Economic development undoubtedly promotes trade exchange. For this reason, many Polish entrepreneurs establish broader cooperation with foreign entities. However, new opportunities also come with risks, especially regarding debt collector. Not all collaborations go smoothly. It is worth preparing for situations when debt recovery from EU counterparts becomes our problem. Adequate knowledge will ensure that we are well-prepared when the dispute with the other party goes to court.
Very often, Polish entrepreneurs do not know what steps to take protect their interests in conflicts with foreign entities. Fortunately, within the European Union, appropriate mechanisms have been developed in this regard. In the following two articles, I will present the most important issues related to :
- Jurisdiction of courts in cross-border disputes
- Applicable law for legal relationships between contractors from different EU countries
- European Payment Order
- Proceedings in matters of small claims.
Today, I will discuss 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 arising from the concluded agreement.
The second article in this series can be found here: Debt Recovery from EU Contractors – Part2.
Court jurisdiction in civil cases between contractors from different EU countries, the European Regulation of 12 December 2012 No. 1215 / 2012, commonly known as “Brussels I bis” , applies. You can find it here. The purpose of this regulation is to facilitate access to the swift recognition and enforcement of judgments in civil and commercial matters issued in EU member states.
According to the general principle of this regulation:
“judgments given in one member state shall be recognized in other member states without the need for any special procedure”
Court jurisdiction Brussels I bis also specifies which courts of which member state have jurisdiction. Jurisdiction refers to the right to adjudicate. Brussels I bis regulates jurisdiction in civil and commercial matters.
General principle and special provisions according to the general principle of the regulation:
“ A person domiciled in a member state may be sued in the courts of that member state”.
However, the provisions provide for special situations in which the jurisdiction can be:
- General, or
For example, among the special provisions in this regard are employment cases, In such cases a dispute can be brought not only in the place of the employer’s domicile but also in the place where the employee usually performs their work. If the employee does not usually work in any member state, the dispute can be brought before the court in the location of the employer’s branch where the employee performed the work.
Debt recovery from EU counterparts – choosing the court by the parties it may happen that we will have to pursue a dispute in a country whose laws we are not familiar with. As a result, it will be necessary to seek assistance from a foreign lawyer, which is associated with additional costs.
The solution to this problem is to include a jurisdiction clause in the agreement with the contractor. Thanks to this clause, we can establish that in the event of a dispute, the competent court will be Polish court. Such a provision will help us avoid unnecessary problems.
The issue of an agreement regarding jurisdiction is regulated by Article 25 of Brussels I bis, according to which:
“ If the parties, regardless of their place of residence have agreed that a court or the courts of a member state shall have jurisdiction to settle nay disputes that have arisen or may arise in connection with particular legal relationship that court or those courts shall have jurisdiction, unless the agreement is null and void as to its material validity under the law of that member state. Such jurisdiction shall be exclusive unless the parties have agreed otherwise”.
For evidentiary reasons, it is best to include the jurisdiction clause in writing.
Not all situations allow for the choice of a competent court by the parties to resolve disputes arising from a particular legal action. The regulation refers to what is known as exclusive jurisdiction. What does that mean?
Limitations on contractual jurisdiction a provision determining the jurisdiction of a court cannot contradict the provisions of Brussels I bis regarding exclusive jurisdiction. An example of this is the exclusive jurisdiction of a member state’s court:
- Where the property is located, or
- In which the company or legal person has its registered office in matters
relating to the validity, nullity, or dissolution of the company or legal person or the validity of decisions made by their governing bodies.
Debt recovery from EU counterparts- applicable law for cross-border contracts the court jurisdiction mentioned above is one aspect, while the applicable law for a particular legal relationship is another. If the parties to an agreement have not determined the applicable law for a given legal relationship, such as a contract, then the relevant EU regulation will apply:
- Rome I, for legal relationship arising from contracts
- Rome II, for legal relationships arising from non – contractual obligations (https://eur-lex.europa.eu/legal-content/pl/TXT/?uri=CELEX%3A32007R0864)
According to Article 4(1)(a) of the Rome I Regulation, a contract for the sale of movable goods is governed by the law of the country where the seller has their habitual residence.
In our example, we have two contracting parties:
- A furniture manufacturer from Poland and
- A furniture retailer in Berlin
This entities have entered into a furniture sales contract, where the manufacturer has also undertaken to deliver the goods to the retailer. In accordance with the Rome I Regulation, the applicable law governing the interpretation of the sales contract between our parties will be Polish law, if the parties have not made a choice of applicable law. This means that all matters not regulated in the contract will be subject to Polish law, including ratified international agreements. Additionally, the intentions of the parties and the provisions of the contract will be subject to Polish law. If the seller is based in Poland and no choice of law has been made, Polish law will apply.
Other contracts with EU counterparts in the case of other types of contracts and in the absence of a choice of applicable law under the Rome I Regulation, the law applicable to the following types of contracts shall be:
- Service contracts: the law of the country where the service provider has their habitual residence.
- Contracts concerning rights in rem in immovable property or the use of immovable property: the law of the country where the property is located
- Contracts for the temporary use of immovable property for personal use, for a period not exceeding six consecutive months: the law of the country where the party granting the use of the property has their habitual residence, provided that the party using the property is a natural person and has their habitual residence in the same country.
- Franchise agreements – the law of the country where the distributor has their habitual residence
- Sales of goods through auction – the law of the country where the auction takes place, if that place ca be determined
If a contact contains elements of two or more of the aforementioned contracts, it shall be governed by the law of the country where the party obliged to perform the obligation has their habitual residence. However, of it is evident from the circumstances that the contract is much more closely connected with another country that the country indicated under the above solutions, the law of that other country shall apply.
The Rome I Regulation also contains references to other types of contracts. The most important ones include carriage contracts, employment contracts and consumer contracts.
Debt recovery from EU counterparts. Summary, it is worth referring this regulation to be aware that signing an agreement in Poland does not necessarily mean that Polish law will apply to that agreement. If the parties to the agreement do not make a choice of applicable law, it may turn out that a court will decide the case based on the laws of a country other than Poland. These are laws that we are not familiar with and which may not necessarily be favorable to us.
Proper construction of contracts in cross-border relationship often helps to avoid many unnecessary troubles and make the life o a business owner easier. This leaves more free time for developing the company and enjoying the achieved results.