-
Italy
Italy – Is your forum selection clause enforceable?
20 March 2018
- Conflict of laws
Under Italian law, the parties to a contract – both being private legal entities – are generally free to agree upon the court having jurisdiction on any disputes that may arise from such contract.
However, although such clauses are valid, their enforceability can be limited by certain formal requirements, which should be taken into account.
Curiously enough, such requirements are often stricter when both parties are based in Italy, looser when one of them is based abroad, particularly in another EU country.
Nevertheless, considering the current uncertainties in case law, a cautious approach in contract drafting is justifiable in any case.
Exclusive or non exclusive forum?
Let’s consider for example the following clause in a commercial contract between two private companies: “Competent court – The courts of Milan shall be the competent forum on any dispute“.
This clause apparently does not raise any doubts. However, it has recently held by the Italian Supreme Court (“Corte di Cassazione”) to be unenforceable, particularly from the point of view of its non-exclusivity ( Supreme Court Civil Section (Cass. Civ. Sez.) VI-3, order 25.1.2018 n. 1838).
In that case, an Italian company had the other party (another Italian company) sign its general contract terms containing the above mentioned clause. Notwithstanding that, the first company was then served with a payment order (“decreto ingiuntivo”) issued by the Court of Siena, where the second company had started lawsuit despite having approved the forum clause.
The first company was not successful in opposing against the payment order by raising the argument of the lack of jurisdiction of the Siena Court. In fact, it could not enforce the forum clause included in its general contract terms because the clause did not specify that the courts of Milan were the “exclusive” forum.
Therefore, to the opinion of our Supreme Court (actually confirming its own previous case law) in order for that clause to be enforceable as desired, it should have read: “The courts of Milan shall be the exclusively competent forum on any disputes”.
It is noteworthy, though, that the same general contract terms, if signed by a company based in another EU country different from Italy (e.g. France), could have successfully prevented the French company from starting lawsuit in France, even if the forum clause did not specify its exclusivity.
That is because Article 25 of EU Regulation n°1215/2012 expressly states that the “prorogation of jurisdiction” clause “shall be exclusive unless the parties have agreed otherwise”.
This was also confirmed by the Italian Supreme Court as well (see for example the decision n°3624 of 8.3.2012).
Now, what happens if the contractual partner of the Milan company is a company based in a non-EU country not bound by international treaties on the subject? For example, a U.S. company?
Would the clause “The courts of Milan shall be the competent forum on any dispute” be considered as exclusive or not, from the perspective of an Italian court?
Article 6 of Regulation 1215/2012 should lead the Italian court to interpret that clause as exclusive pursuant to Article 25 of the same Regulation. However, in similar cases in the past, Italian courts have considered such clauses as non-exclusive by applying the domestic rules of private international law (art. 4 of Law 218/95) and interpreting them in line with Article 29, second paragraph, of the Civil Procedure Code (see for example Tribunale of Milan, 11.12.1997). As a consequence, in the case described above, if the U.S. company despite the above clause starts a lawsuit in its country, the decision issued in the U.S. may be recognized in Italy.
The Hague Convention of 30.6.2005 on forum selection agreements should solve the above and other issues, as it states (just like the European Regulation) that the chosen forum is exclusive except for an express agreement on the contrary. However, such Convention at the moment is in force only in a very limited number of countries (European Union, Mexico, Singapore).
In such an uncertain situation, if one wants the chosen forum to be exclusive regardless of where the other party is based, the most prudent approach under Italian law is certainly to specify exclusivity in the clause.
“Special approval” of unfair terms (art. 1341 of the civil code)
Another precondition of enforceability of forum selection clauses under Italian law, is the requirement of “special approval” of such clauses, if included in general contract terms. Pursuant to Article 1341, second paragraph, of the Civil Code, certain types of “unfair” clauses in general contract terms are unenforceable unless “specially approved” in writing. Such “unfair terms” include also arbitral and forum selection clauses, if favorable to the party drafting the general contract terms.
According to the standing jurisprudence of our Supreme Court, such “special approval” in practice occurs by putting a second signature on the contract, which has to be autonomous and separated from the signature that normally is placed to approve the contract in its entirety. Also, such second approval must expressly refer to each single unfair term, by citing number and heading of each such clause.
However, the special approval requirement for the forum choice clauses only applies to contracts between Italian parties, not to international contracts.
