Hague Convention Choice of Court Agreement and the Common Law 2007

II. The Convention: A Brief Overview

[8] This part is descriptive. It sets out an account of the Convention’s key substantive provisions.

[9] The core of the Convention may be described in a brief compass. Its goal is to facilitate and promote the inclusion of exclusive choice-of-forum clauses in certain international commercial contracts. It does so by seeking to ensure that such clauses are more effective and certain in their effects than they currently are, thus increasing their appeal to contracting parties and promoting international commercial relations more generally.

[10] As noted, the Convention applies only to exclusive choice-of-forum clauses in certain international commercial contracts. The preceding sentence sets out several limiting features which should be expanded upon here. First, the Convention deals only with commercial – that is, business-to-business – agreements.[9] Contracts where even one party is a consumer are not affected by it. Nor are employment contracts.[10] Secondly, it applies only to international contracts, so agreements entirely related to Canada, even if they were between parties resident in different provinces, would not be covered.[11] Even if the Convention were adopted by Canada, commercial practice and legal consequences relating to such agreements would not be affected. Thirdly, the Convention takes effect only where this is an exclusive choice-of-court clause. That is, if the parties to an international commercial contract simply provide that the courts of both their countries will have jurisdiction over disputes arising from their agreement, the Convention will not apply since their choice-of-court clause did not purport to be an exclusive one.[12]

[11] There is an additional source of circumscription to the Convention’s compass of operation. As noted, it applies only to certain international commercial contracts. That is, in addition to the three broad limitations just discussed, the Convention provides a lengthy list of other exclusions from its scope of operation. These have to do with the subject matter of those agreements in which choice-of-court clauses might occur. Some of these express exclusions merely confirm that the Convention’s sphere is that of commerce. For instance, the express exclusion of family law matters, maintenance obligations, wills, the status of natural persons, and legal capacity of natural persons is merely for greater certainty.[13] Such matters would not likely be considered as commercial in any event. However, some of the other express exclusions are required, since they would otherwise be considered to fall within the Convention’s general realm of commercial contracts. These include insolvency, antitrust, carriage of passengers and goods, personal injury, marine pollution and limitation of maritime claims, liability for nuclear damage, in rem rights in immovable property, tenancies of immoveable property, most intellectual property claims, the validity of entries in public registers, and the validity and status of legal persons (i.e., corporations and comparable bodies). Some of these exclusions are due to the fact that the matters in question are already dealt with by other international arrangements; others are due to objections by some of the Convention’s drafters against their being included in an international treaty of this sort.

[12] With all of those exclusions one might be excused for wondering what species of international commercial contracts the Convention would apply to. The response is that many important types of contractual subject matter are not excluded, including almost all contracts for the sale of goods and most types of contracts for the provision of services (employment excepted), and that collectively these still amount to a commercially significant group of contractual arrangements, even though less broad than had been envisioned in the early stages of the Convention’s negotiation.

[13] A final point on the question of scope: the Convention does not apply to arbitration clauses.[14] If the parties to an international commercial contract otherwise within the terms of the Convention elect to resolve their disputes by way of arbitration rather than litigation, the Convention has nothing to say about that. In other words, it will not clash with the New York Convention.

[14] For matters covered by the Convention – i.e., exclusive choice of forum clauses in international contracts on commercial matters not expressly excluded – the Convention’s goal of promoting the efficacy of choice-of-court agreements is accomplished by three simple requirements spelled out in arts. 5, 6, 8 and 9. The first of these relates to the court designated in an exclusive choice-of-court clause. Such a court (1) must have jurisdiction and (2) must not decline to exercise it. In other words, assuming that Canada had agreed to implement the Convention and that parties to a contract that fall within the Convention’s scope of operation had designated the courts of Canada (or a given province) as having exclusive jurisdiction to resolve disputes arising from it, Canada would have to (1) insure that courts in Canada (or at least the designated province) were available to take jurisdiction over suits arising from that contract and (2) see to it that such courts did not decline to exercise that jurisdiction (for instance, pursuant to their rules relating to forum non conveniens). The Convention provides just a single, narrow exception to that obligation, one that hardly qualifies as an exception – namely, that the choice-of-court clause is void.[15]

