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MICHAEL WHINCOP[*]
[By drawing on both the institutionalist international relations literature and economic theories of private international law, this article develops positive and normative theories of the recognition of foreign judgments. Cooperative recognition arising from iteration of a prisoner’s dilemma game is contrasted with recognition as a weakly dominant strategy for individual states, in order to explain aspects of the common law on recognition, especially jurisdictional competence. Normative analysis considers the optimal form of recognition conventions, the effect of contractual selection of forum and the implications of rent-seeking.]
Compared with choice of law and jurisdiction, the recognition of judgments is a scholarly desert. That is not to say that nothing is written on the topic — on the contrary, a good deal of literature exists. However, most writers focus only on the immediate pragmatic implications of particular laws or multilateral conventions on the recognition of judgments. This is true of the English literature, which is consistent with the English academy’s private international law scholarship, but it is also surprisingly true of the American scholarship. There is no theory of judgment recognition which explains the incentives of states to recognise judgments and enter recognition conventions, or the theoretical relationship between recognition and choice of law and jurisdiction.
These questions are particularly important in the last years of the twentieth century for three reasons. First, the amount of interaction between the citizens of different states is growing exponentially, which increases the likelihood of conflicts of law arising and the need for two or more states to be involved in adjudication and enforcement. Second, at the United States Government’s request, the Hague Conference on Private International Law (‘Hague Conference’) will address questions of jurisdiction and the recognition of judgments in October 2000 with a view to proposing a multilateral convention.[1] The US has never persuaded other states to agree to a recognition convention, which is sometimes attributed to the presence in American law of triple damages in antitrust law, punitive damages and so on. Twenty years ago, negotiations for a recognition convention between England and the United States collapsed, despite the great amount that those jurisdictions have in common.[2] A convention may not exist that is acceptable to both the US and the other states at the Hague Conference.[3] Third, a recognition convention provides an opportunity to cross-fertilise conflicts scholarship with the flourishing interdisciplinary international law/international relations scholarship, given the interstitial nature of the subject.[4]
In Part II, I describe the incentives of states to recognise judgments. I analogise the position of the states to the game theory paradigm of the ‘prisoner’s dilemma’, which suggests that states will be reluctant to recognise foreign judgments. The fact that the common law does recognise judgments may reflect the ‘iterated’ quality of the prisoner’s dilemma, but I also suggest that it may actually be individually rational for states to recognise judgments. Game theory and economics explain aspects of the common law’s recognition of judgments. Part III considers issues related to the design of a convention on the recognition of judgments. These include the relation between jurisdiction and judgment recognition and the ability of parties to ‘opt out’ of judgment recognition.
Economics’ most distinctive assumption is that humans behave and make economic decisions rationally; that is, they compare means with ends. Game theory refines our understanding of rational choice. It examines strategic behaviour, which occurs when individual decision-making turns on what an individual expects that some other individual will choose to do.[5] Game theory analyses situations by specifying the players, the strategies available to them, and the pay-off each will receive for all possible strategy combinations. With that information, solution concepts can be applied to see what strategy combination the players will adopt. The most commonly used solution concept is the Nash equilibrium, which identifies a set of strategies that is a best response for each player, having regard to the strategy that the other player will choose. Also useful is the dominant strategy, where a player has a strategy under which he is better off, whatever strategy the other plays.[6]
No hypothetical situation is more commonly used to illustrate strategic decision-making than the prisoner’s dilemma.[7] P and Q are arrested on burglary charges and are kept apart. Each is told that if neither confesses, the police have enough evidence to send them to jail for two years on a lesser charge, such as housebreaking. If one chooses not to confess, but the other confesses, the police will press for the maximum sentence of six years for the party who stays silent, and six months for the party who has assisted the police by confessing. If both confess, both go to jail for four years. The pay-offs are depicted in Table 1:
Table 1: Prisoner’s Dilemma
P’s pay-offs are in the left-top corner of each cell;
Q’s pay-offs are in the right-bottom corner of each cell
The strategy choices that make both better off are for P and Q not to confess, as those choices minimise their joint sentences. But if P does not confess, it is not a best response for Q not to confess, since Q’s alternative strategy (confessing) reduces his or her sentence from two years to six months. And, if P does confess, Q cannot do better than confess also, since four years is better than six years. Confession is each party’s dominant strategy and thus the game’s sole equilibrium, even though silence is the collectively rational strategy.
A key feature of the prisoner’s dilemma is that the players are incapable of making a credible commitment to cooperate, either because there is no opportunity to communicate or because a promise is not enforceable. However, one of the most famous claims of game theory is that the repetition or iteration of a prisoner’s dilemma for an indefinite future period of time may change the strategic incentive of the parties so that they cooperate instead of defecting. In particular, the work of Robert Axelrod demonstrates that cooperation behaviour is encouraged by a player’s capacity to punish his or her counterpart at time 1 (by acting uncooperatively) for the latter’s defection at time 0.[8]
The apparently anarchic relation between sovereign states makes the prisoner’s dilemma game a ready analogy for international law. No international medium exists to enable one sovereign state to compel performance of a commitment made by another such state, unless states themselves create it and credibly submit to it. Thus, commitments made by another state are not per se credible, which leaves the parties on the horns of a prisoner’s dilemma. However, the enduring feature of the adoption of the prisoner’s dilemma in the international relations ‘institutionalist’ literature is the claim that cooperation can be achieved in consequence of the iterative nature of the game.[9] The use of ‘institutions’, ranging from the formal apparatus of the World Trade Organisation[10] to informal behaviours such as customary international law,[11] can be used to increase the adoption of cooperative behaviours. Institutions permit the development of norms that emphasise cooperation, the provision of mechanisms to resolve disputes threatening cooperation, and the establishment of means to identify and punish defection.[12]
The prisoner’s dilemma has also been used by American conflicts scholars as a device which might explain choice of law.[13] These scholars saw that courts resolving choice of law questions had an incentive to apply local law to multi-state cases, even though a greater degree of restraint by all courts in this situation might actually further the policies of all states.[14] Since the choice of law process is ongoing (and therefore indefinitely iterative), this literature suggests that states might adopt cooperative strategies, by which they might apply foreign law in appropriate cases. Cooperation could be rewarded by the application of that state’s law in foreign courts. For example, Larry Kramer proposes the use of canons of construction as one means by which states could pursue cooperation in a way that would further state policies.[15]
Several scholars have cautioned us against over-adoption of the prisoner’s dilemma as a paradigm for explaining international relations and international law phenomena.[16] In particular, ‘cooperative behaviour’ may be explained in three other ways.[17] First, cooperative behaviour may actually be in the state’s self-interest. Second, states may behave cooperatively under the coercion of some credible threat by another state. Third, the strategic structure of a state’s interaction with other states may take the form of a coordination game in which each state is better off if it adopts the same strategy as the other player (state) but the identity of that strategy is not self-selecting.[18] Below, I contrast the prisoner’s dilemma and the self-interest explanation in order to understand why, and to what extent, states enforce foreign judgments in the absence of agreement to do so in an explicit institutional context such as a treaty, convention or federation.
The need for recognition and enforcement of foreign judgments depends on the relationship between the courts which will exercise jurisdiction for any particular case and the place where the defendant’s assets are located. Recognition of judgments is not needed where the orders of a court can be enforced locally. Likewise, recognition of judgments does not matter if the plaintiff is capable of bringing suit in any jurisdiction where the plaintiff has assets. However, even if courts have unlimited jurisdiction, forums may differ in their appropriateness to the suit. The costs of bringing suit in a jurisdiction in which the plaintiff has assets may be high, if, for example, evidence is located somewhere else, or relevant documents are in a language other than the one in which the court will conduct its proceedings. Thus, the need for judgment recognition arises from limited jurisdiction and differences in appropriateness between forums.
The common law permitted courts to exercise jurisdiction as of right whenever a defendant was present in the jurisdiction. Many defendants will have substantial connections with places in which they are present long enough to be found and served. But it is an empirical question whether they have assets there. It would be naive to assume that this is the case when assets are readily moveable.[19] Most rules of court or conventions prescribing the jurisdiction of courts where service must occur ex iuris do not make the location of assets a basis for jurisdiction, unless the asset is itself the subject of the litigation. Clearly, these rules create a substantial need for foreign recognition.
