Agreements on the place of jurisdiction for cross-border sales of goods (B2B) – made (easier)

The effectiveness of jurisdiction agreements in international legal relations is a perennial issue in litigation. Many mistakes are made in this area, primarily out of ignorance. Such mistakes can have considerable financial consequences, as the choice of jurisdiction is of crucial procedural and economic importance in international legal relations. Unfortunately, it is often not (only) the applicable law that is decisive in a dispute but the choice of the proper court.

The statutory provisions

Under German law, Section 38 of the German Code of Civil Procedure (ZPO) governs the validity of agreements on the place of jurisdiction. These are permissible if the transaction is between merchants or the contracting party is not domiciled in Germany. Such an agreement on the place of jurisdiction does not need to be in writing and can even be tacit. In particular, a reference to the inclusion of general terms and conditions is sufficient for these to become a practical part of the contract if and insofar as the contractual partner has the opportunity to request the general terms and conditions from the user of the same or, which is the rule nowadays, has the chance to view them on the Internet.

However, it would be legally incorrect to conclude from this that a mere reference to general terms and conditions is always sufficient for the effective conclusion of a jurisdiction agreement. This is because if the contractual partner has its registered office abroad, an agreement on the place of jurisdiction, which in this case is also not permissible with entrepreneurs who are not registered traders within the meaning of Section 1 HGB, must be made in writing by Section 38 (2) ZPO. However, the practical scope of application of this standard is narrower, as it is superseded by Art. 25 of the Brussels Ia Regulation and Art. 23 of the (revised) Lugano Convention in cases with a foreign connection within the EEA. This article will focus on these provisions and the ECJ’s decision.

Prerequisite for the inclusion of general terms and conditions in international legal transactions

Suppose the user of general terms and conditions refers to a jurisdiction agreement. In that case, it must first be checked whether the general terms and conditions have been effectively included in the contract. In the case of international sales contracts, this examination must be carried out based on the applicable law. The question of the applicable law is also regularly the subject of a clause in general terms and conditions. However, to conclude from this, the substantive law provided for it is decisive for the question of inclusion would need to be revised. After all, the agreement of the applicable law presupposes the effective inclusion of the General Terms and Conditions.

Therefore, according to the correct view, the effectiveness of including general terms and conditions must be examined by the law that would be applicable without the choice of law. International sales contracts of a seller domiciled in Germany are subject to the United Nations Convention on Contracts for the International Sale of Goods of April 11, 1980 (CISG, also known as the UN Sales Convention), which, as a special law supersedes the statutory provisions contained in the German Civil Code and the German Commercial Code except the aspects of offsetting, representation, transfer of ownership, the validity of the content of general terms and conditions and the amount of default interest.

Regarding the inclusion of general terms and conditions, the UN Convention on Contracts for the International Sale of Goods deviates from the German non-uniform law of the BGB and HGB in two decisive points. Firstly, the UN Convention on Contracts for the International Sale of Goods makes incorporation more difficult because it requires that the contractual partner’s general terms and conditions are brought to the attention before or at the latest upon the conclusion of the contract. In principle, more than a reference to the retrievability of general terms and conditions is insufficient within the scope of application of the UN Convention on Contracts for the International Sale of Goods. In the context of this question, it must also be taken into account that general terms and conditions are only effectively included in the contract if the contractual partner can take note of them, which requires that he understands their language. Within the scope of application of the UN Convention on Contracts for the International Sale of Goods, the GTC must be drafted either in the national language of the contracting party or, in any case, in the language in which the parties conducted the negotiations. The sentence often heard in the area of application of the German Civil Code (BGB) and the German Commercial Code (HGB) that a contractual partner contracting with a German party must inform himself about the content of any contractual provisions that he may not understand does not apply in the UN Sales Convention. In practice, it is advisable to use the language of negotiation as a more legally secure option since, in international trade, it is only sometimes guaranteed that the negotiating partner also speaks the language of the country where the company is based. An American entrepreneur based in Hamburg does not necessarily have to speak German. There are also countries such as Switzerland, Belgium, Italy or Luxembourg that have several official languages.

The second aspect to consider is that the UN Sales Convention applies the last shot rule, whereas the knockout rule applies in the non-uniform German law of the BGB and HGB. The knockout rule means that in the case of contracts that have been executed and in which the parties have mutually referred to their respective general terms and conditions, the conflicting provisions are annulled, and the applicable statutory law applies instead. In the UN Convention on Contracts for the International Sale of Goods, on the other hand, the General Terms and Conditions that were most recently introduced into correspondence without contradiction prevailed.

