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Game of Foreign Judgment Recognition

Sunghoon Lee*

Contents

. Introduction . Concept of Foreign Judgment Recognition . Comity in Foreign Judgment Recognition . Reciprocity in Foreign Judgment Recognition

. Economic Analysis of Foreign Judgment Recognition

  • 1. Utilitarian Perspective

  • 2. Contractarian Perspective

    • A. When No Transaction Costs of Non-recognition Is Assumed

    • B. When Certain Transaction Costs of Non-recogni-

tion Are Assumed

  • C. The Solution of Repeated Games

. Economic Analysis of Reciprocity in Foreign Judgment Recognition

. Conclusion

Abstract

This article provides an economic analysis of “comity” and “reciprocity” in foreign judgment recognition system. Comity is not a moral concept but a legal theoretical concept derived from the perspectives of global efficiency and international institutional compatibility. Comity embodied in the institution of foreign judgment recognition is justified as an attempt to minimize the international transaction costs or to maximize the global wealth. However, as a rational individual maximizes his own utility, a rational country maximizes its own wealth, not global wealth. In this regard, even rational countries may be faced with the Prisoner’s dilemma depending on the relative amount of the transaction costs arising from non-recognition. However, according to the lessons of the frepeated Prisoner’s

* Professor, Civil Procedure, Training Institute for Court Officials (under the Supreme Court of Korea)

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dilemma games, and if the countries are treated as rational game players, there can be a stable and reasonable equilibrium in the long run, even without the reciprocity. It should be noted that threatening the foreign countries with “reciprocity,” ignoring their inevitable limits of international institutional compatibility in the foreign judgment recognition, would be very similar to "answering a fool according to his folly."

. Introduction

Frequently, we take what people do as guidance for what we should do. Sometimes, however, people’s behavior can be a bad guidance. In this regard, Proverbs 26: 4 and 5 of the Bible appear to give two contradictory pieces of advice on the reciprocation to other’s folly. 1 ) However, each proverb can be justified respectively. If all people answer other’s folly, then the world will be full of follies. If nobody answers other’s folly, then the folly will be continued. All countries interact with others. A judgment is a legal gateway of this interaction. If someone brings a judgment rendered by a country to another country’s court in order to enforce it, that court must consider whether the foreign judgment may bind the parties under its own legal system. For this purpose, almost all countries have enacted a standard for recognition of foreign judgment by law, and many countries have so called “reciprocity” requirements in their foreign judgment recognition systems. This article argues that the reciprocity requirement is pernicious for improving the international transactions environment. A judgment is like a software program; a legal system is the operating system of judgments. A judgment is created from its own unique institutional environment. If every institution that constitutes the basis of a judgment is compatible with another legal system, then that judgment can be recognized also in that other legal system. However, if an institution constituting the basis of the judgment is incompatible with another legal system, then that judgment should not be recognized in the other legal system. In this regard, the following parts will analyze concerned issues.

1) Proverbs 26: 4. Answer not a fool according to his folly, lest thou also be like unto him. Proverbs 26: 5. Answer a fool according to his folly, lest he be wise in his own conceit.

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Part II considers the concept of foreign judgment recognition and illustrates the flow of the judgment and its recognition… Part III considers the concept of “comity,” which has been cited frequently as the basis of the foreign judgment recognition by courts and legal scholars, and will offer a new interpretation of the concept. This article argues that the traditional concept of comity in the context of foreign judgment recognition can be understood as the policy standard derived from the maximization of global efficiency under the constraints of the institutional compatibility of each country. Gl obal efficiency in this regard is the efficiency of international transactions. Institutional compatibility in this regard is the minimal institutional justice requisite for a country to sustain its legal system effectively. Part IV considers the concept of “reciprocity” which has been frequently confused with “comity,” and distinguishes the rule of reciprocity (“normative reciprocity”) from the behavior of reciprocity (“real reciprocity”). Part V approaches the problem of foreign judgment recognition from an economic perspective. In normative perspective, this article argues that a country should maximize global efficiency to maximize the global welfare. However, as a rational individual maximizes his own utility, a rational country maximizes its own wealth, not global wealth. In this regard, even rational countries may be faced with the Prisoner’s dilemma depending on the relative amount of the transaction costs arising from non-recognition. However, if the international society is conceived as playing infinitely repeated games and if the countries are treated as rational game players, the lessons from folk theorems suggest that there can be stable equilibrium in the long run, even without the reciprocity. Part VI deals with the economic analysis of reciprocity in the foreign judgment recognition system more carefully, and concludes that reciprocity is not a desirable requirement. Part VII summarizes the discussion and evaluates the policy decision that constitutes the recent draft federal act proposed by the ALI. This article argues that the reciprocity requirement will not be able to be administered effectively to solve the problems arising under reciprocity rationally, but will tend to be introduced as a means of threat. Reciprocity is not an effective means to commit each party to cooperation in the foreign judgment recognition context. On the contrary, the reciprocity requirement may be a source of useless conflict rather than cooperation.

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. Concept of Foreign Judgment Recognition

Suppose that a judgment was rendered in one country or C 1 (the country of original forum). Now the judgment plaintiff wants to enforce the judgment against the defendant’s asset in another country or C 2 (the country of a second forum). Since C 1 ’s judgment was created, not from C 2 ’s, but from C 1 ’s legal system, C 1 ’s judgment should be treated differently by C 2 from its own judgments. Therefore, C 2 ’s additional authorization to make C 1 ’s judgment the same as C 2 ’s judgments is needed. Generally, this additional authorization is called “recognition.” In federal systems such as the U.S., there are “inter-state recognition,” i.e., the recognition of judgments arising outside a state but inside the U.S., and “inter-national recognition,” i.e., the recognition of foreign judgments arising outside the U.S. This article will focus exclusively on “international recognition.” Additionally, this article will also focus exclusively on “recognition.” 2 ) “Recognition” is the sine qua non precondition for both the “enforcement” and the “res judicata” of a foreign judgment. Judgments granting injunctions, declaring rights or determining status, and judgments arising from attachments of property, are not generally entitled to “enforcement,” but may be entitled to “recognition” for “res judicata.” 3) This relationship is shown in Figure 1.

104 Asia Law Review [Vol. 3, No.2 : 101~139 Ⅱ . Concept of Foreign Judgment Recognition

Figure 1

2) Restatement of the Foreign Relations Law distinguishes “recognition” and “enforcement.” Restatement 3 rd of the Foreign Relations Law § 481 (1987) 3) Restatement 3 rd of the Foreign Relations Law §481 cmt. b (1987)

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What is the nature of foreign judgment recognition? The answer to this question has varied along the evolution of U.S. conflicts law; 4) but the most popular answer has been that the nature of recognition is “comity.” In Hilton v. Guyot, 159 U.S. 113 (U.S., 1895), the Supreme Court held that the effect to be given to foreign judgments was a matter of comity, in cases where it was not regulated by treaty, and explained the concept of comity as follows:

“Comity is neither a matter of absolute obligation, on the one hand, nor of mere courtesy and good will, upon the other. But it is the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protection of its laws.” 5)

In addition to comity, various policies can be supposed to be relevant to the analysis of foreign judgment recognition. 6 ) However, even the most comprehensive policy analysis will not be able to eradicate the necessity for the comity concept completely. 7) Here, we need to examine the concrete structure of the comity analysis in the modern sense. In the following part, the concept of “comity” is explained.

. Comity in Foreign Judgment Recognition

The concept of “comity” has been defined so variously that it still remains amazingly elusive. 8) Generally, comity is defined as the recognition which one nation

4) Andrew T. Guzman, Choice of Law: New Foundations, 90 Georgetown L. J. 883 (2002) 5) Hilton v. Guyot, 159 U.S. 113 (U.S., 1895) 6) Arthur T. von Mehren and Donald T. Trautman, “Recognition of Foreign Adjudications: A Survey and A Suggested Approach”, 81 Harv. L. Rev. 1603 (1967 – 1968) 7) Laker Airways, Ltd. v. Sabena, Belgian World Airlines, 731 F.2d 909 (D.C. Cir., 1984) “Since comity varies according to the factual circumstances surrounding each claim for its recognition, the absolute boundaries of the duties it imposes are inherently uncertain.” 8) Joel R. Paul, Comity in International Law, 32 Harv. Int'l. L. J. 15 (1991); Laker Airways, Ltd. v. Sabena,

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allows within its territory to the legislative, executive, or judicial acts of another nation, having due regard both to international duty and convenience and to the rights of its own citizens or of other persons who are under the protection of its laws. 9) Comity was firstly proposed by Ulich Huber, a law professor and a member of the supreme court of Friesland in 17 th century Netherlands. 10) In De Conflictu Legum Diversarum In Diversis Imperiis, Huber articulated the famous three maxims to explain the operation of foreign law within the territory of another sovereign. 11) (1) Laws of a state have force and bind subjects within that government’s limits, but not beyond. (2) All persons within the limits of a government, whether they live there permanently or temporarily, are deemed to be subjects thereof. (3) Sovereigns should so act by way of “comity” that rights acquired within the limits of a government retain their force everywhere, so far as they do not cause prejudice to the powers or rights of other governments or their subjects. 12) Huber reasoned that the solution of the (choice-of-law) problem should be derived not merely from the civil law, but also from the concept of “convenience” and “tacit consent of nations.” 13) Hence, Huber’s comity was neither exclusively statutory nor purely moral, but legal theoretical. 14)

Belgian World Airlines, 731 F.2d 909 (D.C. Cir. 1984) Comity summarizes in a brief word a complex and elusive concept, the degree of deference that a domestic forum must pay to the act of a foreign government not otherwise binding on the forum.” 9) 16 Am Jur 2d, Conflict of Laws, § 10, pp. 27-29 10) Huber’s view deeply influenced Justice Joseph Story, one of the most influential U.S. Supreme Court Justices of the 19 th Century. Joseph Story, Commentaries on the Conflict of Laws, Foreign and Domestic, In regard to Contracts, Rights, and Remedies, and Especially In Regard to Marriages, Divorces, Wills, Successions, and Judgments (1 st ed. 1834), William Tetley, A Canadian Looks at American Conflict of Law Theory and Practice, Especially in the Light of the American Legal and Social Systems (Corrective v. Distributive Justice), 38 Colum. J. Transnat’l L. 307, 308 (1999 – 2000) 11) Joel R. Paul, Comity in International Law, 32 Harv. Int'l. L. J. 15 (1991) For example, Remington Rand Corporation v. Business Systems, Inc., 830 F.2d 1260 (3d Cir., 1987) “comity has to be a two-way street.” 12) Ernest G. Lorenzen, Huber’s De Conflictu Legum, 13 Ill. L. R. 227 (1918 – 1919) 13) Ibid., “Ex quo liquet, hanc rem non ex simplici jure Civilli, sed ex commodes et tacito populurum consensus esse petendam” 14) Richard A. Posner, Frontiers of Legal Theory (2004), Harvard University Press, 2p, “Legal theory is concerned with the practical problems of law, but it approaches them from the outside, using the tools of other disciplines. It does not consider the internal perspective of the legal professional adequate to the solution even of the practical problems of law.”

