Systemic Due Process and the Hague Judgments Convention

The State Department is exploring ratification of the Hague Judgments Convention (HJC) and Convention on Choice of Court Agreements (COCA). It has announced a meeting of the Advisory Committee on Private International Law for October 24-25 to discuss these conventions (as well as the Singapore Convention on mediation) and how they might be implemented. As John Coyle recently reported, the Uniform Law Commission (ULC) is backing ratification.

The United States is not currently party to any treaty providing for recognition and enforcement of foreign judgments outside the family law context. Today, it is generally harder to enforce U.S. judgments abroad than to enforce foreign judgments in the United States. Ratifying the HJC and COCA would be a big step forward, making it easier to enforce U.S. judgments in countries that join the conventions, which currently includes all members of the European Union and the United Kingdom. This is one reason why the ULC is supportive.

The HJC and COCA will require federal implementing legislation. Such legislation will have to address several important issues. John Coyle has already discussed reciprocity. In this post, I consider whether federal legislation should maintain provisions, currently found in state law, that deny recognition and enforcement on the ground that a foreign legal system as a whole lacks impartial tribunals or procedures compatible with due process.

Current Law

At present, the recognition and enforcement of foreign judgments in the United States is governed by state law, except for foreign defamation judgments to which the federal SPEECH Act applies. A total of 39 states and the District of Columbia have adopted one of two Uniform Acts, the 1962 Uniform Foreign Money-Judgments Recognition Act or its successor the 2005 Uniform Foreign-Country Money Judgments Recognition Act. Both acts state that a court may not recognize a foreign judgment if “the judgment was rendered under a judicial system that does not provide impartial tribunals or procedures compatible with the requirements of due process of law.”

Although systemic lack of due process has been a codified ground for nonrecognition of foreign judgments for more than 50 years, it has been successfully invoked in just a handful of cases. In Bridgeway Corp. v. Citibank(1999), the District Court for the Southern District of New York (SDNY) denied enforcement on this ground of a judgment from civil-war Liberia, while in Chevron Corp. v. Donziger (2014), the SDNY held that Ecuador’s judiciary did not operate impartially. Another case often cited as an example, Bank Melli Iran v. Pahlavi (1995), was in fact decided on case-specific due process grounds, with the Ninth Circuit holding that the Shah’s sister could not get due process in Iran.

In three other cases, trial court decisions to deny recognition for systemic lack of due process were reversed on appeal. In Osorio v. Dow Chemical Co. (2011), the Eleventh Circuit disavowed the district court’s decision that Nicaragua did not provide impartial tribunals, affirming the decision to deny recognition on case-specific grounds. In DeJoria v. Maghreb Petroleum Exploration, S.A. (2015), the Fifth Circuit reversed the nonrecognition decision completely, holding that the defendant had not met its high burden of proving that Morocco’s courts lacked sufficient independence. And in Shanghai Yongrun Investment Management Co. v. Xu (2022), New York’s Appellate Division held that the plaintiff had sufficiently pleaded that the Chinese court system met the requisites of due process (more on this case below).

That’s it—two successful uses of the systemic lack of due process ground over more than five decades. In both Bridgeway and Chevron, moreover, it would have been relatively easy to find that due process was denied in the specific case, rather than condemning a foreign country’s judicial system as a whole. The SDNY judges did not do this, it appears, because case-specific lack of due process was not a ground for nonrecognition in New York when these cases were decided. New York fixed this problem in 2021 by adopting the 2005 Uniform Act, which contains such a case-specific ground.

The Conventions

The HJC and COCA are complementary treaties. The COCA covers the recognition and enforcement of foreign judgments made pursuant to an exclusive choice of court agreement, whereas the HJC covers the recognition and enforcement of other foreign judgments. (Both conventions have several subject matter exceptions—such as family law judgments—that I will not discuss here.)

Both conventions provide that a court may refuse recognition or enforcement if it “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.” In other words, both expressly include case-specific lack of due process as a ground for nonrecognition under the heading of public policy.

But neither the HJC nor COCA includes a systemic lack of due process ground for nonrecognition. This is not surprising since, to the best of my knowledge, the United States is the only country in the world to have such an exception.

Should Federal Implementing Legislation Have a Systemic Exception?

In my view, it is not necessary for federal legislation implementing the HJC and COCA to include a system lack of due process exception. As noted, both conventions permit nonrecognition when due process has been denied in the specific case. If the judgment in the specific case is fair, why should recognition be denied because the foreign system may deny due process in other cases?

