I.  INTRODUCTION

 For the last four years, the Hague Conference on Private International Law has held special commission meetings in preparation of a proposed new treaty ("Hague Convention".)  The Hague Convention would establish international rules among signatory countries that would determine jurisdiction,  recognition and enforcement of foreign judgments in civil and commercial matters.  This is the most important treaty ever attempted by the 47-nation members of the Hague Conference. 
 There is a great need for this treaty due to the tremendous growth of global business and trade in the last decade.  Many countries have made the transition from a "rule of man" to a "rule of law", and from a controlled economy to a free market economy. The centerpiece of the new free market economy has been the creation of new export markets.  With the increase in global commerce has also come an increase in global disputes and claims.  The intention of the Hague Convention is to create a standard by which countries involved in global commerce can resolve conflicts in an appropriate forum and whereby judgments will be recognized and enforced by courts of other signatory countries.  Hopefully, this would foster more global business transactions by reassuring parties that there is a predictable legal system for resolving global disputes and enforcing judgments throughout the world. 

 This Convention is important to businesses and consumers alike.  Most  businesses view the world as their marketplace. Foreign products and services can be found in every country.   Consumer products criss-cross country borders every day.  Consumer products are increasingly produced abroad due to competitive costs.  Consumers, on the other hand, are often the victims of products and services that are procured from abroad in which judgments for injuries are not collectible. While the U.S. has been generous about recognizing the judgments of foreign courts, the U.S. has not enjoyed reciprocity with most countries in the recognition of U.S. judgments. 

 In the following sections, I shall address significant and/or controversial sections of the Hague Convention, as well as provide some comment on some of  the more controversial items.  Once the Convention text has been approved the Hague delegates, the Convention must still be submitted to each country's government for final ratification/approval.  At that time the treaty must  be ratified in its entirety or rejected in its entirety.   For this reason it is appropriate for this proposed treaty to be reviewed while it is still in the drafting stages instead of at the ratification stage where  the treaty will be dealt with on an "all or none" basis.
 

II.  JURISDICTION OF HAGUE CONVENTION (Article 1.2)
 

 The proposed Hague Convention would  apply where there is national diversity of residency between the parties and/or where enforcement of a judgment abroad is desired, i.e. when one or more of the defendants to a lawsuit is a foreign defendant and/or recognition and enforcement is desired in another signatory country.  The Convention is not intended to disturb domestic laws of jurisdiction, recognition, and enforcement when all the defendants are local and recognition and enforcement is desired domestically. Thus, if both plaintiff and defendant(s) are local but defendant's assets are abroad, the treaty would apply.  Moreover, if the defendants are abroad but they have assets in the U.S., the plaintiff could attach defendants' assets under the treaty so long as there is jurisdiction under Articles 3-13. 

 The convention will  apply to most civil and commercial matters except for family law, wills and succession, insolvency and admiralty/maritime matters.  It is not clear what is meant by "administrative matters" under Article 1.1.  The term might have different meanings in different judicial systems.  The addition of a definition of this term seems appropriate here.

 Under the current draft treaty, there are three categories of jurisdiction: "Required Bases" (Articles 3-16), "Permitted Bases" (Article 17), and "Prohibited bases" (Article 18.)  The Required bases are those jurisdictional bases under which a judgment is required to be recognized and enforced by another signatory country. Suits based on Prohibited bases of jurisdiction are not allowed and shall be dismissed for lack of jurisdiction if jurisdiction is based solely on the prohibited bases. 

 The Permitted Bases allow each country to maintain their traditional bases of jurisdiction,  with no requirement for enforcement abroad.  The Permitted bases essentially use a country's domestic law where a foreign party is involved and where jurisdiction is neither on the "Required" nor "Prohibited" lists.  The major tension in the draft treaty has involved what goes into the "Required" list and what goes into the "Permitted" list.  If the "Required" list is small, and almost everything else is in the "Permitted" list, then the ability to enforce judgments abroad may be severely limited, thus limiting the benefits which the Hague Convention offers.  Many U.S. bar groups believe the required list is too narrow and the prohibited list is too broad.  The "Permitted"  list so far is small and U.S. legal groups fear that some traditional bases of U.S. jurisdiction will be eliminated and the U.S. will be worse off in some areas of jurisdiction.
 
