Two clauses in an international contract decide most of the balance of power in a dispute: the one designating the court or the arbitrator, and the one designating the governing law. They are distinct and may perfectly well cross, a French court applying English law. A jurisdiction clause designating the court of a Member State is valid whatever the nationality or domicile of the parties, it confers exclusive jurisdiction unless the parties agreed otherwise, and a court of another Member State must stay its proceedings until the designated court rules on its own jurisdiction (Articles 25 and 31 of the Brussels I bis Regulation). Failing a clause, the defendant is sued where he is domiciled, or, in contractual matters, at the place of delivery of the goods or provision of the services (Articles 4 and 7). The governing law follows the Rome I Regulation: the contract is governed by the law chosen by the parties, and failing choice by fixed connecting factors.
These two lines, usually copied from one contract to the next without thought, determine the length of the proceedings, their cost, their language, the rules of evidence, the limitation period and the prospects of enforcement. A supplier in Nantes selling to a distributor in São Paulo will spend between eighteen months and four years on the same dispute depending on what those lines say, and will sometimes find that the judgment he obtains cannot be enforced where the debtor keeps his assets. Neither clause costs anything to negotiate; both cost a great deal to do without.
Two separate questions, routinely confused
Jurisdiction answers the question of who will hear the dispute; governing law answers the question of the rules by which it will be decided. Nothing requires the two to point to the same country. A contract may perfectly well give jurisdiction to the Paris Commercial Court and be governed by Swiss law, in which case the French judge will apply Swiss law and the parties will have to prove its content. Conversely, choosing French law says nothing about where the case will be heard, and a party who has secured its preferred law may still find itself litigating eight thousand kilometres away.
A third question, distinct from both, is enforcement of the decision obtained. A judgment given in the Union circulates freely between Member States under Brussels I bis; a judgment given outside the Union has to go through exequatur in France, and a French judgment has to go through the equivalent procedure abroad. An arbitral award, by contrast, benefits from the New York Convention of 1958 in more than one hundred and seventy States. Any serious discussion of these clauses starts from where the debtor’s assets are, not from where the parties would prefer to litigate.
The jurisdiction clause inside the European Union
Regulation (EU) No 1215/2012, known as Brussels I bis, governs the matter where the designated court is that of a Member State. Article 25 provides that if the parties, regardless of their domicile, have agreed that a court of a Member State is to hear their disputes, that court has jurisdiction unless the agreement is null and void as to its substantive validity under the law of that State, and that this jurisdiction is exclusive unless the parties agreed otherwise. The words regardless of their domicile matter: a clause designating the Paris Commercial Court in a contract between a French company and a Brazilian company falls within the Regulation and binds the French court.
The clause must satisfy a formal requirement: it must be in writing or evidenced in writing, or in a form which accords with practices the parties have established between themselves, or, in international trade, in a form which accords with a usage of which the parties were or ought to have been aware. Article 31(2) adds the decisive protection: where an exclusive jurisdiction clause exists, any court of another Member State seised of the dispute must stay its proceedings until the designated court declares whether it has jurisdiction. That provision was introduced to defeat the tactic of seising a slow court first in order to paralyse the contractual choice.
Failing a clause: where the defendant may be sued
Article 4 of Brussels I bis states the general rule: a defendant domiciled in a Member State is sued in the courts of that State. Article 7(1) adds a contractual option, allowing the claimant to sue in the place of performance of the obligation in question, defined for the sale of goods as the place in a Member State where, under the contract, the goods were delivered or should have been delivered, and for the provision of services as the place where the services were or should have been provided. Article 7(2) opens a further option in tort, at the place where the harmful event occurred.
For a sale, the Incoterm therefore decides jurisdiction. EXW at the seller’s works places delivery in the seller’s country; DDP at the buyer’s premises places it in the buyer’s. A term chosen by the logistics department for pricing purposes settles, two years later, which country will hear the dispute, in which language and at what cost. This is the clearest illustration of why an Incoterm is a legal decision and not a shipping detail.
The governing law: party choice, then the default rules
Regulation (EC) No 593/2008, known as Rome I, allows the parties to choose the law governing their contract, expressly or clearly demonstrated by its terms or the circumstances, for the whole contract or part of it, and to change that choice later. Failing a choice, Article 4 applies fixed connecting factors: a contract for the sale of goods is governed by the law of the country where the seller has his habitual residence, a contract for the provision of services by the law of the country where the service provider has his, a distribution contract by the law of the distributor’s country, a franchise contract by the law of the franchisee’s.
Choosing a law does not disapply everything else. Article 9 of Rome I preserves the overriding mandatory provisions of the forum, which apply whatever the chosen law, and Article 21 reserves public policy. In French practice the protection of the commercial agent derived from Directive 86/653, and certain provisions of Article L. 442-1 of the Commercial Code on abrupt termination of established commercial relationships, are regularly applied notwithstanding a choice of foreign law. A clause designating New York law therefore removes far less than a client generally assumes.
