17 Non-Legal Indicators and Risks

Subject(s):

Contract — Choice of law — Exclusion or limit of liability

This chapter discusses various non-legal indicators relevant to a choice of governing law and courts, including familiarity with the governing law and courts, language, location of financial centres, and legal infrastructure, including the rule of law and efficiency. The goodwill attached to a governing law that is often used, such as English and New York law, generally makes it unnecessary to investigate the detail of the legal system each time, which in many cases would be impracticable. This reduces transaction costs. The choice of law ceases to be something that has to be negotiated each time. As to legal infrastructure, such as political risks, a distinction must be made between the written law of a jurisdiction and how the law is applied, if at all. A jurisdiction may have a sound legal system on paper, but the political risks are too great. There appears in most cases to be a striking correlation between the wealth of a country and its ranking on political risks.