Guest Post: The Hague Convention and the Need to Reconsider Arbitration Clauses

(The following guest post is contributed by Kartikey Mahajan, who is a dispute resolution lawyer with the Singapore office of Clifford Chance)



The Convention on Choice of Court
Agreements was completed on June 30, 2005 (“Hague Convention”), and came into
effect on 1 October 2015. Currently, Mexico and EU have acceded to it, while
United States and Singapore have signed the Convention. The Convention essentially
lays down uniform rules conferring jurisdiction on the court designated by the
parties to a cross-border dispute in civil and commercial matters, and
determines the conditions upon which a judgment rendered by the designated
court of a contracting State shall be recognised and enforced in all other
contracting States.

The New York Convention on the
Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”) is
the prime reason due to which arbitration has been preferred over litigation
over the last six decades. Due to the New York Convention, arbitral awards are
recognized and enforced amongst the member states, making it one of the most
successful treaties in the world of commercial transactions with 154 countries
as parties to it. The Hague Convention is touted by many as an instrument to
replicate the success of New York Convention in the area of foreign court
judgments. With the Hague Convention coming into force, it can be safely
assumed that even if it eventually fails to emulate the success of New York
Convention, it does provide a good alternative to parties who view arbitration
with scepticism. However, it will take a long time to assess whether the Hague
Convention can actually achieve that goal.

In this piece, I highlight the salient
features of the Hague Convention to explain the options available under it to
Indian parties and lawyers engaged in cross-border litigation.

A.
Application and Scope of Convention

The Convention is applicable when
parties agree on an exclusive choice
of forum clause in international civil and commercial matters only. The Convention excludes certain specific
areas from its scope, inter-alia consumer
contracts, contracts of employment, various family law matters, rights in rem
in immovable property, IPR claims, antitrust claims, maritime claims, and other
miscellaneous group of claims ranging from liability for nuclear damage to the
validity of entries in public registers.[1]
Being applicable to international disputes only, the Hague Convention does not
apply when the parties are resident in the same contracting State and have all
the elements relevant to the dispute in the same contracting State.[2]

The Convention is not applicable
to non-exclusive choice of a judicial forum i.e. when the parties do not confer
jurisdiction only on a single judicial forum. Under the Convention, all choice
of court agreements that match the required form are considered exclusive
unless “expressly provided” i.e. declared non-exclusive by the parties.[3]
Illustratively, it seems that a clause shall be deemed exclusive if it simply provides
that: ‘‘Proceedings under this contract
shall be brought before the courts of State A.”
An example of a
non-exclusive choice of court clause can be “Non-exclusive
proceedings under this contract may be brought before courts of State A”
.

The choice of court
clause needs to be in writing or by any other means of communication, which
renders information accessible so as to be usable for subsequent reference.[4]
These are the only requirements which need to be satisfied and ‘‘no further
requirements of a formal nature may be imposed.’’ Thus, a court under the scope of the
Convention cannot refuse to give effect to a choice of court agreement where it
fails to comply with separate ‘‘territorial’’ form requirements that may be
prevalent in another country. This can help standardize the forum selection
language used in international commercial contracts.
B.
The doctrine of separability of litigation

One of the prime reasons that
helped arbitration grow as a preferred dispute resolution mechanism was the
development of doctrine of separability which treats arbitration agreement as
an agreement independent from the main contract. This ensures that arbitration
agreements are not routinely contested on grounds of invalidity of the main contract.
The Hague Convention provides a similar rule to choice of forum clauses in
Article 3(d) that the choice of forum clause “shall be treated as an agreement independent of the other terms of the
contract,
” and that the “validity of
the exclusive choice of court agreement cannot be contested solely on the
ground that the contract is not valid
‘.

The recognition of an equivalent
of separabaility doctrine in the litigation context will certainly help
preserve the choice of court agreements from futile challenges and ensure that only
the chosen court adjudicates any disputes with respect to them.