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Sometimes “comity” has been confused with "reciprocity" by the influence of the majority opinion of Hilton. 15) However, many courts and scholars have criticized the identification of “comity” as “reciprocity” in Hilton. 16) Originally, Huber’s comity did not necessarily include the rule of reciprocity or “normative reciprocity,” while he considered the behavior of reciprocity or “real reciprocity” among the countries. Likewise, the English courts never interpreted comity to require reciprocity. 17 ) Even now, many courts have interpreted that comity does not require reciprocity. 18 ) For example, Cunard S.S. Co. v. Salen Reefer Services AB held that “while reciprocity may be a factor to be considered, it is not required as a condition precedent to the granting of comity.” 19) Since Erie Rail Road Co. v. Tompkins, 304 U.S. 64 (U.S., 1938), federal courts exercising diversity jurisdiction should apply state law, whether it be statute or common law, to the issue of foreign judgment recognition. 20) Here, Erie rule raised a problem of inconsistency in recognition practices among states. In 1962, the National Conference of Commissioners on Uniform State Laws (NCCUSL), together with the ABA, produced the Uniform Foreign-Country Money Judgments Recognition Act (UFMJRA), 13 U.L.A. 261, in order to secure consistency. 21) At present, 30 states, 22) Washington D.C. (1996),

15) Joel R. Paul, Comity in International Law, 32 Harv. Int'l. L. J. 15 (1991) 16) Katherine R. Miller, Playground Politics: Assessing the Wisdom of Writing a Reciprocity Requirement into U.S. International Recognition and Enforcement Law, 35 Geo. J. Int'l L. 239 (2004) 17) Friedrich K. Juenger, The Recognition of Money Judgments in Civil and Commercial Matters, 36 Am. J. Comp. L. 10 (1988) 18) Restatement 3 rd of the Foreign Relations Law §403 cmt. a (1987), “While the term “comity” is sometimes understood to include a requirement of reciprocity, the rule of this section is not conditional on a finding that the state affected by a regulation would exercise or limit its jurisdiction in the same circumstances to the same extent.” 19) Cunard S.S. Co. v. Salen Reefer Services AB, 773 F.2d 452 (2d Cir., 1985) 20) See, e.g. Somportex Limited v. Philadelphia Chewing Gum Corp., 453 F.2d 435 (3d Cir. 1971), cert. denied, 405 U.S. 1017 (1972) 21) http://www.law.upenn.edu/bll/ulc/fnact99/1920_69/ufmjra62.htm last visited Mar. 1. 2006 22) Alaska (1972), California (1967), Colorado (1977), Connecticut (1988), Delaware (1997), Florida (1994), Georgia (1975), Hawaii (1996), Idaho (1990), Illinois (1963), Iowa (1989), Maine (1999), Maryland (1963), Massachusetts (1966), Michigan (1967), Minnesota (1985), Missouri (1984), Montana (1993), New Jersey (1997), New Mexico (1991), North Carolina (1993), North Dakota (2003), Ohio (1985), Oklahoma (1965), Oregon (1977), Pennsylvania (1990), Texas (1981), Virginia (1990), Washington

(1975).

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and the U.S. Virgin Islands (1992) adopted the UFMJRA. 23) Since the majority of the states have adopted the UFMJRA, it could be said that the practices of foreign judgment recognition are mainly under the scope of the UFMJRA. The UFMJRA set forth several requirements for a foreign judgment to be recognized: to be a judgment of a country, 24) to be final, 25) to have jurisdiction over the defendant 26) and the subject matter, 27) to be made by the competent foreign court, 28) to be made under due process, 29) not to be obtained by fraud, 30) not to conflict with the public policy of the U.S., 31) not to conflict with another final and conclusive judgment, 32) and not to be contrary to an agreement of settlement. 33) Since the majority of the states have adopted the UFMJRA, it could be said that the practices of foreign judgment recognition are mainly under the scope of the UFMJRA. However, some states have adopted the UFMJRA subject to their own variations. For example, Florida 34) and Michigan 35) have amended the Act to include foreign domestic

23) http://www.nccusl.org/Update/uniformact_factsheets/uniformacts-fs-ufmjra.asp last visited Mar. 1. 2006 24) Section 1 of the UFMJRA of 1962 25) Section 2 of the UFMJRA of 1962 26) Section 4 (a) (2) of the UFMJRA of 1962; The foreign judgment shall not be refused recognition for lack of personal jurisdiction if (1) The defendant was served personally in the foreign state; (2) The defendant voluntarily appeared in the proceedings, other than for the purpose of protecting property seized or threatened with seizure in the proceedings or of contesting the jurisdiction of the court over him; (3) The defendant prior to the commencement of the proceedings had agreed to submit to the jurisdiction of the foreign court with respect to the subject matter involved; (4) The defendant was domiciled in the foreign state when the proceedings were instituted, or, being a body corporate had its principal place of business, was incorporated, or had otherwise acquired corporate status, in the foreign state; (5) The defendant had a business office in the foreign state and the proceedings in the foreign court involved a cause of action arising out of business done by the defendant through that office in the foreign state; or (6) The defendant operated a motor vehicle or airplane in the foreign state and the proceedings involved a cause of action arising out of such operation. Section 5 (a) of the UFMJRA of 1962 27) Section 4 (a) (3) of the UFMJRA of 1962, inn either case, non-recognition is mandatory under the UFMJRA. However, Section 482 of Restatement of Foreign Relations (1986) finds the lack of personal jurisdiction as mandatory ground for non-recognition but the lack of subject matter jurisdiction as discretionary one. Restatement 3 rd of the Foreign Relations Law §482 (1986) 28) Section 4 (a) (1) of the UFMJRA of 1962 29) Section 4 (b) (1) of the UFMJRA of 1962 30) Section 4 (b) (2) of the UFMJRA of 1962 31) Section 4 (b) (3) of the UFMJRA of 1962 32) Section 4 (b) (4) of the UFMJRA of 1962 33) Section 4 (b) (5) of the UFMJRA of 1962 34) Fla. Stat. § 55.602 (2) (2004) provides that “foreign judgment” means any judgment of a foreign state granting or denying recovery of a sum of money, other than a judgment for taxes, a fine, or other penalty.

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judgments within the definition of foreign money judgments. In the states that have not adopted the UFMJRA, the recognition of foreign judgments are governed by state common law. While the Hilton rule influenced these state common laws deeply, it is unclear whether reciprocity is also mandated in these states. 36) The rule of reciprocity was not intended as a part of the UFMJRA, but it does exist in the several states. Florida, Georgia, Idaho, Massachusetts, Ohio, and Texas have included a reciprocity requirement. The effect of a lack of reciprocity is also different among these states: discretionary denial for Florida, Idaho, Ohio, and Texas, while mandatory denial for Georgia, Massachusetts. 37) Thus a foreign judgment that can be recognized by other state courts might be denied as lacking in reciprocity in these states. In summary, when otherwise required by local statute, the great majority of state and federal courts have extended recognition to foreign judgments regardless of reciprocity. 38) Comity is a legal principle. 39) Hence, comity is an important instrument to advance the rule of law among nations. It was properly pointed by the opinion of Laker Airways, Ltd.

“Comity is a necessary outgrowth of our international system of politically independent, socio-economically interdependent nation states. As surely as people, products and problems move freely among adjoining countries, so national interests cross territorial borders. But no nation can expect its laws to reach further than its jurisdiction to prescribe, adjudicate, and enforce. Every nation must often rely on other countries to help it achieve its regulatory expectations. Thus, comity compels national courts to act at all times to increase the international legal

35) MCLS § 691.1151(b) (2004) provides that "foreign judgment" means any judgment of a foreign state granting or denying recovery of a sum of money, including a judgment for support in matrimonial or family matters, but not including a judgment for taxes, a fine or other penalty. 36) Cedric C. Chao, Christine S. Neuhoff, Enforcement and Recognition of Foreign Judgments in United States Couts: A Practical Perspective, 29 Pepp. L. Rev. 150 (2001 – 2002) 37) Ibid. 152 38) Comment f to § 98 of Restatement 2nd of Conflict of Laws 39) Restatement 3 rd of the Foreign Relations Law §403 cmt. a (1987), “Some United States courts have applied the principle of reasonableness as a requirement of comity, that term being understood not merely as an act of discretion and courtesy but as reflecting a sense of obligation.

