A key advantage of arbitration over court litigation is the widespread enforceability of arbitral awards under the New York Convention.1 Accepted by 161 Contracting States,2 the New York Convention provides parties with a degree of certainty that they may realise the fruits of their successful arbitration.
By contrast, there is no comparable convention for the international enforcement of court judgments. In the absence of a uniform framework, the recognition and enforcement of foreign judgments falls to be governed by a complex patchwork of varying regimes that are often cumbersome and costly to navigate. On 2 July 2019, delegates of the Hague Conference on Private International Law sought to address that lacuna by concluding the text of the Hague Judgments Convention.3 Through the creation of a uniform set of core rules on the recognition and enforcement of foreign judgments in civil or commercial matters, it is hoped that the Convention will provide greater predictability and certainty to the enforcement of foreign judgments globally.
This article highlights the scope of the Hague Judgments Convention, compares and contrasts some of its salient features with the New York Convention, and lastly explores the potential impact of the Hague Judgments Convention on international arbitration.
Limited scope of the Hague Judgments Convention
The Hague Judgments Convention applies only to judgments in civil or commercial matters. The Convention expressly excludes judgments in revenue, customs or administrative matters as well as interim measures. The exclusions also extend to certain subject matters set out in Article 2(1) that can be generally categorised into matters that are already governed by other international instruments or matters that are of particular sensitivity for many States. For example, the Convention does not apply to insolvency, carriage of passengers and goods, privacy, intellectual property and certain competition matters.
The Hague Judgments Convention recognises 13 jurisdictional bases under Article 5(1) and requires at least one of the bases to be met before a judgment is eligible for recognition and enforcement under the Convention. These jurisdictional bases can be broadly categorised into three categories: 1) jurisdiction based on connections with the parties (e.g. habitual residence and principal place of business); 2) jurisdiction based on consent (e.g. commencement of original claim, consent to jurisdiction and waiver of jurisdictional challenge); and 3) jurisdiction based on connection between the claim and the State of origin (e.g. place of performance of a contractual obligation).
Comparative analysis with the New York Convention
Similar to the New York Convention, the Hague Judgments Convention does not expressly preclude non-monetary relief from its scope, so long as it is not an interim measure. The term "judgment" is defined under the Convention as any decision on the merits given by a court, including a decree or order, which necessarily includes non-monetary relief, such as an order for specific performance. This is significant because some common law systems have traditionally been reluctant to allow the enforcement of foreign non-monetary judgments, and such reluctance is sometimes manifested in statutory enforcement regimes. For example, in the context of England and Wales, the Administration of Justice Act 1920 (which applies mainly to judgments from certain Caribbean countries and former British dominions) and the Foreign Judgments (Reciprocal Enforcement) Act 1933 (which applies mainly to judgments from countries in the Commonwealth), both enacted many years ago, preclude non-monetary relief. However, the modern approach is to eschew a bright line exclusion, as reflected in the Hague Judgments Convention.4
Grounds for refusing recognition and enforcement
Under the Hague Judgments Convention, a judgment from a court of a Contracting State (State of origin) shall be recognised and enforced in another Contracting State (requested State) without any review of the underlying merits. Similar to the New York Convention, the Hague Judgments Convention promotes a pro-enforcement approach by containing limited grounds for refusing the recognition and enforcement of eligible judgments. The grounds for refusal include circumstances where:
- there was some fundamental defect in the notification or service of the claim;
- the judgment was obtained by fraud;
- recognition or enforcement would be manifestly incompatible with the public policy of the requested State;
- the proceedings in the court of origin were contrary to an agreement, or a designation in a trust instrument, under which the dispute in question was to be determined;
- the judgment is inconsistent with another judgment given by a court of the requested State in a dispute between the same parties; and
- the judgment is inconsistent with an earlier judgment given in another State between the same parties on the same subject matter (provided that the earlier judgment fulfils certain conditions).
Like most international conventions, the Hague Judgments Convention contains a public policy exception as a safeguard against the undesired effects of having a State recognise or enforce judgments that offend its public policies. Once described as a ground that "is never argued at all, but when other points fail",5 public policy remains a nebulous concept, despite its wide recognition across legal systems. Given how often parties have tried to invoke the public policy exception under Article V(2)(b) of the New York Convention (i.e. that the "recognition or enforcement of the award would be contrary to the public policy of that country"), it is unsurprising that the Hague Judgments Convention has sought to limit its recourse to judgments that are considered to be "manifestly incompatible" with the public policy of the requested State. In other words, the deliberate use of "manifestly" under the Hague Judgments Convention is meant to discourage an expansive reading of the public policy exception and to confine its use to exceptional and obvious cases.6
Notably, the Hague Judgments Convention contains a separate provision in Article 10(1) for refusing the recognition or enforcement of a judgment "if, and to the extent that, the judgment awards damages, including exemplary or punitive damages, that do not compensate a party for actual loss or harm suffered". It is clear from the negotiations of the earlier 2005 Hague Choice of Court Convention that some delegations had an issue with judgments awarding damages that went beyond the actual loss of the parties. Although the New York Convention deals with this issue under the general exception of public policy in Article V (and one might think that a similar approach could be taken under the Hague Judgments Convention), it appears a separate exception (following the language of the earlier 2005 Hague Choice of Court Convention) was considered necessary to address the limited concept of public policy raised by certain delegations.
