Disputes may arise when working with another business or party in your commercial operations. As a result, you must account for this risk when drafting or negotiating a contract. In particular, the governing law clause is a necessary clause to consider. A governing law clause dictates which body of law applies to the contract during a dispute. This article will explain the effect of governing law clauses and some essential considerations. <\/p>\n\n\n\n
All contracts contain terms that create obligations on the parties. While you rarely need to consider the terms when both parties perform their obligations, if something goes wrong or the parties disagree, the dispute may go to court, arbitration<\/a>, or alternative dispute resolution. In these instances, the adjudicator must know which body of law to interpret the terms. <\/p>\n\n\n\n This may strike you as odd. For instance, you may assume that a contract between two parties executed in England means that the laws of England & Wales automatically apply. While this is often the case, parties in the UK are free to specify another body of law to govern the contract. This flexibility is particularly relevant for parties with international operations<\/a>. <\/p>\n\n\n\n For example, you may have a supplier in France who prefers French law. In this case, they may negotiate for the governing law clause to be French law. This means that a court or other adjudicator will interpret the contract according to French law. <\/p>\n\n\n\n Some nations have bodies of law that are more favourable to parties under certain circumstances than others. For instance, lenders prefer English law because it generally favours creditors rather than debtors. Therefore, banks usually opt for English law, whereas borrowers may prefer debtor-friendly laws in countries like France. <\/p>\n\n\n\n The choice of governing law is often a strategic decision, considering the nature of the contract, industry norms, and the parties’ relative bargaining power.<\/p>\n<\/div>\n\n\n\n The law your contract specifies as its governing law is a matter of negotiation for the parties. Usually, the party with the stronger negotiating position chooses the governing law. Hence, you should consult a commercial solicitor<\/a> to understand the effects of the governing law clause on your agreement.<\/p>\n\n\n\n It is worth noting that the choice of governing law can have significant implications for how contractual terms are interpreted and enforced. Certain legal concepts may exist in one jurisdiction but not in another.\u00a0<\/p>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\nWhat Should I Consider When Choosing a Governing Law Clause? <\/h2>\n\n\n\n