Jurisdiction and Governing Law Clauses: Why Both Matter

The Difference Between Governing Law and Jurisdiction

Governing law determines which country’s law applies to the interpretation and enforcement of the contract. Jurisdiction determines where disputes will be resolved, which court or tribunal has authority to hear the case.

These are separate questions. It is entirely possible, to choose English law as the governing law while agreeing that disputes will be resolved by arbitration in Singapore, or before the courts of another jurisdiction. The governing law clause will determine, for example, whether a clause is valid and enforceable. The jurisdiction clause will determine where that question gets litigated.

Why Governing Law Matters

Parties to a commercial contract are generally free to choose their governing law. English law is a popular choice in international contracts, valued for its predictability, developed body of commercial case law, and the sophistication of English courts.

However, the choice of governing law has real consequences:

• It determines how the contract is interpreted, the meaning of terms, the implication of obligations, the effect of exclusion clauses
• It governs questions of formation, validity, and performance
• It determines remedies available for breach, including whether penalties are enforceable
• In some circumstances, mandatory rules of another jurisdiction may override the chosen law

A common error is to include a governing law clause is using ‘UK Law’ as the governing law, there is no such thing, English Law and Scottish Law have contrasting provisions and so if you were to use ‘UK Law’ then this term would be void and the governing law would be ambiguous. If you wish to use English law you must state it, the same goes for Scottish law.

Why Jurisdiction Matters

A jurisdiction clause determines where a party must bring proceedings. English exclusive jurisdiction clauses are generally upheld by English courts, and, within the framework of bilateral treaties and domestic rules, can often be relied upon to resist foreign proceedings.

Exclusive vs Non-Exclusive Jurisdiction

Jurisdiction clauses can be exclusive or non-exclusive. An exclusive clause requires all disputes to be brought before the specified court. A non-exclusive clause provides a default forum but does not prevent a party from commencing proceedings elsewhere if they have grounds to do so.

For most commercial contracts, exclusive jurisdiction is preferable. It avoids parallel proceedings in multiple jurisdictions, which are expensive and tactically disruptive. Non-exclusive clauses are sometimes used where one party needs flexibility, for example, a lender who may need to enforce in whichever jurisdiction the debtor’s assets are located.

Arbitration as an Alternative

Where international enforcement is a concern, arbitration under a recognised institutional framework (such as the ICC, LCIA, or SIAC rules) often offers advantages over court litigation. Arbitral awards are enforceable in over 160 countries under the New York Convention, making them more portable than court judgments.

The trade-off is cost. Arbitration can be significantly more expensive than court proceedings, particularly at lower claim values. Consider whether arbitration is proportionate to the likely disputes under your contract.

A well-drafted governing law and jurisdiction clause takes about thirty seconds to read. Getting it wrong can cost years of litigation and significant uncertainty about where and how any dispute will be resolved.

For advice on drafting or reviewing jurisdiction and governing law provisions, please contact ourcorporate and commercial team for practical, tailored advice.