governinglaw

Governing law, also referred to as the proper law in some jurisdictions, is the law chosen by the parties to govern the interpretation, validity, and performance of a contract. A governing law clause designates which jurisdiction’s substantive rules will apply to the contract’s rights and obligations.

Governing law covers issues such as contract construction, formation, performance, breach, and remedies. It helps determine how terms are interpreted, how defects are assessed, and the availability and measurement of damages. The clause does not, by itself, decide where disputes will be heard, which is typically addressed by a separate forum or venue clause.

The choice of governing law interacts with conflict-of-laws rules and public policy. Courts generally apply the chosen law to the contract, but may refuse to enforce certain provisions if they violate mandatory rules of a jurisdiction with a closer or more significant connection to the transaction or if enforcement would contravene public policy. Some mandatory rules cannot be displaced by the parties’ chosen law.

In cross-border agreements, parties often select a familiar or neutral governing law, such as that of a major commercial jurisdiction, to reduce uncertainty and facilitate enforcement abroad. The selection can reflect considerations about predictability, interpretive rules, and alignment with other contract terms, including remedies, limitation periods, and risk allocation.

Overall, the governing law clause provides predictability and coherence for contractual disputes, while remaining subject to mandatory rules of applicable jurisdictions and, in some cases, to public policy considerations.