Source: EURLEX
Language: en
Format: md

**EN**

# **EN EN**

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 5.9.2008
SEC(2008) 2390

**COMMISSION STAFF WORKING DOCUMENT**

_**Accompanying document to the**_

**Proposal for a Council decision**

**on the Signing by the European Community of the Convention on Choice-of-Court**
**Agreements**

**SUMMARY OF THE IMPACT ASSESSMENT**

{ **COM(2008) 538 final** }

{ **SEC(2008) 2389** }

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**1.** **P** **ROCEDURAL** **I** **SSUES AND THE** **C** **ONSULTATION OF** **I** **NTERESTED** **P** **ARTIES**

The Impact Assessment was prepared on the basis of a “Study to Inform an Impact
Assessment on the Ratification of the Hague Convention on Choice-of-Court Agreements by
the European Community”, which was undertaken for the Commission by an external
contractor [1] with input from the Inter-Service Steering Group convened by the DirectorateGeneral for Justice, Freedom and Security. Representatives of the Legal Service, SecretariatGeneral, DG ENTR, DG MARKT, DG SANCO and DG INFSO participated in the work of
the Inter-Service Steering Group. This Impact Assessment was reviewed by the Impact
Assessment Board (IAB). The recommendations for improvements have been accommodated
in a revised version of the report.

The Impact Assessment was based on the abovementioned study, a review of the literature,
analysis of the responses to the Commission’s 2004 Consultation Paper in preparation for the
final round of negotiations at the Hague, reviews of the results of surveys undertaken by the
International Chamber of Commerce (ICC) [2] and the American Bar Association (ABA) [3] as
well as analysis of trade statistics (from Eurostat).

**2.** **PROBLEM DEFINITION**

Matters of international jurisdiction of courts and recognition and enforcement of judgments
in civil and commercial matters are governed within the European Community by Council
Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and
enforcement of judgments in civil and commercial matters (“the Brussels I Regulation”) [4] .

According to the case law of the European Court of Justice [5], issues of international
jurisdiction and recognition and enforcement of judgments with respect to third countries
come under exclusive external Community competence. This means that Member States are
no longer in a position, either individually or collectively, to enter into international
obligations in respect of third countries as regards matters governed by external Community
competence.

Conclusion of the Convention on Choice-of-Court Agreements under the Hague Conference
on Private International Law in 2005 presented an opportunity for creating a worldwide
judicial alternative for business-to-business dispute resolutions in cases where the parties
concluded a choice-of-court agreement.

1 GHK Consulting Ltd, Birmingham; study available at
[http://ec.europa.eu/dgs/justice_home/evaluation/dg_coordination_evaluation_annexe_en.htm](http://ec.europa.eu/dgs/justice_home/evaluation/dg_coordination_evaluation_annexe_en.htm)
2 ICC Survey regarding business practices on jurisdictional issues (2003)
[http://www.iccwbo.org/law/jurisdiction/](http://www.iccwbo.org/law/jurisdiction/)
3 Survey conducted by the ABA Section of International Law (ABA Working Group on the Hague
Convention on Choice-of-Court Agreements) in October/November 2003.
4 OJ L 12, 16.1.2001, p.1.
5 Judgment of the Court of 31 March 1971, Case 22-70, Commission v Council — European Agreement
on Road Transport, Opinion 1/03 of 7 February 2006 on the competence of the Community to conclude
the new Lugano Convention on Jurisdiction and the Recognition and Enforcement of Judgments in
Civil and Commercial Matters.

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Inside the Community there is a predictable system of rules on jurisdiction based on the
choice of the parties (choice-of-court agreements) and recognition and enforcement of
resulting judgments. However, once outside the EU area, this predictability for EU businesses
ends due to the limited number of multilateral or bilateral treaties with third countries and the
absence of a worldwide system of applicable rules.

This lack of legal certainty may function as a “barrier to trade”. A survey has shown that
global trade is being hampered by companies’ uncertainty about which national courts might
hear a case regarding a contested contract. 41% of the companies surveyed indicated that a
significant business decision of their company had at some point been determined by
uncertainty regarding the court that would resolve disputes or the law that would apply to the
contract. This was more frequent amongst large businesses (47%) than small (26%).

At the same time, any action the Community undertakes in respect of third countries should
protect values developed within the Community which are of such importance that they must
be protected also outside the European Union.

