Common use of Legal Disputes, American and English Rules Clause in Contracts

Legal Disputes, American and English Rules. Recall that cPT is equal to cˆPT un- der the American Rule and equal to (1 − p)(cˆPT + cˆTD) under the English Rule. Legal disputes of both types (outcome C and outcome S) are more likely under ΦUK than they are under ΦUS if cˆPT > (1 − p)(cˆPT + cˆDT ) = (1 − p)cT . If we hypothesize (Xxxxxxx, 1982) that small trial costs cT are typically a sign of small claims, we conclude that the English Rule works to encourage lawsuits by Plaintiffs with relatively small claims but relatively high probabilities of victory p. Conversely, the American Rule, since the litigation costs do not depend on p, encourages Plaintiffs with possibly lower

Legal Disputes, American and English Rules. Recall that cPT cFT is equal to cˆPT cˆFT un- der the American Rule and equal to (1 − p)(cˆPT p)(cˆFT + cˆTDcˆTQ ) under the English Rule. Legal disputes of both types (outcome C and outcome S) are more likely under ΦUK than they are under ΦUS if cˆPT cˆFT > (1 − p)(cˆPT p)(cˆFT + cˆDT cˆQT ) = (1 − p)cT . If we hypothesize (Xxxxxxx, 1982) that small trial costs cT are typically a sign of small claims, we conclude that the English Rule works to encourage lawsuits by Plaintiffs with relatively small claims but relatively high probabilities of victory p. Conversely, the American Rule, since the litigation costs do not depend on p, encourages Plaintiffs with possibly lower