Summary: On 14 April 2016 Singapore’s Parliament passed the Choice of Court Agreements Act 2016 (the 'Act'), which enables Singapore to implement the Hague Convention on Choice of Court Agreements (the 'Hague Convention').

What is the background to the Act in Singapore?

Singapore signed up to the Hague Convention just over a year ago on 25 March 2015 and took its first step towards ratification by tabling the Choice of Court Agreements Bill before Parliament on 4 April 2016. The bill was subsequently passed just ten days later on 14 April 2016, thereby paving the way for formal implementation of the Hague Convention in Singapore. Now that the Act has been passed by Parliament, it will come into force on the date of its publication in the Government Gazette.

The Hague Convention is an international legal agreement which was concluded in 2005 and came into force on 1 October 2015. When it is formally implemented in Singapore, the Hague Convention will have 29 contracting states as signatories, including Mexico and all states in the European Union (with the exception of Denmark). It has also been signed by the United States and Ukraine, although is yet to be ratified in those two countries.

The Hague Convention aims to provide certainty to parties involved in cross-border litigation where those parties have agreed that the courts of a particular contracting state will exclusively have jurisdiction for the resolution of their commercial disputes (subject to limited exceptions) by ensuring that their choice will be respected and upheld by the courts of other contracting states. Such an agreement is implemented through a “choice of court agreements clause” (often referred to as a “jurisdiction clause”) whereby parties to cross-border commercial contracts specify the courts of the jurisdiction that they agree must resolve any dispute that might arise. It also aims to provide certainty in relation to the enforcement of judgments of a court in one contracting state by the courts in the other contracting states.

The Hague Convention provides uniformity to choice of court agreements clauses with regards to:

  1. the way in which courts of contracting states will treat the choice of court agreements in contracts; and
  2. the way in which courts of contracting states recognise and enforce foreign civil judgments of fellow contracting states.

It should be noted that the Hague Convention excludes a limited number of commercial matters from its scope and its provisions will therefore not apply to contracts dealing with such matters. For Singapore, the most notable of these exclusions is perhaps that for contracts dealing with transport and shipping matters. Clients should also note that whilst insurance matters are covered by the Hague Convention, the European Union secured an opt out from this category (but opted in for reinsurance and large risks such as marine insurance).

The full list of matters excluded from scope are detailed at Article 2 of the Hague Convention.

What are the main features of the Act?

The main features of the Act are that:

  1. only the court chosen by the parties to the contract in the “choice of court agreement” clause can in principle hear the proceedings if a dispute arises;
  2. other courts should decline to hear proceedings brought before them in circumstances where the “choice of court agreement” clause specifies that the courts of another contracting state has jurisdiction to hear the proceedings; and
  3. contracting states are obliged to recognise and enforce judgments rendered by the courts of other contracting states.

Accordingly, and in line with the Hague Convention, the Act requires the Singapore courts to:

  • decline to hear disputes brought before it arising out of a jurisdiction clause in a contract which specifies that the court of another contracting state has jurisdiction to hear disputes arising out of that contract; and
  • recognise and enforce in Singapore (subject to some limited exceptions) any foreign judgment from a court of a fellow contracting state that is designated by an exclusive “choice of court agreements clause”.

Therefore, if parties to a contract elect, for example, to confer jurisdiction on the Singapore High Court or the Singapore International Commercial Court (“SICC”) to determine disputes arising out of the contract, no other court of a contracting state can hear such proceedings and should properly decline to hear the case pursuant to the Hague Convention.

Parties are free to elect for their disputes to be determined by the courts of any of the contracting states of the Hague Convention and not necessarily by the courts of the states where the parties reside. Parties are of course free to confer jurisdiction on any court which they choose (or agree that their disputes will be referred to arbitration) but in circumstances where the courts of a state which is not a contracting state are chosen, the parties will not have the benefit of the advantages of the Hague Convention. Further, the parties may face some difficulties in persuading a court of a third state to find that it has jurisdiction if, for example, the parties or the subject matter or performance of the contract has no connection to that third state.

