The 2019 Hague Convention - will it impact on international arbitration?

In our CDR in 10 on arbitration, we discussed possible future trends and, in particular, whether we may continue to see an increase in organisations choosing arbitration over litigation as a mechanism for resolving cross-border disputes, even once the UK has ratified the 2019 Hague Convention (the 2019 Hague Convention).

In this Insight, we discuss certain issues arising from the limitations of the English Courts’ jurisdiction in the EU post-Brexit, the UK’s proposed ratification of the 2019 Hague Convention as a possible solution, and the impact this could have on arbitration as a choice of mechanism for resolving international disputes.

Limitations of the English Courts’ jurisdiction in the EU

When the UK was a member of the EU, it benefitted from the Recast Brussels Regulation (1215/2012), which set out rules to determine which court had jurisdiction over a dispute and to simplify the reciprocal recognition and enforcement of judgments between member states.

However, since Brexit, in proceedings commenced in the UK on or after 1 January 2021, the position on jurisdiction has been far less straight-forward. Such proceedings are currently governed by the 2005 Hague Convention on Choice of Court Agreements (the 2005 Hague Convention), where it applies, or common law rules.

The result has been that exclusive jurisdiction clauses in favour of the English Courts are usually recognised by EU members states under the 2005 Hague Convention, but non-exclusive jurisdiction clauses are only recognised by the courts of an EU member state if their local law provides for this.

Non-exclusive jurisdiction clauses in parties’ agreements therefore carry risks of non-enforceability and/or increased costs and delay in the ability to enforce an English Court judgment overseas.

The 2019 Hague Convention

It is hoped that the UK government’s decision to sign up to the 2019 Hague Convention will be the solution to some of the above issues. In particular, once ratified, it should provide:

• Uniform rules for the recognition and enforcement of judgments between the UK and other contracting states, which currently include the EU (except Denmark) and Ukraine.
• Greater legal certainty that judgments from the UK will be recognised and enforced in other contracting states. This, in turn, could help provide greater confidence in the UK legal system and promote the UK as a preferred dispute resolution forum and enhance access to justice more generally.
• Parties with the ability to agree to non-exclusive or asymmetric jurisdiction clauses in the knowledge that judgments from the courts nominated in these clauses should be enforceable.
• Support for internationally focused businesses and thereby encourage international trade, investment and cross-border mobility.

Will the 2019 Hague Convention have an impact on arbitration?

Even once the UK has ratified the 2019 Hague Convention, it is unlikely that this will diminish the popularity of arbitration as a mechanism for resolving cross-border disputes for the following reasons:

• The New York Convention has wider applicability than the 2019 Hague Convention: The mutual recognition of arbitral awards is governed by the 1958 New York Convention (the New York Convention), which requires contracting states to ensure such awards are recognised and generally capable of enforcement in their jurisdiction in the same way as domestic awards. The New York Convention also requires courts of contracting states to uphold valid arbitration agreements and stay court proceedings in respect of matters which the parties have agreed should be resolved by arbitration. The New York Convention has a larger number of signatories, with over 170 in total. In contrast, the 2019 Hague Convention will only apply between a more limited number of contracting states and not where a party needs to enforce a judgment outside of the EU, for example, in the USA. This means that it is likely to remain more straightforward to enforce an English arbitration award internationally than it is to enforce an English Court judgment, which will be especially helpful if the other side is based in or has assets outside the EU.
• Confidentiality: In contrast to litigation (which normally takes place in public court proceedings, noting the general principle of open justice), arbitration is usually private and confidential. This can be a real advantage for organisations if the subject matter of their dispute is commercially sensitive or if there are associated reputational concerns.
• Arbitration Bill: The reforms to the Arbitration Act 1996 which are currently before Parliament in the form of the draft Arbitration Bill seek to modernise our arbitration framework, reinforcing the UK’s position as a centre for international arbitration. The reforms would, for example, introduce a new summary disposal power for arbitrators, similar to the court’s discretionary power to order summary judgment in court proceedings, which has the potential to resolve some disputes more efficiently and cost-effectively.

What does this mean in practice?

It remains to be seen, but the UK’s ratification of the 2019 Hague Convention is unlikely to have a significant impact on international arbitration as a means of resolving international disputes.

Parties are likely to still be drawn to arbitration, not least because of the benefits of the wider-reaching New York Convention, which can make enforcement less unpredictable, lengthy and costly.

It therefore remains the case, at least for the time being, that if a dispute is likely to arise under a contract, careful consideration must be given to including either an exclusive English jurisdiction clause, or an arbitration agreement, as the dispute resolution mechanism in the contract.

Contributors: Shelley Bishop, Legal Director, Knowledge and Ceri Harland, Commercial Dispute Resolution

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at April 2024. Specific advice should be sought for specific cases. For more information see our terms & conditions.