforcement of the judgment in another member state is accomplished by presenting a certificate confirming enforceability, prepared by the court which issued the decision, to the court designated by the other member state to examine such confirmations for accuracy. Once approved, our Polish meat producer may then utilize the Portuguese courts to enforce the judgment as if it were issued by a Portuguese court.
Paul Fogo is a senior attorney with Miller Canfield W. Babicki & Partners.
