In every contract the question arises of how a potential dispute will be solved. Very often contracting parties have other priorities and don’t have this in mind when they are negotiating a deal. However, drafting the right dispute resolution clause can help the parties to settle their future disputes in a more convenient way. The following questions explain why:
Why are dispute resolution clauses important? How can they be used to your advantage?
Dispute resolution clauses indicate the competent court to settle the dispute (choice of jurisdiction) or which alternative dispute resolution mechanism the parties must follow.
In IT contracts, many services are provided globally online, there is a big risk that the dispute acquires an international dimension and that companies will have to litigate in a foreign jurisdiction or based on a foreign law.
In order to avoid this, Dutch IT services providers should make sure that in case a dispute arises with their clients, Dutch courts will be the ones competent to settle it. They should avoid having to litigate in a foreign jurisdiction where they will face higher costs, possible longer delays and the problem of not fully understanding the jurisdiction they find themselves in, therefore potentially putting them on the back foot before anything has even begun.
It is also advisable to avoid the use of arbitration clauses – the reason being is because it requires exuberant costs that can be discouraging for the plaintiff.
As far as IT disputes are concerned, if a service provider uses Dutch Digital Terms and Conditions, then an arbitration clause for the SGOA (Stichting Geschillenoplossing Automatisering) will be applicable for disputes exceeding €25.000,-. For disputes under this amount, it is the kantonrechter (subdistrict court) that is competent to hear this dispute. The arbitration procedure will represent, in any case, higher costs for the parties than an ordinary procedure at court.
The best way to avoid this is to insert a dispute resolution clause into the contract which will ensure the following:
- The parties will have an obligation to firstly try and settle their dispute amicably
- In the case that they fail, the competent judge will be the one of the domicile of the service provider in the Netherlands.
How to use a clause of choice of jurisdiction? Three recent court cases from the EJC and the Hoge Raad.
Once there is a clear dispute resolution clause with a choice of jurisdiction, it is important that it can be declared applicable in case one of the parties argues that it is not.
For this purpose, the best solution is to insert the clause in a contract to be signed by both parties. In practice, this is not always the case, especially when contracting with online parties or consumers. These clauses are very often included in general terms and conditions that are not signed but only shared with the customer by the service provider. To determine if a clause of choice of jurisdiction is applicable or not, the judges will make a distinction between consumers and professionals. It will be more difficult to declare the clause applicable if it is opposed to a consumer.
The following decisions illustrate different examples :
- The European court of Justice has recently decided that this clause is validly concluded if it is inserted into the T&C’s and these are mentioned in the signed contract with a hypertext link to a website so they can be viewed, downloaded and printed prior to the contract being signed. It is no longer necessary to ask the customer to accept the T&C’s by ticking a box on the website. (ECJ 24th November 2022 Case C-358/21)
- The Hoge Raad has recently decided that a wholesale supplier is a services provider and as such the T&C’s can be applicable if there is a mention of the URL link of a website where the counterparty can consult them in the signed contract (ECLI:NL:PHR:2022:1194)
- The Hoge Raad has considered that a choice of jurisdiction in the Netherlands for a consumer situated in Australia is unreasonable aggravated and has declared itself incompetent (ECLI:NL:RBAMS:2021:4531).
What happens if there is no clear choice from the parties?
In cases where parties do not make a clear choice of competent court, it will then be determined based on European Regulations, International Conventions or domestic law dependent on the countries involved.
In the Netherlands the regulation Brussels I (no 1215/2012) is applicable to determine the competent court.
This same regulation gives priority to the court chosen by the parties (article 25). In case the case that they have not made a choice, the Regulation gives them a choice of competent courts: either the one of the domicile of the defendant (article 4 and 5) or the court where the place of performance of the obligation in question (article 7). In the case of services provided online, it can be challenging to determine which is the place of performance of the obligation.
In practice the plaintiff will always have the choice between the Court of the domicile of the defendant or an additional criteria, such as the place where the damages have occurred or the place of the delivery of the goods or the performance of the obligation.
These additional criteria’s can be used by Dutch companies wanting to avoid litigation in foreign jurisdictions and are trying to find grounds to bring the case before a Dutch Court.
It is important to know that judgments are automatically recognized inside the European Union, but this is not necessarily the case for third countries. When dealing with a party outside of the EU, a verdict from a Dutch court will have to go through a new procedure of recognition and enforcement (Exequatur). This is why some parties prefer to litigate directly abroad.