The written form requirement for a jurisdiction agreement in detail

If the seller based in Germany has now overcome these hurdles, more is needed to ensure that the jurisdiction agreement contained in the GTC is also effective. This effect is because it is not Section 38 ZPO that applies to cross-border transactions, but Art. 25 of the Brussels Ia Regulation and Art. 23 of the Lugano Convention. This requires at least a unilateral written form for a jurisdiction agreement to be valid. Unilateral written form means that the ratio legis must ensure that at least the party whose general place of jurisdiction, i.e., the place of jurisdiction at the registered office of the contracting party, is waived, documents in writing that it is aware of the jurisdiction agreement and that the parties have reached an agreement to this effect (ECJ Case 62-2013 – Refcomp and Case C 82-2016 – Profit Investment SIM). However, the signature of both parties in a document is not necessarily required to document this.

In any case, more than a mere reference to general terms and conditions containing a jurisdiction agreement was insufficient in international legal transactions, even if the contractual partner could retrieve them.

In commercial law practice, attempts are often made to remedy this shortcoming by referring to commercial practices in international trade or customs that have developed between the parties. However, this is rarely or never successful. After all, if international trade did not require the written form per se, there would be no need to provide Art. 25 Brussels Ia Regulation. A jurisdiction agreement with consumers is inadmissible before a dispute arises. The scope of application of the provision only applies to international contracts.

Consequently, the provision would not be necessary if there were an international commercial usage per se. Trade practices can only be sector-specific. So far, case law has only recognized very few customs, such as in the timber trade. If there is a permanent commercial relationship between the parties, concluding a new optional jurisdiction agreement for every legal transaction is unnecessary. However, the argumentation here often needs to be revised. According to the correct view, in particular of the Higher Regional Court of Cologne, the validity of an informal agreement on a place of jurisdiction requires that a place of jurisdiction has been effectively agreed upon at least once in a long-term business relationship and that it can be assumed that the contractual partner was aware that this should also apply to subsequent transactions. The permanent business relationship does not replace the written form requirement.

Case law of the ECJ

However, the case law of the ECJ allows for certain simplifications. For example, an agreement can also be inferred based on a so-called structured communication if the knowledge of the contracting party concerned is evident from the sequence of correspondence. It should also be sufficient if a contract expressly referred to the inclusion of general terms and conditions, which were printed on the back of the contract and contained a jurisdiction agreement, or if the parties referred to an offer in the text of their contract, which in turn expressly referred to the general terms and conditions, provided that this apparent reference can be followed up by one party with the exercise of regular care. It is established that the other party received the general terms and conditions (ECJ case 177-1976 – Estasis di Colzani).

The ECJ decision of November 24, 2022

With the November 24, 2022 decision discussed here (C-358/21- Tilman SA ./. Unilever Supply Chain Company AG), however, the ECJ goes further and liberalizes the requirements for the written form in light of the necessity of electronic legal transactions.

In this case, the parties concluded a contract containing a hyperlink to Unilever’s website. Unilever’s general terms and conditions are available on this website and can be downloaded. These general terms and conditions contained a jurisdiction clause in favor of Unilever.

The ECJ ruled that this jurisdiction clause was validly agreed because it was contained in general terms and conditions to which a written contract referred by providing a hyperlink to a website through which it was possible to take note of, download, and print these general terms and conditions, even if the party against whom this clause was invoked was not asked to accept these general terms and conditions by clicking on a box on the linked website.

The ECJ based its decision on the requirements of modern business transactions to facilitate the conclusion of contracts by electronic means.

According to this decision, the written form is still required, at least for the main contract. It is also still required that an explicit reference is made to the inclusion of general terms and conditions. Otherwise, however, this decision means a far-reaching liberalization of the written form requirement of Art. 25 Brussels Ia Regulation (the decision refers in substance to the Lugano Convention but is also relevant for the current version of the Brussels Ia Regulation due to the identical wording).

Evaluation of the decision and recommendation

The decision is surprising insofar as the ECJ only requires that the hyperlink refers to the website of the user of the GTC, on which the contractual partner can then access the GTC. In light of the ECJ’s previous case law, it would have been logical for the ECJ to at least require that the hyperlink refers directly to the T&Cs and that agreement with the T&Cs is documented by clicking on a button. The ECJ expressly did not require either of these, which contradicts the original intention of the European legislator, namely to prevent unchecked general terms and conditions and jurisdiction agreements from becoming the subject of a deal through unthinking clicking.

