The Hague Convention of 30 June 2005 on Choice of Court Agreements (the Convention) comes into force today, 1 October 2015. The intention of the Convention is to provide a reciprocal regime in respect of exclusive choice of court agreements (also called forum selection clauses), which offers greater certainty to commercial parties that their choice of forum will be respected, and, moreover, that any judgment will be readily enforceable in other jurisdictions.
The key provisions of the Convention are:
- Article 5, which provides that a court chosen in an exclusive choice of court agreement must hear the case (save for in limited circumstances)
- Article 6, which provides that a court seised of a matter in relation to which an exclusive choice of court agreement applies, must stay or dismiss proceedings (subject to a limited number of exceptions)
- Article 8, which provides that the courts of Contracting States are obliged to recognise and enforce a final judgment of the court of another Contracting State named in an exclusive choice of court agreement without review of the merits (subject to a limited number of grounds for refusal of recognition and enforcement).
The Convention is limited in scope – it only applies to exclusive choice of court agreements, as defined in Article 3. However, a forum selection clause which meets the defined criteria but is silent as to whether the jurisdiction of the chosen court is exclusive will be deemed to be an exclusive choice of court agreement and fall within the scope of the Convention. Its application is also subject to a number of exceptions – for example, employment contracts and rights in rem over immovable property are excluded. Further, it does not apply to arbitration or related proceedings, or to interim relief.
Mexico acceded to the Convention in 2007 and it was then ratified by 27 of the 28 Member States of the EU (Denmark having decided not to ratify it) earlier this year. Other countries have signed – the US in 2009 and Singapore in March of this year – but are yet to ratify the Convention. For commercial parties who are involved in international transactions, the benefits of the Convention will depend on it achieving broad acceptance in the same way as the New York Convention, which has been ratified or acceded to by 158 countries.
“International cases” and only civil and commercial matters.
The Convention applies to “international cases”. In relation to the issue of jurisdiction, the definition of international is based on the circumstances of the case – the default position is that the case is international unless the parties are resident in the same Contracting State and the relationship of the parties and all other elements relevant to the dispute, regardless of the location of the chosen court, are connected only with that State.
The definition of international in relation to enforcement hinges only on whether enforcement of a foreign judgment is being sought.
The Convention only applies to civil and commercial matters.
In short, the obligation on the chosen court is to hear the case. The exception is where the choice of court agreement is null and void under that State’s law (for example, for fraud, mistake or duress), or application of that State’s jurisdictional rules affecting the subject matter or value of the claim point to another court in that State having jurisdiction.
At the heart of the Convention is the obligation on courts of Contracting States who are seised notwithstanding an exclusive choice of court agreement in favour of the court of another Contracting State. That court is generally obliged to stay or dismiss the proceedings to which an exclusive choice of court agreement applies, subject to a number of exceptions. Some of these exceptions are potentially broad in scope – for example, those referring to manifest injustice and public policy. Furthermore, there is potential for a non-chosen court to reach a determination that the choice of court agreement is invalid under the law of the State of the chosen court. The chosen court may reach a different decision, so there remains potential under the Convention for parallel proceedings and inconsistent judgments, both on jurisdiction and on the merits.
Recognition and enforcement
Chapter III of the Convention contains a reciprocal obligation on recognition and enforcement. The courts of a Contracting State are obliged to recognise and enforce a final judgment of the court of another Contracting State designated in an exclusive choice of court agreement without review of the merits. However, the grounds on which an enforcing court can refuse are relatively broad or, at least, could be broadly interpreted. In the same way that the public policy exception in Article V(2) of the New York Convention is subject to varying degrees of interpretation (and some may say misuse), the public policy ground contained in Article 9 of the Convention provides similar scope for mischief making.
Unilateral Jurisdiction Clauses
There is nothing in the Convention which expressly deals with unilateral or asymmetric jurisdiction clauses. For example, if parties enter into an agreement whereby the English court has exclusive jurisdiction as far as claims by party A are concerned, and non-exclusive jurisdiction as far as claims by party B are concerned, and party B brings proceedings in the English court (ie. in the chosen court), is that judgment enforceable under the Convention in another Contracting State? The Explanatory Report to the Convention stipulates that asymmetric or unilateral clauses are outside the scope of the Convention. It also gives examples of clauses that would be regarded as exclusive and those which would not.
However, where a forum selection clause provides for one party to exercise an option between litigation or arbitration, and the jurisdiction element of that clause meets the definition of an exclusive choice of court agreement, the clause should be within the scope of the Convention.
The future of the Convention
As noted above, the success of the Convention depends on whether it is accepted by States. It is highly likely that Singapore will ratify the Convention in the near future – it would further assist Singapore’s intention to become a centre for dispute resolution, including by facilitating recognition and enforcement of judgments of the Singapore International Commercial Court across the EU (with the exception of Denmark). The intentions of other jurisdictions are not so clear. The Hong Kong SAR Government conducted two consultations on the Convention with stakeholders but received “mixed views” on the question of whether it should be applied in Hong Kong. As a clear rival to Singapore for dispute resolution business in the Asia-Pac region, Hong Kong is studying closely the impact of the Convention on the behaviours of international business parties in relation to choice of forum and enforcement. The United States has signed the Convention and there is draft legislation in order to facilitate its implementation but it is unclear whether a clash between state and federalist interests will undermine progress towards ratification. The Convention remains under consideration in Australia. Herbert Smith Freehills’ Consultant Prof. Richard Garnett, also Professor of Law at Melbourne University has written extensively on this subject and, at the invitation of the Australian Government is an expert member of the Australian delegation to the Hague Conference on Private International Law.