IN ANY CIVIL OR COMMERCIAL DISPUTE THAT IS RESOLVED BY LITIGATION, obtaining a court judgment in your favour is only part of the struggle. If the other side chooses not to comply with the judgment, it becomes necessary to undertake proceedings to enforce the judgment against the other side and, where necessary, against its assets. In some jurisdiction, it is very easy to enforce a court judgment. In other jurisdictions, it is very difficult.
The challenges are compounded when the dispute is cross-border in nature; in other words, the dispute involves parties or assets in two or more jurisdictions. Firstly, it may be difficult to predict whether a court in one jurisdiction will accept a case initiated by one of the parties, particularly if the parties have not agreed on which court should have jurisdiction to resolve a dispute. Secondly, even where the parties have agreed that the court in one jurisdiction should have jurisdiction to resolve a dispute, one of the parties may refuse to cooperate with the foreign court proceedings or may initiate parallel court proceedings in its own jurisdiction.
In theory, the above challenges should be easier to resolve where the parties have agreed that the courts in one jurisdiction will have exclusive jurisdiction to resolve a dispute. However, further challenges will arise if it becomes necessary for a foreign party to enforce a foreign judgment in the local courts that are located in the jurisdiction of the losing party. The local courts may refuse to recognise and enforce the foreign judgment. In some circumstances, they may not be able to do so if the local law provides no express basis for the courts to recognise and enforce foreign judgments.
For many years, parties to cross-border transactions have preferred arbitration over litigation. This is because many states around the world are signatories to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Under this convention, each member state agrees to recognise and enforce an arbitral award issued in another member state.
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THE HAGUE CHOICE OF COURT CONVENTION
On 1 October 2015, the Hague Choice of Court Convention entered into force. To date, the Convention has been signed and ratified by Mexico, all member states of the European Union (except Denmark) and Singapore. Certain other states, including the United States and China, have signed the Convention but are not bound by the Convention as they have not yet ratified it.
The purpose of the Convention mirrors the purpose of the New York Convention in terms of creating an international framework for the courts in a member state to recognise the jurisdiction of a court in another member state and also to recognise and enforce the judgment of a court in the other member state. Indeed, the preamble to the Convention states the desire “to promote international trade and investment through enhanced judicial co-operation”. Another example of judicial co-operation arises in the context of cross-border insolvency (for a discussion about cross-border insolvency, see China Business Law Journal, volume 8 issue 8: Cross-border insolvency).
The Convention applies to international cases in civil or commercial matters, subject to certain exceptions such as family law matters, insolvency matters and rights in rem in immovable property. A case will not be international if all of the parties are resident in the same member state and the relationship of the parties and all other elements relevant to the dispute are connected only with that state (Article 1).
The Convention provides that it does not affect state immunity in circumstances where a state is a party to the transaction (for a discussion about state immunity, see China Business Law Journal volume 9 issue 1: State immunity).
There are three basic rules that underpin the Convention and how it works:
Firstly, the court of a member state that is designated in an exclusive choice of court agreement has jurisdiction to decide a dispute to which the agreement applies, unless the agreement is null and void under the law of that state (Article 5). Under the definition of an “exclusive choice of court agreement”, it is not necessary for the parties to agree specifically that the agreement is exclusive, so long as the agreement designates the courts of one member state and the parties have not expressly agreed otherwise.
To fall within the definition, the agreement must designate the courts of a member state for the purpose of deciding disputes “to the exclusion of the jurisdiction of any other courts”. As a result, one-sided jurisdiction clauses under which one party has the right to submit a dispute to the courts in other jurisdictions are not within the scope of the Convention (for a discussion about one-sided jurisdiction clauses, see China Business Law Journal volume 5 issue 9: One-sided jurisdiction clauses).
Secondly, and correspondingly, a court of a member state other than that of the designated court must suspend or dismiss proceedings to which an exclusive choice of court agreement applies (Article 6). This rule avoids the situation described earlier where the parties to a dispute initiate parallel proceedings in two or more jurisdictions. There are a limited number of exceptions, including where giving effect to the agreement would be “manifestly contrary” to public policy.
Thirdly, a judgment given by a designated court in a member state must be recognised and enforced in a court of another member state (Article 8). This rule is subject to a limited number of exceptions that mirror those in the New York Convention. The exceptions include the situation where the judgment was obtained by fraud and the situation where the recognition or enforcement of the foreign judgment would be “manifestly incompatible” with public policy (Article 9).
Because relatively few states have signed and ratified the Convention, its current impact is limited. However, Singapore’s ratification of the Convention on 1 October 2016 was significant in terms of strengthening Singapore’s position as a regional hub for international commercial dispute resolution. It is particularly significant in view of the increasing profile of the Singapore International Commercial Court (for a discussion about international commercial courts, see China Business Law Journal volume 8 issue 10: International commercial courts). The relevance and impact of the Convention will further increase if it is ratified by the United States and China.
CHINA
China signed the Convention on 12 September 2017. It is not yet clear whether China will adopt the Convention in its entirety or make any declarations to limit its scope. In addition, it is unclear whether the Convention will be applicable to Hong Kong. Under Article 153 of the Basic Law of the Hong Kong Special Administrative Region, the PRC central government must seek the view of the Hong Kong government before deciding whether an international treaty is applicable to Hong Kong.
As most lawyers are aware, it is very difficult to have a foreign judgment recognised and enforced by a mainland court, although there are some cases in which this has happened. Under Article 281 of the Civil Procedure Law, there are only two grounds for the recognition and enforcement of foreign judgments: the provisions of an international treaty or the principle of reciprocity. As a result, when China ratifies the Convention, it will be bound to recognise and enforce judgments of courts in other member states where the courts were designated in an exclusive choice of court agreement.
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Andrew Godwin
A former partner of Linklaters Shanghai, Andrew Godwin teaches law at Melbourne Law School in Australia, where he is an associate director of its Asian Law Centre. Andrew’s new book is a compilation of China Business Law Journal’s popular Lexicon series, entitled China Lexicon: Defining and translating legal terms. The book is published by Vantage Asia and available at law.asia.
