Kara Sears
Governing law and jurisdiction are closely linked and are often dealt with together. However, they refer to two different things. A jurisdiction clause determines where a dispute arising in connection with a policy will be heard and by which court. Governing law, or choice of law, determines which location's law will be used to interpret the agreement and resolve the dispute. For example, a contract between two American companies located in California and Texas, respectively, would require the Governing Law to determine which of the two states' local laws would be applied.
| Characteristics | Values |
|---|---|
| Definition | Governing law (or "choice of law") and jurisdiction are closely linked but cover two different things. |
| Importance | Choice of law provisions is one of the most important clauses in any contract. |
| Purpose | Governing law provisions allow parties to agree that a particular state's laws will be used to interpret the agreement, even if they live in or the agreement is signed in a different state. |
| Flexibility | Parties can choose the laws of another country, which the English and Welsh courts are able to apply. |
| Complications | Choosing the laws of another country can overcomplicate what ought to be a straightforward and consistent position. |
| Expertise | Expert evidence of a different jurisdiction is needed to advise on the law and how it should be applied. |
| Data Privacy | If the work is primarily undertaken online, France's stronger data privacy laws may be important to consider. |
| Good Faith | Choosing the governing law of the smaller party in a contract where one party is significantly larger can be a show of good faith. |
| Legal Cultures | Jurisdictions are often banded together based on a common legal culture, with overarching legal principles that remain the same. |
| Examples | Examples of common legal cultures include English common law and Napoleonic civil law. |
| Contractual and Non-Contractual Obligations | Governing law provisions can cover both contractual and non-contractual obligations and disputes. |
| Dispute Resolution | An inconvenient forum for dispute resolution can be time-consuming and costly. |
| Exclusive vs. Non-Exclusive | Exclusive jurisdiction means only those courts will have jurisdiction to hear a dispute, while non-exclusive jurisdiction allows proceedings to be brought in any chosen jurisdiction. |
| Asymmetric Jurisdiction | An asymmetric jurisdiction clause allows party A to sue party B in any jurisdiction, but party B can sue party A only in the specified jurisdiction. |
| Uncertainty | If no governing law clause is included, the court hearing the dispute will first need to determine what law applies to the contract, adding uncertainty, time, and costs to the litigation. |
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What You'll Learn
Choice of law
For instance, in the United States, most choice-of-law rules are state laws. When a choice-of-law issue arises, a court will first research the laws of the jurisdictions connected to the dispute. If there is no conflict, the process ends. However, if a conflict exists, the court will determine whether the forum has enacted a statute that addresses the choice-of-law question and will apply the rule contained in that statute. In the US, the Uniform Child Custody Jurisdiction and Enforcement Act (UCCJEA) requires states to apply the law of the "home state," which is the forum that originally determined custody and maintenance.
In the United Kingdom, a contract issued in the UK typically follows the laws of England and Wales. However, parties can choose the laws of another country, which English and Welsh courts can apply, although this is unusual. Similarly, in the context of insurance contracts, all contracts of insurance on property, lives, or interests in a state are considered made in that state and are subject to its laws.
The choice of law is particularly relevant in cases with connections to multiple jurisdictions. In such scenarios, several factors are considered when selecting one jurisdiction's law over another's, and the choice of law rules facilitate the application of the proper law. One common approach is the traditional approach, which considers territorial factors such as the domicile or nationality of the parties and the location of relevant assets. However, courts may also adopt their own choice of law rules, and in some cases, the choice of law may require that a case be heard elsewhere, potentially leading to forum shopping.
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Jurisdiction
When drafting a contract, it is important to carefully consider the jurisdiction clause. This clause enables parties to specify the substantive law that will govern their rights and obligations. It is applied to interpret the contract and its effects in the event of a dispute, reducing uncertainty for all involved. Jurisdiction clauses can be exclusive or non-exclusive. Exclusive jurisdiction means that only specific courts will have the authority to hear the dispute, preventing parties from bringing proceedings in other jurisdictions. On the other hand, non-exclusive jurisdiction allows for more flexibility, enabling parties to bring proceedings in any chosen jurisdiction, as long as it aligns with the jurisdictional rules of the chosen court.
In certain situations, an asymmetric jurisdiction clause may be agreed upon, where one party has more flexibility in choosing a jurisdiction than the other. This typically occurs when there is an imbalance of power between the parties, such as between a lender and a borrower. However, it is important to note that not all countries recognize these asymmetric clauses, which can make enforcement challenging.
