Jurisdiction and choice of law in international contracts: German court, arbitration or abroad?

State court or arbitration?

The central choice is between a state court and arbitration, for example under the DIS or ICC Rules. State court proceedings are often less expensive, but may continue through several levels of appeal and take longer. Hearings are generally public, and the ease of enforcing a judgment abroad depends on the country concerned and the applicable treaties.

Arbitration normally costs more because the parties also pay the arbitrators and, where relevant, the institution. In return, there is usually only one instance, the proceedings can remain confidential and the process can be adapted more closely to the parties' needs. Its most important advantage is often the international enforceability of the award. The better option therefore depends on the value and nature of the dispute, the commercial relationship, the likely enforcement states and the need for confidentiality.

Enforcement of foreign titles

Within the EU, judgments are largely recognised and enforced under the Brussels Ia Regulation without any special procedure. Arbitral awards are enforceable in more than 170 states under the New York Convention, which often makes them superior in dealings outside Europe. If the counterparty's assets are likely to be located outside the EU, this enforcement advantage of arbitration should be factored into the decision.

Typical errors in jurisdiction and choice-of-law clauses

In practice, problems often arise not because a clause is missing altogether but because the documents contain conflicting provisions. A framework agreement may select the German courts, while a purchase order or general terms refer to a foreign court or arbitration. The first dispute then concerns which dispute resolution clause applies at all.

Choice of law and forum should also be aligned. Otherwise, a state court may have to establish and apply foreign law throughout the case, adding time, cost and uncertainty. An arbitration clause should clearly identify the institution or procedural rules, the seat, the language and, preferably, the number of arbitrators. Enforceability should not be examined only after judgment. From the outset, the parties need to know whether the eventual title can be enforced where valuable assets are actually located.