Originally from World Arbitration and Mediation Review (WAMR)

ABSTRACT

Building upon the Law & Economics literature, we examine the economic value of the choice of law (“COL”) both from the perspective of the choice of an applicable substantive law to a contract and regarding the choice of jurisdiction. We show the different ways this choice represents a resourceful tool for foreign investors and for the countries hosting their investments or economic activities. As we outline in this article, the value of the COL brings significant financial benefit to both the host state and the foreign investor, even though it is not always monetarily measurable. As we show through a series of exemplary cases, fostering investments or economic activities following the COL is a powerful driver of economic development and the implementation of new technologies. In the case of Artificial Intelligence (“AI”), for instance, as the technology becomes widely spread across economic sectors, new legislation will likely become a key factor.

[...]

Despite recognizing the influence of legal origins on jurisdictions, and the role of the rule of law in fostering economic development, the Law & Economics literature does not consider other sources of economic value stemming from the countries themselves. In particular, the scholarly research does not consider the potential value of the choice of law (“COL”), both regarding foreign companies and host states. In this article, we aim to fill this gap by providing an account of the origins, mechanisms, and forms of the economic value of the COL. Our analysis focuses on certain variables that are not considered for their monetary value, even though they carry significant—albeit indirect—financial benefits to the actors of the COL.

The remainder of this article is structured as follows. In Section II, we define the COL under its main dimensions and explain its functioning. Section III, which is the core part of the paper, outlines the factors through which the economic value of the COL is revealed. In the case of a foreign company, for instance, this occurs upon its choosing a jurisdiction. For the host state, it occurs upon the country hosting that company. Section IV focuses on the role of jurisdictions in adapting their domestic regulations to foster the implementation of new technologies. Finally, the article end by offering a summary of our contributions.

II.   The Choice of Law

Whereas business studies have extensively explored the reasons why companies choose to relocate their headquarters, the phenomenon of COL has been less examined. COL is the practice of choosing a jurisdiction other than the one where a company is geographically located and conducts its legal affairs. In this section, we intend to fill this gap by defining the main dimensions of the COL from the perspective of the company that is choosing to change host jurisdictions. A company may, for example, choose the law of a specific country as applicable for certain purposes. This way, the application of the law of that country is therefore “expanded” by serving as the formal jurisdiction for the legal entities that reside outside its geographical boundary.