IP Insight – Jurisdiction and Governing Law Clauses

Jurisdiction and governing law clauses are nowadays present in all agreements as a means to providing more clarity in relation to the relevant legislation. Both parties in an agreement will want to choose the most favourable jurisdiction and governing law to them.

Where the parties of an agreement are both based in England and their business is based in England, they will likely include a clause stating that the courts of England and Wales shall have jurisdiction over the agreement and the laws of England and Wales will be applicable. However, issues can arise where the parties are based in different countries. 

What is a jurisdiction clause?

A jurisdiction clause is a provision included in an agreement stating which courts will be able to deal with any disputes resulting from the agreement. Let’s assume you are a clothing company based in England and you have a dispute arising from an agreement with a company based in Argentina. Having inserted a clause stating that the courts of England and Wales will be dealing with any disputes arising from the agreement will make it difficult for the Argentinian company to claim different jurisdiction.   

Why should I be interested in inserting a jurisdiction clause in my contract?

In case of a disagreement arising from the agreement, a jurisdiction clause will save both parties time and money from fighting on the most suitable jurisdiction. Furthermore, you will be in a better position as you can choose the jurisdiction that you are more familiar with or the jurisdiction that offers you most advantages. This will also save you money and time as you can choose the jurisdiction in which you are based.

What should I consider when choosing a jurisdiction?

You may want to consider the country where you’re based or where you’re conducting your business. Furthermore, you may choose depending upon your preferred judicial system. The location of potential witnesses and evidence might also be considered. You will want to choose an efficient judicial system. Depending upon you’re likely to sue or be sued, you may consider the remedies that the judicial system is offering for breach of contract. The ease of enforcing a judgment may also be considered. Seeking legal advice before drafting the contract should assist with this as your solicitor will likely consider all the above.

Does the clause need to refer to exclusive jurisdiction?

No, depending on your needs, you can choose an exclusive jurisdiction or non-exclusive jurisdiction clause.  The exclusive jurisdiction clause will limit any disputes arising from the agreement to one single jurisdiction while the non-exclusive jurisdiction clause leaves the possibility for other jurisdictions to be used if necessary.

What is a “governing law” clause?

Such a clause expresses the parties’ will for the system of law applicable to the agreement and its effect. Therefore, the laws of a particular country will govern the interpretation and performance of your commercial agreement.

Why is it important to include a “governing law” clause?

As mentioned above in relation to jurisdiction clauses, governing law clauses provide certainty in relation to parties’ desired system of law. You will be able to choose the most favourable system to you. The parties will most likely agree on the governing law clauses as they are essential to a commercial agreement. If such a clause is omitted, you are at risk at spending a large amount of money on disputes relating to the governing law of the agreement.

What should I consider when drafting a “governing law” clause?

More often than not, the governing law is usually chosen to be of the country in which the parties are based. You should make sure that there are no provisions in the agreement contradicting the governing law clause. This is important especially when you also have a jurisdiction clause as you will want to have some consistency in the two and choose the same legal system for both. You should also consider if there are any technical reasons for choosing a specific legal system and how that legal system might affect your agreement. Seeking and obtaining legal advice in relation to the governing law of your agreement will save you time and money.

Our Insight

Statement of jurisdiction and governing law in clauses can make a tangible difference to the contracts in which they are included. It creates more certainty for both parties about which law applies to the agreement and where disputes would be resolved. As such, for those not looking to be brought into foreign courts, or to accrue the associated costs, such clauses are some of the most crucial to include in agreements with an international scope.​