“This Agreement is Governed by UK Law” – Why do Governing Law and Jurisdiction Clauses Matter?

The phrases “governing law” and “jurisdiction” might seem like mere legal jargon. Coupled with the fact that these so-called “boilerplate” clauses are usually towards the end of a contract, they are often overlooked.

However, these clauses are important in determining how and where any disputes relating to the agreement will be resolved.

The clauses

The governing law clause specifies which country’s laws will be used to interpret and enforce the terms of a contract.

The jurisdiction clause determines which country’s courts will have the authority to hear and decide any disputes arising from the agreement.

Potential problems with the clauses

Whilst these clauses should appear in every contract, issues can arise if they are poorly drafted or omitted altogether.

Take the following examples:

• “This agreement is governed by UK law” and
• “The courts of the UK shall have exclusive jurisdiction over any dispute or claim arising out of or in connection with this agreement.”

At first glance, these clauses may seem clear. They appear to indicate that UK law will be used to interpret and enforce the terms of the contract and that the UK courts will have the authority to hear and decide any disputes arising from the agreement.

But what is UK law? And what are the UK courts?

The UK is made up of three distinct legal systems:

• The law of England and Wales;
• The law of Scotland; and
• The law of Northern Ireland.

Each legal system has its own laws and court structures, with only the Supreme Court of the United Kingdom hearing all cases (other than Scottish criminal cases).

This means that governing law and jurisdiction clauses that simply refer to “UK law” and “UK courts” are ambiguous.

Ambiguous or non-existent governing law and jurisdiction clauses can lead to a range of problems including:

• Delays in resolving disputes relating to the contract – if it is unclear which law applies or which court has jurisdiction, the parties may have to resolve these issues first before addressing the underlying dispute.
• Increased costs – disputes over governing law or jurisdiction often require expert evidence, legal advice from multiple jurisdictions, as well as additional legal proceedings – all of which can significantly increase costs.
• Unfavourable outcomes – ambiguity can result in the application of a governing law or jurisdiction that neither party intended, which can potentially affect the outcome of the dispute.
• Damaged business relationship – disputes over procedural issues can damage relationships between the parties, especially where there is already an underlying dispute.

How to avoid ambiguity

• Liaise with the other parties to agree which country’s law will govern and which country’s courts will have jurisdiction over the agreement.
• Consider the effect of the governing law and jurisdiction clauses when drafting or reviewing a contract, do the clauses reflect what the parties intend?
• Seek legal advice to ensure the clauses are appropriate for the parties’ intentions, particularly where international elements are involved.

How can we help?

If you are in a dispute with another party to a contract and have concerns as to the relevant governing law and jurisdiction, or if you are entering into a contract and would like a review of the legal implications of the terms, we offer a no-cost, no-obligation 20-minute introductory call as a starting point and in some cases, where appropriate, a fixed fee appointment.

Please email wewillhelp@jonathanlea.net providing us with any relevant information ensuring that any call we have is as productive as possible. After this call, we can then email you a scope of work, fee estimate (or fixed fee quote if possible), and confirmation of any other points or information mentioned on the call.

This article is intended for general information only, applies to the law at the time of publication, is not specific to the facts of your case and is not intended to be a replacement for legal advice. It is recommended that specific professional advice is sought before relying on any of the information given. © Jonathan Lea Limited.