In order to ascertain the incentive of a court to enforce foreign judgments, I will assert a proposition that, in cases where recognition is sought, the defendant is more likely than the plaintiff to be a citizen of, or reside or carry on business in, the jurisdiction in which recognition is sought. This might seem self-evident, but a brief explanation is useful. It will be convenient and often necessary for the defendant to have assets near at hand to a place of domicile, residence or business.[20] However, in foreign judgment recognition cases, the plaintiff is less likely to share the defendant’s domicile, residence or business; if that were not so, the plaintiff would often select that jurisdiction as the forum.
Given this proposition, a prisoner’s dilemma is possible. A forum has several reasons not to act cooperatively and recognise a foreign judgment. First, there is the partisan reason that the recognition of foreign judgments would use state apparatus for the benefit of out-of-state plaintiffs at the expense of in-state defendants. In this respect, non-recognition of foreign judgments is the counter-part of the common law’s traditional refusal to accept jurisdiction in cases involving foreign immoveables.[21] Here, exercising jurisdiction would be for the state to subsidise litigation by out-of-state plaintiffs against in-state defendants.
Second, jurisdictions may be able to gain from not enforcing foreign judgments, as persons and corporations who expect to be defendants will move their assets to these places, rather than keeping them in jurisdictions which do enforce. There are gains to the jurisdiction, as it can impose taxes (for example, stamp duties) on transactions shifting assets. This would be an example of a ‘race to the bottom’, since it permits defendants to avoid liability, which, in turn, may encourage them to externalise costs.[22]
Third, if lawyers are an effective political interest group in the formulation of a jurisdiction’s private international law, they may have incentives to favour non-recognition by their states. A jurisdiction that refuses to enforce foreign judgments arguably increases the incentive of plaintiffs to choose it as a forum. This may not maximise social welfare (costs might be minimised in another forum), but may be favoured by rent-seeking lawyers within the forum who will gain instructions that they would not otherwise get.
This self-interest of the state contrasts with the collective welfare gains for all states if foreign judgments are recognised. First, if a defendant knows that a judgment can be enforced in other jurisdictions, the wasteful incentive to shift assets will be reduced. Second, recognition expands the parties’ choice between jurisdictions — the plaintiff is no longer constrained to litigate in a place where his or her judgment can be enforced, but can choose the forum in which litigation costs are lowest.
We seem to have a prisoner’s dilemma — the collective interest requires wide grounds for recognition. However, state S’s optimal strategy is not to recognise judgments of state T. If T does not recognise S’s judgments, S has no reason to recognise T’s. If T recognises S’s judgments, S’s individual welfare is maximised by not recognising T’s. Thus, states have an incentive to choose non-recognition, despite the fact that both are worse off. Unless states are capable of entering binding agreements — as they do when a constitution is agreed upon for federating states, requiring interstate judgments to be given full faith and credit,[23] and creating courts (such as the High Court) in which conduct violating the constitution can be corrected — a prisoner’s dilemma seems inescapable.
The competing hypothesis that states enforce (at least some) judgments out of self-interest must distinguish itself by showing why the prisoner’s dilemma is not fully persuasive. My first claim that the state subsidises out-of-state plaintiffs enforcing their rights to the detriment of in-state defendants may be wrong. The state does not need to ‘subsidise’ enforcement at all, since it may effectively privatise the enforcement process by requiring the plaintiff to bear all its costs. The recognising state merely lends imprimatur to any use of force or coercion, the costs of which can be shifted to the plaintiff. Any costs to the state of enforcement may be substantially lower than the costs to the state if its legal system must bear the additional load of relitigated cases. Not every case will be relitigated. Some may be time-barred. In others, the costs of relitigation may exceed the benefits. But, if a sufficient proportion of cases is relitigated, recognition is better than non-recognition.[24] A similar argument applies to the defendant. Although there may be strategic advantages in delay, local defendants also bear the costs of relitigation. Unless the result from the relitigation will be substantially different, or the plaintiff’s costs of suit in the local forum are exceptionally high, defendants will typically settle the relitigation.[25] If defendants will typically settle such cases, recognition of the judgment will save deadweight litigation costs.
I also suggested that there might be a race to the bottom. The theoretical and empirical existence of races to the bottom are increasingly being doubted in other contexts.[26] However, the race is only effective if the jurisdiction’s other laws (its substantive law, its choice of law rules and its jurisdictional principles), when applied in local litigation, will spare the defendant from the sort of judgment that foreign courts would order. In other words, a nation cannot function as a ‘recognition haven’ if the plaintiff is able to sue the defendant locally.
Finally, I referred to the influence of lawyers as an interest group. My claim was that they would prefer non-recognition because it increases the likelihood of the primary litigation occurring locally. The plausibility of this effect depends on who makes the rules governing recognition. Different law-making bodies have different susceptibilities to influence.[27] For example, lawyers may influence the civil procedure regulations in rules of court, given their technocratic formulation process. Assume for the moment that lawyers are politically effective as a lobby group. Lawyer incentives for non-recognition depend on several factors. My claim was that local non-recognition might increase the amount of local litigation. However, the net gain from local litigation in which the forum is inappropriate but assets are present is countered by the value of instructions lost where the local forum is appropriate but assets are not present. Lawyers would only be clear winners if their jurisdiction’s non-recognition policy induced potential defendants to shift assets there. Yet, here we have a paradox — what potential defendant would shift assets to a particular jurisdiction where local lawyers expect a higher number of instructions? This seems as unlikely a profile for a ‘recognition haven’ as it is possible to imagine. The lawyer’s incentive to lobby for non-recognition is only pronounced where there is a widespread practice of recognition in other jurisdictions. Lawyers may lobby their state not to recognise foreign judgments if other jurisdictions do not retaliate.
These are the two competing hypotheses — that recognition of foreign judgments represents a prisoner’s dilemma; or that it is a weakly dominant strategy for states to recognise foreign judgments.[28] The starkness of the contrast is redressed by the fact that, if the former is true, cooperation (recognition) may still occur because the prisoner’s dilemma is iterative, not one-shot. So indeed the common law has for some time recognised foreign judgments by permitting the creditor to sue on the judgment.[29] Nonetheless, we may be able to probe the differences between the two hypotheses by examining aspects of the law on recognition.
If the iterated prisoner’s dilemma is persuasive, it must be possible to identify the means by which a jurisdiction may punish another state for uncooperative non-recognition when that behaviour occurs, and by which it may credibly threaten to punish such behaviour if it occurs in future.[30] Three phenomena are worthy of study here. As we shall see, none points unqualifiedly to either the self-interest or prisoner’s dilemma explanation. However, the inconsistencies refine our understanding of the primary risks of uncooperative behaviour.
First, an obvious means of threatening punishment is for the recognising state to impose a reciprocity requirement. In other words, A enforces B’s judgments if B enforces A’s judgments. This enshrines a tit-for-tat strategy at the heart of the recognition process. The early law on recognition in the United States imposed a reciprocity requirement.[31] Although the formal reason for this was described as ‘comity’, it is easier to understand as a punishment for defecting states. If this is evidence of a prisoner’s dilemma, it is unpersuasive, as reciprocity has a very limited role in the US today[32] and has never been a precondition to recognition in English law.