 
 
 

III. BASES OF JURISDICTION

 A. Required Bases of Jurisdiction (Articles 3-16)

 Although the terms "general" and "special" jurisdiction are not explicitly used in the draft provisions, these two notions underlie the draft Convention's jurisdictional structure and shall be used for illustrative purposes in this discussion.

  1. General Jurisdiction:  Defendant's Forum (Article 3)

 a. Any  claim can be brought against a natural person in the country where that person is "habitually resident."  The term "habitually resident" lacks a precise definition in the Convention, which is problematic.  Some countries recognize dual nationalities and view nationals of their countries as residents.  Many countries have specialized work visas that allow for long term stays.  Would long-term immigrant workers be considered "habitually resident"? This term needs to be more precisely defined in the Hague Convention. 

 b.  Any claim can be brought  against an artificial person (e.g. corporation, LLC, Trust, etc.), where it has its seat (Article 3.2a), place of incorporation (Article 3.2b), place of central administration (Article 3.2c), or its principal place of business (Article 3.2d).  Thus, one would always be able to sue a defendant in the defendant's home forum.

  2. Special Jurisdiction (Articles 4-16)

 In a regional context (e.g. the European Union), suing a defendant in his home forum might not be so burdensome because the distances between countries within a region are relatively small, and therefore the cost and difficulty of transporting evidence, witnesses, and parties to the defendant's home forum might not be so onerous.  Moreover, the legal systems and the socio- economic conditions are also more likely to be similar to regional neighbors.  However, in a global context, great inequities can result where the countries have very different legal systems, substantive laws, and/or socio-economic systems.  For this reason, "special" jurisdictional bases are provided in the Convention to allow for filing of a lawsuit in places other than the defendant's home forum for the protection of the consumer.

  3. Agreement Stipulating to a Particular Court (Article 4)

 Where there is an agreement stipulating to a choice of court, that choice of court will have exclusive jurisdiction (Article 4.1.)  The agreement can be in writing (Article 4.2a.); it can be oral and confirmed in writing (Article 4.2.b.); or it can be implied in accordance with a regular pattern and practice of the particular trade or commerce underlying the contract (Article 4.2d.).  Article 4 operates under the presumption that the parties themselves can consent to the exclusive jurisdiction of a chosen court where the court has the authority to adjudicate the case under local law.  The Convention recognizes this even when the chosen court is a non-signatory State.  However, certain types of agreements (for example, adhesion contracts) designating a choice of court may be invalid as a matter of public policy. (Article 4.3)

  4. Arbitration Exclusion (Article 1.2g)

 The United Nations Convention on Recognition and Enforcement of  Foreign Arbitral Awards (commonly referred to as the "New York Convention") provides for the enforcement of foreign arbitration awards.  Therefore, the Hague Convention purposely excludes a provision covering arbitrations, as over 120 countries are signatories to the New York Convention. 

  5. Appearance by Defendant (Article 5)

 A court has jurisdiction over a defendant  if the defendant makes an appearance in court to defend on the merits of the case.  This implied consent to jurisdiction by appearance is recognized by most countries.  However, the defendant has the right to contest jurisdiction no later than at the time the answer to the complaint is due.

  6. Contracts (Article 6)

 Besides bringing a contract action in the defendant's home forum (Article 3) and possibly in a forum where a branch is located if the contract is related to the activities of the branch (see Article 9), special jurisdictional bases are provided for contract claims under Article 6, where goods were supplied or actual  services were performed in whole or in part.  This leaves a loophole in cases of "non-performance" where there is detrimental reliance (estoppel). 