**2.1.** **Summary of problems**

Four main problems were identified in this policy area:

Problem 1

The cost of legal uncertainty for EU economic operators that:

    - their choice-of-court agreements in favour of a court outside the EU are respected in the
EU; and

    - their choice-of-court agreements in favour of a court in the EU are respected in third
countries.

Problem 2

The costs of insufficient foreseeability for economic operators that:

    - a judgment given by the court chosen outside the EU is eligible for recognition and
enforcement within the EU;

    - a judgment given by the court chosen within the EU is eligible for recognition and
enforcement outside the EU.

Problem 3

The costs and damage to a EU weaker party in case of insufficient protection due to the
choice-of-court agreement in favour of court outside the EU (e.g. the choice of a foreign court
could lead to deprivation of the protection provided to the weaker party by Community law).

Problem 4

Insufficient protection of legal relations specifically protected within the EU by way of rules
on exclusive jurisdiction also in a wider, global context (e.g. relating to immovable property,
intellectual property rights, etc.).

**2.2.** **The size of the problems**

It is difficult to assess the scope of the problems because there are no relevant statistics and
the empirical data are limited. But the information obtained through the consultations shows
that legal uncertainty linked to respect for the choice-of-court agreement and enforcement of
judgments might indirectly influence business decisions.

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As for Problem 1, two surveys available on the subject showed that for a large number of
businesses (about 40%) a significant business decision had at some point been determined by
uncertainty regarding the court that would resolve disputes or the law that would apply to the

contract.

As for Problem 2, it is estimated that about 40% of companies experience difficulties,
sometimes insurmountable, in connection with recognition and enforcement of judicial
decisions.

The existence of Problems 3 and 4 was not corroborated by the results of the consultations,
but it does not mean that these problems do not exist.

**3.** **O** **BJECTIVES**

**3.1.** **General objective**

The overall general objective is to address potential ‘barriers to trade’ through reducing legal
uncertainty, i.e. to promote international trade (external to EU) and investment, through
reducing legal uncertainty in commercial contracts.

**3.2.** **Specific objectives**

The general objective is reflected in four specific objectives, each of which is closely related
to the underlying problems identified in Section 2. These specific objectives are the basis for
the main assessment criteria applied to the individual policy options.

(1) To increase EU economic operators’ legal certainty that their preference for the choice
of court to resolve international commercial disputes will be respected;

(2) To increase the predictability of the choice of court to resolve international
commercial disputes involving EU economic operators;

(3) To safeguard EU economic operators’ rights in determining the choice of court where
they are the weaker party;

(4) To promote the legal rights of EU operators protected under EU legislation in courts
resolving international commercial disputes involving EU economic operators outside
the EU.

The reasoning behind the choice of the specific policy objectives is as follows.

Specific objective 1. It would be beneficial if parties to an international contract who entered
into a choice-of-court agreement could rely on the fact that such agreement would be upheld
by the court chosen or by another not chosen court seized.

Specific objective 2. It would be beneficial if parties to an international contract who entered
into a choice-of-court agreement could rely on the fact that the judgment of the chosen court
would be respected (eligible for recognition and enforcement) in the countries of both parties
and/or in the country of enforcement.

Specific objective 3. It would be beneficial to the Community if the solutions adopted
safeguarded the rights of EU weaker parties entering choice-of-court agreements. Achieving
the objective would both protect the weaker party and also ensure competition through
increasing smaller companies’ confidence to enter into international contracts.

Specific objective 4. It would be beneficial if courts outside the EU protected legal rights
similar to those within the EU. Such effects could come about through a process of ‘attrition’
whereby ‘familiarity breeds replication’ through cases involving EU companies being held in

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courts in third countries and the arguments made on their behalf becoming embodied in the
laws and practices of the third countries. This would have the potential consequence of
increasing the likelihood that EU companies would choose to enter into international
agreements and hence could lead to possible increases in trade.