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ties that advance the rule of law within and among nations.” 40)

Comity is especially an important ground for the court’s decision on how to respond to each behavior of the international litigants. In the context of international litigation, the principle of comity can be applied as “active comity” and “passive comity.” 41)

“Active comity” can be defined as the principle that even without any legal duty, a judicial activity which is conducted by and completely legal in one country should be honored by another country unless that activity is incompatible with any fundamental basis of another country’s legal system. Active comity provides the ground for the active international judicial mutual assistance or cooperation, including foreign judgment recognition and enforcement. For example, In re Request for Judicial Assistance from Seoul Dist. Criminal Court, 555 F.2d 720 (9th Cir. 1977), the court found that the requests for assistance could be honored so long as that assistance was not unrelated to judicial or quasi-judicial controversies, and that § 1782 did not exclude assistance in matters relating to enforcement of a foreign country's fiscal or penal laws. The court pointed out that the nature of this assistance is comity. 42)

“Passive comity” can be defined as the principle that even without any legal duty, a judicial activity which would be conducted by and completely legal in one country should be self-restrained if it would be incompatible with any fundamental basis of another country’s legal system, unless non-activity would be incompatible with any fundamental basis of its own legal system. 43) Passive comity provides the ground for the

40) Laker Airways, Ltd. v. Sabena, Belgian World Airlines, 235 U.S. App. D.C. 207 (D.C. Cir. 1984) 41) In the context of the cooperation of international antitrust enforcement, there are two concepts which are similar to the above two concepts. “Positive comity” and “negative comity.” See Final Report, International Competition Policy Advisory Committee to the Attorney General and Assistant Attorney General for Antitrust (2000), Chapter 5, pp. 226 - 279 42) In re Request for Judicial Assistance from Seoul Dist. Criminal Court, 555 F.2d 720 (9th Cir. 1977) “When requested assistance is granted under 28 U.S.C.S. §1782, it is usually by reason of comity; reciprocal treaties or agreements are not required, though the existence of reciprocal practices (or lack of them) may influence a court's decision.” 43) Laker Airways, Ltd. v. Sabena, Belgian World Airlines, 235 U.S. App. D.C. 207 (D.C. Cir. 1984) “Comity ordinarily requires that courts of a separate sovereign not interfere with concurrent proceedings based on the same transitory claim, at least until a judgment is reached in one action, allowing res judicata to be

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self-restraint of the extra-territorial application of the domestic laws, 44) the restriction of the issuance of a foreign anti-suit injunction, 45) the doctrine of international forum non conveniens, 46) and international lis pendens. 47) Comity, however, is not absolute. The recognized foreign judgment should not be contrary to the core of the legal system of the recognizing country, namely, should not exceed the limits of the international institutional compatibility. For example, the Yahoo court put this point briefly. 48)

“Absent a body of law that establishes international standards with respect to speech on the Internet and an appropriate treaty or legislation addressing enforcement of such standards to speech originating within the United States, as to which the court expresses no opinion whether any such treaty or legislation would or could be constitutional, the principle of comity is outweighed by the

pled in defense.” 44) Typical examples are antitrust law and securities regulations. However, many U.S. scholars are thinking only about how to get “active comity” from the foreign countries. The more important thing is how to conduct “passive comity” to the foreign countries. The most typical problems are the extra-territorial application of U.S. antitrust law and U.S. securities regulations. 45) An anti-suit injunction is a legal order barring litigants from instituting or prosecuting the same or a similar action in another state. A court may exercise all of its contempt power to force the litigants before it to comply with such an injunction. These contempt powers include litigation penalties and reprimands, and monetary fines. Nevertheless, they are not limitless. For example, contempt penalties are not entitled to full faith and credit, and must be enforced within the state in which they are issued. Here, the dismissing court for the anti-suit injunction becomes passive due to comity. 46) Forum non conveniens is a common law doctrine giving the courts a discretionary power to refuse to exercise jurisdiction in certain circumstances. Courts will look at private and public interest factors to decide whether it is appropriate to exercise jurisdiction in a specific case. Private interest factors include, for instance, the domicile or place of incorporation of the parties, the ease of access to evidence, the links between the dispute and the forum and the applicable law. Public interest factors, which are taken into account mainly in the United States, include the workload of the courts and the burden of jury duty. Here, the dismissing court becomes passive to the alternative court due to comity. 47) Most civil law countries do not have a forum non conveniens doctrine, nor do they use anti-suit injunctions. In order to limit parallel litigations, they apply a rule called lis pendens. According to this rule, if two courts hear a dispute between the same parties, involving the same cause of action, the later court must stay or dismiss the case in favor of the prior court. Here, the later court becomes passive to the prior court due to comity. The most typical example of the passive comity would be the restriction of the issuance of a foreign anti-suit injunction. “Comity dictates that foreign anti-suit injunctions be issued sparingly and only in the rarest of cases.” Laker Airways, Ltd. v. Sabena, Belgian World Airlines, 235 U.S. App. D.C. 207 (D.C. Cir. 1984) 48) Yahoo!, Inc. v. La Ligue Contre Le Racisme et L'Antisemitisme, 169 F. Supp. 2d 1181

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court's obligation to uphold the First Amendment.”

Many authors conclude that comity is not a legal principle, but only a moral precept very easily. 49) However, comity is, again, not a purely moral concept, but a legal theoretical concept. 50) Judge Richard Posner pointed out the importance of a legal theoretical analysis as follows:

“We need legal theory above all to help us answer fundamental questions about the legal system, for it is precisely knowledge about the system, as distinct from knowing how to navigate within the system, that the lawyer’s or law professor’s conventional analytic techniques do not yield.” 51)

Comity should be analyzed systematically from the outside of the positive legal system. 52) If the purpose of this article lay in the question of how to win recognition in the foreign court, then it should explain how to win one in a specific country. The purpose of this article, however, is to find a theoretical frame to analyze “comity” and “reciprocity” in foreign judgment recognition systems. Huber’s “convenience” equals “efficiency” and his “tacit consent” equals “institutional compatibility.” Hence, Huber’s concept of choice-of-law theory can be understood as a jurisprudential interpretive solution derived from the maximization of efficiency under the institutional compatibility of the countries regarding certain choice-of-law issues. The “efficiency” in this regard is the efficiency of international transaction systems, and the “institutional compatibility” in this regard is the minimal

49) For example, Joel R. Paul, Comity in International Law, 32 Harv. Int'l. L. J. 15 (1991) Additionally, moral theory is becoming an unpopular explanation for the nature of institution especially in the international context. See Eric A. Posner, Do States Have a Moral Obligation to Obey International Law? 55 Stan. L. Rev. 1901 (2002 – 2003) 50) Richard A. Posner, Frontiers of Legal Theory (2001), Harvard University Press, p. 2 “By “legal theory” I mean to exclude both philosophy of law … and the analysis of legal doctrine… Legal theory is concerned with the practical problems of law, but it approaches them from the outside, using the tools of other disciplines. It does not consider the internal perspective of the legal professional adequate to the solution even of the practical problems of law.” 51) Richard A. Posner, Frontiers of Legal Theory (2001), Harvard University Press, p. 15 52) Richard A. Posner, Frontiers of Legal Theory (2001), Harvard University Press, p. 2 also describes legal theory as “external analysis of law” in contrast to “internal analysis of law.”

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justice that is often represented by the constitutional law of each country. In summary, “comity” is a legal principle, and should be understood as a starting point of the theoretical analysis of the effi ciency of the international transaction system.

. Reciprocity in Foreign Judgment Recognition

Lack of “reciprocity” is a typical statutory ground for non-recognition of foreign judgments in many countries. However, the legal meaning of “reciprocity” is not clear and most countries lack a specified legal definition for that term. Before inquiring into the practical meaning of institutional “reciprocity” in the context of foreign judgment recognition, the general meaning of reciprocity needs some explanation. First of all, this article distinguishes the rule of reciprocity or “normative reciprocity” from the behavior of reciprocity or “real reciprocity.” The former tells us that people ought to reciprocate, and the latter tells us that people do reciprocate. The former is normative concept, and the latter is descriptive concept. When the rule of “reciprocity” is contrasted with the rule of “comity” in two dimensions (the dimension of the normative content and the dimension of the behavioral assumption), the features of the two rules can be shown more clearly in Table 1. Under this frame, the practical meaning of the rule of “reciprocity” can be shown more clearly in the context of foreign judgment recognition system.

Table 1

 

Rule of Comity

Rule of Reciprocity

 

C 1 should recognize C 2 ’s judgment

If C 2 recognizes (or will probably recognize) C 1 ’s judgment, then C 1 should recognize C 2 ’s judgment wherever compatible with its legal system.

Content

whenever compatible with its own legal system.

If C 2 denies (or will probably deny) the recognition of C 1 ’s judgment, then C 1 should deny the recognition of C 2 ’s judgment, even if compatible with its own legal system.

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Behavioral

If C 1 recognizes C 2 ’s judgment whenever compatible with its legal system, then C 2 will recognize C 1 ’s

If C 1 recognizes C 2 ’s judgment despite C 2 ’s denial of the recognition of C 1 ’s judgment, then C 2 will keep

Assumption

judgment whenever compatible with its legal system. (Behavior of Reciprocity)

denying the recognition of C 1 ’s judgment. (Behavior of Opportunism)

In contrast to the attitudes of most countries including China, 53) Germany, 54) Japan, 55) and South Korea, 56) the recent final draft of the proposed federal law of the ALI (April 11, 2005) stated the proposition of the reciprocity requirement very clearly as follows:

“A foreign judgment shall not be recognized or enforced in a court in the United States if the court finds that comparable judgments of courts in the United States would not be recognized or enforced in the courts of the state of origin.” 57)

53) Civil Procedure Law of the People’s Republic of China (9 Apr. 1991) Article 267 only remarks “the principle of reciprocity, but there is no definition of reciprocity. 54) ZPO § 328 [Recognition of Foreign Judgments] (1) 5 only remarks “reciprocity,” but there is no definition of it. 55) Code of Civil Procedure (25 May 2005, Statute No. 50) Article 118 (Effect of A Final Judgment Rendered by Foreign Court) 4 only remarks “reciprocity,” but there is no definition of it. 56) Civil Procedure Act (2002, Act No. 6626) Article 217 (Effect of Foreign Judgment) 4 only remarks “reciprocity,” but there is no definition of it. 57) Recognition and Enforcement of Foreign Judgments: Analysis and Proposed Federal Statute, Proposed

Final Draft (April 11, 2005), submitted by the Council to the members of the American Law Institute for discussion at the 82 nd annual meeting on May 16, 17, and 18, 2005 § 7. Reciprocal Recognition and Enforcement of Foreign Judgments

  • (a) A foreign judgment shall not be recognized or enforced in a court in the United States if the court finds that comparable judgments of courts in the United States would not be recognized or enforced in the courts of the state of origin.

