Nowadays, it is not uncommon that companies do business with partners based outside their home country, including in Slovakia. Of course, virtually nobody thinks of the rules dealing with settlement of potential legal disputes with a business partner. While it may seem like a minor issue with no real significance to the overall contract negotiations, often the opposite proves to be the case.
If you are an EU-based entrepreneur, the basic rule is that if your business partner (who is also based in the EU) wants to sue you, they have to do it in the courts of your own country (seat-of-the-defendant rule) – a principle anchored in EU Regulation No. 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Brussels Regulation). This means that the party being sued (defendant) normally has the “advantage” of being in their “home” environment in court proceedings. The rule is logical and intuitive.
However, what is not so intuitive is that there are alternative ways of establishing the jurisdiction of the courts. This can have a huge impact on a legal dispute arising out of business cooperation, and it can even mean that you lose the whole case. For this reason, the best advice would be to approach a professional and experienced law firm before closing any international business deal.
A major factor which can shift the jurisdiction of courts is agreement between the parties on jurisdiction (also called “prorogation of jurisdiction”). If parties conclude a contract including such an agreement, this normally has the effect that only the courts of the specified country (Member State), or specified court/s of that country will have jurisdiction over legal issues. The agreement can, however, be made in other forms, for example via electronic communication, so one has to be careful about this. Therefore, paying due attention to drafting an agreement on jurisdiction can be of considerable help in a potential legal dispute.
Another jurisdiction-altering factor according to the Brussels Regulation is the place of performance of the contract. In business relations a company can be sued in the courts where the obligation is to be performed. For example, in sales of goods the place of performance is the place where the goods were (or should have been) delivered. And in cases of provision of services the place of performance is the place where the services were (or should have been) provided. For instance, a German-based company providing construction services at a building site in Slovakia can be sued in the Slovak courts by the client who ordered the services.
Special attention needs to be paid to the rules governing the exclusive jurisdiction of courts since the seat-of-the-defendant rule will not apply in cases such as these. First, if rights in rem or tenancies of immovable property are to be settled in court proceedings, then the courts of the country where the property is situated will have jurisdiction. Second, if the validity of patents, trademarks, designs, or other similar rights are the object of a dispute, then the courts of the country in which registration has been applied for will have jurisdiction. And there are even more rules on exclusive jurisdiction in the Brussels Regulation.
For entrepreneurs based outside of the EU might the situation be even more difficult. In their cross-border commercial activities, numerous other jurisdictional factors might come to play a role. As for Slovakia, Act No. 97/1963 Coll. on Private and Procedural International Law (PPIL Act) is the key legal document. Surprisingly, besides the rules included in the Brussels Regulation, one can also find there some rules which go further away from the seat-of-the-defendant rule.
A lawsuit filed in a Slovak court might be targeted against a foreign company which does not have its seat (or a branch) in Slovakia, but it has certain assets there (e.g., shares or some other interest in a Slovak-based company). According to Section 37 of the PPIL Act, such a lawsuit will meet the jurisdiction criteria and a Slovak court might be competent to hear the case (unless some other jurisdictional rules are applicable in that case).
It follows that the importance of jurisdictional rules should not be underestimated. Whether you are negotiating the terms of your commercial contract, or whether you have been involved in a legal dispute over an existing contract, a professional approach by experienced lawyers is strongly advised. With a growing number of cases where the jurisdiction of the courts is a major topic, we know this can be a real turning point in achieving success.
EU Regulation No. 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, Slovak Act No. 97/1963 Coll. on Private and Procedural International Law.