by Jack Wright Nelson (Chinese University of Hong Kong)
Enforceability has long been arbitration’s trump card. When debating litigation vis-à-vis arbitration, proponents of the latter could simply cite the New York Convention – and its list of 154 contracting states – as proof that, for international business, arbitration was “the only game in town.” By the end of this year, however, litigators will have their own convention: the Hague Convention on Choice of Court Agreements.
The Hague Convention seeks to replicate the New York Convention by ensuring both the effectiveness of choice-of-court agreements, and the enforceability of judgments resulting from such agreements. It achieves this through three basic rules. Courts in contracting states must first, assume jurisdiction if named in a choice-of-court agreement; second, refuse jurisdiction if not named in a choice-of-court agreement; and third, recognise and enforce any judgment issued by a court in a contracting state that assumed jurisdiction under a choice-of court-agreement. The court assuming jurisdiction under the first rule is referred to as the chosen court. The jurisdiction in which enforcement is sought pursuant to the third rule is called the requested State.
Despite its lofty aims, the Hague Convention had inauspicious beginnings. Concluded on 30th June 2005, the Hague Convention did not see any activity until 2007, when Mexico deposited the first (and currently only) instrument of accession. In 2009 both the United States and the European Union (excluding Denmark) signed. The Hague Convention then lay dormant for the next 5 years until the European Council declared that that the EU’s instrument of ratification would be deposited by the end of June 2015. Under Article 31, entry into force occurs “on the first day of the month following the expiration of three months after the deposit of the second instrument of ratification, acceptance, approval or accession.” Accordingly, the Hague Convention should enter into force on 1st October 2015.
The Hague Convention’s entry into force, however, will only affect the EU and Mexico. Yet, momentum has gathered since the EU’s declaration. Singapore signed last month and will likely ratify soon (no doubt to increase the enforceability of judgments from its newly established Singapore International Commercial Court). The Hague Convention is under consideration in Australia, Canada, and New Zealand. U.S. ratification is apparently being held up by consideration of whether to implement the Hague Convention at the state or federal level, but is nonetheless an active issue.
Would a rush of ratifications of the Hague Convention spell the end of arbitration’s enforcement monopoly? No – or, not yet. There are a number of limitations on the Hague Convention that arose during its negotiation. Importantly, the grounds for refusing to enforce a judgment are much broader than the limited grounds contained in the New York Convention. Under Article 9 of the Hague Convention, recognition or enforcement of a judgement may be refused when:
(i) The underlying agreement is null and void under the law of the State of the chosen court;
(ii) A party lacked the capacity to conclude the agreement under the law of the requested State;
(iii) Documents instituting proceedings in the chosen court were not notified to the defendant in “sufficient time”;
(iv) Documents concerning recognition or enforcement proceedings in the requested State were notified to the defendant in a manner that is in conflict with that State’s “fundamental principles” concerning service of documents;
(v) The judgement was obtained through fraudulent procedure;
(vi) Recognition or enforcement is “manifestly incompatible” with the public policy of the of the requested State;
(vii) The judgement is not consistent with an earlier one given by in the requested State in a dispute between the same parties; or
(viii) The judgement is not consistent with an earlier judgment given by “another State” in a dispute between the same parties and for the same action where that earlier judgment is also capable of enforcement under the law of the requested State.
Clearly, Article 9 offers plentiful grounds and a corresponding wealth of arguments that defendants could use to resist recognition and enforcement. The Hague Convention is also more limited in scope than the New York Convention. It only applies to international business-to-business contracts concerning civil or commercial matters that contain a court-of-choice agreement: others matters, such as carriage of passengers or goods, competition/anti-trust, and the validity of intellectual property rights are expressly excluded under Article 2. Many of these matters, of course, would be not be considered capable of resolution by arbitration in contracting states to the New York Convention. Nonetheless, the expressly limited ambit of the Hague Convention may give further opportunities for litigants to resist its application.
Article 21 of the Hague Convention will also impact its effectiveness. This provision allows contracting states to declare certain matters excluded from the Hague Convention where a state has a “strong interest in not applying [the] Convention to a specific matter”. In October 2014 the European Council stated that the EU’s instrument of ratification will contain an Article 21 declaration in respect of insurance contracts. Should future contracting states also avail themselves of Article 21 to protect national interests and industries, the Convention may come to resemble the piecemeal and fragmented enforcement regime that it sought to replace.
Despite these shortcomings, the Hague Convention likely means that the days when arbitration was the “only game in town” are numbered. The challenge for proponents of arbitration is how to reinvigorate arbitration. Arguably, ease of enforcement was never an inherent feature of arbitration. Rather, it was the result of skilful negotiation by the drafters of the New York Convention. Accordingly the inherent strengths of arbitration should be promoted: confidentiality, impartiality, and finality can be assured; experts can be designated as decision makers; and costs can be minimised through a streamlined procedure. Essentially, the real advantage of arbitration is that arbitral tribunals offer far more flexibility and choice than permanent, state-based courts. This, not enforcement, is arbitration’s true trump card.