One of the main reasons that we at FITCH recommend that the vast majority of cross-border contracts contain international arbitration clauses is because of the New York Convention. More formally called the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the New York Convention was ratified in 1959 and currently has 159 parties. It requires states to honor and enforce arbitral awards issued in any of the other member states, and means that by selecting international arbitration as the dispute resolution mechanism, parties can get their awards enforced virtually anywhere on the planet.
There is no similar convention requiring enforcement of foreign court decisions. But on July 2, 2019, the Hague Conference on Private International Law (“HCCH”) finalized and adopted a new multinational treaty, the 2019 Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (the “Judgments Convention”).
The Judgments Convention
The Judgments Convention requires state-parties to recognize and enforce judgments rendered by the courts of other state-parties. It applies so long as there is some basis for jurisdiction (with thirteen separate bases for jurisdiction explicitly addressed in the Convention) and provides for only very limited reasons to refuse recognition and enforcement. Those are that (1) the defendant was not properly notified of the claim, (2) that the judgment was obtained by fraud, (3) that enforcement would be contrary to public policy, (4) that the parties had agreed to have their dispute heard before a court other than the court that rendered the judgment; or (5) that the judgment is inconsistent with another court’s judgment. These requirements are similar to American requirements for enforcement of foreign judgments, but do not include any protection requiring impartial tribunals or procedures compatible with due process. The Judgments Convention also exempts several subject areas from enforcement completely, including family disputes, wills and trusts, and intellectual property.
Will the Judgments Convention Become a Pillar of International Commerce?
As a practical matter, it is unlikely that the new Judgments Convention will be widely adopted. So far, the only state-party to have signed up is Uruguay, and the Convention will not even enter into force until at least one other state-party has ratified it. Notably, the HCCH had a 1971 Convention on the Recognition and Enforcement of Foreign Judgments in Civil And Commercial Matters, which is now in force, but has only five state-parties–Albania, Cyprus, Kuwait, the Netherlands, and Portugal–sign up in the 48 years that it has been open for ratification.
Until the Judgments Convention gets numerous state-parties to sign up for it–like the 159 that have signed the New York Convention–it is unlikely to be a serious tool for international commerce. But the New York Convention has certain procedural protections built into it, including that the parties specifically agreed to have their dispute adjudicated by arbitration and refusing recognition where the arbitrators did not allow a party to “present his case.” The Judgments Convention, however, assumes that each state-party’s courts are impartial and accord due process to foreign defendants. In the United States, however, we do not even trust the courts of Massachusetts to render decisions against defendants from Texas; instead, we allow removal of such cases to Federal courts in order to protect out-of-state defendants from bias in local courts. It is thus extraordinarily unlikely that the United States would sign up to a convention requiring American courts to automatically enforce Uruguayan decisions against American citizens.
Accordingly, our advice here at FITCH stands: for most cross-border contracts, an international arbitration clause is the dispute resolution tool of choice. We will watch the new Judgments Convention to see if it starts to gain steam, but for now it looks unlikely to replace the effectiveness of the New York Convention and the international arbitration system any time soon.