Why You Should Pay Attention to So-Called "Forum Clauses" in International Trade Relations

When your company regularly enters into contracts with international partners, it is crucial to pay attention to clauses that determine which country's courts have jurisdiction.

This can have far-reaching consequences in terms of efficiency, costs, and the chances of recovery. Below, we discuss some key points.

The European Union has long aimed to remove all barriers to the free movement of people, goods, services, and capital. A Dutch citizen should be able to live in Belgium, a German citizen should be able to work in the Netherlands, and a Belgian company should be able to operate in France.

But what happens when a dispute arises between a Belgian and a French company? Which country's courts have the authority to resolve the dispute? Can the parties eliminate this uncertainty by designating a competent court themselves?

Forum Clauses: The Issue

Let us illustrate the importance of this issue with a small example.

A Belgian company has been selling refrigerators for many years. When their trusted German supplier became too expensive, they found a new supplier: an Italian firm. However, problems arose from the very first deliveries. Not only were the refrigerators noisy and emitting an unpleasant smell, but the Italian supplier also refused to fix the defects, leading the Belgian company to dispute the invoice.

A few months later, the Belgian company received an unpleasant surprise: they were summoned to the Paris Commercial Court, which would apply Italian law. Upon re-reading the general terms and conditions, the company discovered that this had indeed been stipulated in the sales conditions...

Freedom to Choose the "Forum"

In principle, companies are free to choose which country's courts will resolve disputes related to a contract. When a German and a Belgian company sign a contract, they can agree that all disputes arising from that contract will be submitted to the Belgian courts. At the same time, they can also agree on which law the court will apply. This does not necessarily have to be their own country's law — they can make choices here too.

Such a choice for the jurisdiction of a particular country (or "forum") is laid down in a so-called "forum clause." Companies may choose a particular forum for various reasons. This might relate to the speed and efficiency of certain courts, familiarity with a particular legal system, proximity for the creditor, and so on. However, there can also be less noble motives behind such choices: for example, English law is often chosen along with jurisdiction for English courts, frequently because of the complexity and high cost of legal proceedings in that territory — making one party almost immune to lawsuits.

Nevertheless, there are limitations, even in relationships between companies. For example, in disputes about real estate, only the courts of the country where the property is located have jurisdiction. Furthermore, for company law matters, only the courts of the member state where the company is established are competent. Extreme choices of applicable law and competent courts will also be subject to a reasonableness test — for instance, it would be unreasonable to ask a South African court to resolve a dispute between a Belgian and a Luxembourg company. Therefore, a minimal connection will always be required.

Freedom to Choose the Competent Local Court

A forum clause not only allows a company to choose the country whose courts have jurisdiction but also to designate the competent local court, often for the same reasons of efficiency, convenience, speed, and familiarity.

If the Belgian court is chosen, for example, one can go a step further by designating a specific court in Antwerp or Brussels, and in the latter case, even selecting the language: Dutch or French. A good understanding of the characteristics of these local courts is therefore crucial.

Conclusion

Forum and jurisdiction clauses may seem like small provisions, but they are of crucial importance. Given the potentially high costs of a foreign jurisdiction and the differences between local courts, these clauses deserve careful attention.

Vanbelle Law Boutique is ready to advise you on this. Thanks to our international dimension, we are particularly well-placed to make informed decisions and precise assessments regarding the relevant jurisdictions for your case.