In particular, whenever EU Regulation 1215/2012 applies, the less stringent formal requirements set forth by Article art. 25 have to be complied with, even when the forum clause is part of general contract terms. In such a case, it is necessary and sufficient for the contract signed by the parties to include an express reference to the general terms containing the forum clause (see for example Cass. Sez. Un. 6.4.2017 n.8895). In case of general contract terms in a sale contract concluded electronically, a forum choice clause (again under the EU Regulation) can be validly accepted by a “click” (see EUCJ decision n.322 of 21.5.2015).
Even applying the Italian domestic rules in private international law (article 4, Law 218/95) – that is, essentially, in matters involving non-EU (or non-EEA/EFTA) parties – the “special approval” condition is not required for forum selection clauses, because such requirement is not expressly provided for by Article 4, and also by way of interpretation (Constitutional Court 18/10/2000, n. 428).
Notwithstanding the above, however, it has not yet been finally clarified whether or not the “special approval” requirement per Article 1341 of the Civil Code should also apply to international contracts (if governed by Italian laws) as a condition to enforce the other clauses that the law provision considers as “unfair”, such as for example limitation or exclusion of liability clauses.
Therefore, it is still very common in Italy to draft general contract terms, also for international contracts, providing for the other party’s second signature for special approval of the unfair terms.
All this, hoping for the Italian jurisprudence to develop a more modern and international approach in the future.
With the recent sentence n° 16601/2017 the Italian Supreme Court (“Corte di Cassazione”) – changing its jurisprudence – opened to the possibility of recognizing in Italy foreign judgments containing punitive damages. In this post we will see what these punitive damages are about, under which conditions they will be recognized and enforced in Italy and, above all, which countermeasures may be implemented to deal with these new risks.
Punitive damages are a monetary compensation – typical of common law legal systems – awarded to an injured party that goes beyond what is necessary to compensate the individual for losses. Normally punitive damages are imposed when the person who caused the damage acted with wilful misconduct and gross negligence.
With punitive damages, other than the compensatory function, the reimbursement of damages assumes also a sanctioning purpose, typical of criminal law, also acting like a deterrent towards other potential lawbreakers.
In the legal systems that provide for punitive damages, the recognition and the quantification of the highest compensation, most of the time, are delegated to the Judge.
In the United States of America punitive damages are a settled principle of common law, but ruled in different ways for each State. However, generally, they are applied when the conduct of person who caused the damage was intentionally directed to cause damage or is put in place without regard to the protection and safety standards. Usually they cannot be awarded for breach of contract, unless it also leads to an independent tort.
Historically, in Italy, punitive damages generally were not recognized, because the sanctioning purpose is not consistent with the civil law principles, anchored to the concept that the reimbursement of the damage is a simple restoration of financial heritage of the damaged person.
Therefore, the recognition of punitive damage established by a foreign judgment was normally denied due to a violation of the public policy (“ordre public”), so those judgments did not have access to the Italian legal system.
The sentence n° 16601/2017 of the 5 July 2017 of the Joint Sessions of Italian Supreme Court (“Sezioni Unite della Corte di Cassazione”) however, changed the cards on the table. In this particular case, the plaintiff applied to the Venice Court of Appeal for the recognition (pursuant to art. 64, law 218/1995) of three judgments of District Court of Appeal of the State of Florida that, accepting a guarantee call submitted by an American retailer of helmets against the Italian company, condemned this latter to pay 1.436.136,87 USD (in addition to legal expenses and interests) for the damages caused by a defect in the helmet used in occasion of the accident.
The Venice Court of Appeal recognized the foreign judgment, considering the abovementioned sum merely as compensation for damages and not as punitive damages. This decision was challenged by the unsuccessful Italian party before the Italian Supreme Court, arguing the violation of the Italian ordre public by the US judgment, on the basis of a consolidated juridical opinion until that day.
The Supreme Court of Cassation confirmed the Venice Court assessment, considering the sum non-punitive and recognized the US judgment in Italy.
The Supreme Court, though, took the opportunity to address the question of the admissibility of punitive damages in Italy, changing the previous orientation (see Cass. 1781/2012).
