Update: A New Treaty For Enforcing Judgments – But Will It Have A Real Impact?

The Hague Convention of 30 June 2005 on Choice of Court Agreements
December 7, 2015

On October 1, 2015, a new international treaty entered into force— the Hague Convention of June 30, 2005 on Choice of Court Agreements (the Convention).  In sum, if international parties select a court forum in an agreement (via a forum selection clause or “choice of court”) to resolve their dispute, that choice must be respected by all other applicable courts.  Moreover, any judgment entered in that chosen court is to be recognized and enforced by all other courts in countries that are members of the Convention, with only very limited grounds for objection.  Presently, the Convention is only effective between the European Union and Mexico; the United States and Singapore have signed (but not ratified) it, and other countries may sign on.  If a significant number of countries join, selecting a court forum for the resolution of commercial disputes could become more appealing, in light of some of the benefits the Convention provides.  This is particularly true for the United States, which has never been a member of any treaty regarding the enforcement of court judgments. 

The Convention has three main purposes.  First, it provides that the court the parties select in an international agreement shall have jurisdiction to hear the case.  Art. 5(1) (“[C]ourts of a Contracting State designated in an exclusive choice of court agreement shall have jurisdiction to decide a dispute to which the agreement applies, unless the agreement is null and void under the law of that State.”).  Second, the Convention compels courts not chosen to “suspend or dismiss proceedings to which an exclusive choice of agreement applies.”  Art. 6.  Third, the Convention provides that a judgment issued by a chosen court shall be recognized and enforced by the courts of the Contracting states, unless an enumerated ground for refusal applies.  Art. 8. 

Whenever one is negotiating a dispute resolution provision, consideration should be given to what forum a party would prefer.  Generally, business entities have a preference for arbitration.  One of the main advantages of arbitration over courts has heretofore been that arbitral awards were entitled to reasonably simple and quick enforcement under the New York Convention and that courts would compel arbitration, respecting the parties’ choice of dispute resolution.  This treaty, if ratified in a broad number of countries, would extend this same advantage—deference to choice and enforcement—to the choice of a court as a dispute resolution forum.  Courts can offer advantages over arbitration, depending on the circumstances.  Unlike arbitration, courts have a built-in system for appellate review.  Courts can handle difficult adversaries, typically will not tolerate dilatory tactics, and will allow for greater discovery (especially as to third parties).  Depending on the legal system, obtaining evidence from third parties is often very difficult in arbitration.  Moreover, courts often provide for an easier path to a summary disposition.  Business entities should continue to monitor developments in this area—the advantages and disadvantages between arbitration and courts may become more balanced than they are at present. 

Current legal doctrines, including forum non conveniens, can protect parties’ chosen forums for the enforcement of judgments, even without the treaty.  However, multilateral treaties that call for the recognition and enforcement of judgments are far less prevalent worldwide than the New York Convention.  In particular, the United States has never been a member of such a treaty allowing for the simple enforcement of judgments. 

It is important to note that the Convention does not govern interim measures of protection.  In other words, parties are still free to obtain pre-judgment seizures of assets and injunctions in support of a pending action in jurisdictions other than the chosen court.  Art. 7 (“Interim measures of protection are not governed by this Convention.  This Convention neither requires nor precludes the grant, refusal or termination of interim measures of protection by a court of a Contracting State and does not affect whether or not a party may request or a court should grant, refuse or terminate such measures.”). 

Article 8 governs the recognition and enforcement of a judgment issued by a court of a Contracting State designated in an exclusive choice of court agreement.  Id. (“A judgment given by a court of a Contracting State designated in an exclusive choice of court agreement shall be recognised and enforced in other Contracting States in accordance with this Chapter.  Recognition or enforcement may be refused only on the grounds specified in this Convention.”).

