On 12 September 2017 China signed the Hague Convention on Choice of Court Agreements 2005 ('Hague'). This ensures not only that a country's exclusive jurisdiction agreements are respected in all other contracting states, but that judgments arising from those agreements are recognised and enforceable there too - so Hague does rather more than it says on the tin.
Although agreed over a decade ago, Hague for a long time lay dormant. Even when the European Union ('EU') ratified the Convention in 2015, bringing it technically into force, Hague was of little practical consequence since only jurisdiction issues involving Mexico (the first to join) were actually governed by the Convention. Issues relating purely to EU Member States continued (and continue) to be dealt with under the EU's own instrument, the Brussels Regulation (Recast) EU 1215/2012 ('Brussels'). This is because Hague jurisdiction rules override Brussels ones only where one or more of the parties is resident in a Hague state that is outside the EU (Hague Art 26).
Now Hague has begun to take wing. Singapore ratified the Convention with effect from October 2016 in a move calculated to enhance the international reach of the new Singapore International Commercial Court. Then the UK voted for Brexit, placing itself potentially in Mexico's and Singapore's position as a Hague contracting state outside the EU, and so expanding hugely the number of future disputes to which Hague rules could apply. China has now given Hague a further boost by signing the convention, although it is not yet clear when it will come into force in respect of China and whether it will cover Hong Kong as well as the mainland.
Whether Hong Kong participates in Hague or not is a matter to be decided by Beijing after consultation with the Hong Kong government. China only needs to commit itself one way or the other on ratification, although the default position under Hague Art 28(3) is that the Convention applies throughout a contracting state where it is composed of more than one jurisdiction. Hopefully Hong Kong will participate in Hague, so that its judgments are once again easy to enforce in England and Wales, as they used to be under the Administration of Justice Act 1920. At present, like US judgments for example, Hong Kong judgments can only be enforced in England under common law rules, by action on a judgment.
In addition to China, three further countries (Montenegro, Ukraine and the USA) have signed Hague but not yet ratified it. That means that five of the six biggest economies in the world are either bound by Hague or have formally expressed the intention of being so - although whether and, if so, when the USA will ratify the Convention is entirely unclear as things stand now (the USA signed Hague in 2009).
The Chinese perspective
Given the active role that China played in the negotiation of Hague, it is no surprise that it has now chosen to sign it. Joining the regime is anyway a natural part of China's integration into the world economy, and in particular its One Belt One Road (一帶一路) strategy of (among other things) linking China with Iran, Russia and Western Europe directly through Central Asia. In the short term, China's participation in Hague will prove most beneficial, perhaps, in reducing parties' dependence on arbitration, rather than civil litigation, where it is envisaged that a legal decision might need to be enforced across Chinese borders. Previously, parties frequently felt obliged to choose arbitration in their agreements so they could rely on the New York Convention 1958, which allows arbitration awards to be enforced in every major jurisdiction in the world. Arbitration is suitable for many disputes, of course, but has certain drawbacks - the limited right of appeal, for example, and the difficulty of obtaining summary justice - and so is not always the best dispute resolution mechanism to choose in a commercial agreement.
Interestingly, there are signs already of a thawing in the Chinese courts' approach to foreign judgments. In 2016 the Intermediate People's Court of Nanjing (南京市中級人民法院) recognized and enforced a commercial money judgment issued by the High Court of Singapore (Kolma v SUTEX Group) on the basis that the High Court in Singapore had previously enforced a decision of the Suzhou Intermediate People's Court (蘇州市中級人民法院). The Supreme People's Court (最高人民法院) then endorsed the decision and the principle of de facto reciprocity underlying it, and linked it explicitly to China's One Belt One Road strategy. Now the Intermediate People's Court of Wuhan (武漢市中級人民法院) has enforced a US judgment in another commercial dispute, again on the basis of reciprocity, in Liu Li v Tao Li and Tong Wu (decision of 30 June 2017). These decisions may or may not have been reached in conscious anticipation of China joining Hague, but they are certainly an encouraging sign that the approach to cross border enforcement is already changing in mainland China.
