The Convention on Choice of Court Agreements (the “Convention”) is aimed at enhancing judicial co-operation to promote international trade and investment in the international business-to-business transactions. It offers an attractive advantage for the parties who prefer to keep their disputes within the realm of state courts. This article explores application of the Convention, its key features, present and prospective impact on the resolution of cross-border commercial disputes.

Signing of the Convention by Ukraine is certainly a step forward in creating a more friendly dispute resolution environment. In essence, the Convention is a mechanism to remedy conflicts of jurisdiction that could arise between the courts of several Contracting States, and to bring them to the court specifically designated by the parties. Once implemented, it will entail greater legal certainty as to the settlement of international disputes and enforcement of respective judgements.

Relying on the assumption that Convention will be generally accepted and adopted, at least by the number of States close to the one of those parties to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the “New York Convention”), it will lead to more uniformity and legal certainty in the area of international commercial litigation.

Application

As of 01 October 2015 the Convention is in force for the EU (except Denmark) and Mexico. Singapore has joined the Convention in 2015 with a subsequent ratification recently passed on 14 April 2016. At present, Ukraine and the US have both signed the Convention with ratification anticipated.

First and foremost, in regard to the scope, the Convention is clear on its application to the exclusive choice of court agreements only. For an agreement between two or more parties to be deemed exclusive, it must designate the courts of one Contracting State, or one or more specific courts in one State, to the exclusion of all other courts. Therefore, even if an agreement provides for more than one court, as long as all of the courts are within the same Contracting State, such agreement constitutes an exclusive jurisdiction one.

At the same time, in order to fall under the Convention, the agreement must be exclusive in regard to both parties, irrespective who would be bringing the proceedings. Therefore, unilateral choice of court agreements, also referred to as “asymmetric agreements”, where only one party is obliged to bring a claim to a designated court and the other one has an open end forum selection opportunity, do not constitute an exclusive jurisdiction agreement and are not covered by the Convention.

As to the subject-matter, the Convention shall apply to civil and commercial international cases with a number of exceptions including but not limited to: consumer and employment contracts, insolvency and competition matters, carriage of goods or passengers, maritime matters, tort or delict claims arising not from a contract, certain intellectual property rights, arbitration and related proceedings. According to the Convention, a case is international unless the parties are resident in the same Contracting State and their relationship, together with all elements related to the dispute, is connected only with that State.

It shall be noted that whereas the Convention does not give particular weight as to how a decision of a designated court may be called (e.g. judgement, decree or order), it does provide that such decision must be rendered on the merits of the dispute. Consequently, interim measures of protection are not considered to be a judgment within the meaning of the Convention and are not governed by it.

Key Features

While preserving sovereign rights of Contracting States on the internal allocation of jurisdiction among its courts, the Convention ensures interests of the parties to an exclusive choice of court agreement in the following ways:

  • Article 5: The court specified in the parties’ choice of court agreement shall hear the case unless legitimate grounds to deny jurisdiction exist;
  • Article 6: Any other court not chosen by the parties shall refuse to hear the case brought before it unless exercising its jurisdiction is justified under the Convention;
  • Articles 8 & 9: Decision of the chosen court shall be recognized and enforced in other Contracting States according to the Convention provided the limited grounds for refusal do not apply.

Impact

The Convention provides an opportunity for the business entities to predict with more certainty the course of potential litigation between them and enforcement of judgements in the future. In many aspects the legal regime to be created under the Convention is based on the values shared by the international commercial arbitration law: autonomy of the parties, severability of the choice of court clauses, unified procedure of recognition and enforcement of judgement across jurisdictions. All these characteristics could have a positive outcome for the time and cost efficiency of the dispute resolution process in the context of commercial litigation.

Currently, due to the limited number of Contracting States, impact of the Convention is rather narrow. Nevertheless, once entered into force for Singapore, more frequent reliance on the Convention can be expected in light of the court-based international dispute resolution system offered by the Singapore International Commercial Court (SICC).

Should the Convention become a generally accepted instrument with a considerable number of Contracting States, the parties involved in international commercial cases can reasonably anticipate a more unified legal framework applicable to dispute resolution, and consequently, more predictability as to the procedures and outcome.