Given the plain wording of Article 10(1) of the Hague Judgments Convention, a question arises as to the extent to which the court is allowed to review whether or not a judgment is awarding damages for actual loss, especially in light of Article 4(2) prohibiting a review of the merits of that judgment in the requested State. Indeed, the Convention does not provide any insight for determining how to measure what is compensatory or not (and an attempt to that effect might well have been regarded as overly prescriptive). Whilst it is clear that Article 10(1) does not give the court "carte blanche" to determine whether it would award the same amount of damages as the court of origin, it remains to be seen whether all that is required is for the court to examine the judgment for explicit references to exemplary and punitive damages or a stated intention by the court of origin to award damages other than to compensate the party (both of which may be rare). Even if that is the case, there is still Article 10(2) obliging the court to take into account whether and to what extent the damages awarded by the court of origin serve to cover costs and expenses relating to the proceedings. Whilst the plain language of Article 10(2) does not make this clear, a sensible interpretation is that if a judgment implicitly awards damages to cover such costs and expenses, it is to be considered as compensatory in nature and should therefore be recognised and enforced in the requested State.
As discussed above, the Hague Judgments Convention sets out at Article 5(1) an exhaustive list of 13 recognised bases of indirect jurisdiction by which a foreign judgment is first filtered. Under the Convention, a judgment is eligible for recognition and enforcement only if one of the jurisdictional bases is satisfied. There is no hierarchy amongst the jurisdictional bases, although some adjustments were made in Article 5(2) for judgments against consumers or employees to reflect their protected status.
Unlike the Hague Judgments Convention, the New York Convention adopts a much simpler structure that does not depend on an exhaustive list of jurisdictional filters, such as a party's habitual residence, principal place of business or place of performance of a contractual obligation. It is notable that a shorter and simpler list of jurisdictional filters, which would have been closer to the structure of the New York Convention, was considered at the Working Group stage of the Hague Conference. Overall, the requirement of jurisdictional filters makes the Hague Judgments Convention more restrictive in scope than the New York Convention.
In addition, Contracting States may limit the Convention's scope by making appropriate declarations under, for example, the following Articles:
- Article 17: A State may declare that its courts may refuse to recognise or enforce a judgment given by a court of another Contracting State if the parties were resident in the requested State, and the relationship of the parties and all other elements relevant to the dispute, other than the location of the court of origin, were connected only with the requested State.
- Article 18: Where a State has a strong interest in not applying the Convention to a specific subject matter, it may declare that it will not do so. Although the requirement of a "strong interest" acts, in theory, as a safeguard against the indiscriminate use of Article 18, its practical effect may be questionable if there is no objective arbiter of what would constitute a (legitimate) "strong interest" to expand beyond the list of subject matters excluded by Article 2(1).
- Article 19: A State may make a declaration excluding the application of the Convention to judgments which arose from proceedings to which that State or a government agency of that State (including natural persons acting for those entities) is a party.
- Article 29: A State may notify the depositary of its refusal to establish treaty relations with another State, in which case the Convention shall not apply as between those two States. In other words, the Convention shall only have effect as between two Contracting States if neither State has notified the depositary regarding the other in accordance with Article 29.
By contrast, the New York Convention only permits Contracting States to make reservations as to reciprocity and commerciality. In particular, the New York Convention does not contain a bilateralisation clause such as Article 29 of the Hague Judgments Convention, which allows a Contracting State to pick and choose the other Contracting States with which it wishes to establish treaty relations. Whilst having such a clause (or, indeed, the other declaratory clauses) may promote a greater acceptance of the Hague Judgments Convention, it can potentially lead to a more fragmented patchwork of selective recognition and enforcement, thereby defeating the stated purpose of the Convention as providing a uniform framework.
Potential impact of the Hague Judgments Convention on international arbitration
It remains to be seen whether the Hague Judgments Convention will enhance the international enforceability of court judgments in the same way as the New York Convention has for arbitral awards. The success of the New York Convention can be traced to a number of factors including its extensive ratification and limited grounds for refusal. Whilst the Hague Judgments Convention has largely accomplished the latter, only time will tell whether it will receive a similar level of ratification as the New York Convention. Needless to say, it will take several years before the Hague Judgments Convention gathers sufficient ratification to become significant – currently, Uruguay is the only signatory to the Convention.
Even if the Hague Judgments Convention is widely ratified, it is notable that the Convention is more restrictive in scope than the New York Convention. Due to the permitted declarations allowed under the Hague Judgments Convention, parties will also need to take extra care in checking the impact of any exclusions and declarations of a State before seeking recognition or enforcement.
Another notable point is that court judgments are ordinarily subject to appeals on the merits in the State of origin (unlike arbitral awards), and such appeals may affect the recognition and enforcement process. Under the Hague Judgments Convention, recognition or enforcement may be postponed or refused if the judgment is the subject of review in the State of origin, or if the time limit for seeking ordinary review has not expired (although a refusal does not prevent a subsequent application under the Convention). In comparison, recognition and enforcement may be refused under Article V(1)(e) of the New York Convention if the award has not yet become binding on the parties or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made. However, the grounds under which an arbitral award may be set aside or suspended are, of course, much narrower than the grounds to appeal a judgment.
It therefore appears that the impact of the Hague Judgments Convention on international arbitration is unlikely to be significant for now, and that parties seeking to ensure the recognition and enforcement of decisions in cross-border disputes are likely to continue to be drawn to international arbitration and the benefits of the New York Convention.