Second, the common law required the plaintiff to sue on the foreign judgment in order to obtain a local judgment. It never permitted the judgment to be registered administratively and treated as a local order. Formalists explain this in terms of the ‘obligatio’ concept asserted by vested rights theory, in which a foreign order has no local effect, but local law gives effect to an obligation vesting in a foreign country.[33] The argument is of course circular because the local order is the sole measure of the obligatio as it takes effect locally.[34] It is more illuminating to note that a limited process of judgment recognition provides the opportunity to choose not to recognise judgments thought to represent uncooperative behaviour. This, in turn, suggests that a review of the common law requirements for recognition may help us to learn the nature of the behaviour esteemed to be uncooperative. The key requirement, the third phenomenon of interest, is that the judgment court have jurisdictional competence under the private international law of the recognising court. That means that the defendant must:
A state’s commitment to recognise foreign judgments creates an incentive for the judgment court to ‘cheat’. The major form of cheating is to expand the judgment court’s jurisdictional competence, using the recognition mechanism to give it effect. Expanding jurisdictional competence has clear appeal to local lawyers, since it widens the scope of cases that can be heard locally.[36]
The problems with expanded jurisdiction are clear. First, expanded competence creates a forum-shopping incentive. In general, plaintiffs will seek to litigate in the forum which minimises the plaintiff’s costs or, if the substantive law that will be applied to the case differs between forums, the forum which maximises the plaintiff’s award net of expected costs. A forum that posts a metaphorical sign to the effect that it is open for business does not necessarily get it. It will get it only where it adds itself as a new option to the plaintiff’s list, which satisfies the first-order criterion just mentioned. The fact that a forum minimises the plaintiff’s costs may not be a bad thing. It may even maximise wealth if the sum of the parties’ costs is minimised in that forum, even though the defendant’s costs may be higher. However, permitting the plaintiff to shift some of his or her costs to the defendant has implications regarding the distribution of wealth between the parties. The externalisation of costs may be unfair.[37] The much more problematic case is where the plaintiff is drawn to the forum because the forum offers higher awards which offset the plaintiff’s higher costs of litigating there. Since the award itself is zero sum between the parties, social welfare will decrease if the plaintiff’s forum choice does not minimise his or her costs, except in the presumably unlikely situation where the defendant’s costs are lower by a compensating amount.[38] Wide recognition of such judgments intensifies this inefficiency.
Second, expanded jurisdictional competence permits forums to export social policy — in economic terms, states can externalise the costs of their laws to a variety of unwilling defendants residing in other states. When a state does not bear the full costs of its laws, the laws that it passes may decrease social welfare[39] — especially if other states retaliate with exorbitant laws of their own. The wider the coverage of a jurisdiction’s law, the more attractive such laws will be to interest groups, since they range further afield in their redistributive operation.
Thus, it is no surprise that the common law required that the judgment court be jurisdictionally competent in a common law sense. This permits the recognising court to deter cheating by credibly threatening punishment on a tit-for-tat (case-by-case) basis. More specifically, a jurisdictional competence requirement can do two things. First, it tempers the incentives of states to assume exorbitant forms of jurisdiction by limiting the extraterritorial enforcement of judgments based on such laws. Jurisdictional competence allows states to give effect to policies of other states which are effected by acceptable bases of jurisdiction, while truncating the reach of policies effected by exorbitant means. Second, the requirement disciplines plaintiffs who are tempted to avail themselves of the benefit of law administered by exorbitant means, so limiting forum shopping. As I have argued, a forum exercising exorbitant jurisdiction is likely to occasion excessive litigation costs in most cases, so a competence requirement may encourage the plaintiff to make more efficient forum selections.
Courts can perform these disciplinary functions in another way — by the grant of an anti-suit injunction restraining a plaintiff from invoking the exorbitant jurisdiction.[40] The competence requirement has several advantages over the injunction. Non-recognition is less inclined to disturb international relations, as many argue (perhaps too strongly)[41] the anti-suit injunction does. Most importantly, the competence requirement does not demand that the court have continuing in personam jurisdiction over the plaintiff.
Whether the disciplinary capacity of jurisdictional competence induces efficient law-making and litigation depends on the capacity of common law jurisdictional rules to identify efficient forums. I would argue that the common law’s jurisdictional competence requirements were probably drawn too narrowly. A classic case is where a defendant commits torts while present in another state. The locus delicti, being the locus of important evidence, is likely to state a persuasive case as a more efficient forum than the defendant’s home state. The common law approach was also unsympathetic to arguments that the grounds of jurisdiction relied on by the recognition court, although technically exorbitant, were identical to those assumed by the court asked to recognise the judgment.[42] Adopting narrow requirements for jurisdictional competence is probably driven more by the need to make credible threats to punish exorbitant jurisdiction, even at the risk of punishing proper assumptions of jurisdiction. This dominates the object of encouraging litigation to be brought in efficient forums. As I argue below, recognition conventions may enable greater achievement of both objects.
Any inefficiencies of the common law approach to recognition and jurisdiction are less bothersome in contract cases. In contract cases, the parties are capable of agreeing to confer jurisdiction on a court in which they prefer to litigate. A forum selection clause has the advantage of satisfying the common law requirement for jurisdictional competence.[43] This insight — that parties are able to use contract as a means of expanding the recognition of judgments — is important, and I return to it below.
The above analysis has indicated that it is in the interests of states to recognise at least some foreign judgments, the dividing line seemingly being whether the judgment court was jurisdictionally competent. Why did the common law not also impose a constraint on the choice of law motivating the decision?[44] Like exorbitant jurisdiction, adoption of the lex fori as a choice of law rule encourages forum shopping unless the forum adopts restrictive jurisdictional rules. Economic analyses have argued that the lex fori and other choice of law methods biased to forum law are inefficient.[45]
There are several explanations for why the common law never imposed a choice of law requirement. First, if lex fori and exorbitant jurisdiction do indeed work together, jurisdictional competence would catch most problematic cases anyway. Second, the literature seems to argue that inefficient choice of law rules will have two types of effect — they may encourage plaintiffs to choose inefficient forums, and, in ‘market’ tort cases such as products liability, they may lead to inefficient decision-making as regards investments in care and product withdrawals. A sensible jurisdictional competence requirement picks up the former. The latter effect implies that choice of law rules have their consequences long before the court makes its choice of law decision in the instant case. Thus, a choice of law requirement for recognition may achieve nothing unless it actually forces forums to change their choice of law rules. Third, choice of law requirements may be hard for foreign courts to control because there is a plethora of escape devices by which courts can choose forum law without appearing to depart from more ‘multilateral’ choice of law rules. These include characterisation, substance–procedure distinctions, renvoi and incidental questions.[46] It may be practically difficult to identify the choice of law rules that would be punished. Apart from blatant rules such as the law most favourable to the plaintiff, few rules stand out. These reasons help us to understand why there is no choice of law requirement for recognition of judgments.
Despite the absence of a formal choice of law requirement, English courts will not enforce judgments which are contrary to public policy. The public policy defence is not clearly defined. It is extensive enough to justify non-recognition of a judgment enforcing a contract that is tainted by duress or undue influence,[47] as well as judgments based on policies offensive to the forum.[48] In the duress and undue influence cases, non-recognition may help to improve the integrity of the contract process, although the denial of recognition seems very remote from the time that parties enter contracts (like choice of law). Whether the benefits from non-recognition are greater than the costs of permitting issues to be effectively relitigated is doubtful. The more general policy defence acts as an outlying control on the export of social policy.[49] However, it is hard to justify in those cases where the judgment court is an appropriate forum and its choice of law rules are not clearly inefficient. It represents, in these cases, something of a rogue exception to the cooperative approach to recognition (albeit an infrequently invoked one). In other cases, however, it may reinforce the jurisdictional competence requirement. The subject to which this exception might be thought to have controversial application — orders for multiple and penalty damages and those based on the extraterritorial operation of US antitrust legislation — is pre-empted by legislation requiring non-recognition.[50]
In this part, I have tried to develop a positive theory of common law recognition by contrasting two competing hypotheses. First, recognition is an equilibrium in an iterated prisoner’s dilemma game. Second, it is a weakly dominant strategy for states to recognise judgments. These competing explanations shed light on the qualifications to recognition which we observe in English law. First, the demise of recognition reciprocity suggests that the prisoner’s dilemma game is not indeed persuasive, since states do not attempt to punish other states for non-recognition. Second, the process of suing on judgments deals with a species of moral hazard problem — states that recognise judgments are vulnerable to other states cheating on the process by distending their jurisdiction. This encourages forum shopping and the export of social policy. A jurisdictional competence requirement punishes uncooperative behaviour by states. In exceptional cases, the recognition court may invoke public policy as a ground for non-recognition. These requirements are a discipline both on states seeking to claim exorbitant jurisdiction and, less effectively, on parties seeking to avail themselves of it.