  • (b) A judgment debtor or other person resisting recognition or enforcement of a foreign judgment in accordance with this section shall raise the defense of lack of reciprocity with specificity as an affirmative defense. The party resisting recognition or enforcement shall have the burden to show that there is substantial doubt that the courts of the state of origin would grant recognition or enforcement to comparable judgments of courts in the United States. Such showing may be made through expert testimony, or by judicial notice if the law of the state of origin or decisions of its courts are clear.

  • (c) In making the determination required under subsections (a) and (b), the court shall, as appropriate, inquire whether the courts of the state of origin deny enforcement to (i) judgments against nationals of that state in favor of nationals of another state; (ii) judgments originating in the courts of the United States or of a state of the United States; (iii) judgments for compensatory damages rendered in actions for personal injury or death; (iv) judgments for statutory claims;

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The rule of reciprocity like above will entail two kinds of behavioral circles in the foreign judgment recognition scenario. One circle is virtuous. For example, C 1 ’s judgment is recognized in C 2 , since C 2 ’s judgment is recognized in C 1 , and C 2 ’s judgment is recognized in C 1 , since C 1 ’s judgment is recognized in C 2. The other circle, however, is vicious. For example, the recognition of C 1 ’s judgment is denied in C 2 , since the recognition of C 2 ’s judgment is denied in C 1 , and the recognition of C 2 ’s judgment is denied in C 1 , since the recognition of C 1 ’s judgment is denied in C 2. The vicious circle is especially difficult for one country to break, if two countries are both purely “reciprocators.” Reciprocity as a basis of non-recognition in the foreign judgment recognition system has been introduced for the purpose of inducing other nations to improve their recognition practices. However, there have been plenty of criticisms. 58) (1) It is unfair to punish private litigants – who are neither to blame nor in a position to change matters – by non-recognition for the prior non-recognition of the country. 59) (2) Non-recognition of a judgment won abroad seems particularly irrational for the winning plaintiff, if a forum selection clause required the domestic party to sue abroad, or if the foreign court had exclusive jurisdiction by the recognition forum’s standards. 60) (3) It is functionally

(v) particular types of judgments rendered by courts in the United States similar to the foreign judgment for which recognition or enforcement is sought; The court may also take into account other aspects of the recognition practice of courts of the state of origin, including practice with regard to judgments of other states. (d) Denial by courts of the state of origin of enforcement of judgments for punitive, exemplary, or multiple damages shall not be regarded as denial of reciprocal enforcement of judgments for the purposes of this section if the courts of the state of origin would enforce the compensatory portion of such judgments. Courts in the United States may enforce a foreign judgment for punitive, exemplary, or multiple damages on the basis of reciprocity. (e) The Secretary of State is authorized to negotiate agreements with foreign states or groups of states setting forth reciprocal practices concerning recognition and enforcement of judgments rendered in the United States. The existence of such an agreement between a foreign state or group of foreign states and the United States establishes that the requirement of reciprocity has been met as to judgments covered by the agreement. The fact that no such agreement between the state of origin and the United States is in effect, or that the agreement is not applicable with respect to the judgment for which recognition or enforcement is sought, does not of itself establish that the state fails to meet the reciprocity requirement of this section. 58) Friedrich K. Juenger, The Recognition of Money Judgments in Civil and Commercial Matters, 36 Am. J. Comp. L. 32 (1988) 59) Ibid. 32 60) Ibid. 32, 33

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wrong to cast the courts, which control and restrict the retaliation between the parties, into the role of instruments of retaliation between the countries. (4) Reciprocity is at odds with fundamental procedural objectives, i.e., the just, speedy, and inexpensive determination of disputes. In terms of justice, reciprocity neither considers the justness of those judgments that are recognized, nor does it assure a better judgment in cases that must be re-litigated due to the non-recognition. In terms of speediness and cost-savings, courts and counsel are forced to waste time and money on divining the attitude of foreign legal systems toward the forum’s judgments. 61) The following parts will go one step further and demonstrate that reciprocity is not the only feasible “efficient solution” for the problem of foreign judgment recognition.

. Economic Analysis of Foreign Judgment Recognition

This part will theoretically analyze the general grounds of the institution of foreign judgment recognition in terms of economics. There can be two economic perspectives to the solution of the foreign judgment recognition problem: the utilitarian perspective and the contractarian perspective. 62 ) These two perspectives have key methodological concepts respectively: the maximum and the bargain. The idea of a maximum was developed by the utilitarians such as Jeremy Bentham, who conceived the state maximizing social welfare as analogous to a private firm maximizing profits. On the other hand, the idea of a bargain was developed by the contractarians such as John Locke, who conceived of the state as a bargained agreement analogous to an ordinary contract. From the utilitarian perspective, international society can be conceived as maximizing international social welfare, and from the contractarian perspective, international society can be conceived as a bargained agreement. 63)

61) Ibid. 33 62) Robert D. Cooter, Justice and Mathematics: Two Simple Ideas, Roger B. Skurski, editor, New Directions in Economic Justice (1983), Notre Dame Press

63)

Ibid. pp 198 - 199

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Game of Foreign Judgment Recognition

  • 1. Utilitarian Perspective

117

From the utilitarian perspective, a foreign judgment recognition system can be conceived as an instrument to minimize international social costs and to maximize international social welfare. In this regard, the international transaction costs should be carefully considered and approached as a problem of social cost. According to the Coase theorem, 64) when transaction costs are zero, an efficient allocation of resources results from private bargaining, regardless of the legal assignment of property rights. 65) However, in the real world transaction costs are not zero and the efficient allocation of resources will therefore depend on how property rights are assigned. Generally, transaction costs are classified as (1) search cost, (2) bargaining costs, and (3) enforcement costs. 66) These costs are closely related to each other. The Coase theorem can be applied to the analysis of international legal problems. The policy suggestion of the Coase theorem is that the impediments to the international transactions or the international transaction costs should be minimized in order for the international social cost to be minimized. In the above example of Figure1, what will happen if C 1 ’s judgment fails to be recognized in C 2 ? In some states, such as Sweden, Finland and Iceland, where foreign judgments are not recognized in principle, the parties should litigate once again in C 2 because there is no judgment about the case in C 2 . Here, C 1 ’s judgment can be submitted as extrinsic evidence to prove the fact that the case had been already tried by C 1 ’s court. Mostly, however, if a foreign judgment fails to be recognized, then without recognition, the foreign judgment cannot bind C 2 ’s court regarding any legal issue by itself. The result of this new litigation in C 2 ’s court can be different from the original litigation in C 1 ’s court under the different legal system. Frequent non-recognition functions as an outrageous signal for the insecurity and

64) The Coase theorem gained its appellation as a theorem not due to its original proposition presented as such by Ronald Coase in his seminal article, The Problem of Social Cost, 3 J.L. & ECON. 1 (1960), but due to the subsequent portrayal of Coase's basic insight as a theorem by George Stigler. A version of Coase's proposition was named the "Coase theorem" in George Stigler, The Theory of Price (3 rd ed. 1966) p. 113 65) Robert Cooter, Thomas Ulen, Law and Economics 4 th ed. (2004), pp 89

66)

Ibid. pp 91 – 95

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the instability of the enforcement of transactions. Fearing the insecurity and the instability of enforcement, foreign parties will avoid transactions with those in the country that is notorious for non-recognition. Therefore, the parties in that country will experience increased difficulty in searching and bargaining with the counterpart in another country resulting from increased search and bargaining costs. Compared with the case of recognition, non-recognition of C 1 ’s judgment by C 2 entails additional costs concerning the resolution of the dispute. If C 2 ’s result does not change from C 1 ’s, all these additional costs will result in an irrational waste of time and money. If C 2 ’s result does change from C 1 ’s under the review of C 2 ’s court, then a dispute between the individual parties grows bigger one between the two legal systems. A legal dispute concerning whose law is “right” cannot be resolved effectively without an international constitutional court that has the power to declare whether one country's law is right, and another country's law is wrong. To avoid these waste and risk in either case, non-recognition should be restricted to a minimum. Therefore, comity is justified as rational means to accomplish the end of minimization of the international transaction costs or maximization of the global wealth from the utilitarian perspective.

