Commercial Contracts Between France and Spain: Governing Law and Jurisdiction

I. Governing law: a separate question from jurisdiction

The first fundamental distinction is between the law governing the contract and the court with jurisdiction to hear a dispute.

The governing law determines the substantive rules applicable to contractual obligations: performance, non-performance, liability, contractual remedies and, in principle, limitation periods for the obligations concerned.

Jurisdiction, by contrast, identifies the court before which the dispute may be brought.

It is therefore entirely possible for a Spanish court to apply French law, or for a French court to decide a dispute concerning a contract governed by Spanish law.

In civil and commercial contractual matters, these questions are principally addressed by two European instruments: the Rome I Regulation of 17 June 2008 and the Brussels I bis Regulation of 12 December 2012.

A. Choosing the governing law

Article 3 of the Rome I Regulation establishes the principle of freedom of choice.

The parties to an international commercial contract may, in principle, agree that their relationship will be governed by French law, Spanish law or another national law.

That choice may, in particular, be set out in an express contractual clause.

However, this freedom should not be treated as absolute. Certain mandatory provisions and overriding mandatory rules may apply irrespective of the law chosen.

Particular attention must also be given to contracts subject to special regimes.

B. Which law applies if there is no choice-of-law clause?

Where no governing law has been designated, the Rome I Regulation provides several connecting factors.

For example, subject to exceptions and special regimes:

• A contract for the sale of goods is, in principle, governed by the law of the country where the seller has its habitual residence.
• A contract for the provision of services is, in principle, governed by the law of the country where the service provider has its habitual residence.
• Distribution and franchise contracts are subject to specific connecting rules.

These principles do not remove the need to examine the transaction. The legal classification of the contract and the existence of a manifestly closer connection with another country may affect the analysis.

International sales of goods may raise a further issue: the Vienna Convention of 11 April 1980 may govern the formation of the contract and certain obligations arising from it where the contract falls within its scope.

As France and Spain are both parties to the Convention, simply choosing French or Spanish law does not necessarily mean that the sale will be governed solely by the domestic provisions of the Code civil or the Código Civil.

II. Which court may hear a French–Spanish dispute?

Jurisdiction is principally governed by the Brussels I bis Regulation in situations falling within its scope.

A. The value of a choice-of-court agreement

Article 25 of the Regulation allows the parties, subject to its requirements, to designate the courts of a Member State to hear disputes that have arisen or may arise in connection with a particular legal relationship.

A contract between a French business and a Spanish business may therefore provide for the jurisdiction of French or Spanish courts.

Such a clause must nevertheless satisfy the applicable requirements as to validity and form.

The Regulation recognises, in particular, certain agreements made in writing or by electronic communication that provides a durable record of the agreement. It also takes account, under specified conditions, of practices established between the parties and usages of international trade.

A choice-of-court clause must therefore be drafted precisely, and its enforceability against the other party must be properly assessed.

For example, including it in standard terms and conditions of sale does not remove the need to examine how those terms were actually brought to the other contracting party’s attention and accepted.

Unless the parties agree otherwise, a clause falling under Article 25 confers exclusive jurisdiction on the designated courts.

This freedom remains subject to limits, notably where rules of exclusive jurisdiction or particular protective regimes apply.

B. The absence of a choice-of-court agreement

Without a valid agreement on jurisdiction, the general rule in Article 4 of the Brussels I bis Regulation ordinarily points to the courts of the Member State where the defendant is domiciled.

Article 7 nevertheless provides for special jurisdiction in contractual matters.

For sales of goods, the court for the place where the goods were delivered or should have been delivered may, in particular, have jurisdiction.

For services, a comparable connecting factor is the place where the services were provided or should have been provided.

This may give rise to several procedural options, which should be assessed before proceedings are commenced.

The place where the contract was signed or the nationality of the parties is therefore not, by itself, sufficient to determine jurisdiction.

III. Example: a French business delivers goods to Bilbao

Consider a company established in Bayonne that sells professional equipment to a business located in Bilbao.

The goods are delivered in Spain, but the buyer subsequently refuses to pay part of the agreed price.

The contract contains no express clause on governing law or jurisdiction.

Several elements must be examined.