However, the decision should be welcomed in any case because it now allows general terms and conditions to include a jurisdiction agreement and no longer requires a separate written confirmation. This is practical.

As a precautionary measure, however, we recommend that the reference using a hyperlink be designed so that the hyperlink itself refers to the GTC. This recommendation is because the user of the GTC must still prove their inclusion. The use requires proof that the GTC was available on the website, especially in the version used. A confirmation button is also advisable, as this ensures the documentation of inclusion and acknowledgment, in particular that it is specific to which of the versions of the GTC can be successively retrieved over time the consent refers.

The decision of the ECJ only deals with the question of the formal requirement of Art. 25 Brussels Ia Regulation or the corresponding provision of the Lugano II Convention, which applies to the member states of the EEA. The ECJ needs to be more competent to interpret the UN Convention on Contracts for the International Sale of Goods. Therefore, if a party claims that its general terms and conditions have been incorporated into the contract in a formally effective manner against the background of Art. 25 Brussels Ia Regulation, it must still demonstrate and prove that the incorporation was also influential under the applicable law. The tension between the formal requirement of Art. 25 Brussels Ia Regulation and the UN Convention on Contracts for the International Sale of Goods about the necessity of the transmission of GTC and their retrievability, as well as the possibility of knowledge about the language used, therefore, remains open.

Excursus: Recognition of a jurisdiction clause by accepting an invoice without objection under Belgian law

In para. 42 of the decision, the ECJ thankfully refers again and expressly to its decision in Case C-173/2018 – Saey Home & Garden, according to which it is in any case not sufficient if the contract was concluded orally or without subsequent written confirmation and the general terms and conditions with the jurisdiction clause were only mentioned in the invoices issued by one of the parties.

This interpretation is, in fact, the state of the case law of many Belgian courts, which is guided by the principle that the uncontradicted acceptance of an invoice means its acknowledgment, including the general terms and conditions submitted with this invoice. The Belgian Cour de Cassation case law and the lower courts allow the judge to derive a legal presumption of acceptance of the general terms and conditions from the uncontradicted acceptance of the invoice (see Cass. 1er décembre 1967, Pas., 1968, I, p. 440; Cass. 29 janvier 1996 , Pas., 1996, I, p. 59; Cass. 27 janvier 2000, Pas, 2000, I, p. 72; I. Moreau-Margrève, La force probante des conditions générales en vente et d’achat, p. 11; D. Philippe et M. Chamass, L’opposabilité des conditions générales, p. 270 – 272; G. L. Ballon et E. Dirix, La facture et autre documents équivalents, 2ème édition, Waterloo, Kluwer, 2016, p. 164, n° 269; Bruxelles, 2 février 1977, J.T., 1977, p. 472; Bruxelles, 24 décembre 1980, J.T., 1980, p. 245; A. Cataldo et F. George, Droit des obligations – Le nouveau livre cinq du Code civil, Anthémis, 2022, p. 47, n° 46). This case law is already logically an imposition, as it leads to contractual provisions being introduced retrospectively and unilaterally into a legal transaction that has already been concluded. If it is a pro forma invoice or the invoice has the function of an order confirmation in an individual case, the presumption may still apply. However, Belgian courts also apply this presumption to contracts concluded in writing, where the general terms and conditions are demonstrably only introduced into the legal transaction by the unchallenged invoice. According to this opinion, the rule of evidence of Art. 8.11 § 4 of the new Civil Code, applicable since 2021, according to which an undisputed invoice in commercial transactions carries the presumption of acknowledgment of the same, including the provisions contained therein, which will further strengthen this case law. Unfortunately, many Belgian courts are unfamiliar with European secondary law and the primacy of the UN Sales Convention, which is binding under international law, and therefore apply substantive provisions of (non-uniform) Belgian law despite the primacy of European secondary law and the UN Sales Convention. The recourse to Art. 10 of the Rome I Regulation, according to which a legal provision is not taken into account that the foreign contracting party is not required to know under its law, is generally not recognized by Belgian courts. You are therefore well advised to check the content of your ongoing correspondence with Belgian contractual partners and to object in any case by registered letter as a precautionary measure, even if this seems archaic nowadays.

[1] Merchants within the meaning of § 1 HGB, i.e., entrepreneurial or commercial activity as such is not sufficient.