The Hague Convention on Choice of Court Agreements 2005
A global enforcement regime for judgments handed down under exclusive choice of court agreements
On 1 October 2015 the Hague Convention on Choice of Court Agreements 2005 (“the Convention”) entered into force in the European Union, binding all EU member states except Denmark. This is an important step in the implementation of the Convention and going forward it will require careful consideration by any parties entering into cross border international commercial contracts even though, for the time being, its scope and impact remains limited.
Choice of court agreements are commonly used in international commercial contracts to set out the parties’ intention that a chosen country’s courts are to try any disputes that may arise between them on an exclusive basis. Whilst such agreements are sensible in principle they have suffered in practice from the extent to which (i) they have been honoured by one or other of the parties when a dispute has arisen and (ii) a judgment rendered by the chosen court has subsequently been recognised and enforced in a different jurisdiction.
The Convention aims to address these issues and ensure the global effectiveness of choice of court agreements in international commercial contracts. The objective as described in the European Commission’s Explanatory Memorandum of 30 January 2014 is “to offer greater legal certainty and predictability for parties involved in business-to-business agreements and international litigation by creating an optional worldwide judicial dispute resolution mechanism alternative to the existing arbitration system”. This is a grand aim but to be effective it will require a significant number of further states to ratify the Convention. To date only Mexico outside the EU have done so.
The Convention provides various rules for jurisdiction on the basis of an exclusive choice of court agreement in international civil and commercial cases as well as for the recognition and enforcement of decisions issued by the chosen court. In doing so the Convention adopts three basic principles:
- (i) the chosen court shall have jurisdiction to decide on the matter (article 5),
- (ii) any court other than the chosen court shall suspend or dismiss proceedings to which an exclusive jurisdiction choice of court agreement applies (article 6), and
- (iii) a judgment rendered by the chosen court shall be recognised and enforced in other contracting states (article 8).
The Convention applies only to exclusive choice of court agreements made between businesses in international civil and commercial transactions and excludes non-commercial matters such as i.a. disputes relating to family law matters, insolvency matters and, within the EU, also to the majority of insurance contracts (though losses relating to the operation of aircraft and seagoing vessels are excepted).
In adopting the three key principles the Convention addresses the “lis pendens” situations that can arise in relation to parallel proceedings in different jurisdictions, removes “forum non conveniens” considerations if proceedings are commenced in a court contrary to that which the parties agreed on in a choice of court agreement and simplify enforcement procedures as between contracting states.
If widely ratified the Convention will undoubtedly provide greater legal certainty to parties in the event of a dispute where a choice of court provision forms part of the underlying agreement. This is particularly important in the case of cross-border, business-to-business transactions, where high stakes mean that parties can currently spend considerable time and money battling on jurisdictional issues, which in turn delays resolution of their underlying dispute. The Convention will, where applicable, also enable international proceedings to be conducted more effectively and streamline cross-border enforcement.
However, at present the Convention is limited by its geographical scope, particularly in circumstances where the Lugano Convention or Recast Brussels Regulation applies. This is because the Convention gives priority to the Recast Brussels Regulation and the Lugano Convention 2007 within their scope of application which covers most disputes connected with the EU (whose states represent 28 of the 29 countries who have ratified the Convention). Although the outcome is likely to be the same irrespective of whether the Convention, the Lugano Convention or the Recast Brussels Regulation applies with respect to an exclusive choice of court agreement, this approach currently deprives the Convention of much of its force.
If a significant number of further states ratify the Convention, it could well become as important as the New York Convention of 1958, which provides an appreciable degree of certainty regarding the cross-border enforcement of arbitral awards. The Convention also seeks to create a similarly harmonized set of rules to govern cross-border enforcement but for judgments handed down under exclusive choice of court agreements.
Since the recognition and enforcement rules under the New York Convention are often decisive when parties choose their contractually agreed method of dispute resolution, a widely adopted Convention may in time shift the balance in favour of exclusive choice of court proceedings.
Norway has so far not ratified the Convention but has, pursuant to the Norwegian Civil Procedure Act section 19-16, adopted rules on recognition of foreign judgments in cross-border cases based on agreed jurisdiction.
Norway would apply a similar principle for non-Norwegian judgments as the Convention.