Essential Clauses in International Contracts: Governing Law Clauses and Jurisdiction Clauses – Practical Drafting Tips

Introduction

The essential clauses in international contracts serve as the backbone of cross-border business relationships. Among them, governing law clauses and jurisdiction clauses are critical for determining how disputes are resolved and which legal system applies to contractual rights and obligations. Poorly drafted clauses can expose companies to uncertainty, conflicting rulings, or unenforceable judgments. By contrast, carefully designed provisions provide predictability, reduce litigation risks, and safeguard investments.

This article explores governing law and jurisdiction clauses, offering practical drafting tips that reflect best practices in international contract law.

1. Governing Law Clauses

A governing law clause specifies the legal system that will apply to interpret the contract and resolve disputes.

Why It Matters

• Ensures certainty about applicable rules.
• Reduces conflicts of law in multi-jurisdictional contracts.
• Protects parties from unexpected mandatory provisions in foreign legal systems.

Drafting Tips

1. Be Specific: Always name a legal system clearly (e.g., “This Agreement shall be governed by and construed in accordance with the laws of England and Wales”).
2. Avoid Ambiguity: Do not simply state “international law applies” unless referring to a specific instrument (e.g., CISG, UNIDROIT Principles).
3. Consider Neutrality: In high-value contracts, choose a neutral law that both parties can trust (English, Swiss, or New York law are common choices).
4. Check Compatibility: Ensure the chosen governing law is enforceable in the jurisdictions where the contract will be performed.

2. Jurisdiction Clauses

A jurisdiction clause determines which court or tribunal will hear disputes.

Why It Matters

• Prevents forum shopping.
• Saves time and cost by pre-selecting a neutral forum.
• Enhances enforceability of judgments or arbitral awards.

Drafting Tips

1. Exclusive vs. Non-Exclusive Jurisdiction:
   • Exclusive jurisdiction ensures disputes are resolved in one court only.
   • Non-exclusive jurisdiction allows parties to pursue claims in multiple jurisdictions.
   • Choose carefully depending on commercial needs.
2. Arbitration as an Alternative:
   • Many international parties prefer arbitration (ICC, LCIA, ICSID) for neutrality and enforceability under the New York Convention.
   • Always specify the seat of arbitration, language, and applicable arbitration rules.
3. Alignment with Governing Law:
   • Ideally, select courts or tribunals in the same jurisdiction as the governing law for consistency.
   • However, neutral forums can also be chosen for political or commercial reasons.
4. Enforceability Concerns:
   • Confirm whether the chosen jurisdiction’s judgments or awards are enforceable in countries where counterparties hold assets.

3. Practical Example

Imagine a Turkish exporter signs a contract with a German buyer for goods to be shipped to the UAE. If the governing law is left unclear, disputes could trigger conflicting rules in three different systems. A properly drafted clause choosing Swiss law and ICC arbitration in Paris would provide neutrality, predictability, and enforceability.

Conclusion

The essential clauses in international contracts, particularly governing law clauses and jurisdiction clauses, provide the framework that protects parties against uncertainty in cross-border dealings. By carefully drafting these provisions—selecting a clear governing law, choosing exclusive or arbitral jurisdiction, and ensuring enforceability—businesses secure predictability and stability in global trade. In today’s interconnected economy, mastering the drafting of essential clauses in international contracts is not just prudent; it is a strategic necessity.

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