According to the Court, the concept of civil liability as mere compensation of the damage suffered is to be considered obsolete, given the evolution of this institute through national and European legislation and case-law that introduced civil remedies intended to punish the wrongdoer. As a matter of fact, in our system, it’s possible to find several cases of damages with sanctioning function: in the matter of libel by press (art. 12 L. 47/48), copyright (art. 158 L. 633/41), industrial property (art. 125 D. Lgs. 30/2005), abuse of process (art. 96 comma 3 c.p.c. e art. 26 comma 2 c.p.a.), labour law (art. 18, comma 14), family law (art. 709-ter c.p.c.) and others.
The Supreme Court has, therefore, stated the following principle: “Under Italian law, civil liability is aimed not only to compensate for losses incurred by the injured party, but also to reform the defendant and others from engaging in conduct similar. Therefore, the US legal institute of punitive damages is not incompatible with the Italian legal system”.
The important consequence is that this decision opens the door to possible recognition of foreign sentences that condemn a party to pay a sum higher than the amount sufficient to compensate the suffered injury as a result of the damage.
To that end, however, the Supreme Court has set certain conditions so that foreign sentences have validity, that is to say that the decision is made in foreign law system on a normative basis that:
- Clearly establish the cases in which it is possible to convict a party to pay punitive damages; and
- The predictability of it; and
- Establish quantitative limits.
It has to be clarified that the sentence has not modified the Italian system of civil liability. In other words, the sentence will not allow Italian Judges to establish punitive damages under Italian law.
As for foreign court decisions, it will be now possible to obtain a compensation for punitive damages through the recognition and enforcement of a foreign judgment, as long as they respect the above requirements.
Extending our view beyond the Italian borders, we notice that punitive damages are alien to the legal tradition of most of European States: there is the possibility, though, that other Courts of continental Europe might follow the decision of the Italian Supreme Court and recognize foreign judgments which grant punitive damages.
How to prevent this new risk
There are several measures which businessmen can adopt to mitigate this new risk: firstly the adoption of contractual clauses that exclude this kind of damages or establish a cap on the amount of the contractual damages which can be claimed, for example by limiting the value of damages at the price of the products or services provided.
Furthermore, it’s very important to have an overall knowledge of the legislation and case law of the markets in which the enterprise operates, even indirectly (for example: with the commercial distribution of products) in order to choose consciously the applicable law to the contract and the dispute resolution methods (for example: establishing the jurisdiction in a country that does not provide for punitive damages).
Finally, this type of liability and risk may also be covered by a product liability insurance.
The Italian Court of Cassation, United Sections (judgement no. 24244 of 27 November 2015), recently issued a judgement on the applicability of article 5 no. 1 of the Brussels I Regulation on the jurisdiction, recognition and enforcement of judgements in civil and commercial matters, now corresponding to article 7 no. 1 of the Regulation 1215/2012 (Brussels I bis).
The above-referenced provision sets a special forum in matters relating to a contract, providing for the competence of the courts located in the place of performance of the obligation in question. According to letter b) of this provision, in case of the sale of goods, the place of performance of the obligation in question shall be the place in a Member State where, under the contract, the goods were delivered or should have been delivered.
In the case brought before the Court of Cassation, an Italian company – while objecting the claim of a French company regarding the conclusion of some sale agreements that the latter stated to have entered into with the first one – asked for a declaratory judgement stating the inexistence of any contractual obligation between the parties, and, alternatively, for a declaration that the alleged agreements were null and void.
First of all, the Court of Cassation asserted the applicability of article 5, letter b) of the Brussels I Regulation to the case de quo.
Albeit recognizing that the abovementioned provision seems to refer only to actions addressed to the performance of a contract and not to actions regarding the dissolution of a contractual obligation, the Italian Supreme Court has considered that also claims aiming at ascertaining the inexistence, invalidity or ineffectiveness of an agreement concern matters relating to a contract. More precisely, the Supreme Court has held that such claims involve an initial, actual or alleged, voluntary assumption of an obligation, of which they tend, in several ways, to default. In the light of this assumption and considering that the delivery of the goods was supposed to take place in France (according to the contractual documents evidenced during the proceedings), the Court of Cassation has found that Italian Courts were lacking jurisdiction over the case, thus confirming the judgement previously issued by the Court of Appeal.
The judgement of the Italian United Sections is important because it has definitively confirmed, consistently with the European uniform trend, that the place of delivery is the only autonomous linking factor to be applied to all claims grounded on contracts for the sale of goods and not only to claims based on the non-performance of the delivery obligation itself.
