Enforceability of choice of courts and foreign judgments: will litigation steal a march on international arbitration?

The Hague Convention on Choice of Courts (2005) came into force on 1 October 2015 in the EU (except Denmark) and Mexico, providing certainty on the recognition of choice of court agreements in civil and commercial contracts, and in the recognition and enforcement of foreign court judgments.


4 November 2015

One of the key advantages of international arbitration over litigation is certainty of enforcement, due to the existence of the New York Convention on the Recognition and Enforcement of Arbitral Awards (1958).  This commits the courts in every Contracting State to respect the choice of parties to commercial agreements to submit any disputes to arbitration, whether in its own territory or in any other Contracting State, and to stay any court proceedings issued in a dispute to which an arbitration agreement applies.  The New York Convention also requires each of the Contracting States to recognise and enforce international arbitration awards emanating from any other Contracting State, subject only to the very limited list of grounds to refuse recognition and enforcement set out in the Convention.  As of 28 October 2015, the New York Convention had entered into force in a total of 156 Contracting States, including the vast majority of developed and developing nations, making it one of the most successful international agreements presently in force.

Litigation benefits from none of these advantages on a consistent basis.  Instead, a patchwork of measures has emerged on the enforcement of foreign judgments, including a host of regional agreements such as the Brussels Regulation between the EU Member States, and a few international conventions such as the Hague Convention on Foreign Judgments of 1971 (which has only 5 Contracting States).  In England & Wales, the Foreign Judgments (Reciprocal Enforcement) Act 1933 allows the Court to register a foreign judgment if is emanates from the courts of a country where “substantial reciprocity of treatment will be assured.”  However, enforcement under the 1933 Act is limited where it would conflict with certain matters of the public policy of England & Wales.  For example, section 5 of the Protection of Trading Interests Act 1980 removes the jurisdiction of the Court to make an order enforcing a foreign judgment for multiple damages, such as those that are available under the antitrust and securities laws of the United States.

That may all be about to change.  On 1 October 2005, the Hague Convention on Choice of Court Agreements (2005) entered into force in the EU (except Denmark) and Mexico.  The United States signed the Hague Convention in 2007, and Singapore did so in March 2015, but neither country has ratified the Convention so it has yet to enter into force in those jurisdictions.  The 2005 Hague Convention adopts three basic rules. 

·         First, in circumstances where parties to a civil or commercial agreement (subject to specified exceptions such as consumer and employment contracts to which other regimes apply) have made an express choice of the courts of a particular country to determine disputes, Article 5 of the 2005 Convention provides that the chosen court must in principle hear the case.

·         Second, under Article 6, the courts of any other Contracting State are required to suspend or dismiss proceedings to which that express choice of court agreement applies.  This does not preclude the courts of a nation other than the chosen court from considering applications for interim measures which may be appropriate to support the litigation of the main dispute.

·         Third, Article 8 of the 2005 Convention provides that any judgment of the chosen court that is final and binding in that court must be recognised and enforced in the other Contracting States, unless one of the limited grounds for refusal of recognition and enforcement listed in Article 9 applies.  However, the concerns embodied in section 5 of the Protection of Trading Interests Act 1980 appear to have been preserved and somewhat extended in Article 11(1) of the 2005 Convention, which allows recognition or enforcement to be refused “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.”  Awards of multiple damages will presumably be caught by this provision, and the courts in enforcing states will have a discretion to refuse recognition or enforcement of punitive damages award.

The immediate impact of the 2005 Hague Convention will be limited, given that it is presently only in force with respect to the EU (except Denmark) and Mexico.  However, it is likely that Singapore will ratify in the near future, and other nations are expected to follow suit, although it remains to be seen whether the carve-out of punitive and multiple damages will prevent the United States from ratifying the 2005 Convention.

Nevertheless, this development represents a huge stride forward for litigation, giving certainty where there had previously been none.  If the 2005 Hague Convention gains the degree of international acceptance that has been enjoyed by the New York Convention, it may be that in the future the enforceability of international arbitration awards will no longer be seen as a distinguishing feature.  Only time will tell.