knowledge | 8 January 2016 |
Hague Convention on Choice of Court Agreements Brought into Force
Ireland has recently enacted the Choice of Court (Hague Convention) Act 2015 which gives effect to the Hague Convention on Choice of Court Agreements (the “Convention”).
Choice Of Court Agreements - What are they?
The Convention is primarily focussed on exclusive choice of court agreements1. Exclusive choice of court agreements, otherwise known as “exclusive forum selection clauses” or “exclusive jurisdiction clauses”, are frequently used in international business-to-business contracts, as they allow parties to agree on a jurisdiction the courts of which will – to the exclusion of the courts of any other jurisdiction - determine any dispute in respect of a particular contract between the parties. For the purposes of the Convention, a choice of court agreement is deemed exclusive unless parties expressly provide otherwise.
Enforceable exclusive choice of court agreements may save time and money by circumventing unnecessary disputes about jurisdictional issues both pre and post judgment. The purpose of the Hague Convention on Choice of Court Agreements is to provide for the recognition and enforcement of certain exclusive choice of court agreements, thereby providing greater legal certainty to parties relying on such agreements.
Contracting Parties to the Convention – Who are they?
The Convention came into force on 1 October 2015 and was given further effect in Ireland as a matter of domestic law pursuant to the Choice of Court (Hague Convention) Act 2015, which was signed by the President on 25 November 2015.
The Convention is binding on contracting states thereto, which are currently limited to Mexico and EU Member States (with the exception of Denmark). The United States became a signatory to the Convention in 2009 and Singapore signed the Convention in March 2015 but, pending ratification of the Convention, neither is yet a contracting state.
Scope of the Convention
The aim of the Convention is to “promote international trade and investment through enhanced judicial co-operation” by providing a platform for certain exclusive choice of court agreements to be enforced and recognised. The Convention is relevant to parties involved in international commercial transactions who have entered into 2 an exclusive choice of court agreement and who are based in contracting states to the Convention. The Convention applies to civil and commercial matters but is subject to a number of exclusions, provided for in Article 2, including consumer and employment contract disputes, personal injury claims, insolvency matters and family law disputes, unless the relevant excluded matter arises merely as a preliminary question and not as an object of proceedings.
Under Article 21, a contracting state can at any time make a declaration disapplying the Convention in respect of a specific matter where it has a strong interest in the Convention not applying to that matter. The EU has made such a declaration excluding certain types of insurance contracts from the scope of the Convention; the objective of that declaration was expressed to be the protection of certain policyholders, insured parties and beneficiaries that, according to internal EU law, receive special protection.
Importantly, the Convention only has application for the purpose of an exclusive choice of court agreement, or proceedings in relation to such an agreement, if:
- that choice of court agreement was entered into after the Convention entered into force in the chosen contracting state; and
- such proceedings were instituted after the Convention entered into force in the contracting state of the court seised.
The key provisions of the Convention are as follows:
- a relevant court of the contracting state chosen in the exclusive choice of court agreement must hear the dispute, unless the agreement is deemed null and void (Article 5);
- any court in a contracting state which is not chosen must suspend or dismiss proceedings, subject to limited number of exceptions (Article 6); and
- once judgment is given in the chosen contracting state pursuant to an exclusive choice of court agreement, the judgment must be recognised and enforced in all other contracting states except where one of the limited grounds for refusal applies (Articles 8 and 9).
Application in Ireland
The Choice of Court (Hague Convention) Act 2015 provides that an application for recognition or enforcement of a judgment in Ireland is to be made before the Master of the High Court who can then issue an enforcement order. If an enforcement order is made in respect of a judgment, that judgment has the same “force and effect” as a judgment made in the Irish High Court.
Effectiveness of the Convention
Whether the Convention achieves its aim will depend on whether more countries ratify it. It currently has very limited relevance, as the only contracting states are the EU Member States (excluding Denmark) and Mexico. Further, within the EU, Regulation (EU) 1215/2012 (the “Recast Brussels Regulation”)3. already provides a framework for the recognition and enforcement of certain choice of court agreements (exclusive and non-exclusive) where all parties are resident in an EU Member State and enforcement only involves EU Member States. Therefore the Convention currently only “adds value” in an EU context in respect of arrangements with one of the following “Mexican elements”, being where:
- one or more parties to an exclusive choice of court agreement is resident in Mexico and any other parties thereto are resident in the EU; or
- it is sought to enforce a judgment from a court in Mexico or an EU Member State (designated for this purpose in an exclusive choice of court agreement) in an EU Member State or Mexico, respectively.
Despite the current limitations of the Convention it is hoped that over time it will gain similar international success to that of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which has been ratified in 158 countries. Given the potential advantages associated with ratifying the Convention it is anticipated that the Convention’s recent entry into force in the EU will encourage other countries to ratify the Convention.
Considerations for Irish Contracting Parties
Given the legal uncertainty and costs involved in foreign litigation, Irish parties to commercial arrangements should give careful consideration to the potential benefits – should other relevant countries ratify the Convention – of including an exclusive choice of court agreement, designating Ireland as the chosen jurisdiction, in commercial arrangements of a type encompassed by the Convention and involving such countries. Given that the US is already a signatory to (albeit that it has not yet ratified) the Convention, and the very significant costs of US litigation, it is of particular relevance in that context. Of course, the current benefits of including such an exclusive choice of court agreement where an arrangement has a “Mexican element” are outlined above.
- Article 22 of the Convention provides for the recognition and enforcement of judgments given pursuant to a nonexclusive choice of court agreement provided that (a) each of the contracting states where the judgment was given and where it is sought to be enforced has made a declaration that it will recognise and enforce judgments given by courts of other contracting states pursuant to non-exclusive jurisdiction clauses and (b) satisfaction of certain other conditions. The EU has not made such a declaration
- The exclusive choice of court agreement must be concluded in writing or “any other means of communication which renders information accessible so as to be usable for subsequent reference” (Article 3(c))
- The Recast Brussels Regulation encompasses proceedings instituted on or after 1 January 2015; those instituted prior to that date are encompassed by Council Regulation (EC) 44/2001 (the “Brussels Regulation”) but the Convention would not encompass such proceedings in any event (see above under “Scope of Convention”)
This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.