**4.** **P** **OLICY** **O** **PTIONS**

|Policy Option|Col2|Description of policy option|
|---|---|---|
|_Status quo options_|_Status quo options_|_Status quo options_|
|Policy Option<br>1|“passive” status quo|The Community does not conclude the Convention<br>and no new initiatives are taken to address the<br>policy objectives.|
|Policy Option<br>2|“active” status quo|The<br>Community<br>does<br>not<br>conclude<br>the<br>Convention, but bilateral agreements between the<br>Community and selected third countries are<br>negotiated that address the policy objectives.|
|_Non legislative options_|_Non legislative options_|_Non legislative options_|
|Policy Option<br>3|provision<br>of<br>“public<br>insurance”|Support for the provision and costs of insurance<br>that covers the additional costs of disputes (such as<br>the extra costs of trials held in third countries and<br>the financial losses to EU operators from rulings<br>made that undermine the rights the EU operators<br>would have if they were operating in the EU) due<br>to uncertainty in the choice of courts.|
|Policy Option<br>4|Provision of information<br>to inform businesses of<br>current risks stemming<br>from uncertainty in the<br>choice of courts.|Support for the costs of providing information to<br>EU operators on the risks stemming from current<br>uncertainties over the choice of court should they<br>wish to trade with third countries, and the practical<br>means available to them through which these risks<br>could be reduced.|
|Legislative options6|Legislative options6|Legislative options6|
|Policy Option|Conclusion<br>of<br>the|The Convention is concluded by the Community|

6 The Convention allows declarations limiting jurisdiction (Article 19), declarations limiting recognition
and enforcement (Article 20), declarations with respect to specific matters (Article 21) and reciprocal
declarations on non-exclusive choice-of-court agreements (Article 22). In view of the fact that the
consultations preceding adoption of the Convention did not support the idea that the declarations
allowed in Articles 19 and 20 should be utilised by the Community, and that there was resistance from a
number of Member States against including non-exclusive choice-of-court agreements, the Impact
Assessment policy options do not take the possibility of making declarations under Articles 19, 20 and
22 into account.

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|Policy Option|Col2|Description of policy option|
|---|---|---|
|5|Convention<br>by<br>the<br>Community<br>without<br>making any declarations<br>under its Article 21.|without excluding additional matters from its scope<br>by a declaration under its Article 21.|
|Policy Option<br>6a|Conclusion<br>of<br>the<br>Convention<br>with<br>a <br>declaration<br>under<br>Article<br>21<br>excluding<br>copyright and related<br>rights.|The Convention is concluded by the Community<br>making a declaration under its Article 21 excluding<br>copyright and related rights from the scope of the<br>Convention.|
|Policy Option<br>6b|Conclusion<br>of<br>the<br>Convention<br>by<br>the<br>Community making a<br>declaration<br>under<br>its<br>Article<br>21<br>excluding<br>insurance matters.|The Convention is concluded by the European<br>Community making a declaration under its Article<br>21 excluding insurance matters from the scope of<br>the Convention.|
|Policy Option<br>7|Combination of policy<br>options 6a and 6b.|The Convention is concluded by the Community<br>making a declaration under its Article 21 excluding<br>copyright and related rights and insurance matters<br>from the scope of the Convention.|

**4.1.** **Comparison of the options**

|Assessment<br>CriteriaÈ<br>Policy Options<br>Æ|1.<br>‘Passive’<br>status<br>quo|2.<br>‘Active’<br>status<br>quo|3.<br>Provision<br>of “public<br>insurance”|4.<br>Awareness<br>raising|5.<br>Conclusion<br>no<br>exclusions|6a.<br>Conclusion<br>excluding<br>copyright|6b.<br>Conclusion<br>excluding<br>insurance|7.<br>6a +6b|
|---|---|---|---|---|---|---|---|---|
|To<br>increase<br>EU<br>economic operators’<br>legal certainty that<br>their preference for<br>the choice of court to<br>resolve international<br>commercial disputes<br>will be respected.|0|√|0|0|√√√|√√√|√√√|√√|
|To<br>increase<br>the<br>predictability of the<br>choice of court to<br>resolve international<br>commercial disputes<br>involving<br>EU<br>economic operators.|0|√|0|0|√√√|√√√|√√√|√√|
|To<br>safeguard<br>EU|0|√|√|√|√√|√√√|√√√|√√√|