Third, despite the tendency to see choice of law as being at the nerve centre of policy questions in private international law, it barely leaves a ripple on recognition questions. I have suggested that non-recognition on choice of law grounds would rarely be effective because of the difficulty of specifying and enforcing choice of law requirements. Fourth, the above analysis also reveals that the common law approach to recognition is not perfect. The major fault is its narrow definition of jurisdictional competence. In Part III, I discuss some normative issues associated with the design of recognition conventions.
I mentioned in the introduction that the Hague Conference will next year deliberate on the desirability of a multilateral convention on the recognition of judgments. Since Australia is a member of the Hague Conference, it may have to decide whether or not to agree to this convention. Yet, we have little useable knowledge about the optimal form that a recognition convention might take.
In this part, I discuss issues associated with the form that recognition conventions might take. Since recognition conventions typically are associated with agreement between contracting states about the bases for jurisdiction (and since jurisdictional competence is an important part of common law recognition), I discuss possible bases for jurisdiction. A major theme is the extent to which the jurisdiction of a forum should be referable to rules, as in the so-called Brussels and Lugano Conventions,[51] or to standards, such as forum non conveniens. Third, I take up a thread of the analysis in Part II: that wide recognition of foreign judgments exports social policy. Political processes may produce inefficient laws that favour rent-seeking interest groups, the effect of which is extended by wider recognition. Fourth, I unite the earlier analysis with another theme of Part II, which is the relationship between recognition and contracts. I suggest that courts should permit parties more explicit contractual power over recognition issues.
Broadly speaking, there are three basic forms for a recognition convention.[52] A simple or single convention will specify particular grounds on the basis of which courts may assume jurisdiction. If a court assumes jurisdiction on these bases, another state which is party to that convention will be required to enforce its judgment. However, a simple convention will not prohibit other bases for jurisdiction. It is up to states to decide if they want to assume jurisdiction on these other bases, just as it is up to other parties to the convention whether they will recognise such judgments.
A double convention specifies particular grounds on the basis of which courts are required to assume jurisdiction. If a court assumes jurisdiction on these bases, other parties to that convention will be required to enforce the judgment. In addition, the convention will specify a ‘black list’[53] of grounds which are not permissible bases for jurisdiction. States must not accept jurisdiction on these grounds, and other contracting states either have no obligation to recognise or are positively prohibited from recognition. The closest thing to a double convention is the Brussels and Lugano Conventions.[54] They fail to achieve the status of a double convention because they do not specify any grounds for the assumption of jurisdiction by a court of a contracting state over a person who is not domiciled in any of the contracting states.[55]
A mixed convention lies between the two extremes. Like the double convention, it specifies required grounds for assuming jurisdiction, judgments rendered in pursuance of which must be recognised; and it black-lists particular grounds, judgments rendered in pursuance of which are required to be accorded no recognition. However, mixed conventions leave grounds which are neither required nor black-listed — these are permissible bases, which a state may decide to assume. The convention permits other contracting states to recognise this form of jurisdiction, but does not require it.
If the Coase theorem holds in the negotiation of conventions between states, it follows that states will use the convention process to achieve gains from trade.[56] Where states are incapable of contracting, their only incentive to attenuate the grounds on which they assume jurisdiction comes from the prospect of punishment by another state’s non-recognition of the judgment. The process of negotiating multilateral recognition conventions may provide the incentive for states to moderate more problematic jurisdictional rules in exchange for a greater capacity for local judgments to be enforced. The Brussels and Lugano Conventions are an example of deals where exorbitant jurisdiction over citizens of contracting states is sacrificed in return for much greater enforceability. This is set into perspective by the fact that those conventions provide that the states do not give up their right to assert exorbitant jurisdiction against domiciliaries of non-contracting states.[57]
The different convention types resemble standard form contracts that states can use to address the threat of cheating by contracting parties after each state has given a commitment to wider recognition. The existence of a black list in a double or mixed convention provides a means by which states can credibly commit not to assert exorbitant jurisdiction.[58] A single convention does not involve the making of such commitments. At the same time, the list of prescribed bases limits, and may in some instances eliminate, the capacity of plaintiffs to engage in shopping between the forums of contracting states. This limitation will be greatest under a double convention, since it does not have scope for permitting jurisdictional bases that are not actually specified as required.
The problem with a double convention is that if a ground is not permitted it must be prohibited — and vice versa. This means that the capacity of the contracting states to be able to specify both sets of grounds is fundamental to the treaty-setting process. In the parlance of contracts economics, we may say that a double convention is especially vulnerable to the problem of contingent incompleteness.[59] That means that, although all grounds are dealt with, the specification of what is permitted is insufficiently sensitive to the full range of future contingencies which might occur. If contracting states could anticipate all of the possible disputes which raise jurisdictional questions, they might agree to different provisions. Specified grounds for jurisdiction and recognition are likely to be both under-inclusive (they will prohibit bases for jurisdiction which both parties might have agreed ex ante were suitable), and over-inclusive (they will permit bases for jurisdiction which both parties might have agreed ex ante were unsuitable).
The seriousness of these problems depends on the specification of bases of jurisdiction. Inclusivity problems are most severe when these bases are expressed ex ante in the form of rules. It is a longstanding premise of jurisprudential and related literature that rules are inferior in this respect to a law which states considerations relevant to adjudication but which does not state its content.[60] Such a law is usually described as a standard. The economic literature in this area suggests that standards may be superior to rules where there is substantial variance or heterogeneity from case to case.
Jurisdictional rules may partake of either form. The evolution of English law over the last 30 years has evolved towards the use of standards in the exercise of jurisdiction. The emergence of forum non conveniens has changed the emphasis in jurisdiction from the plaintiff’s ex ante basis for establishing jurisdiction to whether a court should exercise jurisdiction ex post. A similar comment also applies to the allocation of jurisdiction between the Australian States.[61] Cross-vesting of jurisdiction creates an over-inclusivity problem, the control of which lies in the transfer provisions in s 5, which courts regard as being based on similar norms to forum non conveniens.[62] US law on personal jurisdiction is governed by constitutional due process constraints, which the Supreme Court has described in very loose and general terms.[63]
The required bases for jurisdiction in the Brussels and Lugano Conventions are, by contrast, rule-based, as is generally true of the private international law on jurisdiction in most civil law countries. These rules mitigate some of the risk of under-inclusivity by creating some forum choice, rather than eliminating it. For example, a plaintiff may choose to litigate a torts case in the place where the defendant is domiciled (the basis for general jurisdiction) or in the locus delicti (the basis for special jurisdiction in torts cases). Defining jurisdictional bases cumulatively increases the likelihood that an appropriate forum will be included in the permissible forums.
