The Real Significance of the Hague Convention on Choice of Court Agreements
July 5, 2022
The stated purpose of the 2005 Hague Convention on Choice of Court Agreements (“COCA”) is to “provide certainty and ensure the effectiveness of exclusive choice of court agreements between parties to commercial transactions.” The treaty seeks to achieve this goal in two primary ways. First, the courts in contracting states must enforce choice of court clauses selecting the courts in other contracting states. Second, courts in contracting states must recognize and enforce judgments rendered by courts in other contracting states designated by exclusive choice of court agreements. The United States signed COCA in 2009 but has yet to ratify it.
In this post, I argue that if United States were to ratify COCA, relatively little would change with respect to U.S. law as it relates to the enforcement of choice of court clauses or the recognition of judgments. U.S. law in these areas is already broadly consistent with the rules set forth in the treaty. The real significance of COCA, I argue, is that it will change longstanding rules relating to the interpretation of choice of court clauses by U.S. courts.
Interpretation of Clauses
There are, broadly speaking, two types of choice of court clauses. Exclusive choice of court clauses (also known as mandatory clauses) provide that litigation shall proceed in the chosen court to the exclusion of all other courts. Non-exclusive clauses (also known as permissive clauses) provide that litigation may occur in the chosen court but do not foreclose the possibility of litigation elsewhere. In the United States, choice of court clauses are presumptively non-exclusive. As a federal district court in North Carolina explained in 2017:
A forum-selection clause is presumed permissive unless some further language . . . indicates the parties’ intent to make jurisdiction exclusive is present.
A clause must contain so-called “language of exclusivity” to rebut this presumption. In the words of the West Virginia Supreme Court:
To be enforced as mandatory, a forum-selection clause must do more than simply mention or list a jurisdiction; in addition, it must either specify venue in mandatory language, or contain other language demonstrating the parties’ intent to make jurisdiction exclusive. A forum selection clause is mandatory if jurisdiction and venue are specified with mandatory or exclusive language.
Under current U.S. law, in short, choice of court clauses are presumed to be non-exclusive unless the language in the clause manifests a contrary intent. There are dozens of cases (collected here beginning at page 1800) in which state and federal courts have followed this interpretive rule.
If the United States ratifies COCA, this interpretive rule will no longer apply to international commercial agreements. Article 3(b) of COCA provides that “a choice of court agreement which designates the courts of one Contracting State . . . shall be deemed to be exclusive unless the parties have expressly provided otherwise.” Under COCA, a choice of court clause is presumptively exclusive. If the parties want their clause to be non-exclusive, they need to write language of non-exclusion into their clause. The interpretive rule is the exact opposite of the presumption that U.S. courts generally invoke to interpret choice of court clauses.
If the United States were to ratify COCA, therefore, arguably the most significant alteration to domestic law would occur in the contract interpretation space. Going forward, ambiguous choice of court clauses in international commercial agreements would be interpreted differently than identically worded choice of court clauses in purely domestic agreements. Exclusivity, not non-exclusivity, would be the default.
Enforcement of Clauses
When it comes to the enforcement of choice of court clauses, by comparison, the ratification of COCA by the United States would effect relatively minor changes to domestic law.
Under current U.S. law, choice of court clauses are enforced in the overwhelming majority of cases. In a forthcoming paper, I draw on an original dataset of published cases to show that federal courts enforce outbound choice of court clauses roughly 87% of the time. The actual enforcement rate is probably higher because the paper only looks at published decisions where one party challenged the enforceability of the clause. In addition, many of the cases in the dataset involved domestic consumer and employment agreements. Choice of court clauses in international commercial agreements are, as a rule, much less likely to be struck down.
Under prevailing U.S. law and practice, in summary, choice of court clauses are almost always enforced. If the United States were to ratify COCA, not much would change. The current enforcement rate is also so high that adoption of these new rules seems unlikely to have much of an impact on case outcomes in the United States. In addition, Article 6 of COCA directs the courts of contracting states to enforce choice of court clauses unless certain criteria are met. Although these enforcement criteria are not identical to those currently used in the United States, they are broadly similar.
Enforcement of Judgments
The ratification of COCA is also unlikely to meaningfully alter the status quo with respect to the enforceability of foreign judgments in the United States.
Under current U.S. law, the enforcement of foreign judgments is governed by the 1962 Uniform Foreign Money-Judgments Recognition Act and the 2005 Uniform Foreign-Country Money Judgments Recognition Act (the “Acts”). The Acts direct U.S. courts to enforce foreign judgments unless one of the bases for non-recognition is satisfied. These statutory bases for non-enforcement are broadly similar to the bases for non-enforcement listed in Article 9 of COCA. In light of these similarities, the status quo would be largely maintained the United States post-ratification. Viewed through the lens of judgment enforcement, the importance of COCA to the United States lies in its ability to compel other nations to recognize U.S. judgments. It is unlikely to bring about a major change in U.S. law relating to the enforcement of foreign judgments.
Viewed through a normative lens, going from a presumption in favor of non-exclusivity to a presumption in favor of exclusivity in international commercial contracts is neither good nor bad. It simply is. The adoption of COCA’s interpretive rule vis-à-vis choice of court clauses would bring the United States into alignment with the interpretive rule currently followed the European Union. It would also bring the United States into alignment with the interpretive rule adopted by the Beijing High People’s Court in China in 2019. The ratification of COCA would ensure that choice of court clauses in international commercial contracts are subject to the same interpretive rule across nations.
Many parties transacting internationally have already drafted choice of court clauses that clearly state their intentions with respect to exclusivity and non-exclusivity. In cases where the intent of the parties is clear, the interpretive rule set forth in COCA is irrelevant. In cases where choice of court clauses in international contracts are not clear, however, the same clause may be deemed non-exclusive when contracting with a domestic counterparty and exclusive when contracting with an international counterparty post-ratification. In light of this reality, it seems likely that the ratification of COCA will prompt some companies to revise their standard choice of court clauses to avoid any confusion as to their intent.
Ratifying COCA is indisputably in the best interests of the United States. It will make it easier to enforce U.S. judgments abroad without making major changes to most areas of U.S. law. The changes to U.S. rules relating to contract interpretation are significant but, on the whole, well worth making given the offsetting benefits provided by the treaty.