One might argue that corruption or political interference may be pervasive in a foreign court system and yet invisible in specific cases because it occurs behind closed doors. The HJC addresses this problem in Article 29. Under that provision, when a new country joins the convention, each existing party may decide not to establish relations with the new country under the convention by filing a notification to that effect within 12 months. New countries may do the same for any existing parties to the convention. So, for example, if the United States believes that the Venezuelan court system, as a whole, lacks impartial tribunals or procedures compatible with due process, it may file a notification under Article 29 and avoid being bound to recognize Venezuelan judgments under the HJC. Vesting this decision with the government of the United States seems preferable to litigating and relitigating the question in U.S. courts under a systemic due process exception.

The COCA does not have a provision similar to Article 29 of the HJC. But such a provision is unnecessary because the COCA applies only when an exclusive choice of court clause in the parties’ contract chooses the court system in question. It seems highly unlikely that parties will choose a court system that they believe does not afford due process. The role of judging foreign legal systems that the United States plays under the HJC is assumed by the contracting parties under COCA.

What I have said so far, however, does not address the situation where the quality of a foreign legal system changes dramatically after the 12-month period for decision has expired under the HJC or after a contract is signed under the COCA. With respect to the HJC, relief may be found in the principle of rebus sic stantibus, which permits countries to withdraw from treaty obligations because of a fundamental change in circumstances. Article 62 of the Vienna Convention on the Law of Treaties permits withdrawal if “the existence of those circumstances constituted an essential basis of the consent of the parties to be bound by the treaty” and “the effect of the change is radically to transform the extent of obligations still to be performed under the treaty.”

This narrows the issue to cases under the COCA in which the court system chosen in a choice of court clause has changed fundamentally since the contract was entered. This does happen. But when it happens, it is likely that most cases of injustice can be caught through the case-specific due process exception that COCA expressly recognizes.

In the end, the essential question is whether it worth including a systemic lack of due process exception in federal implementing legislation in order to protect against cases where (1) the parties have chosen a particular court system, (2) that court system has fundamentally changed, and (3) judgments subsequently rendered by that system are incompatible with fundamental principles of procedural fairness but cannot be identified on a case-specific basis. If including a systemic exception in the implementing legislation were costless, the answer might be yes. But such an exception is not costless. Although the systemic exceptions currently existing in state law have been successful in only a handful of cases (see above), they have been raised much more frequently. Each time, the question must be briefed and argued, costing time and money.

The Shanghai Yongrun case, already mentioned, is a cautionary example. In that case, one Chinese company invested in another Chinese company, selecting Chinese courts for dispute resolution in their forum selection clause. When the second Chinese company breached the contract, the first brought suit in Beijing as the contract provided. After a trial at which the defendants were represented by counsel, the trial court granted judgment for the plaintiff, a decision that was affirmed on appeal.

Because the defendants’ assets in China were insufficient to satisfy the judgment, the plaintiff sought to enforce the judgment in the United States. The defendants raised no claims of unfairness in their specific case. Instead, they argued that the judgment should not be enforced because the Chinese court system—the one they chose in their contract—lacks impartial tribunals and procedures compatible with due process.

The trial court agreed, relying on State Department Country Reports on Human Rights Practices as conclusive evidence. The Appellate Division reversed, holding that the trial court was wrong to rely on Country Reports, which focus on human rights cases, as conclusive evidence of systemic inadequacy in business cases. Attempts by the parties to settle the case failed. Now, more than three years after the judgment creditor sought to enforce its judgment in the United States, the case is set for trial on the question whether the Chinese judicial system has impartial tribunals and procedures compatible with due process.

The resolution of transnational disputes works best when recognition and enforcement of judgments is relatively quick and easy. This is why review of the merits is generally prohibited. But, as the Shanghai Yongrun case demonstrates, a judgment debtor who is determined not to pay can slow enforcement and make it much more expensive by raising a systemic lack of due process defense. Worse yet, the question of systemic inadequacy must be litigated, again and again, in trial courts that lack the State Department’s expertise and must rely on the conflicting testimony of experts.

Conclusion

Federal implementing legislation for the HJC and COCA should not include a systemic lack of due process exception. More than five decades of experience with such exceptions in state law shows that case-specific grounds for nonrecognition can protect against unfair foreign judgments. The HJC and COCA both expressly permit courts to deny recognition if “the specific proceedings leading to the judgment were incompatible with fundamental principles of procedural fairness.” Article 29 of the HJC and the principle of rebus sic stantibus will enable the United States to screen out judicial systems that are, or that become, systemically inadequate. And under the COCA, contractual parties can protect themselves by selecting strong judicial systems in their choice of court clauses.