[15] The second feature by which the Convention encourages the use of choice-of-forum provisions is a close parallel to the first: it is to require that courts not exclusively designated by contracting parties not hear suits arising from that contract. Sometimes, despite the fact that parties to a commercial arrangement have purported to grant exclusive jurisdiction to one country’s courts, a dispute arises and one of the contracting parties attempts to resort to the courts of a another (i.e., non-designated) country in order to litigate it. If the courts of that other country then proceed to hear that suit – as they sometimes do – the effect of the contractual choice-of-court provision will be nullified. There are two things that may be wrong about this. First, it may amount to an injustice to one of the parties, the one whose expectation of the enforceability of the contracted-for term was frustrated by the non-designated court’s taking jurisdiction. Secondly, it may signal to future contracting parties, or potential contracting parties, that such clauses are not regularly enforced, thus making those parties disinclined to include such clauses in their contracts. Future parties might, for instance, resort to an arbitration clause instead, since those are generally enforced. However, this recourse will be a loss to those parties if, other things being equal, they would prefer to settle their disputes through litigation rather than through arbitration – for instance because litigation may provide for superior pre-hearing protective remedies, or might offer less potential for delaying tactics.

[16] The Convention seeks to eliminate, or at least reduce, the risk that one of the parties will be able to litigate in a court other than the one designated in an exclusive choice-of-court clause. It does so by stipulating that the non-chosen court must not hear the case. The Convention sets out exceptions to this -- situations in which the non-chosen court may (but not must) hear a suit brought before it. These exceptions are more numerous than those to the obligation of the chosen court to hear a suit, but they are still relatively narrow (in the sense that the conditions for their operation will not frequently be satisfied). In brief, they are (1) that the choice-of-forum agreement is void, (2) that one of the parties to it lacked the capacity to conclude it, (3) that giving effect to the agreement would lead to a manifest injustice, (4) that giving effect to the choice-of-court agreement would be contrary to public policy, (5) that the choice-of-court agreement cannot be performed, or (6) that the designated court has declined to hear the case. Unless at least one of those situations is present, a court not chosen must suspend or dismiss proceedings brought before it, even though it would otherwise have jurisdiction to hear the case.

[17] The other core obligation found in the Convention – the third way in which it seeks to endorse contractual choice-of-court provisions – relates to transnational judgment enforcement. Judgments given by the court chosen by the parties must be enforced in other contracting states.

[18] Again the Convention sets out some exceptions to this. However, they are not broad and one would not expect any of them to operate very often. They are: (1) foreign judgments need not be enforced if they are not enforceable where granted or if they are under appeal or if the time for appeal has not yet run; (2) they need not be enforced if the choice-of-court clause was void or if one of the parties lacked the capacity to agree to it; (3) judgments need not be recognized if the defendant/judgment-debtor did not receive adequate notice of the original suit (unless the defendant appeared anyway and defended the action without contesting the lack of proper notice); (4) judgments need not be enforced if the defendant did not get adequate notice of the enforcement proceedings; (5) judgments obtained by procedural fraud need not be accorded recognition; (6) judgments manifestly incompatible with the public policy of the requested state may be refused enforcement (this would include both judgments based on deeply unjust substantive laws and those obtained by manifestly unfair procedures); (7) judgments inconsistent with a judgment of the requested state that is between the same parties need not be enforced; and finally (8) if there is an earlier judgment from a third state that (a) is between the same parties, (b) is on the same cause of action, and (c) is otherwise enforceable in the requested state, then the later judgment from the chosen court need not be enforced. Note that under all of the preceding exceptions (which to a certain extent overlap) judgments need not be recognized if one of the exceptions obtains; however, they may be. For example, if a Canadian court elected to enforce a judgment despite the fact that the time for appealing it had not yet run, it would be entitled to do so.

[19] There are other significant features of the Convention. They deal with such things as (1) its relation to other international agreements, (2) the formal requirements for making an effective choice-of-court clause, (3) non-exclusive choice-of-court clauses, and (4) treatment of high damages awards in judgments otherwise entitled to enforcement. However, in comparison with the three central obligations just discussed those other matters are relatively minor. So, in the interest of pursuing the big picture, discussion of those other aspects of the Convention is deferred until later in the paper.

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