Difficulties have arisen in the interpretation of the special jurisdiction provision in the conventions for torts cases. That provision states that, as between parties domiciled in contracting states, the defendant may be sued in the courts of ‘the place where the harmful event occurred’.[64] The first leading case in the European Court of Justice interpreting that provision, Bier v Mines de Potasse d’Alsace,[65] involved a suit concerning the discharge of pollutants into the Rhine. The pollutants were discharged in France; the plaintiff was injured in the Netherlands. The court held that suit might be brought either in the place where the damage occurred or in the place of origin of the event giving rise to the damage. Later cases, however, have had substantial difficulty with this principle, and have sought to constrain it.[66] It is revealing that several of these involved contractual relations between the parties. A single jurisdictional basis for torts, expressed in the form of a rule, will arguably be inferior to a complex rule which is differentiated for types of torts, especially torts which have a basis in a contract or exchange relation.[67] The existence of contracts implies that transaction costs are relatively low. Low transaction costs enable parties from different locales to come together to achieve gains from trade, which complicates the selection of a single event as the basis of a rule. For example, most economic argument favours the use of choice of law rules which select the law of the place of sale in products liability cases.[68] That may not necessarily be the optimal jurisdiction rule, but the point is that the bases for jurisdiction in a convention, especially those dealing with torts, are likely to need greater differentiation (complexity) for case types.[69]
Even if rules are inferior to standards as a means of enabling the most appropriate forum to assume jurisdiction in a case, rules will still be used more in jurisdiction and recognition conventions than standards such as forum non conveniens. I said above that such conventions are possible when states make credible commitments not to exercise exorbitant forms of jurisdiction by agreeing to a black list. However, where jurisdiction is defined by standards rather than rules, no credible commitment is made because the content of the standard is only ascertained at the time that the standard is applied to the case. That is inherent in the definition of a standard. Since no commitment has been made other than to apply a standard, courts will have an opportunity to cheat when cases arise, especially when the matters on which a court purports to base its judgment, such as justice and party costs, are difficult for other states to observe or verify.[70]
An essential part of a convention is the capacity for contracting states to be able to observe whether or not a party has complied with its commitment. This is as true of judgment recognition as of arms control. If this cannot be reliably observed, a party’s commitment to uphold the provisions cannot be credible, since failing to uphold the provisions cannot and will not be punished. This is obviously important to recognition conventions because those jurisdictional bases on which a state commits itself not to rely do not support judgment recognition. An explicit black list couched in terms of rules provides a much easier basis for verification that a commitment is being observed. This explains why the Brussels and Lugano Conventions use simple, exhaustive bases of jurisdiction. It also suggests the difficulty that the US Government will have in entering a treaty, since the US Supreme Court claims its nebulous due process constraints cannot be abrogated.[71]
The above analysis does not imply, however, that the use of standards, such as forum non conveniens, for the purposes of jurisdictional challenges can never have any scope under recognition conventions.[72] It is true that the Brussels and Lugano Conventions do not put discretion in the hands of the courts of contracting states to decline jurisdiction. However, using a standard for the purposes of declining jurisdiction addresses the problem that rules may be over-inclusive for jurisdictional purposes (they permit cases to proceed in inappropriate forums). If the standard is only used as a basis for declining jurisdiction conferred by a rule, there can be no risk that a state will use it to expand its jurisdictional competence in a way that is inconsistent with the object of the treaty. There is much to be said for a transfer provision, not unlike s 5 of our cross-vesting legislation, which permits the court of a contracting state to be able to transfer a matter to the court of another contracting state, especially in cases where the latter has concurrent jurisdiction.[73] Article 24 of the Preliminary Draft of the Hague Conference[74] contains a provision giving a court the discretion to stay a case (excluding cases in which the plaintiff relies on a valid forum selection clause in a contract) based on a head of special jurisdiction. Interestingly, the basis for the exercise of this discretion is that the forum is ‘clearly inappropriate’ — practically identical to the Australian law applicable to stay cases.[75]
In this regard, a mixed convention is a compromise between the need for rules to ensure that there are credible commitments not to exercise exorbitant jurisdiction, and the inclusivity problems of a rule-based double convention.[76] It deals with the former by using explicit black lists and required bases for jurisdiction. It deals with the latter by preserving ‘middle ground’ for the exercise of jurisdiction. States do not give up their right to assume jurisdiction in the middle ground, but the other contracting states have a discretion as to whether or not they recognise the judgment. This may be important if new case types emerge which were not considered at the time that the convention was passed. A good example might be the assertion of jurisdiction in cases involving the Internet, an area which is the source of a good deal of confusion.[77] Like the rules on tort jurisdiction in the Brussels and Lugano Conventions, existing bases of jurisdiction in a convention may prove inadequate for Internet cases.[78] The Internet greatly decreases the ex ante costs of multi-state contracting, but does little to decrease the costs of litigating such cases. In that event, a double convention will be very costly. Renegotiation of the convention to fix mistakes is rarely a practical solution because of the number of parties to the convention. Although states do not make a credible commitment not to improperly enlarge their jurisdictional competence in respect of the middle ground area, their incentives to do so are limited by the discretion of other states not to recognise the judgment.
So far, my implicit hypothesis is that states enter treaties that maximise the welfare of their citizens, subject to the transaction costs of the convention negotiation process. However, economic analysis of law frequently admits the possibility that laws, including conventions, may not maximise welfare. In this account, laws, especially statutes, are the product of a market for regulation in which the main buyers are organised interest groups.[79] Because the essence of success in this bidding process lies in political organisation, smaller interest groups in which individuals have large interests are likely to be more effective than larger interest groups with more diffuse interests (of which the greater public is probably the best example). Paul Stephan has demonstrated the effect of interest group influence on the private law conventions produced by bodies such as the United Nations Commission on International Trade Law (UNCITRAL), the International Institute for the Unification of Private Law (UNIDROIT) and the Hague Conference.[80] What implications do public choice considerations have on recognition conventions?
First, the economic theory on which Stephan draws (structure-induced equilibrium theory) holds that, given the dynamics of expert bodies, they are likely to adopt provisions that repose discretion in decision-makers, such as judges, rather than specify outcomes that flow from described circumstances (that is, standards are preferred to rules).[81] Rules are only likely to be observed when they favour particular interest groups but do not incommode other interest groups. It would seem to follow that mixed conventions are more likely than double conventions. Mixed conventions or double conventions with a small black list seem to be preferable since they preserve discretion in local legislators and judges. However, interest groups may actually favour a longer black list if their members expect to be defendants more often than they expect to be plaintiffs. If this is the case, they will share an interest in limiting the forums in which they can be sued.
Second, recognition conventions may extend the scope and coverage of political deals cut in domestic legislatures. For example, interest groups may lobby for legislation which restricts contractual freedom by imposing mandatory rules. These may erect barriers to entry by competitors, for example. Although the change may be welfare-decreasing, it may be beneficial to the interest group, for example, because it limits competition. The value of such legislation to an interest group and the incentive to lobby for it are related to the costs to contracting parties to avoid the effect of that legislation.[82] For example, parties can avoid legislation if they leave the jurisdiction in which the law is promulgated. That may, however, be very costly, especially if assets are immobile.
It may also be possible to ‘exit’ the jurisdiction in a figurative sense. This might be done by making a contractual choice of the law of another jurisdiction to govern one’s relationship with one’s contracting counter-party.[83] Local jurisdictions may be distinctly unimpressed by such contracts, since, if effective, they provide a very low-cost means of avoidance. Low-cost avoidance would decrease the value of the legislation to interest groups, which may in turn decrease the demand for the services of regulators. Thus, the legislation creating the mandatory rule may compel local courts to apply the mandatory rule.[84] However, this does not exhaust the possible range of alternatives. Although it may involve higher costs for the parties, they may agree in their contract to submit to the exclusive jurisdiction of another forum. The critical question for the local forum is whether or not it will exercise jurisdiction, in spite of the forum selection clause, and in the absence of any legislative direction to do so. Confronted with similar facts, the High Court of Australia decided that the forum selection clause should not be enforced.[85] Although high information costs suggest caution in the enforcement of such clauses, especially in consumer protection cases, non-enforcement otherwise serves no purpose apart from assisting parties to avoid their contracts or to act opportunistically in threatening breach or seeking renegotiation.
If a judgment based on the mandatory rule is granted, but cannot be satisfied locally, a question arises as to whether or not it should be recognised by foreign courts. In some of these cases, the judgment court may be jurisdictionally competent, if one ignores the effect of the forum selection clause. If a convention permits or requires the judgment to be enforced, the mandatory term becomes effectively unavoidable. Apart from the increased threat of inter-party opportunism and the limiting effect on the range of enforceable contracts that parties can enter, international recognition of the judgment may be particularly problematic if the mandatory rule has interest group provenance.
However, a convention may not permit this judgment to be enforced. It may require courts not to exercise jurisdiction inconsistently with a forum selection clause, or it may prohibit recognition where courts have exercised jurisdiction in this way.[86] The advantage of such a convention is that the parties could agree to transfer their assets to jurisdictions which would not recognise a judgment inconsistent with a forum clause. This deprives threats to litigate on the basis of the mandatory rule of their credibility, and increases the contractual effect of the forum selection and choice of law clauses.
Thus, multilateral conventions should treat forum selection clauses as prevailing over alternative grounds of jurisdictional competence.[87] Courts of contracting states should be required not to assume jurisdiction inconsistently with such clauses,[88] and other states should be required not to enforce judgments where courts have assumed jurisdiction in these cases.[89]
In the last section, I argued in favour of the rights of parties to make informed exits from the law and jurisdiction of particular states. In Part II(B)(2), I noted that a forum selection clause provides a means by which parties can increase the scope for the recognition of judgments in their chosen forum.[90] This principle, too, should be conclusively recognised in recognition conventions.
