Right and wrong choices in the market for justice

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A jurisdiction benefits from forum shopping if its decisions are out of line with mainstream opinion, and the most common reason is that there is something wrong with its legal system.

Why is the American author Dan Brown in London to defend claims that he has breached the copyright of a New Zealander and a fellow American? Why did Frau Flick, former wife of a German industrialist, ask an English court to determine the terms of her divorce settlement? Why did Roman Polanski, a French citizen, come to the Royal Courts of Justice to seek libel damages from Vanity Fair, an American magazine? Each of them thought they would get a better deal in England than at home.

In a global marketplace, the legal systems of different countries are in competition with each other. The notion of competition in the supply of justice is strange. Yet justice is an elusive concept and there are many routes to it, all imperfect. Competition in legal services begins when, before they enter into a legal relationship, people and businesses search for the most appropriate legal framework. One element of that framework is the jurisdiction in which any dispute is to be resolved. This is the issue of the choice of laws.

English law is very widely used in financial services, even for transactions that have no other connection with England. English law gives much more freedom to write whatever contract the parties want than the civil law systems of many other countries. English judges, politically neutered, have been formalistic in enforcing the strict terms of contract, while courts in America pay more attention to the context of the transaction – the intentions of the parties and the reasonableness of the contract terms.

This English combination of flexibility before the event and rigidity after it is attractive to many. English courts have also acquired a reputation for giving foreigners a fair crack of the whip. These competitive attractions of the English legal system have made City of London law firms large exporters of legal services.

Competition through choice of laws is almost wholly desirable. The freedom of contract it allows has economic benefits and competition encourages other countries to make their legal systems business-friendly. Emerging states in eastern Europe have used English law and modelled aspects of their post-communist codes on English principles.

Choice of laws is made before a dispute arises. Forum shopping is when competition takes place after the dispute has occurred. If choice of laws has many benefits, forum shopping has many disadvantages. Jefferson County, Mississippi, is the world centre of asbestos litigation. Not because that community has been specially damaged by the scourge of asbestos, but because its judges and juries are famously sympathetic to plaintiffs. They are encouraged to remain sympathetic by the economic benefits this depressed area derives from supplying motel rooms and pizzas to visiting attorneys.

A jurisdiction benefits from forum shopping if its decisions are out of line with mainstream opinion, and the most common reason is that there is something wrong with its legal system. The Brown, Flick and Polanski cases, whatever their technical merits, all affront common sense. Dan Brown is sued by two authors whose meretricious book became a bestseller, after 20 years, on the coat-tails of Mr Brown’s success: the case is like suing the tooth fairy for theft. An English judge declined even to hear evidence on the pre-nuptial agreements that the Flicks had made under the laws of their own countries. And Mr Polanski, ostensibly defending his damaged reputation, was allowed to give evidence by video link because he could not attend court for fear of arrest.

The 1980 Rome Convention which governs contracts within the European Union strikes a well-crafted balance: it encourages choice of laws but discourages forum shopping. These principles are under attack from Europe’s irrepressible harmonisers, from vested legal interests which resent the loss of business overseas and from politicians who would like to meddle in every dispute. In the market for justice, as for every other commodity, it is important to understand both the genius, and the limits, of competitive markets.

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