  • 2. Contractarian Perspective

Foreign judgment recognition becomes strategic from the contractarian perspective. Strategic behavior arises when two or more individuals interact and each individual’s decision turns on what that individual expects the others to do. 67) Here, a new analytic tool, called “game theory” is adequate for the analysis of foreign judgment recognition as a strategic behavior. In the following game theoretical analysis, it is assumed that foreign judgment recognition is a simultaneous game, since there is no guarantee whether the events in two countries can be arranged along the time sequence. 68)

67) Douglas G. Baird, Robert H. Gertner, Randal C. Picker, Game Theory and the Law (1994), Harvard University Press, p. 1 68) In contrast, a sequential game is the game where each player chooses its action one after the other. For a sequential game analysis, see Susan L. Stevens, Commanding International Judicial Respect: Reciprocity and the Recognition and Enforcement of Foreign Judgments, 26 Hastings Int’l & Comp. L. Rev. 115 (2002-2003) Importantly, in a sequential game, the later players must have the information of the first's

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A. When no Transaction Costs of Non-recognition is Assumed

If it is assumed that there is no transaction cost arising from non-recognition, the problem of foreign judgment recognition can be conceived as a problem of wealth distribution; a judgment is the enforcement measure of the wealth transfer, and its recognition is its trans-border extension. 69) Suppose that there are two countries that have only two extreme strategies for foreign judgment recognition: pure recognition strategy (strategy R) or pure non-recognition strategy (strategy N). Two countries know the strategy chosen by the other only after the game begins. Before this, the two countries will expect the most rational strategy from the opponent. r 1 and r 2 indicate C 1 ’s and C 2 ’s respective probability of foreign judgment recognition, and when strategy R is taken, then r 1 = 1 and r 2 = 1, and when strategy N is taken, then r 1 = 0 and r 2 = 0. Each strategy mix’s payoff as a change in the wealth of each country, P, can be

defined as G - L (G, L > 0) as follows.

1)

P 1 = G 1 – L 1 , P 2 = G 2 – L 2

P 1 , P 2 : payoff as a change in the respective wealth of C 1 and C 2 ; G 1 , G 2 : gain in the respective wealth of C 1 and C 2 ; L 1 , L 2 : loss in the respective wealth of C 1 and C 2

G indicates a gain in a country’s wealth that occurs when another county recognizes that country’s judgment. L indicates a loss in a country’s wealth that occurs when a country recognizes another country’s judgment. G can be expressed as the money amount of the claims ordered by the transnational judgment multiplied by the probability of recognition by the other country. Therefore, G can be expressed as follows:

2) G 1 = r 2 * J 1 , G 2 = r 1 * J 2

choice, otherwise the difference in time would have no strategic effect. 69) However, there could be some cases in which a foreign judgment at issue involves no transfer of wealth. If C 1 recognizes a C 2 ’s judgment ordering a C 2 ’s citizen to pay $ 1 million to another C 2 ’s citizen, there is no transfer of wealth between C 1 and C 2. The transfer of wealth occurs between the two citizens of C 2. The following economic analysis will deal with the cases of trans-border wealth transfer only.

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r 1 , r 2 : C 1 ’s and C 2 ’s respective probability of foreign judgment recognition; if strategy R taken, then r = 1, if strategy N taken, then r = 0. J 1, J 2 : transnational judgment’s amount of C 1 and C 2 , (J 1, J 2 > 0).

The gain of C 1 results in the corresponding loss of C 2 , and the gain of C 2 results in the corresponding loss of C 1 . 70) Therefore, the relations are as follows between G and L.

71)

3) G 1 = L 2 , G 2 = L 1 . Applying (2), (3) to (1), (1) can be transformed into (4).

4) P 1 = r 2 * J 1 - r 1 * J 2 , P 2 =

r 1 * J 2 - r 2 * J 1

Because when strategy R is taken, r 1 , r 2 = 1, and when strategy N is taken, r 1 , r 2 = 0,

strategy mix can be shown in Table 2. The payoff in the right of each cell is P 1 , and the payoff in the left of each cell is P 2 .

Table 2

   

C

1

Strategy R

Strategy N

 

Strategy R

J 2 - J 1

- J 1

C

2

 

J 1 - J 2

 

J 1

 

Strategy N

J 2

0

 

- J 2

 

0

Every cell is Pareto-optimal in this situation. Given a set of alternative allocations

70) For example, if C 1 recognizes C 2 ’s judgment ordering C 1 ’s citizen to pay $ 1 million to C 2 ’s citizen, there is $ 1 million of loss in the wealth of C 1 , and at the same time $ 1 million of gain in the wealth of C 2 . 71) However, Susan L. Stevens, Commanding International Judicial Respect: Reciprocity and the Recognition and Enforcement of Foreign Judgments, 26 Hastings Int’l & Comp. L. Rev. 115 (2002-2003), p137 ignored this relationship and instead, assumed that G 1 = L 1 and G 2 = L 2 on the assumption that in the long run they will approximate. Most of all, if this assumption is true, reciprocity needs not be considered, because the loss and the gain will be same in the long run irrespective of reciprocity. Additionally, this assumption is contradictory to the intuition from international litigation practice. There is no institutional coordination system to make the loss and the gain even in one country.

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and a set of individuals, a movement from one alternative allocation to another that can make at least one individual better off, without making any other individual worse off is called a Pareto improvement. An allocation of resources is Pareto-optimal or Pareto- efficient when no further Pareto improvements can be made. Again, here every cell is Pareto-optimal in the sense that the respective total wealth change in the respective strategy mix is equal (= 0). Which is the dominant strategy between strategy R and strategy N? If C 1 takes strategy R, P 2 is J 2 - J 1 when strategy R taken, and J 2 when strategy N taken. Since J 2 - J 1 < J 2 , rational C 2 will take strategy N responding C 1 ’s strategy R. If C 1 takes strategy N, P 2 is - J 1 when strategy R taken, and 0 when strategy N taken. Since - J 1 < 0, rational C 2 will take strategy N responding to C 1 ’s strategy N. If C 2 takes strategy R, P 1 is J 1 - J 2 when strategy R taken, and J 1 when strategy N taken. Since J 1 - J 2 < J 1 , rational C 1 will take strategy N responding C 2 ’s strategy R. If C 2 takes strategy N, P 1 is - J 2 when strategy R taken, and 0 when strategy N taken. Since - J 2 < 0, rational C 1 will take strategy N responding C 2 ’s strategy N. Accordingly, in this situation the dominant strategy for each country is strategy N, and neither country will change its strategy. This situation is called the Nash equilibrium. 72) In this game, the Nash equilibrium is the mix of strategy NN in the right bottom cell of Table 1. For example, suppose that J 1 = $ 2 million, and J 2 = $ 1 million, which means that C 1 has more judgment claim to enforce than C 2 by $ 1 million. If both countries recognize each other’s judgments, then C 1 will gain $ 2 million and lose $ 1 million and C 2 will gain $ 1 million and lose $ 2 million. However, if both countries deny the recognition of the

72) The Nash equilibrium is a stable state of strategy choice for games involving two or more players, where no player has anything to gain by only changing one's own strategy. If there is a set of strategies for a game where no player can benefit by changing his strategy while the other players keep their strategies unchanged, then that set of strategies and the corresponding payoffs constitute the Nash equilibrium.John F. Nash Jr., Non-cooperative Games (1950), The Annals of Mathematics, 2nd Ser., Vol. 54, No. 2 (Sep., 1951), pp. 285-295, The concept of the Nash equilibrium was originated by John F. Nash Jr. A game may have a pure strategy Nash equilibrium or a mixed strategy Nash equilibrium. Nash proved that, if we allow mixed strategies (players choose strategies randomly according to pre-assigned probabilities), then every n-player game in which every player can choose from finitely many strategies admits at least one Nash equilibrium. The fixed point theorem of Brouwer provides the sufficient, though not necessary, conditions for existence of a Nash equilibrium.

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other's judgment, then neither C 1 nor C 2 gain or lose anything. Each country's payoff is highest when it takes Strategy N, while the other takes Strategy R. To avoid this opportunistic exploitation, each country will take the dominant strategy: Strategy N. This can be seen in Table 3. In the above example, C 1 , a country that has more judgment claims than another country, C 2 , has an incentive to try to persuade and argue that all the judgments should be recognized, since P 1 under Strategy RR is larger than under Strategy NN ($ 1 million > $ 0). Therefore, those countries that exercise larger international jurisdiction have more incentive to recognize foreign judgments than other countries that exercise smaller international jurisdiction. However, as seen above, the Nash equilibrium will lead the countries to choose Strategy N despite this incentive.

Table 3

   

C

1

Strategy R

 

Strategy N

   

- $ 1 million

- $ 2 million

 

C

Strategy R

 

$ 1 million

$ 2 million

2

Strategy N

$ 1 million

 

0

 

- $ 1million

 

0

This result raises the question: why have foreign judgment recognition systems been institutionally created in spite of the fact that non-recognition is the dominant strategy for a rational decision maker?

B. When Certain Transaction Costs of Non-recognition are Assumed

Since the foreign parties will avoid transactions with those in the country notorious for non-recognition, the parties in that country will experience greater difficulty in searching and bargaining with their counterparts in another country. Now, suppose that such transaction costs arising from non-recognition are T. Then, if a country takes Strategy N, then parties of that country will experience the transaction costs of T. For

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the simplicity of explanation, assume that T is the same in each country. 73) Then, Table 2 above would be changed into Table 4.

In this situation, the Nash equilibrium will vary depending on the relative sum of J 1 , J 2 , and T. Supposing that J 1 > J 2 > 0, the following three situations could arise depending on the amount of T: (1) T > J 1 > J 2 > 0, (2) J 1 > T > J 2 > 0, and (3) J 1 > J 2 > T > 0.

Table 4

   

C

1

 

Strategy R

 

Strategy N

 

Strategy R

J 2 - J 1

-

J 1

C

   

J 1 - J 2

 

J 1 – T

2

Strategy N

J 2 – T

-

T

   

- J 2

 

- T

(1) If T > J 1 > J 2 > 0, then the dominant strategy for each country is Strategy R, and Nash equilibrium is Strategy RR. Now suppose that T = $ 3 million, J 1 = $ 2 million, J 2 = $ 1 million, and consider Table 5. J 1 - J 2 (= $1 million) > J 1 - T (= - $1 million), and - J 2 (= - $ 1 million) > - T (= - $ 3 million), therefore, the dominant strategy for C 1 is Strategy R. J 2 - J 1 (= - $ 1 million) > J 2 - T (= - $ 2 million) and - J 1 (= - $ 2 million) > - T (= - $ 3 million), therefore, the dominant strategy for C 2 is Strategy R. The Nash equilibrium is Strategy RR.