However, there are other possibilities whereby the parties would be able to privately order their rights to judgment recognition, just as they are permitted to make choices of law and forum. First, the parties could use contract negatively by providing that certain types of judgments not be entitled to recognition — either those of a certain court, or those in which the judgment is based on the law of a certain state. This responds to the issue that I discussed in the last section — it enables parties credibly to commit to not bring suit in a particular jurisdiction or not to plead particular laws.
Second, states incapable of agreement to a formal convention (the US may prove to be one of these) may be able to agree to a convention facilitating contractual agreement to recognition. That is, a convention would provide for the expeditious recognition of judgments given by a court to whose jurisdiction the parties agreed to submit. Although states could do this individually by way of domestic legislation, the advantage of a convention would lie in its ability to standardise the procedure, effect and possible vitiation of jurisdiction clauses, since these are not wholly uniform.[91] These two measures enable parties to have greater control over the recognition of their judgments, while limiting the scope of laws which parties would choose to avoid.
In this section, I have offered insights into the form that a judgments convention should take. First, mixed conventions are more likely than double and single conventions. Double conventions are disadvantaged by inclusivity problems, whereas single conventions lack credible commitments by states, which makes agreement unlikely. Second, the enumeration of required or black-listed grounds for judgment will take the form of rules rather than standards. Rules facilitate the making of credible commitments. Third, standards can and should be used as an adjunct to rules, if they are confined to declining the exercise of jurisdiction. Fourth, rules often may need differentiation, especially in contract-related torts. Simple rules exacerbate inclusivity problems. Fifth, conventions should regard forum selection clauses as dominating other grounds for jurisdictional competence. Sixth, conventions should permit parties to opt out of their rights to the recognition of certain judgments — either those of a particular court or those based on the application of particular substantive law. Seventh, if states are incapable of agreeing to substantive grounds for jurisdiction, they could enter a limited compromise by which they agree to expedite the recognition of the judgments of courts to which parties have submitted by contract.
In opera, a recognition scene typically involves a dramatic reunion between two characters, typically family, the identity of one of whom is unclear to the other until that scene. Examples include the recognition by the Genoese Doge of his daughter, Amelia, in Verdi’s Simon Boccanegra, and, still more dramatic, the recognition by Elektra of her long-absent brother, Orestes, who has returned to slay their hated mother, in Richard Strauss’s Elektra. One of the unfortunate correlations in these operas seems to be that, by the end of the opera, the recognising party ends up dead — the Doge poisoned; Elektra sated by revenge. I do not mean to imply that, if the Australian Government is confronted with the decision whether or not to commit to the recognition of other judgments in a multilateral convention, the consequences of making the commitment will be quite so extreme. But the crucial point is surely to think about the consequences of entering the convention for the state and a range of interested constituencies — to think about how the drama will play itself out. Hopefully, the ability to understand these consequences will be assisted by the theory of judgment recognition contained in this article.
[*] BCom (Hons), LLB (Hons), MFM (Qld), PhD (Griff); Senior Lecturer, Faculty of Law, Griffith University; Leader, Business Regulation Program, Key Centre for Ethics, Law, Justice and Governance. This article is part of a larger project, entitled Policy and Pragmatism in the Conflict of Laws, which is funded by an Australian Research Council Small Grant. I would like to thank Tanya Pridannikoff for research assistance.
[1] Peter Pfund, ‘The Project of the Hague Conference on Private International Law to Prepare a Convention on Jurisdiction and the Recognition/Enforcement of Judgments in Civil and Commercial Matters’ (1998) 24 Brooklyn Journal of International Law 7. See the Preliminary Draft Convention on Jurisdiction and the Effects of Judgments in Civil and Commercial Matters, adopted provisionally by the Special Commission of the Hague Conference, 18 June 1999, <ftp://hcch.net/doc/241e.rtf> (‘Preliminary Draft’).
[2] Peter North, ‘The Draft UK/US Judgments Convention: A British Viewpoint’ (1979) 1 Northwestern Journal of International Law and Business 219.
[3] Patrick Borchers, ‘A Few Little Issues for the Hague Judgments Negotiations’ (1998) 24 Brooklyn Journal of International Law 157.
[4] Anne-Marie Slaughter, Andrew Tulumello and Stepan Wood, ‘International Law and International Relations Theory: A New Generation of Interdisciplinary Scholarship’ (1998) 92 American Journal of International Law 367.
[5] Douglas Baird, Robert Gertner and Randal Picker, Game Theory and the Law (1994) 1.
[6] I will sometimes refer to a strategy as weakly dominant, meaning that the player does as well choosing that strategy as any other strategy, and sometimes better, depending on what strategy the other chooses: see, eg, David Kreps, A Course in Microeconomic Theory (1990) 397–8.
[7] See Avinash Dixit and Barry Nalebuff, Thinking Strategically: The Competitive Edge in Business, Politics, and Everyday Life (1991) 11–14, 89–115.
[8] Robert Axelrod, The Evolution of Cooperation (1984).
[9] See, eg, Kenneth Abbott, ‘Modern International Relations Theory: A Prospectus for International Lawyers’ (1989) 14 Yale Journal of International Law 335; Robert Axelrod and Robert Keohane, ‘Achieving Cooperation under Anarchy: Strategies and Institutions’ (1985) 38 World Politics 226; Robert Keohane, International Institutions and State Power: Essays in International Relations Theory (1989); Stephen Krasner, ‘Structural Causes and Regime Consequences: Regimes As Intervening Variables’ (1982) 36 International Organization 185; John Setear, ‘An Iterative Perspective on Treaties: A Synthesis of International Relations Theory and International Law’ (1996) 37 Harvard International Law Journal 139.
[10] Richard Steinberg, ‘Trade-Environment Negotiations in the EU, NAFTA, and WTO: Regional Trajectories of Rule Development’ (1997) 91 American Journal of International Law 231.
[11] Jack Goldsmith and Eric Posner, ‘A Theory of Customary International Law’ (Working Paper 2nd Series No 63, John M Olin Program in Law and Economics, Law School, University of Chicago, 1998).
[12] Krasner, above n 9, 185; Setear, above n 9, 184.
[13] Lea Brilmayer, Conflict of Laws (2nd ed, 1995) ch 4; Larry Kramer, ‘Rethinking Choice of Law’ (1990) 90 Columbia Law Review 277.
[14] See generally William Baxter, ‘Choice of Law and the Federal System’ (1963) 16 Stanford Law Review 1.
[16] See, eg, Duncan Snidal, ‘Coordination versus Prisoners’ Dilemma: Implications for International Cooperation and Regimes’ (1985) 79 American Political Science Review 923; Goldsmith and Posner, above n 11.
[17] Goldsmith and Posner, above n 11.
[18] An example might be mandating the use of particular communications technology protocols. While states may have different preferences, they will be better off if they choose the same protocol. As to coordination games, see generally Baird, Gertner and Picker, above n 5, 35–45.
[19] P J Rogerson, ‘The Situs of Debts in the Conflict of Laws — Illogical, Unnecessary and Misleading’ (1990) 49 Cambridge Law Journal 441.
[20] The assets themselves may form part of the business.
[21] The British South Africa Co v The Companhia de Moçambique [1893] UKLawRpAC 53; [1893] AC 602; Hesperides Hotels Ltd v Muftizade [1979] AC 508.
[22] See generally Lynn LoPucki, ‘The Death of Liability’ (1996) 106 Yale Law Journal 1.
[23] Australian Constitution s 118; Constitution of the United States of America art IV, s 1.
[24] Formally, the proportion must be greater than the state’s cost to enforce a judgment divided by the cost of hearing the litigation de novo. If it costs a state $10 to recognise and enforce a judgment, and $100 for a de novo relitigation, the state is better off enforcing if it believes the probability of relitigation is more than 10%.
