In order to manage risks in international commercial transactions, contracting parties often seek to agree in advance on how disputes arising out of a transaction between them are to be resolved. In some cases, the parties may refer the dispute to arbitration or they may agree to litigate before a designated court. Although arbitration agreements in international cases are almost universally recognised,1 however, choice of court agreements are not always respected under the divergent national rules, particularly when cases are brought before a court other than the one designated by the parties.
Thus in order to promote international trade and investment through cooperation, and having uniform rules on jurisdiction to recognise and enforce foreign judgements through an international regime to provide certainty, effectiveness and exclusive choice of court agreement between the parties to commercial transactions, in order to govern, recognise and enforce the judgements arising out of these agreements (between the parties) an international convention namely, The Hague Convention on the Choice of Court Agreements2 stands adopted aimed at ensuring the effectiveness of choice of court agreements in international transactions.
The Choice of Court Convention seeks to rectify the existing situation, thereby promoting greater legal certainty for cross-border businesses by creating a climate more favourable to international trade.
The Convention revolves around three basic rules that give legal effect to choice of court agreements and provides that:
1. The disputes in principle must be heard by the chosen court.3
2. Where a court is not chosen, it must in principle decline to hear the case4.
3. Except where a ground for refusal applies5, the other contracting states, must recognise and enforce judgements rendered by the chosen court.
A greater legal certainty and predictability for parties involved in business to business agreements and international litigation has been provided by the Convention by creating an optional world-wide judicial dispute resolution mechanism.6
The provisions of Convention apply only to choice of court agreements made between businesses in civil and commercial transactions. Many disputes and matters relating to consumer and employment contracts, family law matters, insolvency matters and personal injury claims brought by natural persons and some insurance contracts stand excluded from the purview of the convention.7
The Convention aims to address situations where judges in parallel proceedings in different jurisdictions disagree on the issues of jurisdiction to hear a case or to enforce judgements; the convention thus makes the choice of court agreements binding on courts of the countries who have acceded to the Hague Convention and the same has become in force in those countries.8 The Hague Convention provides that judges in contracting states will no longer be able to declare the court a 'forum non-convenience'9 of their own accord if it is contrary to what the parties agree on in a choice of court agreement.
The salient features of the Convention amongst other include:
1. The courts of a contracting state must respect a choice of Court Agreement.10
2. The court not chosen by the parties is under an obligation to decline to hear the case or suspend or dismiss proceedings.11
3. The other contracting states must recognise and enforce judgement made by a designated court, except in very limited circumstances.12
This new and proposed arrangement has the strength and potential to:
1. By eliminating the need for lengthy argument on jurisdictional issues the Convention streamlines streamline international litigation involving exclusive choice of court clauses.
2. It paves the way for a more uniform approach to jurisdiction, where no exclusive jurisdiction clause applies.
3. Improves and strengthens the litigation process in order to achieve what the New York Convention did achieve for arbitration.
4. To govern cross-border enforcement by creating uniform set of rules.13
5. By opting to an exclusive choice of court clause uncertainties are significantly reduced by limiting the basis on which courts in contracting states may refuse to enforce a judgement made in another contracting state.
At present, the Hague Convention bears a limited geographical scope.14 However, where the Recast Brussels Regulation15 applies, it confers strength to party's independence by ensuring that choice of court agreements are not circumvented by parties seizing other courts in violation of such agreements.16.
However, international legal environment provide many exception to the rules which exclude jurisdiction to international transaction disputes, for example:
1. Where the clause governing the dispute resolution is unreasonable;
2. Where the choice of forum was not made at arm's length negotiation;
3. Where the agreements are the outcome of fraud, undue influence, or overweening bargaining power;
4. A contractual choice of forum clause becomes unenforceable if enforcement would contravene a strong public policy of the forum; and;
5. A forum selection clause cannot be the sole basis for personal jurisdiction.
It is hoped that the new Convention will provide more strength to bilateral agreements between the parties and will solve the issues of jurisdiction and enforcement of foreign judgements to bring certainty to international transactions.
(The writer is an advocate and is currently working as an associate with Azim-ud-Din Law Associates Karachi)
1 Pursuant to the rules established by the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
2 The Convention was concluded on 30th June 2005.
3 See Article 5 of the Convention.
4 See Article 6 of the Convention.
5 See Article 8 and 9 of the Convention.
6 See EC's Explanatory memorandum dated 30.01.2014
7 See Article 2, the reasons for these exclusions are, in most cases, the existence of more specific international instruments, and national, regional or international rules that claim exclusive jurisdiction for some of these matters.
8 Such states are contracting states within the meaning of Conventions.
9 The term refers to discretionary power of court to decline jurisdiction which it has over a transitory cause of action when it believes that the action may be more appropriately and justly be tried elsewhere.
10 Unless the contract in dispute is null and void under the laws of that contracting state.
11 See Article 6 of the Convention. The parties' ability to seek interim relief in non-chosen courts is not affected.
12 See Article 8 and 9. The circumstances enumerated in the Convention include the null and void contracts, ex parte orders, and orders obtained by fraud.
13 Because the choice between arbitration and litigation often hinges on the ability of parties to enforce a judgement internationally
14 Starting 1 October 2015, the Hague Convention will take effect in 27 EU Member States and Mexico. In addition, the US and Singapore have also signed the Hague Convention.
15 The recast Brussels Regulation is effective in all EU Member States (except Denmark). The Recast Brussels Regulation sought to strengthen party autonomy by ensuring that "choice of court agreement may not be circumvented by parties seizing other courts in violation of such agreements ie commencing proceedings first on jurisdiction other than as agreed in a choice of court agreement.
16 It remains to be seen whether other countries that have expressed interest in the Hague Convention will ratify it.
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