A Polish company enters into a contract with a German company. Which country’s law will govern the contract?
Monika Hartung: To start with, under Art. 3 of the Rome I Regulation (Regulation 593/2008 of 17 June 2008 on the law applicable to contractual obligations), the parties themselves may select the law governing the contract. The previous version of Poland’s Private International Law required the existence of a link, e.g. in the form of citizenship or residence. Now there is no such requirement, and thus the parties may freely choose the applicable law.

It is only if the parties do not make their own choice of law that the applicable law will be determined by the relevant legal regulations—one set of regulations in the case of a contract with another business from the EU and another set of regulations in the case of a contract with a business from outside the EU.

If a Polish business entity concludes a contract with a business entity from outside the EU and does not make a choice of law, but a dispute under the contract is heard by the Polish court, we then turn to the conflict of law rules in the Polish Private International law. Why Polish? Because the commonly accepted rule is that a court deciding a dispute will follow the conflict of law rules of the forum state, i.e. the state of the court hearing the case.

Thus, for example, if a dispute between companies from Poland and Africa is heard by the Polish court, the Polish court will determine the law applicable to the parties’ legal relationship on the basis of the Polish Private International Law.

However, when considering a dispute between two business entities from the EU, the Polish court will determine the applicable law on the basis of the Rome I Regulation (for contractual disputes) or the Rome II Regulation (Regulation 864/2007 of 11 July 2007 on the law applicable to non-contractual obligations). Both of these regulations are consistent with Poland’s current Private International Law, which went into effect in February 2011 and was based on the Rome I and Rome II regulations. For our purposes, because we are discussing contractual obligations, the Rome I Regulation will be relevant. 

Art. 4 of the regulation contains a set of general rules for situations in which the parties did not make a choice of law. For example, a contract for the sale of goods shall be governed by the law of the country where the seller has his habitual residence.

But in fact, the issue of applicable law is a derivative of the determination of jurisdiction.

So how to determine jurisdiction?

The main source of law in cases between EU business entities is the Brussels I Regulation (Regulation 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters). It sets forth the rules for the existence of jurisdiction, i.e. the court’s authority to decide a specific case. The relevant provision for our purposes is Art. 5, which states when a person domiciled in a member state may be sued in another member state.

If the matter relates to a contract, the court for the place where the obligation was performed or should have been performed has jurisdiction. In the case of the sale of goods, the place of performance means the place in a member state where the goods were delivered or should have been delivered, and in the case of the provision of services, the place in a member state where the services were provided or should have been provided.

This provision is often applied by the Polish courts, typically at the initiative of counsel for a foreign defendant. If there is no jurisdiction, the Polish court is required to dismiss the statement of claim. We have handled numerous cases in which the Polish courts have dismissed claims due to lack of jurisdiction under Art. 5 of the Brussels I Regulation.

What if the court decides the case even though it lacks jurisdiction?

Such a proceeding would be void. Thus from the point of view of litigation strategy, dismissal of the claim is the first order of business. We cannot allow the case to proceed, exposing the client to costs, if it may turn out later that there was no jurisdiction, and thus the proceeding was void and it is necessary to start over again before another court.

We had a recent experience in a case where a Polish company sued five defendants: an individual residing in the Czech Republic, a Czech company, a Hungarian company, a Slovakian company and a Polish company. Ultimately the trial before the Polish court will be conducted only on the claim against the Polish company. The court dismissed the claims against the foreign companies because they filed motions to dismiss, enclosing bills of lading showing that the goods were supposed to be delivered in the Czech Republic, Hungary and Slovakia, respectively. Under Art. 5, the place of performance in the case of the sale of goods is the place in the member state where, under the contract,
the goods were delivered. Thus the court found that it lacked jurisdiction. The plaintiff may still pursue its claims against the foreign companies, but only before the proper courts in each of those other countries. 

When the court dismisses a claim, does it help in some way to determine which court does have jurisdiction? Is it possible to seek a declaration of jurisdiction?

No, there is no such creature, but the Brussels I Regulation is fairly precise. Thus if the Polish company in the example wants to pursue its claims against the companies who had the claim dismissed, under Art. 5(1)(b) of the regulation it must file claims with the court for the place where the delivery occurred or where the defendant has its registered office. It seems fairly troublesome for Polish businesses if they have to conduct cases all over the EU.

It can be burdensome, but on the other hand, if a Polish business is sued, for example, in a Hungarian court, and the contract was performed in Poland, the Polish company has the same right to seek dismissal of the claim, and the claim will be dismissed for lack of jurisdiction. 

Once it is determined that a given court has jurisdiction, this is the court that will apply the relevant regulations in order to determine the governing law. Here it is important to bear in mind that each court in the EU is both a national court and an EU court. Thus if the parties did not make a choice of law in the contract, the court will follow both EU regulations and national regulations in order to determine the governing law. In the case of businesses from the EU, the court will be guided by the Rome I Regulation, under the principle that EU law takes priority over national law. 

Could courts in different countries make differing determinations of the governing law in the same specific case?

Within the EU we have uniform regulations, so it is hard to imagine that a court could apply a different law than what would result from the Rome I Regulation (assuming of course that the parties did not make a choice of law). While it is not inconceivable, I do not believe it would be legally correct.