  7. Contracts with Consumers (Article 7)

 Where consumers may be at a disadvantage in contract negotiations with companies (e.g., the contracts may be overreaching and/or coercive), special jurisdiction is given to consumers to sue in their country of habitual residence if the contract relates to defendant's trade or services that were solicited in plaintiff's habitual residence.  The parties can also stipulate to a special place of jurisdiction after the dispute has arisen (Article 7.3), except in consumer or employment contracts.  Article 7 must still be carefully reviewed by the Internet/e-commerce sectors to determine if this provision will subject online companies to jurisdiction everywhere in the world having access to the worldwide web. This must be balanced against the interests of consumers, who may not be able to pursue a lawsuit at the place of delivery at the place of such e-commerce business.

  8. Employment Contracts (Article 8)

 Employment-related lawsuits can be brought where work is habitually carried out; in the courts of the last country where work was done; or if work was done habitually in multiple places, where the business is or was situated (Article 8.1.a).  Employers can sue employees at employee's place of habitual residence or where the employee habitually carries out his work (Article 8.1.b.)

  9. Branches (Article 9)

 The draft Provisions allow special jurisdiction where defendant has a "physical presence" in the form of a branch, agency, or other establishment provided the action/claim relates to the activity of that branch or agency.  (Left in brackets and still undecided are cases where there is no branch, agency or establishment but where there is "commercial" activity and promotion to make it reasonable to exercise jurisdiction as if defendant is  "constructively" present and the claim arose from those commercial activities (Article 9). This is important where there is a presence not in the form of agents and branches but by foreign entities who send marketing specialists to other countries to promote their products, display products at trade shows, solicit potential buyers and advertise their products on TV, radio newspapers, publications, etc.  These representatives perform the same services that would be expected of a branch but without the formalities of  a legal branch.  That is the reason why the "activities" basis of a production is so important. It allows for jurisdiction based on business activities rather than the existence of a registered branch.  The "activities" basis of jurisdiction is considered a pivotal issue if the treaty is to be ratified in the U.S. due to the long traditional recognition of long-arm statutes.)  It would then be a loophole for certain companies to avoid setting up branch offices and to use transient sales people to conduct business in order to avoid jurisdiction.  If such a loophole is allowed, many newly-emerging countries will revamp their business methods and commerce will develop around these loopholes.  Long arm statutes are needed so that a reasonable basis of jurisdiction will continue when there are business activities and promotions but no branch.

  10. Torts (Article 10)

 In addition to the defendant's home forum (Article 3), a tort claim can be brought in the place where the tortious act or omission occurred, or where the injury was sustained provided that the defendant could "reasonably foresee" that the act — including activity through commercial channels — could cause or threaten such an injury.  (Article 10.1) 

 The drafting committee struggled with the notion of "foreseeability," which they considered a somewhat vague term.  Although cross-border commerce is becoming increasingly common, the foreseeability standard is still controversial.  Long-arm statutes are desired to cover the gaps.  Under traditional U.S. laws, if one solicits, promotes, and sells a product in the U.S., which product is defective and causes injury, long arm jurisdiction would allow for jurisdiction in U.S. courts.

 There is also some controversy as to whether jurisdiction should be limited only to the damages attributable to that country unless that is the place of plaintiff's habitual residence (Articles 10.3. & 10.4.)  This could lead to a multiplicity of lawsuits to apportion the damages in each country where there is any injury.  Also, suits for anti-trust or anti-competition claims are excluded and would not benefit from recognition and enforcement of foreign judgments under the Convention.  Resolutions to these controversies must still be considered and are pivotal issues to U.S. ratification.

  11. Trusts (Article 11)

 Special jurisdiction is allowed where the trust was created, at the principle place of trust  administration, where the closest connection to the object of the suit is, or where there is a stipulation to courts of particular jurisdiction. (Article 11.2.)

