Many cross-border transactions require complex contract drafting in order to reflect the will of the parties and comprise the dynamic of two or more legal systems. Amongst the concerns of legal practitioners, it is possible to point out future disagreements stemming from an international contract and to which dispute settlement mechanism they will be submitted.

The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) plays a key role in today’s international market by facilitating the enforcement of arbitral awards worldwide. When including an arbitration clause in an international contract, it will gain the advantage of having a future arbitral award enforceable in jurisdictions of States signatories to the New York Convention, i.e., a final judgement rendered by an arbitral tribunal must be recognized and enforced without a thorough review of the merits of the decision.

In an expanding global market, foreign jurisdictions might be sought when the debtor has assets outside the State where the judgement was rendered. However, enforcing traditional judgements of State courts in these other jurisdictions does not usually enjoy the benefits of treaties such as the New York Convention, requiring otherwise a strenuous, expensive and technical process before national courts.

Nevertheless, a new development on enforcing court decisions overseas has taken place. On July 2, 2019, the 22nd Diplomatic Session of the Hague Conference on Private International Law adopted the new international treaty: the Hague Convention on the Recognition and Enforcement of Foreign Judgements in Civil or Commercial Matters.

Its Explanatory Report expresses that its principle objective is to reduce risks and costs associated with cross-border legal relations and dispute resolution, facilitating international trade, investment and mobility. It further explains that one of the methods in order to do so is by ensuring that judgements to which it applies will be recognized in all Contracting States, enhancing practical effectiveness to them.

The main purpose and obligation of this new Convention can also be found under its article 4, which provides that “a judgement given by a court of a Contracting State shall be recognized and enforced in another Contracting State (…)”. Article 7, in turn, provides for situations where recognition and enforcement may be refused, in a very similar way to the New York Convention. Such situations include lack of proper service, fraud and violation to the public policy of the enforcing State.

Some civil and commercial matters are excluded from the Convention, which comprise, for instance,  insolvency, family law matters, marine disputes, the carriage of passengers and goods, defamation, privacy, intellectual property, some anti-trust matters and, finally, arbitration.

It is still too early to know the outcome of this new Convention and changes it might cause to international contracts, especially those related to dispute settlement mechanisms. The success of the Convention, although very promising, will largely rely on the number of sovereign States who decide to accede to it. It is also unclear how national courts will interpret the Convention in the future and, consequently, the legal practices that might derive from it.

So far, only Uruguay has signed the Convention and the European Commission has suggested it will begin the process for the European Union to accede to it. Ratifying a new international treaty highly depends on internal legal rules of each State; a process that may suffer unforeseeable delays. Hence, until the implementation of this new treaty is clear and a sufficient number of States ratify it, arbitration should still continue to be considered the most favorable and desirable dispute settlement mechanism for cross-border transactions.

Contact : carole.sportes@squirepb.com