In our last edition of CK Construct, we published an article on
"Contract Negotiation Pitfalls", which focussed on the
important considerations for parties when they first negotiate the
terms in their contracts. This article focuses on governing law and
jurisdiction clauses that will routinely be included in your
contracts and some important issues about their effect if a dispute
Governing law clauses are important in any contract, but
particularly in contracts where the parties are based in different
States within Australia or different countries. A clear choice of
governing law brings certainty to the terms of the Contract.
Here are our top 5 tips when considering the effectiveness of
your governing law clause:
Ensure there is consistency between both the governing law and
jurisdiction clauses in your contract. If the two are inconsistent,
then a Judge may decide the terms are uncertain and deem both
clauses to be invalid. The parties will then not have any clauses
that outline the appropriate jurisdiction governing the contract
and the common law will apply
There may be a technical reason as to the choice of law you
select. For example, one Forum's court interpretation of
clauses is more liberal than others and you will get a better
result in any interpretation of contract dispute. Review the
Contract and consider whether there are any specific technical
aspects. Then, ensure that the law you select, actually recognises
the law surrounding that technical aspect. An example is where
English law recognises the concept of Trusts, as in family Trusts,
unit trusts and discretionary trusts, but many European countries
do not recognise this concept.
Ensure the clause is clear. This may seem straightforward but
clauses are given their ordinary meaning in Contracts, so parties
should ensure the wording is not overly technical or ambiguous.
"The law of New South Wales governs this contract" should
You should consider whether the clause cover both precontractual
and post-contractual dealings. For example, if the clause covers
pre-contractual dealings, then this may include the parties
"duty to act in good faith" or whether any claims might
arise from the negotiation of the contract. If you are induced to
enter into a contract based on statements or facts which you later
discover are untrue, then you should consider whether you want
there to be a contractual remedy available to you.
It would also be prudent for the parties to consider whether the
governing law selected will extend to alternative methods of
dispute resolution including arbitration, negotiation and/or
mediation. It is particularly important to consider whether you
want to engage in alternative dispute resolution or if you want the
right to commence proceedings. You can agree on a hybrid, so the
parties may agree the law of Queensland governs the contract but
the Commercial Arbitration Act 2010 (NSW) governs the
STATE OR COUNTRY
Ensure the legal system in which you elect to enforce the terms
of the contract will give effect to the governing law clause. If it
is an international contract, then the law of a country is required
to be clearly identified in the Contract.
Jurisdiction clauses are included in contracts to determine the
place in which proceedings must, or should, be commenced. A clause
outlining jurisdiction of the contract is primarily included for
Jurisdiction clause can either give exclusive jurisdiction to
the Courts in a particular place, or non-exclusive jurisdiction,
meaning the parties can still choose to litigate a dispute in
The parties should consider where the parties (businesses or
individuals) are located, where the transaction is being done, the
potential costs of the action and where all the primary witnesses
would be if a dispute arose. If all the witnesses are in New South
Wales (for example), then it makes sense to have the proceedings
You should also consider the location of any assets of the
parties to the contract. If you commence an action in Court and
subsequently obtain judgment, then there should be accessible
assets in the jurisdiction to satisfy the judgment.
As with any clause of a contract, the choice of jurisdiction
will be highly dependent upon the specific circumstances of the
parties, the transaction and the contractual rights and obligations
Parties should consider the following before agreeing to a
governing law and jurisdiction clause:
The location of the parties, witnesses and transaction;
The cost of commencing proceedings in any given location;
The location of the assets of the parties for the purposes of
enforcing any judgment obtained.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The Council announced planning policies to encourage more inner suburban retirement village and aged care development.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).