There are a number of things that you should check out before you sign ANY contract however what I’m about to tell you is arguably one of the most important. When your business is doing well and the profits are booming, it’s hard to think about what happens if things go wrong between you and your client or you and your supplier. Well, regardless, lawyers go straight to the back of a contract to look at WHERE the parties battle it out if a lawsuit arises and WHICH LAW governs that battle. This is captured in each of the jurisdiction (WHERE) and governing law (WHICH) clauses. This post considers a UK law perspective however, jurisdiction and governing law are universal concepts (pretty much) so please look up your country’s equivalent.
Jurisdiction determines which country’s courts will hear any claim that is brought under the contract. Governing law is the law that will be applied by the courts to interpret each party’s rights and obligations under the contract. The two do not have to match, so for example the English courts could hear a dispute arising from a contract and apply French law to determine the outcome of the dispute. However, whilst the English courts are experienced in applying foreign laws, the French law must be PROVEN as a fact, usually by witness evidence from a qualified French lawyer. You can see how the costs can easily wrack up, witness evidence from a lawyer! Oh the fees! This is why lawyers tend to recommend that the jurisdiction and the governing law are the SAME to avoid uncertainty and to avoid the unnecessary costs of hiring lawyers as expert witnesses on top of hiring lawyers to actually represent you at court!
The jurisdiction and governing law clauses should be considered and agreed from the outset. You do not want to get to the point of suing or being sued only to learn that despite your business being domiciled and operating in the UK, you are having to fly all the way to Singapore because the other side snuck in a jurisdiction clause that the contract would be subject to the courts of Singapore and a governing law clause that the contract would be interpreted in accordance with Singapore Law. NIGHTMARE.
It is possible to draft one joint jurisdiction and governing law clause however contracts that want to be easily understood (hint hint) set the clauses out separately.
Here is an example of a governing law clause:
This agreement and any dispute or claim arising out of or in connection with it or its subject matter or formation (including non-contractual disputes or claims) shall be governed by and construed in accordance with the law of England and Wales.
Here is an example of a jurisdiction clause:
Each party irrevocably agrees that the courts of England and Wales shall have [exclusive/non-exclusive] jurisdiction to settle any dispute or claim arising out of or in connection with this agreement or its subject matter or formation (including non-contractual disputes or claims). Note: You can choose to submit the contract to just one country’s courts (exclusive jurisdiction) OR you can choose to allow the parties to commence proceedings in another country’s courts DESPITE stating a particular country in the contract (non-exclusive jurisdiction, this is very confusing and is usually only used in special circumstances).
I must tell you that jurisdiction can either be given to a country’s national courts (as above) OR to arbitration proceedings in an arbitration clause. Arbitration is similar to court proceedings but it is less formal and the parties effectively decide the rules that govern the process. It is also confidential (good for keeping high profile disputes out of the public). If you choose to use arbitration instead of court proceedings, governing law is still required. Arbitration is definitely a topic for another post, in fact many other posts, but for now just know that the option is there. So, with this knowledge, go review your contracts and ask your lawyers questions!
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2 thoughts on “Before you sign: Jurisdiction and Governing Law”
This is perfect – currently looking at a contract that has got drawn up by our lawyers on our behalf, so will bear all this is mind before sending a copy to the other party! Thank you. Keep dishing out the free information 🙂
Happy to help! Make sure you read every part of the contract and that you understand the objective of each clause! Keep being legally smart!