International Business Transactions: Jurisdiction Clauses and Defendant's Defense Options

International agreements sometimes contain a clause stipulating that in all cases of dispute, the place of jurisdiction shall always be at the registered place of business of the respective defendant. In a recent judgment, the Federal Court of Justice (Bundesgerichtshof – “BGH”) confirmed what problems can arise from such a clause (BGH, judgment of 21 January 2015, VIII ZR 352/13). In the case in question, a Chinese supplier took its (German) customer to court in Germany for payment of the purchase price. The customer argued that it offset the payment against damage claims for defective merchandise and in addition pleaded non-fulfillment of contract. The BGH rejected the offsetting by arguing that German courts are not responsible for damage claims asserted against the Chinese company and could therefore not decide on such claims by permitting the offsetting. Contrary to the lower courts, the BGH did, however, confirm the ability to plead non-fulfillment of contract. Although, pursuant to the jurisdiction clause, the buyer should have asserted the claim for a cure at the supplier's registered place of business in China, this did not preclude the buyer from pleading this defense, because it would otherwise be denied fundamental rights of defense.

Conclusion: In international contracts, it is best to agree on a neutral place of jurisdiction or arbitration. If different courts have jurisdiction for actions filed by the buyer and those filed by the supplier, this makes the enforcement of rights difficult for both sides.