Globalizing Commercial Litigation

Abstract:     
The world's nations vary widely in the quality of their judicial systems. In some jurisdictions, the courts resolve commercial disputes quickly, fairly, and economically. In others, they are slow, inefficient, incompetent, biased, or corrupt. These differences are important not just for litigants, but for nations as a whole: effective courts are important for economic development. A natural implication is that countries with underperforming judiciaries should reform their courts. Yet reform is both difficult and slow. Another way to deal with a dysfunctional court system is for litigants from afflicted nations to have their commercial disputes adjudicated in the courts of other nations that have better-functioning judicial systems. We explore here the promise of such extraterritorial litigation and conclude that it is strong, particularly in light of a communications revolution that permits litigation in a remote court without requiring travel by parties, witnesses, or lawyers..

Private arbitration is another alternative to weak local courts, and its role will surely continue to expand. But public courts have important advantages over private arbitration in resolving commercial disputes. Consequently, broader international access to well-functioning public courts holds unique promise.

The volume of extraterritorial litigation is presently small. A set of basic legal and practical reforms could, however, change that situation dramatically. To motivate those reforms, it is essential that jurisdictions with strong courts have an incentive to attract foreign litigants. The best way to achieve this is through higher court fees for foreign litigants who lack substantial ties to the forum state. This may require important adjustments in legal culture. But only by abandoning formal equality in court fees is it likely that real global equality in access to judicial services can be accomplished.

Keywords: adjudication, arbitration, courts, competition, choice of forum, international litigation, choice of law, contracts, rule of law, regulatory competition, development

JEL Classifications: F13, K12, K33, K41, O19

Working Paper Series