The Convention on Choice of Court Agreements (‘the Convention’) sets out how courts will treat jurisdiction clauses in private contracts. In these clauses, the contracting parties agree in which jurisdiction (that is, which court system) they will resolve any disputes. Under the Convention, courts in countries that are party to the Convention are obliged to either exercise or decline jurisdiction in accordance with the contract, and are also obliged to recognise and enforce foreign judgments given by the chosen court. The Convention only applies to civil and commercial contracts and has some exclusions and qualifications.
According to the National Interest Analysis (NIA), the objective of the Convention is to support party autonomy in international business, by providing uniform rules on jurisdiction and on recognition and enforcement of foreign judgments in civil and commercial matters. The Convention gives force to the choices made by contracting parties, and increases certainty for the enforcement of foreign judgments. The NIA believes that these improvements will promote international trade and investment.
Timeline and signatories
Negotiated and agreed
Acceded to by Mexico
Signed by the USA
Signed by the European Union
Signed by Singapore
Approved by the European Union
Convention enters into force
Ratified by Singapore
The current parties to the Convention are all member states of the European Union (except Denmark), Mexico and Singapore. The Committee notes that the Convention took over ten years to come into force. Representatives of the Attorney-General’s Department (AGD) considered that the Convention is generating momentum for increased membership, and that more countries are likely to adopt the Convention in the near future. AGD advised that ten years from signature to entry into force is not unusual for a convention of this nature:
There were some interesting statistics that the Hague conference had across all its conventions—it has a large number of conventions, about 60-odd—but it is about eight or nine years from conclusion of agreement to commencement for these instruments. I think the issue, here, is that it is a significant step for a lot of countries.
The Committee is concerned that the only Asian party to the Convention is Singapore, and notes AGD’s evidence that Asia is currently underrepresented at the Hague Conference. Given the substantial degree of commercial relationships between Australian and Asian businesses, the Committee supports Australia’s continued efforts to encourage Asian countries to participate actively in the Hague Conference.
Benefits of the Convention
The NIA claims that the Convention will ensure that courts exercise jurisdiction in accordance with the agreement between the parties. This will create certainty, and reduce costs of possible parallel proceedings in different jurisdictions. Further, implementation of the convention will ensure that more foreign judgements will be capable of recognition and enforcement in Australia, and vice versa. The NIA believes that this will raise the profile of cross-border commercial litigation as an alternative to arbitration, resulting in stronger competition and possibly lower costs.
The new proposed domestic legislation will also implement the Hague Principles on Choice of Law in International Commercial Contracts (the Hague Principles) as approved by the Hague Conference on Private International Law on 19 March 2015. The Hague Principles consist of 12 articles, and are a guide to best practice to be incorporated into domestic law as far as possible; resulting in harmonisation of laws across countries.
Although the Convention only applies to “exclusive” choice of court agreements, agreements are presumed to be exclusive unless the parties have expressly provided otherwise. In their submission, Ms Brooke Adele Marshall (Senior Research Fellow for Australia and New Zealand, Max Planck Institute for Comparative and International Private Law) and Ms Mary Keyes (Professor of Law, Griffith University) consider that this aspect of the Convention has a potential benefit of reducing preliminary litigation as to whether a clause is exclusive or non-exclusive.
The Convention and the Hague Principles largely reflect the existing situation, where exclusive choice of court agreements are generally given effect to by the relevant courts. The AGD advised:
Generally, existing Australian law produces outcomes that are similar to those that result by the applications of the rules found in the convention—and the principles, for that matter.
However the Convention will provide more certainty and clarity to give effect to the choice of court contractual agreements. The AGD advised that this will also be relevant where a third party jurisdiction is nominated, even where there is no other link with either party or the subject matter of the dispute.
The Convention imposes three key obligations:
the court designated in the jurisdiction agreement is obliged to exercise jurisdiction;
all other courts are obliged to decline jurisdiction; and
judgements given by the chosen court must be recognised and enforced by other Contracting States.
The Convention provides for narrow exceptions and qualifications to these obligations; including where the agreement would be null and void, or where giving effect to the agreement would be manifestly contrary to Australian public policy.The Convention only applies to exclusive choice of court agreements arising in civil and commercial disputes, where the case has an international element. It does not apply to consumer contracts, or contracts of employment.
The Committee was concerned as to whether the obligations under the Convention would amount to an unconstitutional usurping of the power of the Australian courts to hear a matter. AGD advised that the case law supported the types of jurisdictional limits set out in the Convention:
There are lots of cases on chapter III of the Constitution in relation to exactly that point of how far you can go in restricting the discretion of a court to either deal with a matter or make a decision. The critical point is not to go too far to get rid of that discretion.
AGD advised that the Convention allows the courts some discretion in deciding whether to comply with the prima facie obligations in the Convention. For example, a court can decide not to enforce a judgement that was obtained by fraud using the exception in Article 9(e).
Treatment of exclusive choice of court agreements in Australia is currently largely governed by the common law. These agreements are generally regarded as enforceable.
The Convention will be implemented domestically through a new International Civil Law Act. The proposed Act will also include the Hague Principles. The NIA considers that including both in a single Act will provide clear, consistent and accessible rules and principles. The Act will reflect the obligations and exceptions in the Convention.
In their submission to the inquiry, Ms Marshall and Ms Keyes argue that the Convention may lead to additional complexity, and result in a split regime for the characterization and treatment of jurisdiction agreements under Australian law.
The AGD agreed that there is the potential for a set of different–although broadly consistent–regimes. The AGD advised that the issue of complexity is currently under consideration in the development of the International Civil Law Act:
In developing the international civil law act, that is exactly what we are considering—whether the act itself should cover the field and just set up a clear structure for when you get recognition and enforcement of judgements, in particular. It is a very valid point and something that we are working through in the development of the act.
The Committee is also interested in the inter-relationship between the Convention and the increasing number of Investor-State Dispute Settlement (ISDS) clauses in bi-lateral and multilateral free trade agreements. The AGD advised that the Convention obligations and the ISDS clauses would arise in different circumstances and involve different objectives:
An ISDS mechanism in a treaty provides a foreign investor with the ability to bring a claim against a host State in an international arbitral tribunal for alleged breaches of certain investment obligations under the treaty … By contrast, the Convention applies in international cases involving exclusive choice of court agreements concluded between parties in civil or commercial matters.
Although the two situations both involve trans-national legal obligations, given the different parties to the dispute and the different jurisdictions involved, it appears that ISDS clauses will not normally have an impact on choice of court agreements, and vice versa.
The Committee notes that the submission to the inquiry, and the consultation undertaken by AGD, have been in favour of Australia acceding to this Convention. Even if the new domestic legislation does not entirely remove the possibility of different regimes for elements of choice of court matters, the Committee considers that the Convention and Principles will provide greater clarity and certainty in this area.
The Committee supports the accession to the 2005 Hague Convention on Choice of Court Agreements and recommends that binding treaty action be taken.