Outside the Union: arbitration, the Hague Convention, asymmetric clauses
Where the counterparty is established outside the European Union, the value of a jurisdiction clause depends on whether the resulting judgment will be recognised where the assets are. The Hague Convention of 30 June 2005 on Choice of Court Agreements obliges the courts of Contracting States to give effect to exclusive choice of court agreements and to recognise the resulting judgments, but its membership remains limited compared with the New York Convention. Against a debtor in a State outside both instruments, a French judgment may be unenforceable in practice, however impeccable the clause.
Arbitration answers that problem, because an award obtained under an arbitration clause naming an institution, a seat and a language circulates under the New York Convention of 1958 in more than one hundred and seventy States, with refusal possible only on the narrow grounds of Article V. Asymmetric clauses, which allow one party alone to choose between several courts, are a different matter: French case law accepts them only where the option is defined by objective criteria, and a purely discretionary option is struck down, taking with it the whole procedural architecture the parties believed they had.
What has to be decided before signing
Four decisions, taken together and not separately. Where the debtor’s assets actually are, because that dictates whether the choice should be a court or an arbitral tribunal. Whether the judgment or award will be enforceable there, under Brussels I bis, the Hague Convention or the New York Convention. Which law governs, and whether the overriding mandatory rules of the likely forum would in any event apply. And what the dispute would realistically cost in each configuration, arbitration being faster and more enforceable but substantially more expensive to start.
These decisions have to be consistent with the rest of the contract. A jurisdiction clause designating a French court combined with an Incoterm placing delivery abroad, or an arbitration clause in the general terms and a jurisdiction clause in the signed order form, produce exactly the preliminary litigation the clauses were meant to prevent. Reading the whole contract for consistency takes an hour; resolving the contradiction later takes a year.
What the firm does
The firm drafts and reviews jurisdiction, arbitration and governing law clauses for companies trading internationally, starting from where the counterparty’s assets are and what would actually be enforceable there. That review covers the standard order form, the general terms of sale, the framework agreement and the Incoterm together, because inconsistency between them is the most frequent defect found in practice.
Where a dispute has already arisen, the firm assesses which court or tribunal has jurisdiction on the documents actually exchanged, argues jurisdiction before the French courts, and coordinates local counsel abroad. It also handles the consequences of an unfavourable clause: challenging its validity on form, invoking overriding mandatory provisions, or securing the debt by protective attachment while the jurisdictional argument is fought out. A first assessment is usually possible within a few days on the strength of the contract and the correspondence.
Do the jurisdiction and governing law clauses in your contracts actually protect you? The firm reviews them against where your counterparty’s assets are and what would be enforceable there.
Frequently asked questions
Is a clause designating a French court valid against a non-European counterparty?
Yes. Article 25 of the Brussels I bis Regulation applies where the designated court is that of a Member State, regardless of the parties’ domicile, so a clause naming the Paris Commercial Court binds the French court even in a contract with a Brazilian or Chinese company. The separate question is whether the resulting French judgment will be enforceable in the counterparty’s country, which depends on the applicable conventions and may argue for arbitration instead.
Can we choose a French court and a foreign law?
Yes. Jurisdiction and governing law are independent questions. A French court may be designated under Article 25 of Brussels I bis while the contract is governed by Swiss, English or New York law under the Rome I Regulation. The French judge will then apply that foreign law, whose content the parties will have to establish, usually by expert opinion, which adds time and cost to the proceedings.
What happens if the contract contains no jurisdiction clause?
The default rules of Brussels I bis apply where the defendant is domiciled in a Member State: Article 4 allows proceedings at the defendant’s domicile, and Article 7(1) allows them at the place where the goods were delivered or the services provided under the contract. Where the defendant is outside the Union, French private international law applies, including Article 14 of the Civil Code which allows a French claimant to sue a foreign defendant in France.
Which law applies if the parties chose none?
Article 4 of the Rome I Regulation applies fixed connecting factors: the law of the seller’s habitual residence for a sale of goods, of the service provider’s for services, of the distributor’s country for a distribution contract, of the franchisee’s for a franchise. Where the contract is manifestly more closely connected with another country, the law of that country applies instead. For sales of goods, the Vienna Convention may also apply as part of the chosen law unless it is expressly excluded.
Does choosing a foreign law exclude every French rule?
No. Article 9 of Rome I preserves the overriding mandatory provisions of the forum, which apply whatever law was chosen, and Article 21 reserves public policy. In French practice, the commercial agent’s protection derived from Directive 86/653 and certain provisions on abrupt termination of established commercial relationships are regularly applied notwithstanding a choice of foreign law.
Further reading: recovering an unpaid invoice from a foreign customer, exequatur of an arbitral award in France, enforcing a US or English judgment in France.
Written by Hervé Guyader, avocat at the Paris Bar, doctor of law. This content is general information and is no substitute for advice on your own matter.