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|economic operators’<br>rights in determining<br>the choice of court<br>where they are the<br>weaker party.|Col2|Col3|Col4|Col5|Col6|Col7|Col8|Col9|
|---|---|---|---|---|---|---|---|---|
|To<br>promote<br>the<br>adoption<br>of<br>legal<br>rights protected under<br>EU<br>legislation<br>in<br>courts<br>resolving<br>international<br>commercial disputes<br>involving<br>EU<br>economic<br>operators<br>outside the EU.|0|√|0|0|√√|√√|√√|√|
|Economic and social<br>benefits.|0|√√|√√|√√|√√|√√√|√√√|√√√|
|Economic and social<br>costs.|0|0|Potential<br>competition<br>effects|0|Conflicts<br>with<br>Community<br>policies|Conflicts<br>with<br>Community<br>policies|Conflicts<br>with<br>Community<br>policies0|0|
|Implementation<br>costs.|0|Very low|High|Low<br>to<br>medium|Very low|Very low|Very low|Very low|
|Conflicts<br>with<br>Community policies.|No|No|No|No|Potential|Potential|Potential|0|
|Preferred option.|No|No|No|No|No|No|No|Yes|

**4.2.** **The preferred option**

In the light of the assessment in Table 4.1 the preferred option is policy option 7 which
involves the conclusion by the Community of the Convention with declarations under Article
21 concerning copyright and related rights and insurance matters. Even though policy options
5, 6a and 6b attain slightly better overall results in achieving the policy objectives (with the
exception of the policy objective of safeguarding EU economic operators’ rights), they all
create potential conflicts with Community policies. Policy option 7 does not create such
conflicts and is therefore preferred. This option is also expected to generate more economic
and social benefits.

**4.3.** **The potential scale and nature of impacts of the preferred option**

The general objective of the preferred policy option is to reduce legal uncertainty for EU
economic operators. In doing so, conclusion of the Convention should act as a stimulus to
international trade and hence contribute to reducing the costs of goods and services in the EU.

Legal uncertainty is only one of several factors that constrain international trade. The
preferred option would reduce legal uncertainty, but would not eliminate it. In particular the
preferred option would increase the _likelihood_ that choice-of-court agreements, and court
judgments made in the agreed courts, would be respected and enforced.

**4.4.** **The costs of the preferred option**

The preferred option will involve only small implementation costs associated with preparing
the legislative instruments linked with signing and conclusion of the Convention by the

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Community. However, given that the Convention will not generate benefits to the EU unless
EU trading partners also ratify it, some administrative and diplomatic resources will be
required to encourage and negotiate with the potential Contracting Parties.

Additional costs will arise for monitoring implementation (functioning) of the Convention
once it is concluded by the Community.

The preferred option does not generate either compliance or administrative costs for EU
businesses trading internationally. Companies would remain free to include choice-of-court
agreements in their contracts or to continue using alternative dispute-resolution methods.

**4.5.** **EU added value**

The preferred option would generate significant EU added value. Firstly, there would be one
set of rules for EU operators within each of the Member States and thus, in effect, the ‘level
playing field’ within the EU created by the Brussels I Regulation would be extended to the
Contracting States of the Convention. Secondly, a series of bilateral agreements with varying
exemptions could be counterproductive in trying to decrease legal uncertainty where the EU’s
major trading partners are likely to wish that their goods and services can be traded within the
EU and with other trading partners under the same regimes concerning choice-of-court
agreements.

The costs of concluding the Convention are very low while the potential economic benefits
are large. There are only a few potential ‘downsides’ to concluding the Convention. These
might, for example, include the obligation arising under the Convention to respect within the
EU “controversial” judgments given by third-country courts. However, the possibility to
refuse recognition of such judgments on the basis of public policy (under Article 9(e) of the
Convention) is always available, and it can also be anticipated that the number of such
judgments would gradually decrease due to ‘convergence’ in case law.

**5.** **M** **ONITORING AND EVALUTION**

It is the practice of the Hague Conference on Private International Law, under whose auspices
the Convention was drawn up, to organise regular meetings of special commissions to
evaluate the practical application of conventions, in order to monitor and evaluate their

success.

In addition to this institutional monitoring, the Community as a Contracting Party should
develop its own monitoring and evaluation mechanism.

There are no suitable ‘ready-made’ sources of information pertinent for accurately assessing
the scale and nature of existing problems, and hence monitoring in the future the extent to
which these problems will have been reduced.

In these circumstances the best way to proceed would be to adopt the same procedure as for
other legislative instruments in the area, i.e. by reviewing the functioning of the Convention at
regular intervals (for instance once every four years) assisted by a study of an external

contractor.

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