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Why should your international contracts include both governing law and jurisdiction clauses?

Within the international business community there is an ever increasing amount of discussion around governing law and jurisdiction clauses in international contracts. 

The first question people usually ask is whether they are the same thing.  That answer is easy, no they’re not!  Governing law and jurisdiction or dispute clauses are very different and should always be treated as such.  To try and put it as simply as possible the governing law will be the backbone of your contract, the legal blocks your contract has been built upon.  The jurisdiction (or dispute resolution) clauses within the contract set out where and how any disputes arising from the execution of the contract will be dealt with. 

As a result they are two very distinct sets of clauses and, as neither covers the other, any contract you enter into should not only include both but also clearly set out which law governs the contract (e.g. English law) and who would have jurisdiction should a dispute arise (e.g. the English Courts).

“This is particularly important as one will not be implicit from the inclusion of the other” explains Richard Howlett, a partner at Selachii, “just because a contract says it’s subject to English law, it won’t automatically be passed to the English Courts in the event of a dispute unless that is set out in the contract’s jurisdiction clauses.  This is where far too many businesses still get into trouble.  My advice is always to include both or the forum in which your dispute will be heard will be chosen for you.”

Given the international nature of business today, it’s easy to see just how much of a lottery that adjudication and allocation could be, Richard doesn’t disagree entirely:

“Yes, it could loosely be described as a bit of a lottery but in reality the final decision will come down to a couple of major factors.  If the defendant is from the EU then the Brussels' recast regulation dictates they would need to be sued in their country of residence or, if the sale of goods is involved, in the place where the goods were to be delivered.  Either of those locations might not be the best for you.”

However, geography won’t be your only concern if your contract doesn’t include a jurisdiction clause; you may also be leaving yourself open to the additional expense of coming to a legal agreement as to where your dispute will be heard and in Richard’s experience this benefits no one:

“Just coming to an agreement on where you’ll go to Court is likely to ramp up the total cost of the dispute and these additional costs should never be underestimated.  I’ve seen a number of cases fall apart at this stage because one or even both parties have run out of funds which meant the actual dispute was not even heard never mind settled!”   

Contact our specialist Contract Dispute Lawyers London

If you would like any advice on governing law and jurisdiction clauses or any other aspects of your commercial contracts or if you would like help with a specific contractual dispute, please call us today on 020 7792 5649 or email us at info@selachii.com

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