Table 5

 

C

1

Strategy R

Strategy N

 

Strategy R

  • - $ 2 million

$ 1 million

-

C

$ 1 million

-

$ 1 million

2

Strategy N

  • - $ 3 million

$ 2 million

-

- $ 1million

-

$ 3 million

73) Just for the simplicity of the analysis, the transaction costs arising from non-recognition was assumed equal between C 1 and C 2 . In fact, there is no guarantee that the transaction costs would be always equal between C 1 and C 2 .

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(2) If J 1 > T > J 2 > 0, then the dominant strategy for C 1 is Strategy R, and the dominant strategy for C 2 is Strategy N. The Nash equilibrium is Strategy RN. Now suppose that T = $ 1.5 million, J 1 = $ 2 million, J 2 = $ 1 million, then the game will become Table 6. Here, J 1 - J 2 (= $ 1 million) > J 1 - T (=$ 0.5 million), and - J 2 (= - $ 1 million) > - T (= - $ 1.5 million), therefore the dominant strategy for C 1 is Strategy R. J 2

  • - J 1 (= - $ 1 million) < J 2 - T (= - $ 0.5 million) and - J 1 (= - $ 2 million) < - T (= - $ 1.5 million), therefore the dominant strategy for C 2 is Strategy N. The Nash equilibrium is

Strategy RN. The RN Strategy is of course non-Pareto optimal. The Pareto optimum is Strategy RR.

Table 6

 

C

1

Strategy R

Strategy N

C

2

Strategy R

- $ 1 million $ 1 million

- $ 2 million $ 0.5 million

   

- $ 0.5 million

  • - $ 1.5 million

Strategy N

- $ 1million

  • - $ 1.5 million

(3) If J 1 > J 2 > T > 0, then the dominant strategy for each country is Strategy N. The Nash equilibrium is Strategy NN. Now suppose that T = $ 0.5 million, J 1 = $ 2 million, J 2 = $ 1 million, the game depicted in Table 7. Here, J 1 - J 2 (= $ 1 million) < J 1 - T (=$ 1.5 million), and - J 2 (= - $ 1 million) < - T (= - $ 0.5 million), therefore the dominant

strategy for C 1 is Strategy N. J 2 - J 1 (= - $ 1 million) < J 2 - T (= $ 0.5 million) and - J 1 (=

  • - $ 2 million) < - T (= - $ 0.5 million), therefore the dominant strategy for C 2 is Strategy N. Nash equilibrium is Strategy NN.

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Table 7

   

C

1

 

Strategy R

 

Strategy N

C

Strategy R

- $ 1 million $ 1 million

-

$ 2 million $ 1.5 million

2

Strategy N

$ 0.5 million - $ 1million

-

$ 0.5 million - $ 0.5 million

The situation of Table 7 is called the Prisoner’s dilemma. 74) Here, T is not large enough to deter each country from opportunistic behavior. The sum of each country’s wealth change is - $ 1 million in the Nash equilibrium, represented in the right bottom cell. However, the sum of each country’s wealth change is $ 0 (> - $ 1 million) in the left top cell which is Pareto-optimal. There is no automatic coincidence between the Nash equilibrium and the Pareto optimum. This is a typical example of the Prisoner’s dilemma. Among the above three cases, the Prisoner’s dilemma situation of Table7 is most realistic. At least for each rational individual party, if the amount of transaction costs exceeds the amount of the gain arising from a transaction, then the transaction itself could be created, that is, there could be no rational incentive for the transaction. Many

74) The classical prisoner's dilemma was created by a mathmatician, Alan W. Tucker in 1957. The original example was not written in an article, but introduced in a classroom. The original Prisoner’s Dilemma was explained as follows. The police arrested two suspects, A and B. The police have insufficient evidence for a conviction. Having separated the two prisoners, the officers visit A independently and offers him a deal: if A confesses and B remains silent, B gets the full 10-year sentence and A goes free. The same deal is offered to B. If they both stay silent, all the police can do is to give them both 6 months for a minor charge. If they both confess, they each get 6 years. Both of the two prisoners are completely selfish and their only goal is to minimize their own jail terms. They have two options: to cooperate with the other and stay quiet, or to betray the other and confess. The outcome of each choice depends on the other’s choice, but they don't know what choice the other will make. Even if they can know the other’s choice later, if they can know the other’s choice only after they have made the choice, then the conclusion does not change. In this game situation, confessing is a dominant strategy for both players. No matter what the other player's choice is, a player can always reduce his sentence by confessing. Unfortunately for the prisoners, this leads to a poor outcome where both confess and both get heavy jail sentences. This is the core of the dilemma.

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times, micro-motives in individuals determine macro-behavior of a country. 75) Now, the paradox is that both countries are acting "rationally", but producing an apparently "irrational" result in the sense that the result would not be Pareto-optimal. How can we solve this dilemma? The answer is to keep games repeated.

C. The Solution of Repeated Prisoner’s Games As seen above, the equilibrium strategy for the one-time prisoner’s dilemma game is the dominant strategy for each, i.e. simply defection. However, in “repeated prisoner’s dilemma games,” the equilibrium strategy depends on the likely strategies of opponents, and how they react to the player’s own defection or cooperation. Since foreign judgment recognition is inevitable even in the future, the courts should consider not only the past but also the future. The key results concerning the repeated games, often called “folk theorems,” 76) delineate the set of equilibrium outcomes in situations where the future looms large in the players’ assessments of their prospects. Typically, the folk theorems show that, under certain conditions, 77) any feasible and individually rational payoff of a stage game is an average equilibrium payoff in the corresponding repeated game. 78) Folk theorems are central to understanding repeated games. Actually, these theorems became already common knowledge among game theorists before the papers using them have been published. Folk theorems show that a broad range of strategy combinations may form equilibrium of repeated games. Hence, one cannot point to any strategy combination as the combination of strategies the players are likely to adopt. 79)

75) Thomas C. Schelling, Micromotives and Macrobehavior (1978), New York: Norton 76) They are called “folk” theorems because just as well-known stories deeply embedded in a culture and whose authors are unknown are called “folk” stories. 77) These various conditions include full dimensionality conditions or non-equivalent utility conditions, which are beyond the scope of this article. For more detailed explanations about the folk theorems, see Dilip Abreu, Prajit K. Dutta, Lones Smith, The Folk Theorem for Repeated Games: A Neu Condition (Jul. 1994), Econometrica, Vol. 62, No. 4, pp. 939 – 948, Drew Fudenberg, David Levine, Eric Maskin, The Folk Theorem with Imperfect Public Information (Sep. 1994) Econometrica, Vol. 62, No. 5, pp. 997 –

1039

78) Quan Wen, The “Folk Theorem” for Repeated Games with Complete Information, Econometrica, Vol. 62, No. 4 (July, 1994), pp. 949 - 954 79) Douglas G. Baird, Robert H. Gertner, Randal C. Picker, Game Theory and the Law (1994), Harvard

University Press, pp. 307 - 308

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What, then, is the best strategy for a player who wants the Pareto optimal result? Robert Axelrod explored the issue of whether cooperation could emerge even in the repeated Prisoner’s dilemma games. In this situation, the players choose their respective strategy repeatedly, having memory of their previous encounters. Axelrod invited academic colleagues all over the world to devise computer strategies to compete in a tournament. Here, the best deterministic strategy was found to be the Tit-for-Tat strategy, which Anatol Rapoport developed and entered into the tournament. 80) It was the simplest of any program entered, but won the contest. The strategy was simply to cooperate on the first iteration of the game; after that, do what the opponent did on the previous move. By analyzing the top-scoring strategies submitted to the tournament, Axelrod stated four conditions necessary for a strategy to be successful in his early studies. 81) The four conditions were to be “nice,” “forgiving,” “non-envious,” and “retaliating.” To be “nice” means not to defect before being defected. To be “forgiving” means to be “nice” again even after being defected once, if the opponent cooperates again. To be “non-envious” means not to strive to score more than the opponent. The last condition, to be “retaliating”, needs more careful consideration. To be “retaliating” means to defect upon being defected. At first, Axelrod contended the successful strategy must always “retaliate.” 82) In later studies, however, Axelrod argued that there could be an emergence of cooperation without “retaliation” or “reciprocity.” 83) Recently he focuses rather on a similarity, or a “tag.” In the context of foreign judgment recognition, the compatibility among the institutions can be considered as the “institutional tag.” In this sense, we could suppose that “compatibility” rather than “reciprocity” among the institutions would more easily bring about the basis for mutual

80) Robert A. Axelrod, Effective Choice in the Prisoner’s Dilemma, The Journal of Conflict Resolution, Vol. 24, No. 1 (Mar. 1980), 3-25, Robert Axelrod, More Effective Choice in the Prisoner’s Dilemma, The Journal of Conflict Resolution, Vol. 24, No. 3 (Sep. 1980), 379-403 81) Robert Axelrod, The Evolution of Cooperation. New York: Basic Books, 1984 82) Ibid. 83) Rick L. Riolo, Michael D. Cohen, Robert Axelrod, Evolution of Cooperation without Reciprocity, Vol. 414, Nature (22 Nov. 2001), pp. 441 – 443. However, there is a strong criticism concerning the possibility of “bias,” Karl Sigmund, Martin A. Nowak, Tides of Tolerance, Vol. 414, Nature (22 Nov. 2001), p. 403, p. 405, and also a strong criticism that there was a methodological problem in their simulation experiments. Gilbert Roberts, Thomas N. Sherratt, Does Similarity Breed Cooperation? Vol. 418, Nature (1 Aug. 2002), pp. 499 – 500. There is a defense from Rick L. Riolo, Michael D. Cohen, Robert Axelrod, Reply to “Does Similarity Breed Cooperation?” Vol. 418, Nature (1 Aug. 2002), p. 500.

