In any type of contract involving the delivery of goods across a national border or the provision of services in another country, considerations of choice of counsel and jurisdiction should play a special role in contract negotiations and general risk assessment. Often, contractual partners are only familiar with the law and jurisdiction in their home country and can only make considerations about risk aspects in connection with legal prosecution and enforcement on the basis of knowledge of domestic law. This applies in particular to complex legal transactions, such as those frequently encountered in distribution relationships. For this reason alone, it makes sense to include a clear and legally effective provision in the distribution agreement regarding the law applicable to the contract and the place of jurisdiction.
If no provision or no effective provision is made in the Distribution Agreement regarding the applicable law and the place of jurisdiction, the law applicable to the Distribution Agreement and the place of jurisdiction shall be determined in accordance with the provisions of international civil procedure law as described below.
The law applicable to the distribution agreement
If the parties to the distribution agreement have not made a choice of law, i.e. have not made the distribution agreement subject to a specific substantive law by contractual agreement, the law applicable to the distribution agreement is generally determined by Art. 4 No. 1) and b) Rome I Regulation. According to Art. 4(1)(b) Rome I Regulation, service contracts are governed by the law of the country in which the service provider has his habitual residence. Sales activities, such as brokering the conclusion of contracts and advising customers in a certain territory, are generally to be qualified as services. Accordingly, the habitual residence of the service provider matters. If the service provider had a habitual residence, for example in the Federal Republic of Germany, at the time of his activity, German substantive law is applicable to the distribution agreement. Ordinary residence means the center of life. Occasional stays in another country do not prevent this.
In addition, Art. 4(1)(f) Rome I Regulation contains a special provision for authorized dealer agreements. According to Art. 4(1)(f) Rome I Regulation, these are subject to the law of the country in which the distributor has his habitual residence. In contrast to Art. 4 No. 1) and b) Rome I Regulation, however, Art. 4 Para. 1 f) Rome I Regulation requires that it corresponds to the activity of an authorized dealer. This has to be examined separately. In the case of classic authorized dealers and distributors, this requirement will be met. Commercial agents who only arrange opportunities for the conclusion of contracts and act as pure sales agents without a power of attorney are not distributors within the meaning of Art. 4(1)(f) Rome I Regulation.
Place of jurisdiction for distribution contracts
If the place of jurisdiction in a distribution contract has not been contractually agreed, it is to be determined according to the regulations of international civil procedure law. In the case of cross-border matters relating to the European internal market, the provisions of the Brussels 1 a Regulation (Brussels 1 a Regulation or also EU Regulation on Jurisdiction in Civil Matters) are to be applied.
Determination of the place of jurisdiction for distribution contracts according to the Brussels 1 a Regulation
In addition to the general place of jurisdiction at the place of establishment, special places of jurisdiction can be opened according to §§ 5, 7 No. 1 b) Brussels 1 a Regulation. The plaintiff can choose between several places of jurisdiction.
Jurisdiction of the courts at the place of establishment
According to Art. 4 para. 1 and Art. 5, 7 no. 1 a) Brussels 1 a Regulation, there is a general place of jurisdiction at the place of residence in the territory of a member state
Art. 4 para. 1 Brussels 1 a Regulation:
(1) Subject to the provisions of this Regulation, persons domiciled in the territory of a Member State shall be sued in the courts of that Member State irrespective of their nationality.
In the case of companies, the place of management is to be taken into account, i.e. the place where the effective management takes place.
Jurisdiction of the Courts at the Place of Performance of the Distribution Contract
According to Art. 5, 7 No. 1 b) Brussels 1 a Regulation, another jurisdiction may be opened at the place of performance of the distribution contract.
According to this provision, a person or company may bring an action before the court of the place where the obligation has been performed or would have to be performed if a contract or claims arising from a contract form the subject matter of the proceedings. For the purposes of this provision – and unless otherwise agreed – the place of performance of the obligation for the provision of services is the place in a Member State where, under the contract, they were or should have been provided.
For the provision of services, the place of performance shall be the place in a Member State where, under the contract, they were provided or should have been provided. If this place is located in a member state, a place of jurisdiction is opened there. The term service contract in the sense of No. b) is to be interpreted autonomously and broadly and also includes consulting and mediation contracts. Furthermore, the place of performance of the service typical for the contract applies to all claims arising from the contractual relationship, i.e. also to the payment obligations of the service creditor.
Author: Christian Feierabend, Attorney at Law at the Berlin Office
Christian Feierabend
Attorney At Law (Germany) | Specialist in International Business Law