The author of this article is Silvia Petruzzino.
A crucial clause in international contracts is the one which deals with litigation.
My advice, since we have seen that negotiation can be pretty long, complicated, and, exhausting, is that such clauses should not be the last to be dealt with, often times late at night when parties are exhausted, but the among the first.
Generally parties argue at length on such clauses, because neither party is willing to give up on its national jurisdiction for different reasons, foremost of all the fear that foreign judges would not be impartial and treat with favor the local part.
This deadlock often leads to bad compromises, like choosing the judge of a third state or combining the jurisdiction of one state with the application of the law of the other, which is definitely not recommended.
There is no one-fits-all solution to offer here: the advice is that such clauses should be tailor made on a case by case basis, and that the choice of a state court or arbitration should be expressed taking into account where the final decision shall be enforced.
If we foresee that our client may seek payment of a price or claim damages for breach of contract, ‘where is the money’ or ‘where are the assets’ should be the driving factor, and the choice of jurisdiction should be made accordingly.
If there is no such concern, and litigation may be foreseen only or mostly in a defensive scenario, then the proximity to the money or assets is no more a priority, and other options can be evaluated: in that case, the choice of a Judge in a far away country can be the best option, as it is a strong deterrent for litigation.
When battling for a clause with domestic jurisdiction, however, one should keep in mind that the process of recognition of a foreign decision is generally a rather complicated and lengthy process, even if (as is the case of Italy and China), there is a bilateral treaty for mutual recognition of judicial decisions (but very few cases have been recognized and enforced in China thereafter); it should also be kept in mind that all documents filed with the application for recognition of the foreign decision need to be translated into mandarin, notarized and legalized, which in complex litigations can represent an unforeseen additional high cost.
In other cases, like in the USA, where there is no bilateral treaty in this field, to litigate abroad often means that the foreign decision will be almost useless, with the necessity to sue again in China to seek enforcement of the decision.
Arbitration can be a valid alternative, as China is a member of the New York Convention of 1958 and enforcement of an arbitral award is in most cases easier and faster than the process of recognition of a foreign court decision.
China 
Europe 
Contact Christian
Punitive damages – The Court of Cassation opens the door in Italy
25 November 2017
-
Italy
- Conflict of laws
- Contracts
- Credit collection
- International trade
- Litigation
Under Italian law, the parties to a contract – both being private legal entities – are generally free to agree upon the court having jurisdiction on any disputes that may arise from such contract.
However, although such clauses are valid, their enforceability can be limited by certain formal requirements, which should be taken into account.
Curiously enough, such requirements are often stricter when both parties are based in Italy, looser when one of them is based abroad, particularly in another EU country.
Nevertheless, considering the current uncertainties in case law, a cautious approach in contract drafting is justifiable in any case.
Exclusive or non exclusive forum?
Let’s consider for example the following clause in a commercial contract between two private companies: “Competent court – The courts of Milan shall be the competent forum on any dispute“.
This clause apparently does not raise any doubts. However, it has recently held by the Italian Supreme Court (“Corte di Cassazione”) to be unenforceable, particularly from the point of view of its non-exclusivity ( Supreme Court Civil Section (Cass. Civ. Sez.) VI-3, order 25.1.2018 n. 1838).
In that case, an Italian company had the other party (another Italian company) sign its general contract terms containing the above mentioned clause. Notwithstanding that, the first company was then served with a payment order (“decreto ingiuntivo”) issued by the Court of Siena, where the second company had started lawsuit despite having approved the forum clause.
The first company was not successful in opposing against the payment order by raising the argument of the lack of jurisdiction of the Siena Court. In fact, it could not enforce the forum clause included in its general contract terms because the clause did not specify that the courts of Milan were the “exclusive” forum.
Therefore, to the opinion of our Supreme Court (actually confirming its own previous case law) in order for that clause to be enforceable as desired, it should have read: “The courts of Milan shall be the exclusively competent forum on any disputes”.
It is noteworthy, though, that the same general contract terms, if signed by a company based in another EU country different from Italy (e.g. France), could have successfully prevented the French company from starting lawsuit in France, even if the forum clause did not specify its exclusivity.
That is because Article 25 of EU Regulation n°1215/2012 expressly states that the “prorogation of jurisdiction” clause “shall be exclusive unless the parties have agreed otherwise”.