C.
The Chosen Court is bound to hear the case
A court chosen by the
parties under an exclusive choice of court agreement is required to hear that
case when proceedings are brought before it. It ‘‘shall not decline to exercise
jurisdiction on the ground that the dispute should be decided in a court of
another State,’’[5] and it is
barred from refusing to hear the case on grounds of forum non conveniens and lis
pendens
. The latter exclusion in particular is intended to prevent a race
to the courthouse in which litigants sue in non-selected courts first to
prevent the competent court from hearing the case later, a tactic which often
significantly delays litigation.
Notwithstanding the above,
the chosen court may decline to hear the case if it finds that the choice of
court agreement is null and void under its own law for reasons other than form.
Enforceability will therefore depend on contract law under the substantive law
of the chosen court, taking into account its choice of law rules (including
with respect to any choice of law provision within the agreement), with grounds
for invalidity including such claims as fraud, mistake, misrepresentation,
duress, or lack of capacity.[6]
Moreover, the Convention does not affect domestic rules on subject matter jurisdiction,
which also remain an appropriate ground on which a chosen court may refuse to hear
a case.[7]
D.
Other Courts are Not Permitted to Hear the Case
Where a valid choice
of court agreement identifies a specific court as the forum for dispute
resolution, any other court in a state that is party to the Convention must
suspend or dismiss any proceedings brought before it. The Convention provides
for grounds on which a court may refuse to dismiss or suspend proceedings
before it. Such grounds include violation of public policy, lack of party
capacity, manifest injustice, or the chosen court has declined to hear the
case.[8]

E.
Recognition and Enforceability in Member States
Judgments rendered by
a chosen court will generally be recognized and enforced in all other member
states, with no review of the merits permitted and binding effect granted to
the findings of fact in cases other than default judgments.[9]
This is akin to the recognition and enforcement of arbitral awards under the
New York Convention.  

Conclusion
When the Hague
Convention becomes effective in a significant number of States, choice of court
clauses will be more easily enforced, and court judgments will be more readily
recognized in other States. It will also most likely lead to uniformity in
choice of court clauses across the board much like what has happened in the case
of arbitration clauses.
Another interesting
development along the lines is the setting up of commercial courts in countries
like Singapore. India, last week, has also promulgated an ordinance to set up its
own set of commercial courts. While the Hague Convention will provide the ease
of enforcing judgments like NYC, the commercial courts will ensure that people
with expertise will only hear those disputes. And to give arbitration a real
run for its ‘money’, the Hague Convention intends to save ‘money’ by obviating
the need to hire expensive arbitrators. In India, where arbitration has
essentially become another tier of the dispute resolution process, the Hague
Convention coupled with the possibility of resolving disputes in commercial
courts presents an alternative to Indian courts and the challenges of Indian
arbitration system altogether.
If India decides to
ratify the Hague Convention, one hopes it can only be hoped that the Indian
courts who have started on a pro-arbitration trend post-Balco in arbitrations,
will similarly refrain from interfering with the enforcement of judgments of
foreign courts. Although, it may take passage of some time for India to ratify
the Hague Convention and adopt enabling legislation for Indian parties to start
relying on it as a viable alternative to arbitration, this alternative
certainly presents Indian parties engaged in cross border disputes to weigh
their dispute resolution mechanism options instead of blindly choosing arbitration
as the default mechanism.

[1] Article 2 of
the Hague Convention.
[2] Article 1(2) of
the Hague Convention.
[3] Article 3(b) of the Hague Convention.
[4] Article 3(c) of
the Hague Convention.
[5] Article 5.2 of
the Hague Convention.
[6] Trevor Hartley & Masato Dogauchi, Explanatory
Report on the Convention of June 30, 2005, at 43 (Permanent Bureau of the
Conference ed., 2007), available at
http://www.hcch.net/upload/expl37e.pdf (last visited at 26 October,
2015)
[7] Article 5.3 of
the Hague Convention.
[8] Article 6 of
the Hague Convention.
[9] Article 8(1)-
(2) of the Hague Convention.

About the author

V. Niranjan

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