Extraterritorial Courts for Corporate Law

41 Pages Posted: 16 May 2005  

Henry Hansmann

Yale Law School; European Corporate Governance Institute (ECGI)

Jens Dammann

University of Texas at Austin - School of Law

Date Written: May 2005

Abstract

A central goal in devising a system of courts is to make judicial services easily accessible. As a consequence, justice is usually administered in a geographically decentralized fashion: trial courts are distributed across the territory in which the jurisdiction's law is applied. Corporate law, however, does not fit this pattern: courts are often located far away from the companies subject to their jurisdiction. In particular, Delaware law governs most publicly traded firms in the U.S., and is now extending its reach to encompass corporations headquartered around the globe. But Delaware courts are located only in Delaware. Consequently, there is a large and growing disparity between the geographic area where Delaware law is applied and the location of Delaware courts. This disparity is all the more striking because the quality of the Delaware judiciary is a prime reason why firms incorporate under Delaware law. This situation provokes a simple question: would it not be both desirable and feasible to have Delaware, and other jurisdictions whose law has extraterritorial reach, hold hearings and trials out of state? The creation of such extraterritorial courts might well yield significant benefits: litigation costs could be lowered, and regulatory competition between jurisdictions could be increased with regard to both substantive corporate law and judicial services.

This paper explores the issues involved in such a regime of extraterritorial courts. We consider those issues as they arise within the U.S., within the EU, and globally. We largely limit our analysis to courts whose jurisdiction is confined to corporate law. We note, however, that much of what we say applies as well to other areas of commercial law. Moreover, whatever the merits of extraterritorial courts as a practical proposal, in exploring their promise we gain important perspective on the basic relationships among substantive law, adjudication, and territoriality, and on the differences between private arbitration and public adjudication.

Keywords: extraterritorial, courts, Delaware, regulatory competition, arbitration, soverignity, jurisdiction

JEL Classification: F23, K00, K22, K33, K40

Suggested Citation

Hansmann, Henry and Dammann, Jens, Extraterritorial Courts for Corporate Law (May 2005). ECGI - Law Working Paper No. 43/2005; U of Texas law, Law and Econ Research Paper No. 056; Yale ICF Working Paper No. 05-12; Yale Law School, Public Law Working Paper No. 102; Yale Law & Economics Research Paper No. 315. Available at SSRN: https://ssrn.com/abstract=724165 or http://dx.doi.org/10.2139/ssrn.724165

Henry Hansmann (Contact Author)

Yale Law School ( email )

P.O. Box 208215
New Haven, CT 06520-8215
United States
203-432-4966 (Phone)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Jens Dammann

University of Texas at Austin - School of Law ( email )

727 East Dean Keeton Street
Austin, TX 78705
United States

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