4 April, 2015
On 25 March 2015, Singapore signed the Hague Convention on Choice of Court Agreements (the Hague Convention). The Hague Convention is expected to come into force in June 2015 and has the potential to transform the international dispute resolution landscape. In this briefing, we explore the Hague Convention's potential impact and what it means for commercial parties.
Choice Of Court Agreements
Choice of court agreements, otherwise known as "forum selection clauses" or "jurisdiction clauses", are clauses commonly found in cross-border commercial agreements which express the parties' intention that the courts of a specific country decide disputes between them.
These clauses can be exclusive, where the parties select one country's courts to the exclusion of the jurisdiction of all other courts, or non-exclusive, where disputes can be heard in the courts of a particular country but without prejudice to the right of one or other of the parties to take a dispute to the courts of any other jurisdiction if appropriate.
The aim of the clause is to provide certainty to the parties as to where they can sue and be sued, and to avoid or mitigate the risk of parallel proceedings being commenced around the world.
The Role Of The Hague Convention
The Hague Convention was concluded by the Hague Conference on Private International Law on 30 June 2005,1 and its stated aim is to ensure the effectiveness of choice of court agreements between parties to international commercial transactions.
This aim reflects the fact that, while choice of court agreements are a regular feature of cross-border contracts, they are not always respected by courts around the world, who apply divergent national rules as to their enforceability and effect. Further, and even where such clauses are respected, the resulting court judgments are often difficult to enforce in other countries due to the lack of a comprehensive, worldwide enforcement treaty.
The Hague Convention seeks to rectify this situation by establishing three basic rules in respect of choice of court agreements:
1. The courts of a Contracting State designated in an exclusive choice of court agreement must not decline to exercise jurisdiction on the ground that the dispute should be decided in a court of another State (Article 5).
2. A court of a Contracting State other than the chosen court shall suspend or dismiss proceedings to which an exclusive choice of court agreement applies (subject to a narrow list of exceptions) (Article 6).
3. A judgment given by the chosen court shall be recognised and enforced in other Contracting States (Article 8). Again, this is subject to a
narrow list of exceptions relating to both procedural and substantive matters; for example, recognition or enforcement may be refused where the judgement was obtained by fraud, or where recognition or enforcement would be "manifestly incompatible" with public policy (Article 9).
The Hague Convention applies to exclusive choice of court agreements, although a Contracting State may declare that it will also recognise and enforce judgments given by courts designated in a nonexclusive choice of court agreement.
Singapore's Hopes
For Singapore, the Hague Convention is a key pillar in the country's strategy to promote itself as a hub for international dispute resolution. Singapore hopes that, by enhancing the enforceability of its judgments abroad, the Hague Convention will attract commercial parties to use Singapore's courts, particularly the newly created Singapore International Commercial Court.
Current Status Of The Hague Convention
The Hague Convention is not currently in force, and won't be until at least two parties deposit their instruments of approval/accession (Article 31). While the US, EU,2 Mexico and Singapore have signed the Hague Convention, only Mexico has deposited its instrument of approval.
On 5 December 2014, however, the EU completed all internal approval processes and is now in a position to deposit its instrument of approval. This is expected to occur in the coming months, so the Hague Convention can enter into force by June 2015 (ten years from the Hague Convention's conclusion). Singapore is expected to ratify the Hague Convention soon after.
Why The Fuss?
As neatly summarised by Herbert Kronke, the Hague Convention "has the potential to achieve for litigation what the New York Convention achieved for arbitration".3
Arbitration has flourished as the most popular means of resolving international commercial disputes to a large extent because of parties' ability to enforce arbitration awards under the 1958 New York Convention. Now, the Hague Convention offers a global, predictable regime for enforcement of exclusive jurisdiction clauses, as well as the court judgments that arise from them.
This is not to suggest that litigation will replace arbitration as the preferred method for resolving international disputes, at least in the short term. As noted above, the Hague Convention has been adopted only by a limited number of States. Even with the EU on board, the Hague Convention will apply to a total of 28 countries only; adoption by Singapore and the US would raise that total to 30. This figure is dwarfed by the current 154 countries who are signatories to the New York Convention. However, it is foreseeable that support from the likes of the EU, the US and Singapore will create a bandwagon effect, prompting a wave of new signings and ratifications throughout the world.
If this does occur, commercial parties will have to give serious consideration to the use of litigation in crossborder contracts. With a balanced enforcement regime for arbitration and litigation, arbitration would no longer be the "automatic" choice, and parties would need to select a method for dispute resolution with greater attention to the differences between the two processes. While there would be many factors to consider, litigation has some clear advantages over arbitration, including (among others) the ability to:
- join third parties to a case and consolidate existing cases involving third parties;
- appeal judgments;
- seek orders for disclosure of documents against non-parties and before a case has started;
- establish binding precedent, which improves commercial certainty; and
- bring recalcitrant parties into line with stronger powers to punish non-compliance with court orders.
Commercial parties would therefore be well advised to monitor the Hague Convention's status over the coming months.
End Notes:
1 A copy of the Hague Convention can be accessed here.
2 With the exception of Denmark.
3 Herbert Kronke, "Introduction: The New York Convention Fifty Years on: Overview and Assessment" in Herbert Kronke, Patricia Nacimiento, et al. (eds), Recognition and Enforcement of Foreign Arbitral Awards: A Global Commentary on the New York Convention (Kluwer Law International, 2010), pp. 1–18.
For further information, please contact:
Rob Palmer, Partner, Ashurst
rob.palmer@ashurst.com
Michael Weatherley, Ashurst
michael.weatherley@ashurst.com