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judgments recognitions. Therefore, the conclusive policy suggestion for getting a behavior of cooperation can be boiled down to this: to keep the games repeated, that is, to be “nice,” “forgiving,” and “non-envious,” and to share the “major institutional tag” “repeatedly” in granting the recognition of every foreign country’s judgment. As far as the games keep repeated, the lessons of “folk theorems” would be effective. Now turn to the solution of the “rule of reciprocity” in the following part.

. Economic Analysis of Reciprocity in Foreign Judgment Recognition

Behavior based on the rule of reciprocity or “reciprocation” is distinguished from rational cooperation or rational retaliation in the sense that while the latter are taken based on the expectation that future benefits from these actions exceed their costs, the former is a behavior conditional on the other’s beneficial or harmful action irrespective of rational cost-benefit analysis. 84) Reciprocation is also distinguished from altruistic cooperation or antagonistic aggression in the sense that while the latter actions are unconditional, reciprocation is always conditional on the other’s behavior. 85 ) For example, once a country is obsessed by the legal spell of “retaliation” and the country behaves not rationally but “reciprocally,” the country would punish another country's non-recognition by non-recognition regardless of the cost-benefit analysis.

What will happen if we assume that countries are economically rational, but that their rationality is controlled by the rule of reciprocity? In a strategic game, the rule of reciprocity means certain constraints in the rational choice of strategy. 86) A country

84) Ernst Fehr, Simon Gächter, Fairness and Retaliation: The Economics of Reciprocity (Summer 2000), The Journal of Economic Perspectives, Vol. 14, No. 3, pp. 159 - 181 85) Ibid.

86) Francesco Parisi, Nita Ghei, The Role of Reciprocity in International Law, 36 Cornell Int’l. L. J. 93

(2003-2004) Parisi proposes a model where the payoff for each player was assumed to be the

same. .

This,

however, is not a realistic assumption in the foreign judgment recognition context. The payoff of the judgment creditor and the judgment debtor cannot be the same. (Why? Explain. Wouldn’t it also be true

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controlled by the rule of reciprocity is constrained to take the same strategy as that of the other. For example, if C 1 is controlled by the rule of reciprocity, then C 1 ought to choose the same strategy chosen by C 2 . If C 2 is controlled by normative reciprocity, then C 2 ought to choose the same strategy chosen by C 1 .

Table 8

   

C

1

Strategy R

Strategy N

 

Strategy R

J 2 - J 1

- J 1

C

2

 

J 1 - J 2

 

J 1

 

Strategy N

J 2

0

 

- J 2

 

0

Come back to the example of Table 2, where no transaction costs were assumed. If C 1 is controlled by the rule of reciprocity, then C 1 will choose the same strategy chosen by C 2 . If C 2 is controlled by the rule of reciprocity, then C 2 will choose the same strategy chosen by C 1 . Therefore there can be only two strategy mixes for the players shown as the gray area in Table 8: both take Strategy R or both take Strategy N. Under this situation, compare the left top cell (Strategy RR) and the right bottom cell (Strategy -NN). If J 1 > J 2 , then C 1 will prefer Strategy RR situation to Strategy NN situation (J 1 - J 2 > 0), and C 2 will prefer Strategy NN situation to Strategy RR situation (J 2 - J 1 < 0). Therefore, there can be two cycles here. One cycle is virtuous. C 1 ’s judgment is recognized in C 2 , since C 2 ’s judgment is recognized in C 1 , and C 2 ’s judgment is recognized in C 1 , since C 1 ’s judgment is recognized in C 2. The other cycle, however, is vicious. The recognition of C 1 ’s judgment is denied in C 2 , since the recognition of C 2 ’s judgment is denied in C 1 , and the recognition of C 2 ’s judgment is denied in C 1 , since the

that the payoff would not be true in any context? Parisi assumes, and so do you – see FN 94 for a related comment.) Reciprocity lies only in the constraints of the strategy choice, not in the sameness of the payoff.

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recognition of C 1 ’s judgment is denied in C 2. Here, it cannot be predicted which cycle will appear, since the two countries’ incentives are in conflict. 87) Likewise, if J 1 < J 2 , then C 1 will prefer Strategy NN to Strategy RR (J 1 - J 2 < 0), and C 2 will prefer Strategy RR to Strategy NN (J 2 - J 1 > 0). Therefore, there can be also two cycles here, and it cannot be predicted which cycle will appear. This result is illustrated in Table 9.

Table 9

 

C

1

Strategy R

Strategy N

C

Strategy R

- $ 1 million $ 1 million

- $ 2 million $ 2 million

2

 

$ 1 million

$ 0

Strategy N

- $ 1million

 

$ 0

Come back to Table 3, where J 1 = $ 2 million, and J 2 = $ 1 million, which means that C 1 has more judgment claims to enforce than C 2 by $ 1 million. If both countries recognize each other’s judgments, then C 1 will gain $ 2 million and lose $ 1 million and C 2 will gain $ 1 million and lose $ 2 million. Here, opportunistic behavior would be eliminated by the rule of reciprocity. However, there can be also two cycles here, and it

87) In a sequential game situation, it can be explained like this. If J 1 > J 2 , then C 1 will prefer Strategy RR situation to Strategy NN situation, and C2 will prefer Strategy NN situation to Strategy RR situation. On the one hand, if C 1 becomes the first mover, then C 1 will choose Strategy R, since it prefers Strategy RR situation and knows that C 2 will choose Strategy R controlled by the normative reciprocity. On the other hand, if C 2 becomes the first mover, then C 2 will choose Strategy N, since it prefers Strategy NN situation and knows that C 1 will choose Strategy N controlled by the normative reciprocity. Therefore, depending upon who takes the first move, there could be two cycles possible. However, it cannot be predicted which cycle will appear either, since it cannot be predicted which country will be the first mover. Susan L. Stevens, Commanding International Judicial Respect: Reciprocity and the Recognition and Enforcement of Foreign Judgments, 26 Hastings Int’l & Comp. L. Rev. 115 (2002-2003), p137 assumed that the U.S. was the first mover in all the games and concluded that there would be a virtuous cycle if reciprocity requirement should be introduced in the proposed federal law. However, there is always a danger of the vicious cycle depending upon who will be the first mover and the amount of judgment claims.

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cannot be predicted which cycle will appear. What will happen if we take into account the transaction costs arising from non-recognition? Come back to the example of Table 4, where the existence of transaction costs was assumed. If C 1 is controlled by the rule of reciprocity, then C 1 will choose the same strategy chosen by C 2 . If C 2 is controlled by the rule of reciprocity, then C 2 will choose the same strategy chosen by C 1 . Therefore, as in Table 8, there can only be two strategy mixes for the players shown in the gray areas in Table 10: both take Strategy R or both take Strategy N.

Table 10

   

C

1

 

Strategy R

 

Strategy N

 

Strategy R

J 2 - J 1

-

J 1

C

2

 

J 1 - J 2

 

J 1 – T

   

J 2 – T

-

T

Strategy N

 

- J 2

 

- T

In this situation, comparing Strategy RR of the left top cell and Strategy NN of the right bottom cell, the game will vary depending on the relative sum of J 1 , J 2 , and T. T, here, means transaction costs. There could be three situations: (1) T > J 1 > J 2 > 0, (2) J 1 > T > J 2 > 0, and (3) J 1 > J 2 > T > 0 (1) Table 11 considers what will happen if T > J 1 > J 2 > 0, e.g. if T = $ 3 million, J 1 = $ 2 million, J 2 = $ 1 million. Under this situation, compare the left top cell (Strategy RR) and the right bottom cell (Strategy NN). In the gray area, since J 1 - J 2 (= $1 million) > - T (= - $3 million) for C 1 , and J 2 - J 1 (= - $ 1 million) > - T (= - $ 3 million) for C 2 , both C 1 and C 2 will take Strategy R. This is the case of a virtuous cycle.

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Table 11

[Vol. 3, No.2 : 101~139

 

C

1

Strategy R

 

Strategy N

   
  • - $ 1 million

-

$ 2 million

Strategy R

$ 1 million

-

$ 1 million

C

2

 
   
  • - $ 2 million

-

$ 3 million

Strategy N

  • - $ 1million

-

$ 3 million

(2) Table 12 considers what will happen if J 1 > T > J 2 > 0, e.g. if T = $ 1.5 million, J 1 = $ 2 million, J 2 = $ 1 million. Under this situation, compare the left top cell (Strategy RR) and the right bottom cell (Strategy NN). In the gray area, since J 1 - J 2 (= $1 million) > - T (= - $1.5 million) for C 1 , and J 2 - J 1 (= - $ 1 million) > - T (= - $ 1.5 million) for C 2 , both C 1 and C 2 will take Strategy R. This is also the case of a virtuous cycle.

Table 12

 

C

1

Strategy R

 

Strategy N

 

Strategy R

  • - $ 1 million $ 1 million

-

$ 2 million $ 0.5 million

C

2

 
   
  • - $ 0.5 million

-

$ 1.5 million

Strategy N

  • - $ 1million

- $ 1.5 million

(3) Table 13 considers what will happen if J 1 > J 2 > T > 0, e.g. if T = $ 0.5 million, J 1 = $ 2 million, J 2 = $ 1 million. Under this situation, compare the left top cell (Strategy RR) and the right bottom cell (Strategy NN). In the gray area, since J 1 - J 2 (= $1 million) > - T (= - $ 0.5 million) for C 1 , while J 2 - J 1 (= - $ 1 million) < - T (= - $ 0.5 million) for C 2 , C 1 will take Strategy R, while C 2 will take Strategy N. Therefore there will be either a case of vicious cycle or a case of virtuous cycle. Here, it cannot be predicted which cycle will appear, since the two countries’ incentives are in conflict.

