Choice of court agreements -also known as jurisdiction agreements or forum selection clauses, inter alia– are a phenomenon prevalent in international contracts. Through the use thereof, the parties submit ex ante and voluntarily to the jurisdiction of a court they select, conferring the chosen jurisdiction the competence to hear disputes arising from their legal relationship. By means of the submission to a specific court or courts, the parties gain legal certainty and predictability, and thus avoid being forced to litigate in courts of other countries with which the legal relationship may be linked.
The legal framework for choice of court agreements is characterised by plurality and dispersion, with the coexistence in our legal system of national laws (article 22 bis of the Organic Judiciary Act – LOPJ) and international laws (basically, article 25 of the Brussels Regulation I bis, the Hague Convention of 2005 on Choice of Court Agreements and article 23 of the Lugano Convention of 2007) which regulate choice of court agreements. During recent years, within the scope of Private International Law, there has been an increasingly evident recognition of the role of free will as a mechanism for settlement in the area of international jurisdiction. This has been made possible due to the considerable production of new regulations on the part of the European lawmakers, which has extended the possibility of concluding agreements on the choice of jurisdiction to an increasing number of areas.
Naturally, the expansion of the agreements on choice of court is due to the advantages that they bring to the field of Private International Law. From the point of view of patrimonial law, the main advantage provided by choice of court agreements is that they allow the parties to carry out international transactions within the terms of legal certainty. In legal relationships which incorporate an element of internationality, one of the parties may sue the other before the courts of a country with which the legal relationship is in some way linked. In some cases, the parties may even be tempted to choose an opportunistic procedural strategy (forum shopping) or, faced with the threat that the other party may file a legal action, to rush to be the first in filing a lawsuit, obliging the other party to litigate in a jurisdiction unknown to them, with all the costs that this would imply. All of the above may be avoided with the inclusion of a specific clause in the contract for submission which regulates the legal relationship of the parties, and which would allow them to know, even before any dispute leading to litigation is generated, which court shall be competent to hear such dispute arising between the parties, thus avoiding further litigation regarding which court is competent.
On a more practical note, the agreements of choice of court may also be converted into a factor to be taken into account for reducing costs. As an example, a company with international presence in various countries, would, in principal, be susceptible to being sued in each of them. Nevertheless, if said company manages to concentrate all litigation deriving from its international commercial activity before the courts of just one territory, it would be able to save the enormous costs of having to litigate and coordinate its legal defence in diverse countries at the same time.
Furthermore, a choice of court agreement allows the parties to choose the court which they deem will offer them the best solution to their dispute, given that, in the end, it is these parties which know their legal relationship better and are in a privileged position to determine the optimum way of resolving their disputes. This choice of competent court may follow different reasoning, all of which are valid and under no circumstances condition the legal validity and effectiveness of the submission agreement.
Accordingly, it is common for the parties to submit to a neutral court of a country different to their country of residence, as well as to choose the competent court due to the speed of the court decision, the quality of justice in that particular country, lower legal costs or because the chosen court is specialised in the matter of the contractual relationship in question (e.g. the High Court of London is known for maritime matters).
Finally, the choice of the competent court may play a relevant part as an element in the commercial negotiation between the parties. In the same way that the parties negotiate the prices of the product, the delivery date or other obligations assumed in the contract, the choice of the court which will hear any litigation arising between the parties may also be the object of negotiation. Consequently, it is understandable that one of the parties is willing to submit to the courts of the country where the other is based if in return the second party were to offer better commercial conditions.
In short, agreements on choice of court are an excellent resource for companies to gain legal certainty and predictability in their international legal relations. Likewise, such agreements will help to avoid opportunistic behaviour which could be detrimental to an out of court solution to the disputes, avoiding litigation and saving costs for the parties.
Vilá Abogados
Joan Lluís Rubio
For more information, please contact:
11th March 2022
