On June 30, 2005, the Final Act of the Twentieth Session of the Hague Conference on Private International Law was signed on behalf of the Member States of the Conference in the Peace Palace at The Hague. The Final Act includes a new multilateral treaty, the Convention on Choice of Court Agreements. This new Hague Convention is perhaps most easily understood as the litigation counterpart to the New York Arbitration Convention. Like the New York Convention, it will establish rules for enforcing private party agreements regarding the forum for the resolution of disputes, and rules for recognizing and enforcing the decisions issued by the chosen forum.
The Convention on Choice of Court Agreements concludes more than a decade of negotiations that began in 1992 with a request from the United States for the negotiation of a convention on jurisdiction and the recognition and enforcement of foreign court judgments. The original effort resulted in a Preliminary Draft Convention prepared in October 1999, which was further revised during a Diplomatic Conference in June 2001. The 2001 text left many problems unresolved. It became clear that some countries, particularly the United States, could not agree to the convention being considered, and efforts were redirected at a convention of more limited focus.
The Scope: International Business-to-Business Agreements
Designed to "promote international trade and investment through enhanced judicial co-operation," the new Convention will govern international business-to-business agreements that designate a single court, or the courts of a single country, for resolution of disputes ("exclusive choice of court agreements"). It will not apply to agreements that include a consumer as a party. Nor will it apply to purely domestic agreements in which "the parties are resident in the same Contracting State and . . . all other elements relevant to the dispute . . . are connected only with that State."
The Basic Rules
The Convention sets out three basic rules:
Through a declaration process, the Convention offers an optional fourth rule. Contracting States may declare that their courts will recognize and enforce judgments given by courts of other Contracting States designated in a non-exclusive choice of court agreement. This provision recognizes that, once the parties have agreed that a tribunal is acceptable, there is value in the free movement of its judgment. It is a response to discussions during the negotiations indicating that a significant number of industries rely on non-exclusive choice of court clauses. If Contracting States exercise this declaration option, it will substantially expand the recognition and enforcement benefits of the Convention.
These rules are intended to enhance predictability in international trade by insuring that private party agreements will be honored, and that the results of litigation consistent with those agreements will be enforced. If ratified by the United States, this will be the first U.S. treaty that has the recognition and enforcement of judgments as a principal focus. While the New York Arbitration Convention provides for recognition and enforcement of arbitration agreements and the resulting awards in over 130 Contracting States, no such global convention exists for the recognition and enforcement of judgments. If the Hague Convention becomes as widely accepted as the New York Convention, parties entering into international trade contracts should have a more balanced choice between selecting arbitration or litigation as the method for settling disputes.
The Convention includes safeguards acknowledging governmental interests that might otherwise be frustrated by the parties' choice of court. Thus, in addition to the exclusion of consumer transactions, it excludes application to employment relationships, family law matters, insolvency proceedings, nuclear damage, and personal injury claims, among others. It also allows courts not chosen to ignore choice of court agreements and courts asked to recognize judgments to refuse recognition and enforcement under limited circumstances that are consistent with traditional rules found in national and regional law. Thus, for example, recognition or enforcement of a judgment may be refused if it "would be manifestly incompatible with the public policy of the requested State."
Of particular concern during the negotiations was the application of the Convention to matters of intellectual property rights. Patent, trademark, and other such rights are often considered to be within the exclusive jurisdiction of the courts of the state granting the right, particularly where registration is involved. At the same time, many international transactions include the transfer of intellectual property rights in some manner. Thus, full exclusion of intellectual property rights matters from the Convention would have left it with limited value. The solution chosen was to exclude most issues of validity and infringement of intellectual property rights (other than copyright and related rights) from the scope of the Convention, but to make clear that the exclusion does not apply when those issues arise only as preliminary matters in reaching the main object of the proceedings.
An additional safeguard is found in Article 11 of the Convention, which allows refusal of recognition and enforcement of a judgment "if, and only 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." This provision recognizes existing practice in the use of public policy defenses to refuse recognition and enforcement of punitive damage awards, and responds to concerns about judgments that may be considered excessive in amount.
With over 130 Contracting States, the New York Arbitration Convention has had a significant impact on dispute resolution practice in international transactions. The existence of a system that supports the enforcement of both agreements to arbitrate and the resulting arbitral awards adds predictability and efficiency that cause business parties often to favor arbitration over litigation. The new Hague Convention on Choice of Court Agreements offers a convention that could do for litigation what the New York Convention has done for arbitration. If enough countries become parties, it can serve to place litigation and arbitration on a more equal footing in global commerce, thus allowing parties to transnational transactions the opportunity to select a form of dispute resolution based on its individual merits.
About the author
. The text of the Final Act of the Twentieth Session, and a documentary history of the Choice of Court Convention project, are available on the Hague Conference website at: http://www.hcch.net/index_en.php?act=conventions.text&cid=98
. The Final Act also contained amendments to the Hague Conference Statute that will allow the European Community, and similar Regional Economic Integration Organizations, to become members of the Hague Conference and parties to its conventions.
. United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York, June 10, 1958, 21 U.S.T. 2517, T.I.A.S. No. 6997, 330 U.N.T.S. 38 ["New York Convention"], available at: http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention.html.
. Hague Convention, supra note 1, preamble.
. Id. art. 2(1)(a).
. Id. art. 1(2).
. Id. art. 5.
. Id. art. 6.
. Id. art. 8.
. Id. art. 22.
. Id. art. 2.
. Id. art. 6.
. Id. art. 9.
. See, e.g., National Conference of Commissioners on Uniform State Laws, Uniform Foreign Money-Judgments Recognition Act § 4.
. See, e.g., Council Regulation 44/2001/EC of 22 December 2000 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters, 2001 O.J. Euro. Comm. L12/1 ["Brussels I Regulation"].
. Hague Convention, supra note 1, art. 9(e).
. Id. arts. 2(2)(n)-(o), 2(3), and 10.