A Dispute with a Developer Abroad: Arbitration or Court, and Where, According to the Jurisdiction Clause in the Contract

Most buyers read the price, the payment schedule and the delivery date in a contract with a developer. The clause at the end, the one that determines where a dispute will be heard, looks technical. It becomes important on the day something goes wrong: a long delay, a demand for a refund, a disagreement over the specification. On that day it determines in which country you will have to act, in which language, under which law, and whether the judgment you obtain will be worth anything.

This guide explains the difference between a jurisdiction clause, a governing law clause and an arbitration clause, what the law allows you to set in the contract and what it does not, how a judgment or an arbitral award is enforced across borders, and what to do in the first weeks of a dispute.

1What determines where a dispute with a developer abroad will be heard?

The short answer: the contract, within the limits set by the law of the country where the property is located. It is worth separating three questions, because each of them is determined differently:

2What is the difference between a jurisdiction clause, a governing law clause and an arbitration clause?

• A jurisdiction clause determines which courts a dispute will be brought before. It can be exclusive, meaning only those courts, or non-exclusive, meaning they have jurisdiction without excluding others. Israeli case law has held that the wording alone does not always decide this question, and that a party claiming the clause is exclusive has to show it. It is therefore better to write “exclusively” in so many words.
• A governing law clause determines under which law the contract will be interpreted. Under the European Union's Rome I Regulation, the rule is that the contract is governed by the law chosen by the parties. This clause is separate from the question of venue: a court in one country can apply the law of another country, but the foreign law must then be proven to it.
• An arbitration clause takes the dispute out of the courts to an arbitrator or an arbitral tribunal. Arbitration exists only if the parties agreed to it, and the agreement must be in writing.

The common problem is a mismatch between the clauses: jurisdiction in Israel, Romanian law and a property in Romania, or two conflicting clauses, one in the contract and one in an annex. Every such combination adds a preliminary proceeding over where the case should be heard at all, before you reach the question of who is right.

3Can the contract provide that the dispute will be heard in Israel?

It can be written, but it will not always hold, and even when it holds, it will not necessarily help. In the European Union, under Article 24(1) of Regulation 1215/2012 (Brussels I Recast), in proceedings which have as their object rights in rem in immovable property or tenancies of immovable property, exclusive jurisdiction lies with the courts of the country where the property is situated, regardless of the domicile of the parties. Under Article 25(4) of the Regulation, a jurisdiction agreement that attempts to circumvent such exclusive jurisdiction has no legal force.

In Romania, the Code of Civil Procedure grants exclusive jurisdiction to the Romanian courts in international disputes concerning immovable property in Romania (Article 1079), and lists such exclusive jurisdiction among the grounds for refusing to recognise a foreign judgment (Article 1096). The practical meaning: a claim in Israel concerning ownership of an apartment in Romania may end in a judgment that will not be recognised there.

In a monetary claim under the contract, for example the return of advance payments or agreed compensation for delay, there is more room for choice. But even then, if the developer's assets are abroad, an Israeli judgment will have to go through recognition proceedings in that country. In Romania, recognition of a judgment from a country that is not a member of the European Union is subject to cumulative conditions: the judgment is final under the law of the country that gave it, the court that gave it had jurisdiction under that country's law, and there is reciprocity between Romania and that country in the recognition of judgments (Article 1095). On what happens in practice when Israeli jurisdiction is chosen for a partnership in a property in Romania, you can read the story from the weekly column about an Israeli jurisdiction clause.

4Arbitration or court: which suits a dispute with a developer?

There is no single answer. Arbitration is suitable mainly when the amounts are large, when the parties are from different countries and when it is important that the award be enforced in several countries. A local court is more suitable when the dispute concerns the registration of the property itself, or when the amount does not justify the costs of arbitration, which the parties bear themselves.

Two things are particularly important for a private buyer. First, in Romania, an arbitration clause, a governing law clause or a clause that departs from the rules of jurisdiction, when included in a standard-form contract drafted in advance by the developer, is valid only if the buyer accepted it expressly and in writing (Article 1203 of the Romanian Civil Code). See also the guide on unfair clauses in a developer contract in Romania. Second, some countries, including Romania, Cyprus and the USA, declared that they will apply the New York Convention only to relationships that their law considers commercial. Whether buying an apartment for private use meets that definition is a question to check locally before choosing arbitration.

5How is a judgment or an arbitral award enforced across borders?

A judgment is paper until it is enforced where the other party has money or assets. Each direction of enforcement follows a different route:

The New York Convention lists a closed set of grounds for refusing to enforce a foreign arbitral award, including an invalid arbitration agreement, a party that was not given proper notice or was unable to present its case, an award that goes beyond the scope of the arbitration, an award that was set aside in the country where it was made, a subject matter that cannot be settled by arbitration under the local law, and a conflict with public policy. The Convention also requires a court seized of a claim on a matter covered by an arbitration agreement to refer the parties to arbitration if one of them so requests. In Israel, section 5 of the Arbitration Law allows a party to apply for a stay of proceedings in such a situation.

6What is worth negotiating before signing?

Many developers use a standard-form contract, but dispute clauses are usually among the clauses that can be discussed. These are the points worth checking in the draft:

1. Who the party to the contract is. The full name of the company, its registration number and the country where it is registered. The claim will be filed against the company that signed, not against its shareholders. If there is a guarantee from a parent company or from the shareholders, it must be in writing.
2. A precise jurisdiction clause. City and court, “exclusively” or not, and consistency with the law of the country where the property is located.
3. A governing law that matches the place of the hearing. Foreign law in a local court means expert opinions and translations.
4. If there is arbitration: the institution, the seat of arbitration, the rules, the language and the number of arbitrators. An arbitration clause without an institution and without an appointment mechanism invites a further dispute.
5. The language of the contract. If there is a version in two languages, which version prevails.
6. Addresses for notices. A postal and email address for each party, so that a notice is sent to an agreed place.
7. A negotiation or mediation stage before a claim, limited to a set number of days, so that it does not turn into an endless delay.
8. Signing the clauses. In Romania, express written acceptance of arbitration, governing law and jurisdiction clauses in a standard-form contract.

7The dispute has already started: what do you do in the first weeks?

1. Gather the documents: the contract and all annexes, the transfer confirmations, the correspondence with the developer and an up-to-date extract from the land registry.
2. Read the dispute clauses: jurisdiction, governing law, arbitration, notices, and a negotiation stage if one was set.
3. Check deadlines: in some countries there are short deadlines for certain actions. In Romania, for example, an application for a judgment to take the place of a final contract is filed within 6 months, as explained in the guide on a developer's delay in delivery in Romania.
4. Send a written notice in accordance with local law: the breach is usually counted from it.
5. Map the developer's assets: where the company is registered, where the project is, and which units are still registered in its name.
6. Consider steps to preserve the position: interim relief or registering a caveat, as local law allows, through a lawyer licensed in the country where the property is located.
7. Only then decide where to sue: a claim in Israel, when the contract provides for jurisdiction or arbitration elsewhere, may be stopped at the preliminary stage and cost time and money.

For the broader picture of what to do when a deal abroad goes wrong, from a developer who is late to an ownership problem, see the guide when a real estate deal abroad goes wrong.

8What should you do before signing, and how do we assist?

Before signing, it is worth asking three questions about any contract with a developer: where will a dispute be heard, under which law, and where will I be able to collect if I win. We assist Israeli buyers and developers in reading the dispute clauses in the draft, adapting them to where the property and the developer are located, and drafting the requests for amendment before signing. When a dispute arises, representation in the courts of the country where the property is located is provided by a lawyer licensed in that country.

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