  12. Exclusive Jurisdiction (Article 12)

 Exclusive jurisdiction is provided in the courts of the country where real or immovable property or its tenancies are located (Article 12.1) or in matters involving the status of artificial persons (corporations, etc.) where the artificial person has its seat (Article 12.2).  In matters that involve public registries (including patents and intellectual property rights), special jurisdiction lies where such registry is located (Article 12.3 and 12.4).  In U.S. courts, experts on foreign law or registration can be brought in to testify to the interpretation of rights from a foreign forum.  The existing proposed provision could result in a procedural nightmare where one would need to suspend a trial to defer to another court to determine the validity of a claimed registration for a determination of rights before resuming the original suspended trial. 

  13. Provisional and Protective Measures (Article 13)

 Special jurisdiction is given in provisional and protective measures (e.g., preliminary injunctions, temporary restraining orders, attachment liens, etc.) which would prevent the defendant from taking any action to injure the plaintiff's rights (e.g., preventing defendant from moving assets out of the forum).  Jurisdiction for these provisional/protective measures can be seised where a proceeding on the merits can be seised (Article 13.1), or where the property is located that is the subject of these provisional/protective measures (Article 13.2).

  14. Multiple Defendants (Article 14)

 Where there is at least one defendant that creates general jurisdiction in that forum, all other related defendants can be brought in regardless of their home forum so long as the claims against these defendants have a substantial nexus to the forum.

  15. Counter Claims (Article 15)

 A forum country with jurisdiction under this Convention shall also have jurisdiction to determine counter-claims arising out of the same transaction.

  16. Third Party Claims (Article 16)

 Joinder of third parties is permitted where the initial plaintiff and defendants are properly before the Court in accordance with this treaty.  There must be a substantial nexus between the third party and the claim alleged.

 B. Permitted Bases of Jurisdiction (Article 17)

 Where jurisdiction is not premised on general jurisdiction (Article 3) or special jurisdiction (articles 4-16), AND where jurisdiction is not prohibited under Article 18, then the national law of the place of suit will apply.  This is the "permitted basis" of jurisdiction.  Judgments on this ground of jurisdiction do not have the benefit of mandatory recognition and enforcement under this Convention.  However, if jurisdiction against a defendant is premised solely on an article 18 "prohibited basis" of jurisdiction, not only is enforcement not allowed in another signatory country, but such foreign defendant may not even be sued or joined as a co-defendant in the suit.  Thus, jurisdiction based solely on a prohibited basis is disallowed even where the defendant otherwise has assets in the local jurisdiction and enforcement under the Convention (i.e. in another signatory country) is not needed.  This is one area where there is a reduction of benefits over existing U.S. laws.  The U.S. concepts of long arm jurisdiction and tag jurisdiction would be prohibited under this treaty if there was no jurisdiction under Articles 3-16.  We are concerned that the Convention may serve as a loophole where long-arm and tag jurisdiction are concerned. 

 C. Prohibited Bases of Jurisdiction (Article 18)

 Article 18 prohibits jurisdiction when there is a lack of substantial connection between the country where suit is filed and the dispute.  It gives the following as examples: (i) the presence of property in the State except where suit is directly related to that property (Article 18.1.a) (in rem jurisdiction), (ii) the nationality of either the defendant or plaintiff with respect to a country (Article 18.1.b & c), (iii) the domicile of the plaintiff in the country (Article 18.1.d), (iv) commercial or other activities by defendant within a country except where the dispute is directly related to these activities (Article 18.1.e) (long-arm statutes), (v) service of a writ upon the defendant within the country, except for certain human rights violations (Article 18.1.fand 18.3), (vi) unilateral specification of the forum by the plaintiff (Article 18.1.g), and (vii) the declaration of enforceability or registration of a judgment except for the enforcement of that judgment (Article 18.1h).  Special jurisdiction cannot be conferred for the above prohibited bases, unless provided for in the Convention under Articles 3-16. 

