Governing law and jurisdiction clauses give contracting parties certainty about their rights, obligations and, importantly, the jurisdiction in which they can enforce their contract.
Governing Law Clauses
A governing law clause sets out which law governs the contract’s formation, construction and interpretation. The laws, principles, rights and remedies will be those of the state (or country) which is expressed to govern the contract.
This is particularly important if the parties to the contract are located in different states or countries. Unless the governing law and jurisdiction is expressed, it may be unclear which laws apply to the contract.
Parties to a contract can generally choose which law will govern their agreement, unless the choice would contravene statute or public policy.
In deciding which governing law will be most appropriate, consideration should be given to factors including the location of the parties, where performance of the contract will take place, the remedies available and the ability to enforce the agreement.
Jurisdiction Clauses
A jurisdiction clause expressly sets out which courts or tribunals have the power to hear a dispute which arises under the agreement. A jurisdiction clause enables parties to nominate a forum that they believe is the most appropriate.
An exclusive jurisdiction clause obligates parties to bring proceedings about a dispute under the agreement only in the jurisdiction specified. A non-exclusive jurisdiction clause nominates a preference but does not prevent parties from commencing proceedings in another jurisdiction.
In deciding the most appropriate forum to hear a potential dispute, parties should consider the governing law, where the agreement is to be performed and what is likely to be the most practical for the parties given the location of their businesses.
Parties should consider governing law and jurisdiction clauses carefully when negotiating an agreement as an inconvenient forum for dispute resolution can be time consuming and costly.
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