Contract Law - Governing Law and Jurisdiction

What this page is about:

GOVERNING LAW & JURISDICTION

In a transaction with no foreign element involved it won't usually be necessary to specify the system of law which is to govern the transaction or the courts which are to have jurisdiction in the event of a dispute.  However, where any one or more of the following foreign elements are involved in a transaction, the parties would be well advised to consider governing law and jurisdiction issues.

The principal foreign element aspects that impact materially on a transaction are:

a)where the parties are not both located in the same country;

b)where one or more parties have more assets in one country than in another;

c)where the transaction is governed by the law of another country, e.g. because it could be considered that the contract was formed in that other country;

d)where the whole or part of the transaction is to be performed in another country.

Where any one or more of these foreign elements are present it will be appropriate for the parties to be precise regarding which system of law is to govern the contract, and which country's courts are to have jurisdiction in the event of a dispute.

Simplistically, parties will choose the system of law with which they are familiar, and such a choice of law will generally be respected by the courts of another jurisdiction - subject to matters of public policy and the mandatory laws of that other jurisdiction.

The question of which courts are to have jurisdiction in the event of a dispute, or where perhaps emergency enforcement of a contractual provision is sought, is also an issue.   The parties may wish to submit to the exclusive jurisdiction of the courts of one country, but this may not be wise where one party has material assets in another country, or it could be necessary to obtain immediate enforcement of contractual obligations in that other country.  Also, it's appropriate to consider whether there are reciprocal enforcement rights between separate jurisdictions.

The subject of governing law and jurisdiction is a complex one and legal advice should always be obtained.

A typical governing law and jurisdiction clause is as follows:

This Agreement (Contract) shall be governed by the laws of [     ] and the parties submit to the [exclusive/non-exclusive] jurisdiction of the courts of [      ] in respect of any dispute or difference between them arising out of this Agreement (Contract).

Note:  Be sure to specify your chosen system of law or jurisdiction correctly.

For example, when selecting English law state "the laws of England" or "the laws of England and Wales" not the laws of Great Britain or the laws of the United Kingdom.

And, when selecting governing law in a federal state such as the United States, you may need to specify the state, and the country.  For example, "the laws of the State of New York" not the laws of America or the laws of the USA.