This was also confirmed by the Italian Supreme Court as well (see for example the decision n°3624 of 8.3.2012).
Now, what happens if the contractual partner of the Milan company is a company based in a non-EU country not bound by international treaties on the subject? For example, a U.S. company?
Would the clause “The courts of Milan shall be the competent forum on any dispute” be considered as exclusive or not, from the perspective of an Italian court?
Article 6 of Regulation 1215/2012 should lead the Italian court to interpret that clause as exclusive pursuant to Article 25 of the same Regulation. However, in similar cases in the past, Italian courts have considered such clauses as non-exclusive by applying the domestic rules of private international law (art. 4 of Law 218/95) and interpreting them in line with Article 29, second paragraph, of the Civil Procedure Code (see for example Tribunale of Milan, 11.12.1997). As a consequence, in the case described above, if the U.S. company despite the above clause starts a lawsuit in its country, the decision issued in the U.S. may be recognized in Italy.
The Hague Convention of 30.6.2005 on forum selection agreements should solve the above and other issues, as it states (just like the European Regulation) that the chosen forum is exclusive except for an express agreement on the contrary. However, such Convention at the moment is in force only in a very limited number of countries (European Union, Mexico, Singapore).
In such an uncertain situation, if one wants the chosen forum to be exclusive regardless of where the other party is based, the most prudent approach under Italian law is certainly to specify exclusivity in the clause.
“Special approval” of unfair terms (art. 1341 of the civil code)
Another precondition of enforceability of forum selection clauses under Italian law, is the requirement of “special approval” of such clauses, if included in general contract terms. Pursuant to Article 1341, second paragraph, of the Civil Code, certain types of “unfair” clauses in general contract terms are unenforceable unless “specially approved” in writing. Such “unfair terms” include also arbitral and forum selection clauses, if favorable to the party drafting the general contract terms.
According to the standing jurisprudence of our Supreme Court, such “special approval” in practice occurs by putting a second signature on the contract, which has to be autonomous and separated from the signature that normally is placed to approve the contract in its entirety. Also, such second approval must expressly refer to each single unfair term, by citing number and heading of each such clause.
However, the special approval requirement for the forum choice clauses only applies to contracts between Italian parties, not to international contracts.
In particular, whenever EU Regulation 1215/2012 applies, the less stringent formal requirements set forth by Article art. 25 have to be complied with, even when the forum clause is part of general contract terms. In such a case, it is necessary and sufficient for the contract signed by the parties to include an express reference to the general terms containing the forum clause (see for example Cass. Sez. Un. 6.4.2017 n.8895). In case of general contract terms in a sale contract concluded electronically, a forum choice clause (again under the EU Regulation) can be validly accepted by a “click” (see EUCJ decision n.322 of 21.5.2015).
Even applying the Italian domestic rules in private international law (article 4, Law 218/95) – that is, essentially, in matters involving non-EU (or non-EEA/EFTA) parties – the “special approval” condition is not required for forum selection clauses, because such requirement is not expressly provided for by Article 4, and also by way of interpretation (Constitutional Court 18/10/2000, n. 428).
Notwithstanding the above, however, it has not yet been finally clarified whether or not the “special approval” requirement per Article 1341 of the Civil Code should also apply to international contracts (if governed by Italian laws) as a condition to enforce the other clauses that the law provision considers as “unfair”, such as for example limitation or exclusion of liability clauses.
Therefore, it is still very common in Italy to draft general contract terms, also for international contracts, providing for the other party’s second signature for special approval of the unfair terms.
All this, hoping for the Italian jurisprudence to develop a more modern and international approach in the future.
With the recent sentence n° 16601/2017 the Italian Supreme Court (“Corte di Cassazione”) – changing its jurisprudence – opened to the possibility of recognizing in Italy foreign judgments containing punitive damages. In this post we will see what these punitive damages are about, under which conditions they will be recognized and enforced in Italy and, above all, which countermeasures may be implemented to deal with these new risks.
Punitive damages are a monetary compensation – typical of common law legal systems – awarded to an injured party that goes beyond what is necessary to compensate the individual for losses. Normally punitive damages are imposed when the person who caused the damage acted with wilful misconduct and gross negligence.
With punitive damages, other than the compensatory function, the reimbursement of damages assumes also a sanctioning purpose, typical of criminal law, also acting like a deterrent towards other potential lawbreakers.