Review by the recognizing court is expressly limited (“ there shall be no review of the merits of the judgment given by the court of origin”) to the enumerated reasons for refusal, which are similar to the common law standards applied to recognize foreign court judgments (Art. 9):

Recognition or enforcement may be refused if –

a) the agreement was null and void under the law of the State of the chosen court, unless the chosen court has determined that the agreement is valid;

b) a party lacked the capacity to conclude the agreement under the law of the requested State;

c) the document which instituted the proceedings or an equivalent document, including the essential elements of the claim,

i) was not notified to the defendant in sufficient time and in such a way as to enable him to arrange for his defence,   unless the defendant entered an appearance and presented his case without contesting notification in the court of origin, provided that the law of the State of origin permitted notification to be contested; or

ii) was notified to the defendant in the requested State in a manner that is incompatible with fundamental principles of the requested State concerning service of documents;

d) the judgment was obtained by fraud in connection with a matter of procedure;

e) recognition or enforcement would be manifestly incompatible with the public policy of the requested State, including situations where the specific proceedings leading to the judgment were incompatible with fundamental principles of procedural fairness of that State;

f) the judgment is inconsistent with a judgment given in the requested State in a dispute between the same parties; or

g) the judgment is inconsistent with an earlier judgment given in another State between the same parties on the same cause of action, provided that the earlier judgment fulfils the conditions necessary for its recognition in the requested State.

The Convention does permit Contracting States to refuse recognition or enforcement of a judgment “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.”  (Art. 11).  Many international courts have traditionally taken an adverse view of US-style punitive damages awards.  The Convention overcomes that issue by permitting courts, in their discretion, not to enforce such awards.

The procedure for recognition and enforcement are governed by the law of Contracting State where recognition is ought.  The Convention does provide that “the court addressed shall act expeditiously.”  (Art. 14). 

It is this procedural issue (along with domestic political considerations having nothing to do with the treaty) that has thus far stalled ratification of the Convention in the United States.  The State Department has not yet submitted the treaty to the Senate for its advice and consent, even though the United States signed the Convention in January 2009.  The State Department’s Legal Adviser has been considering a mechanism for implementing the Convention that accommodates the interests at the federal and state level.  One model is a cooperative model where the federal courts would implement the treaty’s standards but not create subject-matter jurisdiction for the case, and the states would implement it through a Uniform Act.  Another model under consideration would be to follow Chapter 2 of the FAA, which implements the New York Convention for arbitral awards.  Under this model, the federal courts would have subject-matter jurisdiction to recognize judgments.  In 2013, the Legal Adviser recommended the federal-only approach so that the treaty could be ratified—if ratification were delayed until the States adopted a Uniform Law, it could be an even more protracted process.

In closing, until more countries become members of the Convention (and the United States ratifies it), the impact of the Convention will be limited.  But if a sufficient number of countries join, business entities would have a good reason to reconsider whether selecting court as a forum to resolve a dispute was more advantageous—depending on the circumstances—than arbitration.

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For more information please contact Steven K. Davidson (sdavidson@steptoe.com, or +1 202 429 8077) or Michael J. Baratz (mbaratz@steptoe.com, or +1 202 429 6468), partners in Steptoe’s Complex Commercial Disputes practice group.  We are particularly well-known for handling complex commercial disputes, many with an international and cross-border emphasis.  Clients call on us to pursue all available avenues to obtain a recovery, including pre- and post-judgment enforcement remedies, where we have substantial experience enforcing arbitral awards and judgments in the US and throughout the world, including against foreign sovereigns.  Pulitzer Prize-winning journalist Steve Coll described Mr. Davidson in “Private Empire: ExxonMobil and American Power” as “one of the world’s leading specialists in the art of seizing and liquidating assets on behalf of large, aggrieved companies.” 

We will continue to monitor developments in this area.  We are always willing to consult on drafting provisions, to offer in-house seminars on dispute resolution provisions in general (including arranging for CLE credit in various jurisdictions), and to assist with any disputes or judgment enforcement issues you may have.