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2005 Hague Convention on Choice of Court Agreements Comes into Effect

November 4, 2015

 

Whereas there is almost universal recognition of arbitration agreements in contracts, there is much less uniformity amongst different countries’ national rules with regard to choice of court agreements (also commonly known as “forum selection clauses” or “jurisdiction clauses”). This has caused issues with the enforcement of litigation decisions, which has driven some parties towards arbitration as a means of international dispute resolution.

The seminal 2005 Hague Convention on Choice of Court Agreements (the “Convention”) finally came into force on 1 October 2015, three months after being ratified by the European Union. The Convention has set out to attain the same importance in its domain as the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards did for arbitration agreements. The Convention is considered to be a key turning point in the process of enhancing international judicial co-operation with respect to choice of court agreements in an international commercial context and enforcement of foreign judgments. However, at this stage the Convention is currently only binding in EU member states (save for Denmark) and Mexico.

Overview

The Convention applies to “exclusive” choice of court agreements in international civil or commercial matters. It must be an agreement concluded by two or more parties that designates “the courts of one Contracting State, or one or more courts of one Contracting State to the exclusion of the jurisdiction of any other courts” for the purpose of deciding disputes which have arisen or may arise in connection with a particular legal relationship. There is a presumption that an agreement that designates the courts of only one Contracting State or one or more specific courts of a Contracting States will be an “exclusive” choice of court agreement, unless the parties expressly state that it is “non-exclusive”.

Correspondingly, a “non-exclusive” choice of court agreement is one which the courts of more than one Contracting State are specified. Such “non-exclusive” choice of court agreements are outside the scope of the Convention. However, under Article 22, individual member states can use an opt-in provision to extend the scope of “non-exclusive” choice of court agreements with respect to recognising and enforcing respective judgments.

The Convention provides that where there is an exclusive choice of court agreement:

i. the court chosen in the contract must hear the dispute, except in limited circumstances;

ii. any other court seized of a dispute outside the jurisdiction to which a choice of court agreement applies must suspend or dismiss the proceedings; and

iii. the final judgment of a chosen court must be recognized and enforced by the courts of other contracting states without review of the merits, subject to limited exceptions.

What Next?

As “the New York Convention for litigation”, the Convention is a potential game changer, if it is signed and ratified by more countries. In some cases, parties may revert to choosing to resolve disputes through litigation, rather than arbitration. It could also bring about the rise of certain specialist international litigation courts, to rival the major arbitration centres. One key example is the Singapore International Commercial Court (SICC), which would help support Singapore’s aim to develop its status as a global centre for dispute resolution. Singapore has signed the Convention and it is expected to ratify it soon.

The US also signed the Convention in 2009, but ratification has been delayed due to the lobbying of groups who wish for each state to pass its own implementing law rather than relying on implementation at a federal level. It is uncertain whether or not other countries will sign and ratify the Convention. Hong Kong is not currently a signatory. The HK Government has carried out two consultations with major stakeholders but has reportedly received “mixed views” as to whether or not the Convention should be applied. Similarly, in Australia and Russia the Convention remains under consideration. On the other hand, there has been no indication that either China, India or Japan will make any move to adopt the Convention. As a result, the impact of the Convention is limited at this stage and it is highly likely that arbitration will remain the preferred mechanism for resolving disputes with an element from those regions. 


This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Denis Brock, an O'Melveny partner licensed to practice law in Hong Kong (Solicitor-Advocate), England & Wales (Solicitor-Advocate), Australia, New Zealand and New York, Amanda Beattie, an O'Melveny Counsel licensed to practice law in Hong Kong and New South Wales, Australia, and Fergus Grady, an O'Melveny trainee solicitor in the firm's Hong Kong office, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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