Prospect of improved jurisdiction certainty – China signs Hague Convention
China has recently signed the Hague Convention on Choice of Court Agreements 2005 (Hague Convention). This exciting development paves the way for increased legal certainty for commercial parties involved in trade with the PRC.
Commercial parties will have greater comfort that their contractual clauses in favour of courts in Contracting States will be respected by the PRC courts and that any resulting judgments will be enforced in the PRC. In practical terms this means that, assuming China ratifies the Convention, foreign judgments issued pursuant to an exclusive jurisdiction clause in favour of a Contracting State court and within scope of the treaty will become enforceable in the PRC, subject to certain limited exceptions. The Convention is currently in force between the EU (and its Member States, other than Denmark), Mexico and Singapore. The U.S., Ukraine and Montenegro have also signed the Hague Convention but have not yet ratified it.
The Hague Convention provides a mechanism for the allocation of jurisdiction in commercial cases where parties have agreed to an exclusive jurisdiction clause in favour of a Contracting State court and for the recognition and enforcement of judgments rendered pursuant to such clauses as between Contracting States. It is broadly the litigation equivalent to the New York Convention for arbitration and arbitral awards.
The Hague Convention promotes legal certainty in those cross border commercial disputes falling within scope. The Convention has become increasingly significant in the private international law context as more states sign up to it.
The ability of a creditor to enforce a judgment or award easily in jurisdictions where a counterparty has assets is often a critical risk factor for commercial parties in international transactions. The wide enforceability of arbitral awards in over 150 states under the New York Convention has often been seen as a key 'pull' factor for the selection of arbitration in a disputes settlement clauses. China's ratification of the Hague Convention may change the dynamics. Traditionally commercial parties might include an arbitration clause in a transaction with a counterparty from the PRC (China is a signatory to the New York Convention). Assuming the PRC ratifies the Hague Convention, commercial parties contemplating future transactions with counterparties from the PRC may increasingly assess whether an exclusive jurisdiction clause in favour of the courts of a Contracting State (eg the English courts) provides them with the necessary comfort on enforcement. China's signing of the Hague Convention is very much a demonstration of its willingness to be better integrated into the international judicial system, in particular, in view of its wide ranging One Belt One Road initiative. Our sense is that China is likely to ratify the Convention relatively quickly given the political support.
The UK is currently a Contracting State to the Hague Convention as it was bound by the EU's ratification of it. The UK Government has recently indicated that, upon Brexit, it will seek to sign up to the Hague Convention as an individual state. It can do so unilaterally. English judgments issued pursuant to exclusive jurisdiction clauses will therefore continue to be enforceable post Brexit under this regime.
This case summary is part of the Allen & Overy Legal & Regulatory Risk Note, a quarterly publication. For more information please contact Karen Birch – email@example.com, or tel +44 20 3088 3710.