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Table 13

   

C

1

 

Strategy R

 

Strategy N

 

Strategy R

- $ 1 million $ 1 million

-

$ 2 million $ 1.5 million

C

2

 
 

Strategy N

$ 0.5 million - $ 1million

-

$ 0.5 million - $ 0.5 million

To sum up, if the transaction costs arising from non-recognition are higher than the amount of judgments of at least one country, reciprocity is effective. Such a context exemplifies an appropriate circumstance for reciprocity requirements. However, if the transaction costs arising from non-recognition are lower than the amounts of judgments themselves in both countries, then there could be two kinds of cycles: virtuous and vicious, and it cannot be predicted which cycle would appear. As seen above, the most probable case of the real world is the third, the Prisoner’s Dilemma situation. Again, the rule of reciprocity is not the most effective means to draw recognition from the foreign countries. One could argue that the virtuous cycle may appear. However, the reciprocity requirement will become a cause of the vicious cycle of non-recognition also through the effects of psychological aspects in foreign judgment recognition system, as seen below. Indeed, knowledge of the behavior of reciprocity is frequently used in daily life. For example, charities rely on people’s behavior of reciprocity to help them raise funds. 88) However, it does not follow that the rule of reciprocity will necessarily create the behavior of reciprocity. Researchers have pointed out the existence of “crowding-out-effect” by which the rule of reciprocity may crowd out the “voluntary cooperation” under certain circumstances. 89) For example, many managers stress that

88) Robert C. Cialdini, Harnessing the Science of Persuasion, Harvard Business Review (Oct. 2001) p. 75 For more social psychological explanations about the psychological influence, see Robert C. Cialdini, Influence: Science and Practice 4 th ed. (2001), Allyn & Bacon 89) Ernst Fehr, Simon Gächter, Fairness and Retaliation: The Economics of Reciprocity (Summer 2000), The Journal of Economic Perspectives, Vol. 14, No. 3, pp. 159 - 181

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explicit punishment, namely, “reciprocation” should be rarely used as a way to obtain cooperation from employees because of its negative effects on work atmosphere. 90) In a series of experiments, the average effort of the employee was found lower in the presence of explicit reciprocation, which was a fine in case of verified shirking. 91) In other words, not only in terms of transaction costs, but also in terms of psychological effects, the rule of reciprocity can be a serious impediment to the achievement of the behavior of reciprocity.”

. Conclusion

As seen above, (1) reciprocity-bounded rationality entails instability and unpredictability, rather than stability and predictability in each country’s judicial behavior in the game-theoretic Prisoner’s dilemma, which is the most probable case in the real world, and (2) normative reciprocity may crowd out the voluntary cooperation or real reciprocity under certain circumstances. The U.S. foreign judgment recognition system has been criticized mainly for two reasons. One is the lack of predictability, and the other is the lack of reciprocity. On the one hand, criticisms about the lack of predictability came from the outside of the U.S. The U.S. has a very complicated foreign judgment recognition system compared with those of other countries. For example, in South Korea, basically only one provision of the Civil Procedure Act governs the whole issue of foreign civil judgment recognition, whether the judgment concerns commercial matters or family matters. But in the U.S., the issue of the applicable law itself depends on various factors. Countries unfamiliar with the U.S. foreign judgment recognition system cannot predict in advance whether or not their judgments will be recognized in the U.S. On the other hand, some criticisms about the lack of reciprocity come from within

90) Truman Bewley, A Depressed Labor Market as Explained by Participants (1995), American Economic Review, Vol. 85, No. 2, Papers and Proceedings of the 107 th Annual Meeting of the American Economic Association, Washington, DC, Jan. 6 – 8, 1995, p. 252 91) Ernst Fehr, Simon Gächter, Do Incentive Contracts Crowd-Out Voluntary Cooperation? Working Paper No. 34, Institute for Empirical Research in Economics, University of Zurich

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U.S. Some American scholars point out that while the U.S. has been very generous in its recognition of the foreign judgments, those jurisdictions have not returned the favor. 92) They also have argued that the introduction of the reciprocity requirement is necessary for the U.S. judgments to be recognized with commitment by the foreign countries. The federalization of the foreign judgment recognition system and the establishment of the reciprocity requirement have been suggested as strongly recommended solutions for the above two problems. 93) If one federal statute could take the place of the present complex state-based system, it would reduce the information search costs arising from the differences among the state rules and the failure costs arising from unexpected frustration to collect the final economic objective of the judgment. Therefore, the legal environment of the U.S. would be interpreted as becoming more stable and predictable; and the international transactions would become more vitalized in the U.S. Accordingly, international transaction costs will decrease and international wealth will increase. However, the argument that the reciprocity requirement should be introduced seems rather “retaliating.” Non-recognitions based on considerations of institutional compatibility in the forms of public policy or due process requirements are not opportunistic. If the non-recognition of U.S. judgments were due to the opportunistic judicial intent to abuse U.S. foreign judgment recognition system or due to the lack of reciprocity under the foreign countries’ standards, then the threat of reciprocity in the federal statute would be a relevant response. In the most cases, however, what has caused non-recognitions of U.S. judgments has not been “lack of reciprocity” but “violation of public policy.” 94) Non-recognition of U.S. punitive damage award is a

92) Susan L. Stevens, Commanding International Judicial Respect: Reciprocity and the Recognition and Enforcement of Foreign Judgments, 26 Hastings Int’l & Comp. L. Rev. 115 (2002-2003) 93) Ronald A. Brand, Enforcement of Foreign Money Judgments in the United States: In Search of Uniformity and International Acceptance, 67 Notre Dame L. Rev. 253 (1991-1992), Hans Smit, Federalizing International Civil Litigation in the United States: A Modest Proposal, 8 Transnat’l L. & Contemp. Probs. 57 (1998), Susan L. Stevens, Commanding International Judicial Respect: Reciprocity and the Recognition and Enforcement of Foreign Judgments, 26 Hastings Int’l & Comp. L. Rev. 115 (2002-2003), Violeta I. Balan, Recognition and Enforcement of Foreign Judgments in the United States:

The Need for Federal Legislation, 37 J. Marshall L. Rev. 229(2003) 94) For German decision, Judgment of June 4, 1992, BGH Sen. Z., reprinted in 1992 ZEITSCHRIFT FÜR WIRTSCHAFT UND INSOLVENZPRAXIS 1256 (F.R.G.), see Joachim Zekoll, The Enforceability of American Money Judgments Abroad: A Landmark Decision by the German Federal Court of Justice, 30

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typical example. Most countries, even with reciprocity requirement, recognize the existence of reciprocity in relation to the U.S. The reciprocity requirement would increase the transaction costs by increasing the uncertainty about the final results of foreign judgment recognition in the U.S, because “reciprocity” is so abstract and complicated a concept that it cannot be interpreted as one single meaning in the complex institutional environment of real world. For example, “reciprocity” can be interpreted differently among U.S. states, and then we should deal with another problem of “conflict of reciprocity.” Even in the so-called civil law countries, the majority opinion is that the reciprocity requirement should be eliminated from the foreign judgment recognition system. 95) If the U.S. were to introduce the reciprocity requirement into the federal law, it would be adverse to the present direction of sound global legislative tendency, and further, be a serious impediment to the establishment of an international convention on this matter, considering the status and the impact of the U.S. on international legal regimes. Recently, the draft for approval of the Uniform Foreign Money Judgment Recognition Act (200_) took the position that the reciprocity should not be required as a basis of foreign judgment recognition. 96) This position is in clear contrast with that of the ALI. 97)

Colum. J. Transnat’l L. 641 (1992), for Japanese decision, Judgment of July 11, 1997, Heisei 5 (O) 1762, See http://courtdomino2.courts.go.jp/schanrei.nsf, this case is also famous as “Northcon case” or “Mansei case” among international practitioners. Kerry A. Jung, How Punitive Damages Awards Affect U.S. Businesses in the International Arena: The Northcon I v. Mansei Kogyo Co. Decision, 17 Wis. Int’l L. J. 489 (1999) 95) Wolfgang Wurmnest, Recognition and Enforcement of U.S. Money Judgments in Germany, 23 Berkeley J. Int'l L. 187 (2005) 96) Prefatory note of the Draft for Approval of the Uniform Foreign Money Judgment Recognition Act (200_), the 114 th year meeting of NCCUSL, Pittsburgh, Pennsylvania, 22 – 29 Jul. 2005, “In the course of drafting this Act, the drafters revisited the decision made in the 1962 Act not to require reciprocity as a condition to recognition of the foreign-country money judgments covered by the Act. After much discussion, the drafters decided that the approach of the 1962 Act continues to be the wisest course with regard to this issue. While recognition of U.S. judgments continues to be problematic in a number of foreign countries, there was insufficient evidence to establish that a reciprocity requirement would have a greater effect on encouraging foreign recognition of U.S. judgments than does the approach taken by the Act. At the same time, the certainty and uniformity provided by the approach of the 1962 Act, and continued in this Act, creates a stability in this area that facilitates international commercial transactions.” http://www.law.upenn.edu/bll/ulc/ufmjra/2005annmtgdraft.htm last visited Mar. 1. 2006 97) See, footnote 72

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Should the United States federalize this undesirable example of the reciprocity requirement to draw judicial cooperation from other countries? It is unchangingly up to the United States. However, as seen above, reciprocity requirements would be foolish from the global utilitarian perspective in Prisoner’s dilemma context. It should be noted that threatening the foreign countries with “reciprocity,” ignoring their inevitable internal limits of institutional compatibility in the foreign judgment recognition, would be very similar to "answering a fool according to his folly," and that the United States would fill the whole world with its “retaliator” rather than “cooperators.”

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