 Article 18 not only rejects recognition and enforcement but it prohibits the assertion of jurisdiction in the first place.  This would be particularly damaging to consumer claims against foreign entities for product defect or breach of contract claims.  For example, in a design defect claim, the U.S. defendant may only serve as a sales outlet for a foreign defendant who designed the defective product.  With long arm statutes and tag jurisdiction on the prohibited list, there may not be a jurisdictional basis to bring in the foreign defendant even though it is the liable party.

 In considering the consequences of the current version of Article 18, one should carefully consider that some traditional bases of jurisdiction under U.S. law may be prohibited under Article 18.  For example, in the U.S., "commercial activity" by a defendant that is systematic and continuous in the forum country, notwithstanding a lack of actual physical presence, can confer jurisdiction based on long arm statutes.  This is the U.S. "minimum contacts" standard of International Shoe Co. v. Pinkus (1929) 278 U.S. 261.  Such commercial activity can be conducted by independent distributors/middlemen, by mail, or by the Internet.  This includes sales through trade shows, trade missions, business visits, etc., even though there is no subsidiary, branch, or agency that is physically present (See 2.02.e).  We are still evaluating actual case examples where this might become a serious deficiency whereby a foreign defendant could avoid jurisdiction, for example, by purposely not setting up a branch office in the country where it conducts business.  The U.S. delegation advocates the addition of a "commercial activities" basis of jurisdiction which is currently absent under the draft Convention. 

 Tag jurisdiction (personal service on a defendant in the country where suit is brought) will not be allowed under Article 18.2.f, except for certain human rights litigation (Article 18.3).  The reasoning behind the human rights exception is that disabling tag jurisdiction under the Hague Convention would put it into conflict with an emerging practice of civil suits against egregious human rights violations.  The specifics of this exception are still under consideration.

 D. Other Aspects of Jurisdiction

  1. Lis Pendens (Article 21)

 Under Article 21, where there is concurrent jurisdiction in multiple signatory countries, there is jurisdictional priority based on a "first-to-file" rule (Lis Pendens.)  Specifically, the second court to seise jurisdiction will suspend its proceedings (Article 21.1), and when the first court renders a judgment, the second court will then dismiss the case (Article 21.1.1.)  If the first court fails to proceed on the case within a reasonable time (Article 21.3), the second court may then proceed with the case.  However, if the nature of the action in the first court is a negative declaratory relief action, then the first court will suspend the action in favor of the second court seised under the other provisions of this paragraph (Article 21.6.). Lis Pendens is generally recognized only in civil law countries.  Except as provided in Article 27, this treaty will allow a plaintiff to choose amongst valid forums.

  2. Declining Jurisdiction (Article 22) - Forum Non Conveniens

 Article 22 provides the criteria for a court, at its option, to suspend/decline jurisdiction ("forum non conveniens") in "exceptional" circumstances.  The presumption is that Lis Pendens will normally apply.  Read in conjunction with Article 21 (Lis Pendens), Article 22 provides detailed guidance to litigants on when the first court to seise jurisdiction can suspend/decline jurisdiction in favor of  another court.  A set of "convenience" and "efficiency" criteria is listed, with which one can compare the current forum with alternative forums.  These criteria include: (i) inconvenience to the parties in view of their habitual residences (Article 22.2.b), (ii) nature and location of the evidence including witnesses (Article 22.2.b), (iii) applicable statutes of limitation or prescription periods (Article 22.2.c), and (iv) the likelihood of obtaining recognition and enforcement of any decision on the merits (Article 22.2.d.).  Since forum non-conveniens is recognized only by common law countries, inclusion of Articles 21 and 22 in the draft Convention represents an attempt to introduce forum non-conveniens and lis pendens to all signatory countries.  These two articles will continue to be controversial and will be considered by many to be another pivotal issue.

IV. RECOGNITION AND ENFORCEMENT

 A. General Rule (Article 23)

 The general rule is that the enforcing country will recognize and enforce a final judgment of the original court if jurisdiction is properly seised under Articles 3-16.

