International jurisdiction – what is possible and what is favourable?

Christoph von Burgsdorff
Luther Rechtsanwaltsgesellschaft, Hamburg
Christoph.von.Burgsdorff@luther-lawfirm.com

Three key issues arise when selecting a court for a lawsuit:

• establishing international jurisdiction;
• determining which courts are competent on a national level; and
• choosing the most appropriate court to file the lawsuit in.

When choosing the most appropriate court, the enforceability of the judgment against the defendant’s assets should be a deciding factor. In this regard, arbitral tribunals are preferable to public courts when it comes to the enforcement of a judgment on foreign territory. This is still the case even after the introduction of specialised commercial courts, at least in Germany.

In general, filing a lawsuit in a court which does not have jurisdiction can have massive consequences for a case. It may lead to additional costs for the client and affect the client’s claim regarding the statute of limitations. In cross-border cases, the question of jurisdiction becomes even more crucial and complicated, because it raises the question of international jurisdiction.

Take, for example, a fictitious German company which has a payment claim arising from a service agreement against an equally imaginary Canadian enterprise based in Ottawa, Ontario. The Canadian company is unwilling or unable to fulfil its obligation, and the German company decided to file suit. The parties have not concluded an arbitration agreement, so the German claimant has to rely on public courts. The claimant must consider three key issues while choosing a court for a lawsuit:

1. The claimant first must determine the countries that have international jurisdiction. Only then can the claimant determine in which countries they can file a lawsuit and which legal provisions will apply.
2. If courts in multiple countries hold jurisdiction, the claimant should determine the fastest, safest and most cost effective way of procedure. Multiple angles must be considered, but the question of enforceability of the judgment against the defendant’s assets should take a key role in making this decision.
3. If the claimant knows in which country he wants to sue, they still have to consider in which court within that country they can and should sue. In several countries, including Germany, national legislators have now created the possibility of taking legal action before a commercial court under certain circumstances. There are good reasons why the claimant should make use of this opportunity when it arises.

Outlining the possibilities – determining international jurisdiction

At first glance, international jurisdiction only concerns the question in which country the claimant can legally file its lawsuit. Depending on national law, international jurisdiction may be established by agreement or by law. In Germany, international jurisdiction is mainly regulated in the German code of civil procedure (Zivilprozessordnung or ZPO) and the Brussels I Regulation. German international jurisdiction is particularly established if the defendant is based in Germany or the claim has to be fulfilled on German territory due to contractual agreement or national law.

Since national laws are not globally harmonised in this regard, multiple countries can hold international jurisdiction. In our example, the claimant concludes that German and Canadian courts hold international jurisdiction. But where do you go from there?

Considerations for choosing a favourable country of jurisdiction

If more than one country holds international jurisdiction, the claimant can choose a country in which to file its lawsuit. Circumstances that could be taken into account here are, among others, geographical proximity and familiarity with the respective national legal system. Forecasting the chances of enforcing the judgment should be the most important consideration when choosing a country of jurisdiction. In a worst-case scenario, the judgment cannot be declared enforceable within the territory the defendant holds its assets in at all. In this case, the entire process up to the judgment itself becomes practically meaningless – potentially a disaster for both client and attorney.

The chances of enforcing a foreign judgment vary depending on the countries involved. For instance, enforcing a German judgment in Canada may require that the judgment was made by a court which would have had jurisdiction under the law of the enforcing country or state. Therefore, the claimant may not only have to consider the liquidity of the defendant in multiple countries but also the corresponding national rules regarding international jurisdiction when choosing a court.

Another factor of enforcing a judgment on foreign territory is the reciprocity of the enforceability. Under international law, countries are not required to grant another country laws and privileges that the other country does not in turn grant to them. In enforcement procedures of foreign judgments, this concerns the question of if and how a foreign judgment can be enforced. Countries can grant each other simplified enforcement procedures of judgments made in the respective other country. The issue of reciprocity further complicates the prognosis of enforceability.

Reviewing these questions costs money. The claimant has to pay their local lawyer, a lawyer to represent the claimant in the country where the debtor has its assets, and in addition all procedural costs. When in doubt, such complicated detours should be avoided. To put it plainly, if the claimant is not certain about the enforceability of a foreign judgment, they should sue in the jurisdiction the claimant holds its assets in. But are there even any cases, in which a foreign judgment may reasonably be obtained and internationally enforceable?

Commercial courts: a favourable alternative?

Recently, the German legislator has passed a bill to introduce specialised commercial courts. The bill will be in effect on 1 April 2025. These commercial courts will be competent to rule on cases concerning disputes between companies, the acquirement of companies (with few exceptions) and between companies and their respective CEOs or supervisory boards. However, the competence of the commercial courts requires the consent of all parties involved. To gain access to a German commercial court at first instance, the dispute has to have a value of at least €500,000.

For both parties there may be multiple reasons to call on a commercial court. For example, the commercial courts are specialised in economically important and often international disputes. This specialisation of the court promises a higher degree of legal accuracy. Also, the procedures may be concluded sooner. Since the commercial courts are organised within the Higher Regional Courts (Oberlandesgerichte) and therefore an instance above the normally competent Regional Courts (Landgerichte), the course of appeal is shortened significantly. In total the procedure may be concluded sooner while also being less cost-intensive. But to what degree are decisions made by commercial courts internationally enforceable?

To answer this question, a comparison to awards issued by arbitral tribunals seems appropriate, as arbitral tribunals may be considered the main competitor of public courts in settling international disputes. The German parliament expressly argued for the introduction of commercial courts in order to compete with arbitral tribunals. Regarding the international enforcement of judgments, however, this attempt was not successful. Between countries within the European Union the enforcement of judgments made by public courts is secured by the Brussels I recast Regulation. However, outside the EU the enforceability is dependent on a multitude of bilateral agreements. It is not even guaranteed that the same rules apply within a country. For example, in Canada the enforceability of foreign judgments varies between the Canadian provinces. A judgment handed down by a German court can be declared enforceable in British Columbia with relative ease based on a simple application. However, in Ontario the enforcement requires a separate court procedure resulting in a Canadian judgment.[1]

Meanwhile, the enforceability of judgments of arbitral tribunals is widely guaranteed to be enforceable internationally by the New York Convention of 1958. If the claimant can file arbitrational procedures, it does not have to be concerned with the question of enforceability at all.

The introduction of specialised commercial courts does not help to ensure the enforceability of judgments abroad. At least when it comes to enforceability, the German legislation has failed to harmonise the rules of procedures of commercial courts with arbitral tribunals. It remains to be seen if further international agreements will simplify the issue of enforceability of foreign judgments. The introduction of specialised commercial courts could be a welcome occasion for the community of states to guarantee the reciprocity of enforceability of judgments made by these commercial courts. Guaranteed international reciprocity would have a significant impact on the issue of international enforcement. It remains to be seen whether such a counterpart of the New York Convention for commercial courts can be agreed upon.