In the legal systems that provide for punitive damages, the recognition and the quantification of the highest compensation, most of the time, are delegated to the Judge.
In the United States of America punitive damages are a settled principle of common law, but ruled in different ways for each State. However, generally, they are applied when the conduct of person who caused the damage was intentionally directed to cause damage or is put in place without regard to the protection and safety standards. Usually they cannot be awarded for breach of contract, unless it also leads to an independent tort.
Historically, in Italy, punitive damages generally were not recognized, because the sanctioning purpose is not consistent with the civil law principles, anchored to the concept that the reimbursement of the damage is a simple restoration of financial heritage of the damaged person.
Therefore, the recognition of punitive damage established by a foreign judgment was normally denied due to a violation of the public policy (“ordre public”), so those judgments did not have access to the Italian legal system.
The sentence n° 16601/2017 of the 5 July 2017 of the Joint Sessions of Italian Supreme Court (“Sezioni Unite della Corte di Cassazione”) however, changed the cards on the table. In this particular case, the plaintiff applied to the Venice Court of Appeal for the recognition (pursuant to art. 64, law 218/1995) of three judgments of District Court of Appeal of the State of Florida that, accepting a guarantee call submitted by an American retailer of helmets against the Italian company, condemned this latter to pay 1.436.136,87 USD (in addition to legal expenses and interests) for the damages caused by a defect in the helmet used in occasion of the accident.
The Venice Court of Appeal recognized the foreign judgment, considering the abovementioned sum merely as compensation for damages and not as punitive damages. This decision was challenged by the unsuccessful Italian party before the Italian Supreme Court, arguing the violation of the Italian ordre public by the US judgment, on the basis of a consolidated juridical opinion until that day.
The Supreme Court of Cassation confirmed the Venice Court assessment, considering the sum non-punitive and recognized the US judgment in Italy.
The Supreme Court, though, took the opportunity to address the question of the admissibility of punitive damages in Italy, changing the previous orientation (see Cass. 1781/2012).
According to the Court, the concept of civil liability as mere compensation of the damage suffered is to be considered obsolete, given the evolution of this institute through national and European legislation and case-law that introduced civil remedies intended to punish the wrongdoer. As a matter of fact, in our system, it’s possible to find several cases of damages with sanctioning function: in the matter of libel by press (art. 12 L. 47/48), copyright (art. 158 L. 633/41), industrial property (art. 125 D. Lgs. 30/2005), abuse of process (art. 96 comma 3 c.p.c. e art. 26 comma 2 c.p.a.), labour law (art. 18, comma 14), family law (art. 709-ter c.p.c.) and others.
The Supreme Court has, therefore, stated the following principle: “Under Italian law, civil liability is aimed not only to compensate for losses incurred by the injured party, but also to reform the defendant and others from engaging in conduct similar. Therefore, the US legal institute of punitive damages is not incompatible with the Italian legal system”.
The important consequence is that this decision opens the door to possible recognition of foreign sentences that condemn a party to pay a sum higher than the amount sufficient to compensate the suffered injury as a result of the damage.
To that end, however, the Supreme Court has set certain conditions so that foreign sentences have validity, that is to say that the decision is made in foreign law system on a normative basis that:
- Clearly establish the cases in which it is possible to convict a party to pay punitive damages; and
- The predictability of it; and
- Establish quantitative limits.
It has to be clarified that the sentence has not modified the Italian system of civil liability. In other words, the sentence will not allow Italian Judges to establish punitive damages under Italian law.
As for foreign court decisions, it will be now possible to obtain a compensation for punitive damages through the recognition and enforcement of a foreign judgment, as long as they respect the above requirements.
Extending our view beyond the Italian borders, we notice that punitive damages are alien to the legal tradition of most of European States: there is the possibility, though, that other Courts of continental Europe might follow the decision of the Italian Supreme Court and recognize foreign judgments which grant punitive damages.
How to prevent this new risk
There are several measures which businessmen can adopt to mitigate this new risk: firstly the adoption of contractual clauses that exclude this kind of damages or establish a cap on the amount of the contractual damages which can be claimed, for example by limiting the value of damages at the price of the products or services provided.