The UK perspective - Brexit
From a UK standpoint, Hague is most interesting as a safety net for use following Brexit. Of course, how far the UK needs to rely on Hague will depend to a large extent on the form Brexit takes. The UK government has said that it intends to maintain the status quo where international judicial cooperation is concerned. However, remaining exactly in the position the UK is in now would be problematic, to say the least, given that Brussels is an EU Regulation, is policed directly by the Court of Justice of the European Union, and necessarily applies only to EU Member States. At best, the key provisions in Brussels might be replicated in a bespoke UK arrangement. Alternatively, the UK may join the European Free Trade Association ('EFTA') following the so-called Norway model, which would entitle it to continued participation in the jurisdiction and enforcement regime established by the Lugano Convention 2007 ('Lugano').
Lugano extends a version of Brussels rules to three of the four EFTA Member States (that is, to Iceland, Norway and Switzerland, but not Liechtenstein), as well as covering the EU itself, but is problematic in two ways. Unlike Brussels, it leaves exclusive jurisdiction clauses vulnerable to 'Italian torpedoes' - the notorious delaying tactic of bringing pre-emptive proceedings in an inappropriate jurisdiction, thereby preventing the chosen court (under Lugano rules) from trying a dispute until the 'court first seised' has declined jurisdiction, which may take some time. It also supports jurisdiction clauses only where one party is domiciled in a Lugano state. However, like Brussels, Lugano allows judgments to be enforced across borders quite easily, and overrides Hague's jurisdiction rules in many circumstances. So there are clear benefits to remaining in the Lugano regime after Brexit if this is possible.
Helpfully, the UK could remain in the Lugano regime even if it fails to join EFTA - in other words, in the event of a harder Brexit. However, this would require the consent of the EU and EFTA states, which might not be forthcoming. Consent is also required, of course, for any transitional arrangements that might smooth the UK's departure from the EU. This unfortunately means that, when drafting agreements today, neither Lugano nor any transitional arrangements can sensibly be relied on. A lawyer has to look instead to existing reciprocal arrangements that operate independently of the EU, whatever purely national laws and practices might be of assistance, and Hague, which the UK can join unilaterally as an independent contracting state immediately after leaving the EU. So it is fortunate, to say the least, that Hague has recently emerged as a safety net for the UK to fall into should it drop entirely out of the European regimes. However, lawyers and contracting parties need to be aware that it is, so to speak, a small net with many holes in it - that is, Hague's basic scope is limited and subject to a number of exceptions.
The limits of Hague
Hague does not support any jurisdiction agreements entered into before October 2015, and generally none that is one-sided or 'asymmetric'. This makes it of limited use for loan documentation, for example, unless banks are to give up their attachment to asymmetric clauses. Hague also does not cover most insurance disputes where the EU is concerned, because of a Declaration made by the EU under Art 21 when joining. Denmark happens not to be covered either - the sole EU Member State outside its territorial scope - and where both Hague and Brussels/Lugano rules on jurisdiction apply, the latter take precedence in many circumstances (Art 26).
All this will prove frustrating for parties and litigators, who may have to rely on anti-suit injunctions to ensure that exclusive UK jurisdiction agreements are respected abroad. They may also be helped by the inclusion in agreements of an indemnity for loss caused by a party issuing proceedings in a jurisdiction other than the chosen one, although this only bolsters what is anyway a common law right. More problematic in the short term is the likelihood that Hague will not be in force for the UK for at least 3-4 months following Brexit, because of the procedure for joining set out in Arts 27 and 31. This gap could prove very inconvenient for anyone holding a UK judgment who needs to enforce it in a Hague state inside or outside the EU immediately after Brexit. Worse still, any UK jurisdiction agreement entered into immediately after Brexit may be unsupported by Hague at any point in the future, even after the gap has closed. It is even possible that the gap will be viewed by courts in the EU and elsewhere as interrupting entirely the operation of Hague as it applies to the UK, thereby making all pre-Brexit jurisdiction agreements (and judgments flowing from them) unenforceable under Hague in the longer term. But hopefully this is a point that will not be taken and good sense will prevail.
All in all, then, UK lawyers should be grateful for Hague, but be careful not to place too much reliance on it. Instead they may need to be more open than previously to non-exclusive clauses explicitly providing for litigation in the UK or another EU Member State, or if that is not appropriate, to London-seated arbitration as the one dispute resolution mechanism that operates entirely within the UK legal framework while neatly side-stepping all Brexit issues.