[25] If the non-recognising jurisdiction will award the same judgment, say $100, and the parties incur litigation costs of $10 each, settlement achieves $20 of gains from trade. These gains will be divided in some manner between the parties. The settlement range would be somewhere between $90 and $110. I am assuming that the parties bear their own costs, but the basic conclusion would also hold under the ‘British rule’. See generally Steven Shavell, ‘Suit, Settlement, and Trial: A Theoretical Analysis under Alternative Methods for the Allocation of Legal Costs’ (1982) 11 Journal of Legal Studies 55.
[26] Wallace Oates and Robert Schwab, ‘Economic Competition among Jurisdictions: Efficiency Enhancing or Distortion Inducing?’ (1988) 35 Journal of Public Economics 333; Richard Revesz, ‘Federalism and Interstate Environmental Externalities’ (1996) 144 University of Pennsylvania Law Review 2341.
[27] William Landes and Richard Posner, ‘The Independent Judiciary in an Interest-Group Perspective’ (1975) 18 Journal of Law and Economics 875.
[28] As to dominant strategies, see the text accompanying above n 6.
[29] English courts have only recognised foreign judgments as conclusive since the second half of the nineteenth century: Carl Zeiss Stiftung v Rayner & Keeler Ltd (No 2) [1967] 1 AC 853, 917 (Lord Reid), 965 (Lord Wilberforce).
[30] In the language of game theory, the execution of the punishment threat must be ‘sequentially’ rational at the time of execution. That is, the state cannot be worse off for carrying out the threat.
[31] See generally Hilton v Guyot, [1895] USSC 185; 159 US 113 (1895). Early English courts also recognised the significance of comity, frankly recognising the prospect of non-recognition of English judgments in foreign courts: Roach v Garvan [1748] EngR 416; (1748) 1 Ves Sen 157; 27 ER 954, 955 (Lord Hardwicke LC). As to tit-for-tat, see the text accompanying above n 8.
[32] Some states have a reciprocity requirement in legislation enacting the Uniform Foreign Money-Judgments Recognition Act, 13 ULA 263 (West 1986): see Maurice Rosenberg, Peter Hay and Russell Weintraub, Conflict of Laws (10th ed, 1996) 225.
[33] Schibsby v Westenholz (1870) 6 LR QB 155.
[34] Ernest Lorenzen, ‘Territoriality, Public Policy and the Conflict of Laws’ (1924) 33 Yale Law Journal 736, 743–7.
[35] See Emanuel v Symon [1907] UKLawRpKQB 174; [1908] 1 KB 302, 309 (Buckley LJ). It suffices if the defendant is sued in the forum by a party against whom, in that same forum, the defendant had brought the litigation.
[36] This is a much clearer incentive than the earlier claim about lawyers preferring non-recognition.
[37] In practice, though, a requirement that the jurisdiction have a substantial connection with the defendant makes externalisation quite unlikely. That is not wholly true of the common law, which permitted transient jurisdiction. But the number of such cases is small, and today the problem would be eliminated by forum non conveniens.
[38] Michael Whincop and Mary Keyes, ‘Economic Analysis of Conflict of Laws in Torts Cases: Discrete and Relational Torts’ [1998] MelbULawRw 16; (1998) 22 Melbourne University Law Review 370.
[39] This state will try to maximise the surplus of benefits to in-state residents over costs to in-state residents. If this surplus is less than the net costs to out-of-state residents, the law by definition decreases social welfare, albeit not the welfare of in-state residents. See generally Frank
Easterbrook, ‘Antitrust and the Economics of Federalism’ (1983) 26 Journal of Law and Economics 23.
[40] Cf Jonathan Harris, ‘Recognition of Foreign Judgments at Common Law — The Anti-Suit Injunction Link’ (1997) 17 Oxford Journal of Legal Studies 477.
[41] Cf Allendale Mutual Insurance Co v Bull Data Systems Inc, [1993] USCA7 1229; 10 F 3d 425 (7th Cir, 1993).
[42] See, eg, Crick v Hennessy [1973] WAR 74; Re Trepca Mines Ltd [1960] 1 WLR 1273. Cf Re Dulles’ Settlement (No 2) [1951] Ch 842.
[43] See the text accompanying above n 35. See also Copin v Adamson [1875] UKLawRpExch 39; (1875) 1 Ex D 17; Israel Discount Bank of New York v Hadjipateras [1984] 1 WLR 137.
[44] The absence of choice of law requirements in the law of virtually all nations is noted in Catherine Kessedjian, International Jurisdiction and Foreign Judgments in Civil and Commercial Matters (Preliminary Document No 7, Hague Conference on Private International Law, 1997) [181], drawn up for the Special Commission of the Hague Conference on the question of jurisdiction and recognition by a (French) civil lawyer. Its recommendations, together with the Preliminary Draft, above n 1, shall be treated as a best guess of the form that a proposed convention might take.
[45] Erin O’Hara and Larry Ribstein, ‘Interest Groups, Contracts and Interest Analysis’ (1997) 48 Mercer Law Review 765; Michael McConnell, ‘A Choice-of-Law Approach to Products-Liability Reform’ in Walter Olson (ed), New Directions in Liability Law (1988) 90; Michael Solimine, ‘An Economic and Empirical Analysis of Choice of Law’ (1989) 24 Georgia Law Review 49; Whincop and Keyes, ‘Economic Analysis of Conflict of Laws in Torts Cases’, above n 38; Michael Whincop and Mary Keyes, ‘The Market Tort in Private International Law’ (1999) 19 Northwestern Journal of International Law and Business (forthcoming).
[46] Lawrence Collins (ed), Dicey and Morris on the Conflict of Laws (12th ed, 1993) vol 1, 34–114, 169–225.
[47] Israel Discount Bank of New York v Hadjipateras [1984] 1 WLR 137; Kaufman v Gerson [1904] UKLawRpKQB 40; [1904] 1 KB 591; Rousillon v Rousillon [1863] EngR 447; (1880) 14 Ch D 351.
[48] Re Macartney [1921] 1 Ch 522. See also the Preliminary Draft, above n 1, art 27 bis.
[49] Kessedjian, above n 44, [194], proposing non-enforcement of punitive damages awards or multiplied components of damages awards.
[50] Foreign Proceedings (Excess of Jurisdiction) Act 1984 (Cth); Protection of Trading Interests Act 1980 (UK). See Collins, above n 46, 547–9. See also the Preliminary Draft, above n 1, art 32 (proposing enforcement of punitive and similar damages orders if the recognising court would have ordered this).
[51] Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, 26 May 1989, OJ No C 189, 1, 29 ILM 1413 (1990) (‘Brussels Convention’), consolidated and updated version of an original convention by the same name, opened for signature 27 September 1968, OJ No L 299, 32, 8 ILM 229 (1969) (entered into force 1 February 1973); Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, opened for signature 16 September 1988, OJ No L 319, 9, 28 ILM 620 (1989) (entered into force 1 January 1992) (‘Lugano Convention’).
[52] Arthur von Mehren, ‘Enforcing Judgments Abroad: Reflections on the Design of Recognition Conventions’ (1998) 24 Brooklyn Journal of International Law 17.
[53] The term is again von Mehren’s: Arthur von Mehren, ‘Recognition and Enforcement of Foreign Judgments: A New Approach for the Hague Conference?’ (1994) 57 Law and Contemporary Problems 271, 283. See also Russell Weintraub, ‘How Substantial Is Our Need for a Judgments-Recognition Convention and What Should We Bargain Away to Get It?’ (1998) 24 Brooklyn Journal of International Law 167, 185.
[54] Brussels Convention, above n 51; Lugano Convention, above n 51.
[55] von Mehren, ‘Enforcing Judgments Abroad’, above n 52, 20–1. Note also that the conventions do not permit a state to refuse to enforce a judgment, even if the judgment court exceeds its jurisdiction. Objections to jurisdiction can only be taken in the judgment court: Brussels Convention, above n 51, art 28; Lugano Convention, above n 51, art 28.
[56] Ronald Coase, ‘The Problem of Social Cost’ (1960) 3 Journal of Law and Economics 1.
[57] Brussels Convention, above n 51, art 59; Lugano Convention, above n 51, art 59.