Furthermore, it’s very important to have an overall knowledge of the legislation and case law of the markets in which the enterprise operates, even indirectly (for example: with the commercial distribution of products) in order to choose consciously the applicable law to the contract and the dispute resolution methods (for example: establishing the jurisdiction in a country that does not provide for punitive damages).
Finally, this type of liability and risk may also be covered by a product liability insurance.
The Italian Court of Cassation, United Sections (judgement no. 24244 of 27 November 2015), recently issued a judgement on the applicability of article 5 no. 1 of the Brussels I Regulation on the jurisdiction, recognition and enforcement of judgements in civil and commercial matters, now corresponding to article 7 no. 1 of the Regulation 1215/2012 (Brussels I bis).
The above-referenced provision sets a special forum in matters relating to a contract, providing for the competence of the courts located in the place of performance of the obligation in question. According to letter b) of this provision, in case of the sale of goods, the place of performance of the obligation in question shall be the place in a Member State where, under the contract, the goods were delivered or should have been delivered.
In the case brought before the Court of Cassation, an Italian company – while objecting the claim of a French company regarding the conclusion of some sale agreements that the latter stated to have entered into with the first one – asked for a declaratory judgement stating the inexistence of any contractual obligation between the parties, and, alternatively, for a declaration that the alleged agreements were null and void.
First of all, the Court of Cassation asserted the applicability of article 5, letter b) of the Brussels I Regulation to the case de quo.
Albeit recognizing that the abovementioned provision seems to refer only to actions addressed to the performance of a contract and not to actions regarding the dissolution of a contractual obligation, the Italian Supreme Court has considered that also claims aiming at ascertaining the inexistence, invalidity or ineffectiveness of an agreement concern matters relating to a contract. More precisely, the Supreme Court has held that such claims involve an initial, actual or alleged, voluntary assumption of an obligation, of which they tend, in several ways, to default. In the light of this assumption and considering that the delivery of the goods was supposed to take place in France (according to the contractual documents evidenced during the proceedings), the Court of Cassation has found that Italian Courts were lacking jurisdiction over the case, thus confirming the judgement previously issued by the Court of Appeal.
The judgement of the Italian United Sections is important because it has definitively confirmed, consistently with the European uniform trend, that the place of delivery is the only autonomous linking factor to be applied to all claims grounded on contracts for the sale of goods and not only to claims based on the non-performance of the delivery obligation itself.
The author of this article is Silvia Petruzzino.
A crucial clause in international contracts is the one which deals with litigation.
My advice, since we have seen that negotiation can be pretty long, complicated, and, exhausting, is that such clauses should not be the last to be dealt with, often times late at night when parties are exhausted, but the among the first.
Generally parties argue at length on such clauses, because neither party is willing to give up on its national jurisdiction for different reasons, foremost of all the fear that foreign judges would not be impartial and treat with favor the local part.
This deadlock often leads to bad compromises, like choosing the judge of a third state or combining the jurisdiction of one state with the application of the law of the other, which is definitely not recommended.
There is no one-fits-all solution to offer here: the advice is that such clauses should be tailor made on a case by case basis, and that the choice of a state court or arbitration should be expressed taking into account where the final decision shall be enforced.
If we foresee that our client may seek payment of a price or claim damages for breach of contract, ‘where is the money’ or ‘where are the assets’ should be the driving factor, and the choice of jurisdiction should be made accordingly.
If there is no such concern, and litigation may be foreseen only or mostly in a defensive scenario, then the proximity to the money or assets is no more a priority, and other options can be evaluated: in that case, the choice of a Judge in a far away country can be the best option, as it is a strong deterrent for litigation.
When battling for a clause with domestic jurisdiction, however, one should keep in mind that the process of recognition of a foreign decision is generally a rather complicated and lengthy process, even if (as is the case of Italy and China), there is a bilateral treaty for mutual recognition of judicial decisions (but very few cases have been recognized and enforced in China thereafter); it should also be kept in mind that all documents filed with the application for recognition of the foreign decision need to be translated into mandarin, notarized and legalized, which in complex litigations can represent an unforeseen additional high cost.
In other cases, like in the USA, where there is no bilateral treaty in this field, to litigate abroad often means that the foreign decision will be almost useless, with the necessity to sue again in China to seek enforcement of the decision.
Arbitration can be a valid alternative, as China is a member of the New York Convention of 1958 and enforcement of an arbitral award is in most cases easier and faster than the process of recognition of a foreign court decision.