It should also be mentioned here that all EU courts, including Polish courts, are competent to decide a case on the basis of foreign law. A Polish court may rule on the basis of Czech law and vice versa. This does prolong the proceeding, however, because the court must seek out the foreign law and become acquainted with it before issuing a judgment on the basis of the foreign law. From the Polish point of view, I can say that if the court applies the wrong substantive law the judgment will clearly be overturned.

What happens if the parties agree to follow the law of a third country, e.g. Luxembourg?

In my experience, this most often happens when there is also an arbitration clause. It is simplest if the jurisdiction and the governing law are the same, i.e. when the Polish court rules on the basis of Polish law. This is the most efficient procedure. Therefore, if the state courts are going to have jurisdiction over disputes, it is worthwhile to select in the contract both the court that will have jurisdiction and compatible law for it to apply. In the case of contracts, it is easy to agree on jurisdiction and also to choose the law of the same country whose courts will have jurisdiction over disputes.

However, as I am aware, in the case of two businesses from different countries, each of them will typically seek in its own interest to have disputes decided before the courts in its own country, according to its own country’s laws, which it is more familiar with. In such cases, the escape valve may be not to make a choice of law at all.

On the other hand, in arbitration, the parties often seek law from a common source. Thus, for example, a Polish company and an Austrian company might choose German law to govern their contract. These systems are not identical, but they are based on a common source. Such situations arise quite frequently, and it may be the best possible solution when the parties cannot agree on the law of one of their own countries.

One more comment here: If the client cannot agree with the other party that Polish law will apply, then when recommending that the client agree to the law of another country, we should point out that the client should obtain advice from lawyers from the country whose law is going to be applied. A Polish adwokat or legal adviser cannot advise on foreign law, unless he or she is also, for example, a Rechtsanwalt advising on German law.

So how should cases with a cross-border element be handled?

As I mentioned, most often this requires cooperation with lawyers from different countries. Let us say, for example, that we have a dispute in Poland that is governed by English law. An English lawyer will need to be involved, which obviously is going to drive up the costs of the case. Cases of this sort are more challenging for counsel and for the court, as they all must operate under English law, which is a completely different system. One of the cases we are handling now is a dispute before a Polish court applying English law. The case has been going on for several years, and it is still at the first instance.

And what about pursuing claims before foreign courts?

It is a mirror image of what I just described. We also act in cases in which we support foreign lawyers by advising on Polish substantive law. The costs of pursuing such cases vary significantly, for example between France and the UK, with respect to court costs, fees for counsel, and the costs of expert opinions. In Poland we have among the highest court costs in Europe in cases where the amount in dispute is up to PLN 2 million. Beyond that level the court fee is a flat PLN 100,000 regardless of the amount in dispute. Nonetheless, the overall costs of litigation in Poland are lower than, for example, in the UK. I think this is an important factor that limits access by Polish companies to foreign courts.

It should be borne in mind, however, that in every case we have ready to hand the full array of interim measures. Even when a foreign court has jurisdiction over the case, we can apply first to the Polish court for interim relief to secure the claim, and then file the claim before the foreign court. While some commentators claim that jurisdiction over the main claim is also required for interim relief, I do not agree with that view. What would happen if the English court had jurisdiction and we had to seek interim relief in the UK, and then seek enforcement in Poland? That would defeat the purpose of a proceeding for interim relief. 

Once a judgment is issued by a foreign court, how do you enforce it in Poland?

That is not a problem. For example, I had a case (an arbitration case actually) where a Polish businessperson had an arbitration clause in a contract with a British supplier. When the Polish party for whatever reason failed to pay, he was sued before the arbitration court in the UK. Given the costs involved, but also due to bad legal advice, he did not appear to dispute the claim, and when an award was issued he did not seek to set aside the award in the UK. As a result, the British party executed against the Polish party and collected money. A lawyer had advised him not to join issue in the case, because such an award would not be enforced in Poland. That is not true, because judgments from the EU are enforced in Poland without any difficulty. 

This requires a declaration of enforceability, but for this there is a simplified procedure under EU regulations, specifically the Brussels I Regulation. At the first instance, the application for a declaration of enforceability is issued without the participation of the other party, who in effect learns only after the fact that the judgment has already been declared enforceable. Then the other party may file an appeal, which is considered by the court without a hearing, or take any actions to stay enforcement of the judgment.

The procedure for obtaining enforcement is simple because the Polish court cannot encroach on the merits of the ruling by the foreign court. The simplified procedure would apply in the reverse situation, if a Polish business obtained a judgment against a British counterparty. Then the enforceability of the judgment would be declared in the UK and enforced there. Again, the costs would differ, because in Poland the procedure for obtaining a declaration of enforceability is relatively inexpensive.

The same applies to arbitration awards, except that if the award was issued by an arbitration court in Poland enforceability is confirmed by the court without a hearing, while the enforceability of a foreign arbitration award is confirmed after conducting a hearing.

In any event, it is important to fight the merits of the case, and not count on winning at the enforcement stage.

Interview conducted by Justyna Zandberg-Malec