[58] A commitment is only credible if the person making it has an incentive to perform the commitment. It must be sequentially rational to do at time 1 what one promised to do at time 0. For a simplified definition of sequential rationality, see Avery Katz, ‘The Strategic Structure of Offer and Acceptance: Game Theory and the Law of Contract Formation’ (1990) 89 Michigan Law Review 215, 236. The black list is a credible commitment since the jurisdiction forgoes the right to recognition for judgments inconsistent with the commitment. The claim that double conventions facilitate judgment recognition is made in Kessedjian, above n 44, [9].
[59] Ian Ayres and Robert Gertner, ‘Strategic Contractual Inefficiency and the Optimal Choice of Legal Rules’ (1992) 101 Yale Law Journal 729, 730.
[60] See generally Colin Diver, ‘The Optimal Precision of Administrative Rules’ (1983) 93 Yale Law Journal 65; Isaac Ehrlich and Richard Posner, ‘An Economic Analysis of Legal Rulemaking’ (1974) 3 Journal of Legal Studies 257; Ronald Dworkin, ‘The Model of Rules’ (1967) 35 University of Chicago Law Review 14; Louis Kaplow, ‘Rules versus Standards: An Economic Analysis’ (1992) 42 Duke Law Journal 557; Duncan Kennedy, ‘Form and Substance in Private Law Adjudication’ (1976) 89 Harvard Law Review 1685; Frederick Schauer, Playing by the Rules: A Philosophical Examination of Rule-Based Decision-Making in Law and in Life (1991).
[61] Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth). Each State and Territory has equivalent legislation. The vesting of State jurisdiction in federal courts was held unconstitutional in Re Wakim; Ex parte McNally [1999] VSC 227; (1999) 31 ACSR 99.
[62] The leading case is Bankinvest AG v Seabrook (1988) 14 NSWLR 711.
[63] See, eg, International Shoe Company v Washington, [1945] USSC 158; 326 US 310 (1945); World-Wide Volkswagen Corp v Woodson, [1980] USSC 12; 444 US 286 (1980); Burger King Corp v Rudzewicz, [1985] USSC 126; 471 US 462 (1985).
[64] Brussels Convention, above n 51, art 5(3); Lugano Convention, above n 51, art 5(3). See also the Preliminary Draft, above n 1, art 10 (referring to jurisdiction ‘in which the act or omission that caused injury occurred’ or ‘in which the injury arose’ subject to a reasonable foreseeability defence in the latter case).
[65] (21/76) [1976] ECR 1735.
[66] Kalfelis v Schröder (189/87) [1988] EUECJ R-189/87; [1988] ECR 5565; Dumez France and Tracoba v Hessische Landesbank (C-220/88) [1990] EUECJ R-220/88; [1990] ECR I-49; Shevill v Presse Alliance SA (C-68/93) [1995] EUECJ C-68/93; [1995] ECR I-415; Marinari v Lloyds Bank (C-364/93) [1995] EUECJ C-364/93; [1995] ECR I-2719.
[67] Whincop and Keyes, ‘The Market Tort in Private International Law’, above n 45. As to complex rules, see Kaplow, above n 60.
[68] McConnell, above n 45; O’Hara and Ribstein, above n 45; Whincop and Keyes, ‘The Market Tort in Private International Law’, above n 45.
[69] Kessedjian, above n 44, [120], [122] (supporting an approach differentiating the bases for jurisdiction by case types). This is not followed up in the Preliminary Draft, above n 1.
[70] Alan Schwartz, ‘Relational Contracts in the Courts: An Analysis of Incomplete Agreements and Judicial Strategies’ (1992) 21 Journal of Legal Studies 271, 279–80.
[71] Friedrich Juenger, ‘A Hague Judgments Convention?’ (1998) 24 Brooklyn Journal of International Law 111, 118.
[72] Cf Kessedjian, above n 44, [67]–[75] (opposing the use of forum non conveniens).
[73] Juenger, ‘A Hague Judgments Convention’, above n 71, 122–3. As to the cross-vesting legislation, see the text accompanying above nn 61–62.
[74] Preliminary Draft, above n 1.
[75] Voth v Manildra Flour Mills Pty Ltd [1990] HCA 55; (1990) 171 CLR 538.
[76] Kessedjian, above n 44, [18], [151]–[156], noting that a working group of the Hague Conference considering the issue of judgment recognition expected a mixed convention the most likely outcome, regarding simple conventions as insufficient and double conventions as too ambitious. The Special Commission favoured a double convention in order that disagreements be resolved by compromise rather than left unresolved in the middle ground.
[77] See American Bar Association, Project on Internet Jurisdiction <http://www.kentlaw.edu/
cyberlaw/>.
[78] See generally Christopher Gooch, ‘The Internet, Personal Jurisdiction, and the Federal Long-Arm Statute: Rethinking the Concept of Jurisdiction’ (1998) 15 Arizona Journal of International and Comparative Law 635; Stephan Wilske and Teresa Schiller, ‘International Jurisdiction in Cyberspace: Which States May Regulate the Internet?’ (1997) 50 Federal Communications Law Journal 117.
[79] See especially Gary Becker, ‘A Theory of Competition among Pressure Groups for Political Influence’ (1983) 98 Quarterly Journal of Economics 371; Sam Peltzman, ‘Toward a More General Theory of Regulation’ (1976) 19 Journal of Law and Economics 211. For an accessible introduction, see Daniel Farber and Philip Frickey, Law and Public Choice: A Critical Introduction (1991).
[80] Paul Stephan, ‘Accountability and International Lawmaking: Rules, Rents and Legitimacy’ (1997) 17 Northwestern Journal of International Law and Business 681; Paul Stephan, ‘The Futility of Unification and Harmonization in International Commercial Law’ (1999) 39 Virginia Journal of International Law 743.
[81] Robert Scott, ‘The Politics of Article 9’ (1994) 80 Virginia Law Review 1783; Alan Schwartz and Robert Scott, ‘The Political Economy of Private Legislatures’ (1995) 143 University of Pennsylvania Law Review 595.
[82] Easterbrook, above n 39; Bruce Kobayashi and Larry Ribstein, ‘Contract and Jurisdictional Competition’ in Francis Buckley (ed), The Fall and Rise of Freedom of Contract (forthcoming).
[83] Vita Food Products Inc v Unus Shipping Co Ltd [1939] AC 277, 290.
[84] See, eg, Carriage of Goods by Sea Act 1991 (Cth) ss 11, 16. For contrasting perspectives on the role of the courts in enforcing mandatory rules, cf J J Fawcett, ‘Evasion of Law and Mandatory Rules in Private International Law’ (1990) 49 Cambridge Law Journal 44; and Michael Whincop and Mary Keyes, ‘Statutes’ Domains in Private International Law: An Economic Theory of the Limits of Mandatory Rules’ [1998] SydLawRw 18; (1998) 20 Sydney Law Review 435.
[85] Akai Pty Ltd v The People’s Insurance Company Ltd (1996) 188 CLR 418. This decision is criticised in Whincop and Keyes, ‘Statutes’ Domains in Private International Law’, above n 84.
[86] Brussels Convention, above n 51, art 17; Lugano Convention, above n 51, art 17 (requiring other courts not to exercise jurisdiction); Kessedjian, above n 44, [103]–[104] (excepting insurance, employment and consumer contracts).
[87] Fairness concerns relating to forum selection clauses that are hidden in standard forms could be addressed by requiring the party offering the standard form specifically to disclose the presence and effect of the clause.
[88] This is the effect of the Brussels Convention, above n 51, art 17; and the Lugano Convention, above n 51, art 17. See also the Preliminary Draft, above n 1.
[89] The Brussels Convention, above n 51, and the Lugano Convention, above n 51, do not permit this because the recognition court has no entitlement to review the jurisdiction of the judgment court: Collins, above n 46, 534. Kessedjian, above n 44, [179] favours a right for the recognition court to verify the jurisdiction of the judgment court. This is reflected in the Preliminary Draft, above n 1, art 27.
[90] See the text accompanying above n 43.
[91] Friedrich Juenger, ‘Contract Choice of Law in the Americas’ (1997) 45 American Journal of Comparative Law 195; Kessedjian, above n 44, [106].
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