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With the expansion of the EU and increasing pressure to keep costs low, more businesses are looking abroad for potential clients and suppliers. But what happens when a business relationship breaks down and you are faced with a claim by a foreign business or you want to take legal action against a foreign business?

In this article, we guide you through matters to consider and the steps to take once faced with the prospect of a cross-border dispute.

We have also included some guidance on how to try to avoid a situation where you or your company is sued in foreign courts - a time-consuming, costly and stressful process.

Taking legal action against a foreign business

If you are embroiled in a dispute with a foreign business, you will need to know whether you can take legal action in this country. You must first of all look at the written contract between you and the other party, if there is one. This will often contain governing law and jurisdiction clauses. The governing law clause will set out which country's law will apply to any dispute under the contract, and the jurisdiction clause will state in which country the legal action must be taken.

If there is no written contract, then if either party has standard terms and conditions of business, these may form part of the contract and may contain law and jurisdiction clauses. Sometimes both parties will have sent their standard terms and conditions to the other party, and there may be a question mark over which party's terms apply. You will need to seek legal advice to ascertain whose terms of business apply.

In the absence of any agreement, which country's law applies and where can I take legal action?

As far as jurisdiction is concerned, if your contract is with a party based in the European Union, you can sue the defendant in its local courts.

Alternatively, you can sue the defendant in the courts of the EU state where the contract was performed or was supposed to be performed. For example, if an English company buys some equipment from a French company and the parties have agreed that payment is on delivery in England, then England is the country where the contract is performed or supposed to be performed. The French company could therefore be sued in the English courts.

If the company or individual you wish to sue is based outside the EU, generally you will need the court's permission to serve the claim in a foreign country, which will effectively give notice of the claim to the other party and summon them to this country to defend it. The court will look at many factors to decide whether to grant permission, but as a general guide will only give permission if the claim has some connection to England or Wales. Generally the fact that one of the parties is based in England or Wales will be enough.

Enforcing a judgement of the English courts against a foreign company or individual

If you take legal action against a foreign company, sole trader or individual in the English courts, and are successful, the next step, if the other party does not pay straight away, will be to enforce your judgement.

There are reciprocal agreements between England and Wales and EU countries, so that all member states of the EU will recognise and enforce judgements of other member states. There is a similar arrangement between England and Wales and Commonwealth countries. You will need to appoint lawyers or agents in the foreign country in question to enforce the judgement on your behalf.

There are no reciprocal agreements with the rest of the world, so national or state law will apply, and you will generally need to commence fresh proceedings for recovery of the debt in the country in which the other party is based, the debt being the outstanding judgement.

What if a claim is made against me or my company in foreign courts?

If you receive notification that legal proceedings will be or have been commenced in another country against you or your company, you should seek legal advice straight away from solicitors in England or Wales who can either put you in touch with suitable foreign lawyers or liaise with foreign lawyers on your behalf.

It is important that you obtain advice from a lawyer practising in the country in which you are being sued because only they will know whether you can challenge the other party commencing legal proceedings in that country, and what you need to do to avoid having judgment entered against you.

How can I avoid cross-border disputes?

There is not much you can do to prevent disputes arising. However, here are some steps you can take to prevent them from becoming more of a headache than they need to be:

  • ensure that the agreement reached between you and the other party is accurately reflected in a written contract;
  • consult solicitors to draft some standard terms and conditions of business which are tailored to the needs of your business, and which specifically state that any contract between you and a third party is governed by English law and that the English courts have jurisdiction over the dispute;
  • provide a copy of your terms of business to the other party prior to the contract being formed, and specifically state that the contract is governed by those terms; and
  • consider including a mediation provision in your terms of business or any written contract, which states that the parties must mediate before issuing legal proceedings should a dispute arise.

These are not foolproof methods of avoiding disputes with a foreign company or individual, but they will go a long way towards removing uncertainties in your business arrangements.

If you are involved in a dispute with a foreign company or individual and would like legal advice, please contact Liz Jones at Sydney Mitchell Solicitors on 0121 698 2200 or via email to l.jones@sydneymitchell.co.uk.

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