In summary, jurisdiction is a critical aspect of contract law, providing clarity on where disputes will be resolved. By carefully considering and drafting jurisdiction clauses, parties can ensure they have a mutually agreed-upon forum for resolving disputes, reducing uncertainty and potential costs.
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Contractual obligations
The "Governing Law and Jurisdiction" clause is an important aspect of any contract, as it specifies the legal framework that will be applied to interpret and enforce the terms of the contract. This clause also designates the location where any legal disputes will be resolved. Governing law and jurisdiction are closely linked and often addressed together, but they refer to slightly different things. The governing law determines the specific laws that will be applied to interpret the contract, while the jurisdiction clause stipulates the courts or legal systems that will handle any disputes.
When drafting a contract, it is crucial to include a well-crafted governing law and jurisdiction clause to mitigate risks, create legal clarity, and ensure that all parties understand their rights and obligations in the event of a dispute. This clause is particularly important when parties from different jurisdictions or legal cultures are involved, such as in international transactions or collaborations.
In some cases, the parties may agree to choose a governing law different from their respective jurisdictions. For example, they might select a neutral legal framework that both parties consider fair and acceptable. However, if they choose a foreign law, they must be prepared to provide expert evidence on that law to assist the court in resolving disputes correctly. This can increase the cost and complexity of litigation.
Additionally, it is worth noting that non-contractual obligations may also arise, and these are typically governed by the law of the country where the relevant damage or loss occurs. However, parties have the right to agree to submit their non-contractual obligations to the law of their choice, especially in commercial contexts where the agreement has been freely negotiated. This flexibility allows parties to tailor the legal framework governing their relationship to their specific needs and circumstances.
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Non-exclusive jurisdiction
For example, a non-exclusive jurisdiction clause might state that the English courts have jurisdiction over a dispute, but it could also be the case that another court in a different jurisdiction has jurisdiction according to their own jurisdictional rules.
The use of the term 'non-exclusive' is important. It means that, unlike with an exclusive jurisdiction clause, parties to a contract are not restricted to bringing proceedings in a particular jurisdiction. This means that a party to a contract can bring proceedings in a jurisdiction of their choice, and the opposing party cannot object to this.
It is important to note that, when drafting a non-exclusive jurisdiction clause, caution should be exercised as they can be drafted in various ways. For instance, if the parties want to be able to bring concurrent proceedings in multiple jurisdictions, this should be made clear in the drafting. Similarly, if the parties want to be able to bring proceedings in another unnamed jurisdiction, even after one party has brought proceedings in the named jurisdiction, this should also be specified in the drafting.
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Legal culture
The expression "legal culture" refers to the opinions, attitudes, values, and expectations of a distinct group, class, category, or jurisdiction with regard to law and legal institutions. It is a temporary outcome of interactions and occurs pursuant to a challenge and response paradigm.
Lawrence M. Friedman defines legal culture as "the network of values and attitudes relating to law, which determines when and why and where people turn to law or government, or turn away." It can be examined by reference to fundamentally different legal systems, as well as systems with a shared history and basis that are now influenced by factors encouraging cultural change.
In contrast, the People's Republic of China's legal culture has undergone dramatic changes since the 1978 reforms. Traditionally, Chinese society was governed by unwritten rules, personal relationships, and trust, analogous to gemeinschaft. However, modern Chinese society has embraced institutional, customary, and legal reforms, moving towards a rule of law uniformly enforced by a centralised state, analogous to gesellschaft. The challenges faced by China's legal culture include a piecemeal approach to lawmaking, neglect of human rights and individual liberties, and poor enforcement of laws.
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Frequently asked questions
A governing law, or "choice of law", determines the location whose law will govern any dispute between the parties if the contract is broken.
A jurisdiction clause stipulates where any dispute arising in connection with the policy will be heard. It relates to the competence of a court to resolve that dispute.
Yes, governing law and jurisdiction can be different. Governing law and jurisdiction clauses are closely linked and are often dealt with in the same place, but they cover two slightly different things. Jurisdiction refers to where a dispute will be resolved, while governing law indicates which state's law will be used to decide the dispute.
Governing law and jurisdiction clauses give contracting parties certainty about their rights, obligations, and the jurisdiction in which they can enforce their contract. It also reduces uncertainty for both parties.
Parties should consider governing law and jurisdiction clauses carefully when negotiating an agreement as an inconvenient forum for dispute resolution can be time-consuming and costly. Some factors to consider are the location of the parties, where the performance of the contract will take place, the remedies available, and the legal culture of the jurisdiction.
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