As to governing law, the connecting rule for sales contracts may, in principle, lead to French law, given the seller’s establishment. The possible application of the Vienna Convention must nevertheless be examined.

As to jurisdiction, the Spanish courts may, in this example, have jurisdiction by reason of the defendant’s domicile and the agreed place of delivery.

This illustration highlights an important situation: the applicable substantive law and the court with jurisdiction do not necessarily coincide.

It also demonstrates why contractual provisions on delivery, governing law and dispute resolution must be considered together.

IV. Clauses to anticipate in a French–Spanish commercial contract

Legal certainty in an international commercial relationship does not depend solely on the choice of a law or a court.

Several provisions deserve particular attention.

1. Defining the contractual performance

The precise nature of the obligations, the arrangements for their performance and the applicable contractual documents must be identifiable.

2. Delivery and acceptance

For sales of goods, delivery locations and arrangements, acceptance procedures and, where relevant, agreed Incoterms may be decisive.

3. Financial terms

The contract should specify payment arrangements, due dates, the consequences of late payment and any conditions for suspending performance.

4. Contractual liability

Limitations of liability, penalties, compensation mechanisms and grounds for exemption must be examined in light of the governing law and the relevant mandatory rules.

5. The language of the contract

In a bilingual setting, it is useful to determine which language version prevails if interpretations diverge.

6. Handling disputes

Depending on the transaction, the parties may consider a prior-negotiation clause, a mediation mechanism or an arbitration agreement.

Arbitration is, however, subject to a regime distinct from that governing the jurisdiction of state courts.

The choice should take account of commercial interests, the foreseeable cost of a dispute and the place where a decision may ultimately need to be enforced.

V. Can a French judgment be enforced in Spain?

France and Spain’s shared membership of the European Union facilitates the circulation of judgments in civil and commercial matters.

Under Articles 36 and 39 of the Brussels I bis Regulation, judgments falling within its scope benefit from a simplified regime for recognition and enforcement.

In particular, a judgment enforceable in one Member State may, in principle, be enforced in another Member State without a prior declaration of enforceability.

This does not mean, however, that no formalities remain.

Production of the judgment and the appropriate certificate, any translation requirements and national rules governing enforcement measures must be considered.

The exhaustively specified grounds may also justify refusal of recognition or enforcement.

A litigation strategy should therefore address the debtor’s assets and the place where enforcement measures will actually be pursued from the outset.

VI. What should a business do when a dispute has already arisen?

When a difficulty arises, the first step is to reconstruct the contractual relationship precisely.

Signed contracts are not the only relevant documents: quotations, purchase orders, standard terms, invoices, correspondence and electronic exchanges may help establish the scope of the parties’ commitments.

The governing law, the court with jurisdiction, the obligations in issue and the available evidence should then be determined in turn.

The analysis should also address limitation periods, the requirements for any formal notice to perform, preliminary amicable steps and the suitability of protective measures.

Any mandatory pre-action steps in the country of the court seised must not be overlooked.

Depending on the circumstances, structured negotiation may secure voluntary performance, a payment schedule or a settlement. Where that is insufficient, appropriate court proceedings may be considered.

The choice between negotiation, urgent relief and proceedings on the merits will depend, in particular, on the nature of the dispute, the strength of the evidence and the prospects of effective enforcement.

Conclusion

Commercial relationships between France and Spain benefit from a relatively harmonised European legal framework. That harmonisation nevertheless removes neither difficulties in interpreting contracts nor the procedural risks associated with cross-border transactions.

Securing a commercial contract requires governing law, jurisdiction and the conditions for performance of obligations to be anticipated together.

Careful contractual drafting and legal analysis undertaken sufficiently early may reduce uncertainty, preserve commercial relationships and facilitate dispute resolution.

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Legal references

• Regulation (EC) No 593/2008 of 17 June 2008 — Rome I, in particular Articles 3 and 4.
• Regulation (EU) No 1215/2012 of 12 December 2012 — Brussels I bis, in particular Articles 4, 7, 25, 36 and 39.
• United Nations Convention on Contracts for the International Sale of Goods of 11 April 1980.

This general analysis primarily concerns commercial relationships between business professionals. It does not replace examination of a contract and the circumstances of each individual situation.

Jean-Paul Hakim

Lawyer — Business law and commercial disputes

French–Spanish legal relationships