Earlier this year, Singapore followed up on its signing of the Hague Convention on Choice of Court Agreements, by passing laws to ratify and give local force and effect to this convention.
These laws came into force on 1 October 2016. As the first jurisdiction in the Asia-Pacific region to sign, ratify and give effect to the Hague Convention, Singapore continues to lead the way as a forum for international commercial dispute resolution.
What is the Hague Convention and why is it important?
The Hague Convention attempts to overcome one of the significant shortcomings of cross-border litigation – the reluctance of some national courts to respect “choice of court” clauses that parties often insert into agreements. While these clauses represent a deliberate choice to have disputes resolved in a particular forum, national courts around the world have not always enforced these clauses in a coherent or consistent manner. Further (and notwithstanding the seemingly limited title of the Hague Convention), it was also intended to create uniform rules on the recognition and enforcement of foreign judgments in civil and commercial disputes.
Traditionally, the recognition and enforcement of foreign arbitration agreements and arbitral awards represent the two most significant benefits of arbitration over litigation, as both are recognised and enforced in the 156 states that have signed the New York Convention. The recognition and enforceability of choice of court clauses and court judgments are much more limited. It was intended that the Hague Convention rectify this by creating a global framework of rules on jurisdiction, recognition and enforceability, and thereby promote “greater legal certainty for cross-border business” and a “climate more favourable to international trade and investment.”
How does the Hague Convention work?
The Hague Convention includes “three basic rules” that put choice of court clauses into effect:
Rule 1: The court of a Contracting State that is designated to hear disputes pursuant to an exclusive choice of court clause has jurisdiction over, and must hear, a case put before it.
Rule 2: A court in Contracting State other than that of the chosen court of a Contracting State must decline to hear a case put before it.
Rule 3: A judgment given by a chosen court of a Contracting State must be recognised and enforced in a court of another Contracting State (subject to limited grounds of refusal which largely mirror those contained within the New York Convention).
Importantly, where a party seeks to enforce a judgment in the circumstance described in rule three, Art 9(2) provides that the court of enforcement cannot conduct a merits review of the original decision and shall be bound by the findings of fact and law on which the court based its decision. Its effect in respect of judgments is similar to (but not identical with) the provisions of the New York Convention relating to arbitration.
Of course, there are other bilateral arrangements between states which are designed to achieve a similar result, for example, see the Australian Foreign Judgments Act 1991 (Cth), which provides for the enforcement of certain courts’ (stipulated by regulation) judgments. However, the Hague Convention is more ambitious as it is intended to have a multilateral effect.
What do the latest developments in Singapore signify?
While the Hague Convention promised a lot when first conceived, it remained dormant from when it was opened for signature on 30 June 2005 until it came into force on 1 October 2015. Further, until Singapore’s recent ratification, the Hague Convention only had force between Mexico and the European Union states. While the United States and Ukraine are signatories, neither has ratified the Hague Convention locally. It has therefore had limited practical effect.
Prior to the ratification of the Hague Convention, the European Union states (with the exception of the United Kingdom) and Mexico were not within the ambit of the existing reciprocal enforcement regimes in Singapore. This is what makes Singapore’s ratification of the Hague Convention so noteworthy.
On a practical level, a judgment of the Singapore High Court or Singapore International Commercial Court (SICC), that involves an “international case” and is made pursuant to a choice of court clause, is now enforceable in the European Union and Mexico. Given the competitive attitude taken by Singapore to its status as an international destination for dispute resolution, this may encourage other countries to sign and ratify the Hague Convention.
However, it remains the case that it is unlikely that parties to international commercial agreements will choose a court in the European Union, Mexico or Singapore unless both counterparties (or at least significant assets of these parties) are in a jurisdiction which has also ratified the Hague Convention. For example, for agreements between Chinese and European parties with Singapore as the choice of court jurisdiction, the utility of using the clause would be asymmetrical. While the Chinese party is able to enforce a decision of a court in Singapore in Europe, the European party could not enforce the decision in China. Accordingly, for the moment, the Hague Convention is unlikely to constitute significant competition to international arbitration as a means of resolving international commercial disputes.
Where to from here?
The Hague Convention probably needs to be ratified by a global superpower – China or the US – to take on real significance and potentially challenge the New York Convention. With that said, the door is open for other countries, especially those in the Asia-Pacific region such as Australia, to follow Singapore’s lead and ratify the Hague Convention with a view to capture a greater slice of the international dispute resolution market. The newly minted SICC, in a relatively short time, has attracted an array of interesting and complex cross-border cases determined by high calibre “international judges” like Sir Vivian Ramsey.
From an Australian perspective, the signing and ratification of the Hague Convention would be welcome. Currently, the bilateral treaty for the Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters 1994 works alongside the statutory regimes and common law to govern whether foreign judgments can be enforced. The operation of these treaties and laws is limited and does not resolve the issues that arise with jurisdiction, recognition and enforcement in the same way as an international convention like the New York Convention does for arbitration.
Finally, while the United Kingdom currently has the status of a Contracting State (via its membership of the European Union), that may not be the case once its “Brexit" is finalised. While the matter is complex, signing and ratifying the Hague Convention (or an equivalent treaty or convention with the European states) may be a priority for the UK government to entrench London courts as recognised venues for international disputes. This will be particularly so if the SICC attracts significant business away from other commercial centres.