Statutes' Domains in Private International Law: An Economic Theory of the Limits of Mandatory Rules

Abstract

Law and economics scholars have argued strenuously in favour of the use of default rules applying to contracts, rather than uncontractible mandatory rules. The mandatory/default dichotomy is, however, a domestic concept, which needs to be opened out for use in a multistate context. We argue that the concept of the default rule breaks down into three categories: fully contractible rule defaults, choice of law defaults (which permit the parties to select contractually the law applying to their contract), forum defaults (which permit the parties to select the forum for litigation, in which their contractual rights can be enforced). An international mandatory rule purports to abrogate all three default concepts, by committing local courts to exercise jurisdiction and apply the rule. We show why choice of law and forum defaults have value, and that legislatures may rationally choose to retain them even if they destroy rule defaults.

With this apparatus, we examine a recent trend in the interpretation of statutes creating apparently mandatory rules, as manifested in English and Australian appellate courts. These courts have used purposive interpretation arguments to annihilate choice of law and forum defaults, notwithstanding an absence of textual support. We demonstrate the flaws in this line of argument, and, consistent with resurgent interest in statutory interpretation amongst economically-minded scholars, posit 'canons' for the interpretation of contracts statutes.

JEL Classification: K12, K33