RELEVANCE OF GOVERNING LAW AND JURISDICTION CLAUSES IN AN AGREEMENT

Kalpana Borjha| Kalinga University| 12th June 2020  

Introduction

The laws through which the rights and liabilities of the parties in a contract or an agreement are determined are known as Governing laws. Jurisdiction is the power and authority of a court to hear, try, and decide a case. Clauses regarding both, governing law and jurisdiction are important in an agreement. These clauses are always clearly expressed in an agreement and also known as boilerplate clauses.

What is Governing Law?

Governing law is the law used in legal agreements and contracts in which ascertain the rights and duties of the parties (usually, companies and their clients) and declare which laws and rules are applicable between them in case of dispute or any other issue. These laws are typically found in Standard Terms and Conditions of the agreement.

These laws become more important for companies having a wider geographical reach and laws differ from country to country. When parties to an agreement belong to the same state, the law of the particular state shall be the Governing law for agreement between them. But if an agreement is international, the governing law can be of a specific county, at least one of the parties should belong to the country whose law is chosen. Governing law clauses are essential for companies to clarify the terms and conditions of the agreement to the clients or parties in a better way. While drafting the governing laws, the parties to the agreement should take into consideration factors like, where the company is incorporated, state of residence of each party, place where the transactions will take place, contractual and non-contractual obligations, etc.

What is the Jurisdiction Clause?

Jurisdiction clauses are the clause that specifies that under which jurisdiction the agreement shall fall and which court to proceed in case of a dispute between the parties. The problem of jurisdiction usually arises in the international nature of agreements. Factors to consider while drafting Jurisdiction Clauses are the convenience of the parties (such as the place where the business is based) and governing law i.e. the preferred judicial system by the parties. Jurisdiction clauses should be expressed made in the agreement to avoid conflict about the jurisdiction matter.

The relation between both:

Many times people get confused and think that governing law and jurisdiction clauses are the same thing. But both are different things and not the same. Governing laws can be stated as “laws of India” whereas jurisdiction clause can be mentioned as “courts of India”. Governing laws and jurisdiction clauses in an agreement are not necessary to match. Governing laws can be applied to any jurisdiction, even if none of the parties belong to the agreed jurisdiction.

 Let us understand this with an example, A French Company enters into a contract with a Greek company and they decide to use English as the language of agreement as it is well understood by both the parties and the court of England as their exclusive jurisdiction because they have the belief that England courts will be unbiased to both the countries. They might mention these terms in their agreement. This is completely valid, even if they chose to be governed by Greek laws or French laws keeping the jurisdiction as England High Courts. But sometimes, this may create chaos.

Some companies mention their Governing laws and Jurisdiction information in the same clause such as in Spotify (a music application) users can see their jurisdiction (by locating their country) and the respective law being governed. Whereas many companies choose to mention both of them in separate clauses. If the terms of an agreement remain silent on governing law then the court, where the issue has been taken, will decide which law to apply according to the conflict of law principles in its jurisdiction. If no jurisdiction clause has been mentioned in an agreement, rules of private international law will determine which court to approach in case of any dispute.

Conclusion

The Governing law and Jurisdiction clauses are the key clauses of an agreement. They not only deal with enforcement, validity, and interpretation of the agreement but also states clearly and expressly about the jurisdiction for dispute resolution and negotiations between parties and have a significant impact on the agreement as a whole.