 B. Grounds for Refusal of Recognition and Enforcement (Article 28)

 Signatory countries may refuse recognition and enforcement if: (i) the same matter is pending before the country of enforcement (Article 28.1.a); (ii) the judgment is inconsistent with another judgment in the country of enforcement or from another signatory country (Article 28.1.b), (iii) recognizing the decision would be manifestly incompatible with the fundamental principles of procedure in the enforcing court including the right of each party to be heard by a fair, impartial and independent court (Article 28.1.c.); (iv) the judgment was obtained by fraud (Article 28.1.e); or (v) the enforcement would be incompatible with the public policy of the enforcing court (Article 28.1.f.).  Additionally, if the enforcing court decides to review the validity of the jurisdiction of the origin court, then the enforcing court will still be bound by the findings-of-fact of the origin court.  (Article 27.2.)  There shall be no review of the merits by the enforcing court (Article 27.3.)

 Article 28.1.f is the "public policy exception," which allows for a signatory country to refuse to enforce a foreign judgment, where to do so would violate the enforcing country's public policies.  Some are concerned that unless the public policy exception is more restricted in its application, it might be a potential loophole for abuse.  Others argue that similar public policy exceptions in other international conventions (e.g., New York Convention, Brussels Convention, and Lugano Convention) have not been abused in practice, and therefore any concern here is more in theory than in practice. The U.S. also wants a public policy exception for its own protection.

 C. Cost of Proceedings (Article 31)

 No security, bond or deposit shall be required to guarantee payment of costs and expenses on account of defendant being a national or habitual resident of another signatory State. (Article 31.) 

 D. Non-Compensatory Damages (Article 33.1)

 According to Article 33.1 of the draft Provisions, non-compensatory damages (e.g. punitive, exemplary, multiple, etc.) should be recognized in the enforcing court at least to the extent that similar or comparable damages could have been recognized and awarded in the enforcing country. 

 E. Compensatory Damages (Article 33.2.)

 Article 33.2 allows the enforcing court to reduce "grossly excessive" damages to a lesser amount (Article 33.2.a), but in no event in an amount less than what the enforcing court could have awarded in the same circumstances in its domestic cases (Article 32.3.b).  "Grossly excessive" takes into account the circumstances existing in both the country of the original judgment and the country of the enforcing court.

 There is some interest in adding a definition of the term "grossly excessive" damages in order to obtain an objective standard to justify a reduction in damages.  It is crucial that this particular article is carefully worded, so as not to provide a potential loophole to disable the Hague Convention.  Specifically, if it is up to the subjective judgment of the enforcing court whether or not to reduce a judgment, this would wreak havoc on the predictability of judgments, which is one of the main goals of the Convention. 

 The fear of excessive compensatory damages continues to be a concern to other countries, especially those without a jury system.  However, compensatory damages should be based on the standards of the country where the injured party resides, not on the socio-economic standards of the enforcing jurisdiction.  Several groups have suggested that damages should be reviewable by the enforcing court but that the determination of whether damages are "grossly excessive" should be based on the country where the plaintiff is habitually resident, which is usually the same as the origin court.

 F. Settlements (Article 36)

 Mutual settlements ratified by the initiating court shall be enforceable in the enforcing signatory country.

 G. Coordination with Other Treaties (Article 37)

 This treaty does not affect other international treaties already adopted by a signatory country.  Such treaties shall remain in full force and effect.  However, to the extent that this treaty covers items not covered by other treaties, then this Convention will apply.  There are three variations of wording proposed for this Article.   (See Annex Article 37, Proposals 1-3.) 

V. CONCLUDING REMARKS

 The final Convention will reflect the majority sentiments of 47 countries.  The process of achieving this majority will naturally involve compromise by all countries involved.  No country can expect the Convention to be a reflection of its own laws and legal system.  Through compromise,  everyone will gain net benefits from having predictable rules for the enforcement of foreign judgments. 

 It is important that international law attorneys and international businessmen track the evolution and progress of this treaty and input their comments while it is still in the drafting stages   The full text of the current draft can be found at: http://www.LauNet.Com/Hague/index.htm.