Governing Law and Jurisdiction Clause in International Contracts: A Guide for Businesses
International contracts are becoming increasingly commonplace for businesses as globalization continues to connect businesses and individuals across borders. These contracts govern the terms and conditions of business transactions between parties from different countries. One crucial element of international contracts is the governing law and jurisdiction clause. This clause determines the laws that will govern the contract and the country or court that will have the authority to resolve disputes.
The governing law and jurisdiction clause is essential for companies that want to minimize the risks of costly disputes that may arise from international contracts. In this article, we will discuss the importance of the governing law and jurisdiction clause and offer some tips for businesses that are creating international contracts.
What is the Governing Law and Jurisdiction Clause?
The governing law and jurisdiction clause is a contractual provision that determines the law that governs the contract and the court or country that has jurisdiction over any disputes that may arise. It is also sometimes called a choice of law and forum clause or a dispute resolution clause.
Why is the Governing Law and Jurisdiction Clause Important?
The governing law and jurisdiction clause is crucial because it sets the rules for any dispute resolution that may be necessary. The law that will govern the contract will likely affect the interpretation and enforcement of the terms of the contract, and the jurisdiction may affect the enforceability of any judgments or awards that result from any disputes.
Businesses should also consider the potential costs and inconvenience of disputes that may arise. For example, if a company signs a contract with a vendor in another country and does not include a governing law and jurisdiction clause, any dispute that arises will have to be resolved in the other country`s courts, which may have different procedures and costs than the company is familiar with. Additionally, the language barrier may make it difficult for a business to understand legal proceedings in a foreign language, which would increase the cost and complexity of any dispute resolution.
How to Draft a Governing Law and Jurisdiction Clause
When drafting a governing law and jurisdiction clause, it is essential to consider the following:
1. The law that will govern the contract – This decision may depend on several factors, such as where the parties are located, where the contract will be performed, and the nature of the transaction. It is often recommended to seek legal advice when choosing the governing law.
2. The jurisdiction that will hear disputes – This decision should be based on several factors, including the location of the parties, the governing law, and the nature of the transaction. The jurisdiction could include a specific court or a particular country, depending on the agreement of the parties.
3. The language of the governing law and jurisdiction clause – It is essential to ensure that the clause is drafted in a language that is easily understood by all parties.
4. The enforceability of the clause – It is essential to ensure that the governing law and jurisdiction clause is enforceable under the laws of the country in which disputes may arise.
The governing law and jurisdiction clause is an essential element in international contracts. It provides a framework for resolving disputes that may arise and determines the laws that will govern the contract. It is vital to draft the clause carefully and consider all relevant factors to ensure that the contract is enforceable and that the parties understand their rights and obligations under the agreement. Businesses should seek legal advice when drafting international contracts to ensure that the governing law and jurisdiction clause is correctly drafted and enforceable.