What are the advantages of implementing the Hague Convention for Singapore?

From a practical perspective, the advantages of implementing the Hague Convention are obvious. Under Singapore’s previous laws, Singaporean civil judgments were only recognised and enforceable in 11 other countries pursuant to international reciprocal arrangements. With the passing of the Act and the implementation of the Hague Convention, such judgments will now be recognised and enforceable in an additional 28 contracting states, thereby significantly extending both the reach of Singaporean court rulings and the certainty afforded to users of the Singapore courts.

On a more strategic level, ratification of the Hague Convention is a key step for Singapore as it continues to establish itself as an international hub for dispute resolution. Indeed, whereas the Singapore International Arbitration Centre (SIAC) has led to Singapore becoming a leading centre for international arbitration, the government is also committed to developing Singapore as a forum for international litigation, as demonstrated by the introduction of the SICC, which was officially launched on 5 January 2015 and which heard its first case in November last year.

Whereas international arbitration previously boasted a comparative advantage over international litigation via the mutual international enforcement afforded by the New York Convention, the implementation of the Hague Convention goes some way towards offsetting this relative disadvantage and may persuade more international parties to resolve their disputes in court rather than before an arbitral tribunal.

It should however be remembered that agreeing a disputes clause is a very important part of a contractual negotiation and consideration should always be given to where one party may need to ultimately enforce a judgment or award in the event that it falls out with its contractual counterparty. All circumstances will be different but arbitration will often remain the most sensible choice, especially where a contractual counterparty is from or has assets in a state which is not a contracting state. This will be particularly true for clients who are dealing with Asian counterparties based somewhere other than Singapore. Whether or not other countries in the Asia-Pacific region will follow in Singapore’s footsteps and sign up to the Hague Convention remains to be seen. It is rumoured that Hong Kong – the other major disputes hub in Asia - is seriously considering ratifying the Hague Convention independently of mainland China which would be an interesting development on several levels.

Aside from those important case by case considerations as to the appropriate disputes clauses to be included in contracts, it is indisputable that the increased certainty which the Hague Convention will lend to Singaporean judgments is a significant tool in enhancing the attraction of Singapore as a disputes hub and encouraging more international commercial parties to elect for their disputes to be decided in Singaporean courts. Whilst this is good news for the Singapore High Court, the implementation of the Hague Convention is of particular significance and importance for the SICC. Singapore has long been regarded as a sound commercial choice of location for resolving business disputes. Whilst the introduction of the SICC, with its bench of Singaporean High Court judges as well as 12 international judges from both civil and common law jurisdictions (including the UK, USA, Hong Kong, Japan, Australia and France) has increased Singapore’s attractiveness, uncertainty still lingered over enforcement of the SICC’s judgments overseas. The entry into a memorandum of understanding in January 2015 providing guidance for the mutual recognition and enforcement of court judgments between the SICC and the Dubai International Financial Centre courts was a move in the right direction but the implementation of the Hague Convention via domestic legislation should offer greater encouragement to parties to international contracts to choose to resolve their disputes in Singapore.

Aside from strengthening Singapore’s reputation as a leader in international dispute resolution, the mutual recognition and enforcement provided by the Hague Convention should also promote international trade between the contracting states and reinforce Singapore’s position as a leader in facilitating international commerce.

The advantages gained by passing the Act and implementing the Hague Convention are therefore considerable, not only for Singapore’s litigation market, but also for entrenching its reputation as a prime destination for international dispute resolution and as a leader in promoting commerce more generally.

It will now be important for Singapore to consider how best to encourage parties to refer to the Singapore courts or the SICC in choice of court clauses in their international contracts in order to fully realise the benefits afforded by the Hague Convention. One option, as attested to by lawyer and Member of Parliament Dennis Tan in his speech in Parliament approving the Act, could be to build on Singapore’s reputation as a preferred neutral forum for non-Singaporean parties, thereby suggesting that the 28 members of the European Union should be a key focus areas going forwards.

This article was first published on Lexis®PSL on 22 April 2016