Reinier advises national and international companies
reinier.russell@russell.nl +31 20 301 55 55It is possible that proceedings have been started in the Netherlands, but also abroad on the same subject. Is that allowed? Does one of the proceedings have precedence over the other?
A Dutch company and US company have entered into a contract about supplying business machines. At some point, they get into a dispute over the contract. The US party goes to court in the United States, while the Dutch party goes to court in the Netherlands.
When the same parties litigate about the same dispute in different countries, there is concurrence of proceedings (lis pendens). The court will not investigate itself whether two proceedings are running simultaneously, but one of the parties will have to report this to the court.
Our example also involves concurrent proceedings. The Dutch company initiated proceedings in a Dutch court and the US company initiated proceedings in a US court. Both deal with the same issue. But what are the consequences? What will the Dutch court do?
The Dutch court may decide to detain a case in the event of lis pendens. With the stay of proceedings, a case is put on hold until a judgment is rendered in the foreign proceedings. In cases before another European court, the court is even obliged to stay proceedings under the EEX Regulation. This may be abused by starting proceedings quickly in a EU state, where they will be handled very slowly. This is also known as the ‘Italian or Belgian torpedo’.
The power to stay a case for cases outside Europe concerns a discretionary power of the court. Thus, in cases outside the EU and the scope of the EEX Regulation, the court has the option to stay a case, but is not obliged to do so. A court can decide to hear the case itself if it believes it will be quicker than the foreign court. This was confirmed by the Supreme Court in two rulings of 29 September 2023 (ECLI:NL:HR:2023:1265 and ECLI:NL:HR:2023:1266). A court’s decision on whether or not to stay a case cannot be appealed by the parties.
If a foreign judgment is eligible for recognition and enforcement in the Netherlands, the court is obliged to declare itself incompetent. If it does not do so, this decision can be appealed in the meantime.
The obligation to declare lack of jurisdiction does not apply until the foreign judgment has become irrevocable. It must no longer be possible to appeal the foreign judgment. This provision prevents a party from litigating in the Netherlands while having already been proven wrong abroad. Declaring lack of jurisdiction is only allowed after the judgment has become irrevocable, because otherwise there is a possibility that both the Dutch and the foreign courts will declare lack of jurisdiction in the case, resulting in the dispute not being settled anywhere.
Applying this to our example, the Dutch court must assess whether it wants to stay the case or whether it believes it can reach a judgment more quickly than its US counterpart. Should the US judgment already be irrevocable, the Dutch court must declare lack of jurisdiction. However, the US judgment cannot simply be executed in the Netherlands. This can only be done after the court has granted a request for recognition of the judgment.
It is possible to prevent the other party and you from starting proceedings on the same subject matter in two different courts at the same time. This can be done by including a choice of forum in the contract or general terms and conditions. With a choice of forum, the parties commit to having a dispute heard only by a previously chosen court. In the example, the parties could have chosen to submit the dispute to a Dutch court. The US court would then have to declare lack of jurisdiction on the basis of the choice of forum. Thus, the parties avoid litigating the same case in courts from different countries.
If you wish to include a choice of forum in a contract, it is wise to choose the applicable law right away. If you want to litigate in the Netherlands, it is practical to choose Dutch law. Otherwise, the court has to apply law that it does not know well, which often results in the need for an expensive expert to explain the law. Moreover, this slows down the proceedings. And of course, conversely, if you want Dutch law to apply to a contract, it is better to declare a Dutch court competent and exclude other courts.
Do you have any questions about drafting an agreement or including a choice of forum? Do you have questions about starting legal proceedings against a foreign party? We will be happy to give advice. You can also contact us for other questions and in case of disputes concerning contracts and procedural law. Please contact:
Wednesday 25 September 2024, Reinier Russell will discuss cybersecurity and data protection in litigation at the European meeting of the World Litigation Forum in Barcelona.
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