Singapore to implement Hague Convention on Choice of Court Agreements

On April 4, 2016 the Parliament introduced a new Bill – the Choice of Court Agreements Bill 2016 (“the Bill”). The Bill, if passed, will enable Singapore to implement the Hague Convention on Choice of Court Agreements (“the Convention”).

The Hague Conference on Private International Law concluded the Convention in 2005. The aim of the Convention was to allow any parties of the members states entering into a contract to include an “exclusive court of choice agreement.” Such an agreement is implemented through a clause that parties state in their commercial contracts. The clause specifies the jurisdiction of the courts that would resolve any dispute that arises between the parties. According to the Convention, any international case between the parties of the contracting states of the Convention can include this clause in the agreement. Currently, there are 28 member states who are signatories to the Convention. The signatories include Mexico and all the member states of the European Union (except Denmark). The signatories further include Singapore and the US, who still have to ratify it. The Convention came into force in October 2015.

The Bill introduced in the Parliament explicitly states the meaning of this term. The “exclusive choice of court agreement” is an agreement where two or more parties, either by writing or any other means of communication elect in the agreement, the court which will exclusively decide any dispute that arises between the parties in the course of carrying out their business. Once the parties agree, no court of any other jurisdiction can try the case. This clause is applicable only to international cases. It is interesting to note that parties can choose their disputes to be heard in any of the contracting states of the Convention and not merely the state where the party resides.

In line with the Hague Convention, the main features of the Bill are as follows:

1. Only the court chosen by the parties to the contract will hear the case if any dispute arises.
2. The other courts should refuse to hear the proceedings and
3. All the member states have to recognise and enforce the judgment of the court.

For instance, if the parties to a contract agree to confer the exclusive jurisdiction of a contractual dispute to Singapore International Commercial Court (SICC), no other court can hear the proceedings that the parties bring before it.

The ratification of the Convention will undoubtedly promote the use of the Singapore courts by member states of the Convention due to the high regard in which Singapore’s judicial system is held in the world. Any commercial contract that residents of the member states enter into can include the “exclusive choice of court agreement”. In such a scenario, the parties can opt for the jurisdiction of Singapore courts to decide their cases. The judgments made by these courts will be enforceable in all other signatory states.

The Convention brings with it a certainty to the legal implications of a commercial dispute that arises between parties. This step will enhance the enforceability of Singapore judgments thereby making Singapore an attractive venue for litigation of such disputes. Once the Bill comes into effect, all other contracting states can enforce judgments by Singapore courts which will, in turn, boost the country’s legal system.

By promoting a fair and efficient legal framework for dispute resolution, the Convention helps increase international trade and investments among the member states. In particular, this will help promote business between Singapore and the European Union (EU), where all the member states (besides Denmark) are signatories to the Convention. Thus, the ratification will directly enhance the business relations between Singapore and EU and will make the country an even more attractive jurisdiction for establishing foreign company operations.

The New York Convention which recognises and enforces foreign arbitral awards has 156 signatories who opt to settle international disputes between the contracting states by arbitration. With the New York Convention already in existence, what benefits will the Hague Convention offer to its member states?

The benefit of the Convention will primarily be in cases of cross-border litigation involving commercial disputes. The choice between arbitration and litigation is a tough one. The two main reasons why parties choose litigation over arbitration to resolve their disputes are:

1. Arbitration proceedings provide final awards that are binding in nature. There is no appeal available to these decisions. On the contrary, in litigation the contracting parties, if dissatisfied by the court’s judgment, can appeal to the higher courts to review the decisions. Even if parties perceive litigation to be lengthy, the ability to appeal the decisions provides a sense of certainty and fairness to the parties in the dispute.
2. Arbitration is not bound to any legal principles and rules of law. The award in such cases is never predictable. Some parties feel that this system of dispute resolution, being too flexible in its approach diminishes the certainty of a fair decision.

The choice of litigation over arbitration is a personal choice of parties entering into contracts. While the New York Convention is successful in resolving disputes through arbitration, the Hague Convention on Choice of Court Agreements is a similar step taken for parties who prefer litigation over arbitration.

The choice of litigation over arbitration is a personal choice of parties entering into contracts. While the New York Convention is successful in resolving disputes through arbitration, the Hague Convention on Choice of Court Agreements is a similar step taken for parties who prefer litigation over arbitration.

While Singapore is still on its way to ratify the Convention, the advantages the Choice of Court Agreements Bill 2016 and the Hague Convention will bring to the country are quite obvious.

Please continue to visit our blog for the latest developments on the ratification of the Convention.