International Contracts: Choice of Law Guide

TL;DR: International contracts should explicitly specify which country's law governs the contract and which courts (or arbitration panel) will resolve disputes — without these clauses, a costly jurisdictional battle may determine both questions.

What You Need to Know

When two parties in different countries sign a contract, a fundamental question arises: if there is a dispute, whose law applies and whose courts hear the case? Without explicit contractual provisions addressing these questions, the answer depends on conflict-of-laws rules that vary by country and are notoriously unpredictable.

The solution is straightforward in principle: include a governing law clause (specifying which country's law governs interpretation and performance) and a jurisdiction clause (specifying which court or arbitral tribunal has authority to hear disputes). Getting both clauses right — and understanding their limitations — is one of the most important things a cross-border business can do.

This guide explains the key concepts and the legal framework across the seven countries where MmowW Scrib🐮 operates. For contract drafting and review, always consult a qualified attorney.

How It Works: A Practical Overview

Governing Law Clauses

A governing law clause designates the legal system that determines the substantive rights and obligations under the contract. For example: "This Agreement is governed by and construed in accordance with the laws of England and Wales, excluding its conflict of laws rules."

Party autonomy: In commercial contracts between businesses, parties generally have broad freedom to choose the governing law, even if it has no connection to either party or the transaction. English law and New York law are the most commonly chosen governing laws for international commercial contracts, because:

• Both have well-developed, commercially sophisticated bodies of contract law
• Both are interpreted in a large volume of reported cases, providing predictability
• Courts in most countries will apply foreign law if validly chosen

Limitations on party autonomy:

• Consumer contracts: Consumer protection laws in the consumer's country of residence typically apply regardless of the governing law clause.
• Employment contracts: Local employment law mandatory protections apply regardless of governing law.
• Regulated activities: Activities regulated by the country where they occur (financial services, real estate) may be governed by local law regardless of choice.

Jurisdiction Clauses

A jurisdiction clause designates which country's courts have authority to hear disputes. Two types:

• Exclusive jurisdiction clause: Only the designated courts have jurisdiction. All disputes must be brought there.
• Non-exclusive jurisdiction clause: The designated courts have jurisdiction, but the clause does not prevent either party from bringing proceedings elsewhere. Rarely advisable.

Key limitation: A court's willingness to accept exclusive jurisdiction clauses from foreign courts varies. Within the EU, the Brussels Regulation (Recast) largely enforces exclusive jurisdiction clauses between member states. Post-Brexit, UK courts are no longer bound by Brussels Regulation, creating some uncertainty. The Hague Convention on Choice of Court Agreements provides similar enforcement among signatories (UK acceded separately post-Brexit).

Enforcement of judgments: Winning a judgment in your chosen court is only the first step — you then need to enforce it against the losing party's assets, which may be in another country. Enforcement of foreign judgments varies dramatically. There is no universal treaty for enforcement of court judgments comparable to the New York Convention for arbitral awards.

International Arbitration: The Preferred Alternative

For significant international commercial contracts, arbitration is often preferred over court litigation for several reasons:

• Enforceability: The New York Convention (164+ member states) provides a treaty framework for enforcing arbitral awards internationally. A Singapore arbitration award can be enforced in France, Australia, and the USA without relitigating the merits.
• Neutrality: Neither party is litigating on the other's home turf.
• Confidentiality: Arbitration proceedings are private; court proceedings are typically public.
• Expertise: Arbitrators can be chosen for relevant expertise.

Common arbitral institutions for international disputes:

• ICC International Court of Arbitration (iccwbo.org) — Paris
• London Court of International Arbitration, LCIA (lcia.org) — London
• Singapore International Arbitration Centre, SIAC (siac.org.sg) — Singapore
• American Arbitration Association, AAA/ICDR (adr.org) — New York

An arbitration clause designates the institution, seat of arbitration (the legal place), language, and number of arbitrators. The seat determines which national law governs the arbitration procedure.

Common Contract Clauses in International Agreements

Beyond governing law and jurisdiction, international contracts should consider:

• Language clause: Which language version prevails if there is a translation?
• Currency clause: Which currency applies? Who bears exchange rate risk?
• Force majeure: Local definitions of force majeure vary; a detailed clause provides more certainty.
• CISG opt-out: The UN Convention on Contracts for the International Sale of Goods (CISG) automatically applies to international goods contracts between parties in signatory countries (most developed nations). Many commercial parties opt out of the CISG explicitly, preferring the predictability of domestic sales law.

Country-by-Country Comparison

Common Mistakes to Avoid

1. Omitting the governing law clause entirely. Without an explicit choice, the applicable law is determined by conflict-of-laws rules in whichever court hears the case — and those rules are complex and often unpredictable. Always include an explicit governing law clause in every international commercial contract.
2. Choosing a governing law without understanding its content. Choosing English law because it sounds sophisticated, without actually understanding how English contract law treats limitation of liability clauses, implied terms, or specific performance, can lead to unpleasant surprises. Choose governing law based on substantive outcomes, not reputation. Consult a qualified attorney familiar with the chosen law.
3. Combining exclusive jurisdiction with arbitration. An arbitration clause and an exclusive jurisdiction clause for a particular court cannot coexist without confusion — they designate different forums for the same disputes. If you want arbitration, use an arbitration clause. If you want court litigation, use a jurisdiction clause. Not both.
4. Failing to consider enforceability of judgments at drafting stage. If your counterparty's assets are in a country that does not readily enforce foreign court judgments (some Middle East countries, parts of Asia), a court judgment in your favor may be unenforceable. In these cases, arbitration (backed by the New York Convention) may be significantly more enforceable.
5. Using a governing law from a country where you cannot afford to litigate. Choosing English law and London arbitration sounds prestigious, but London arbitration for commercial disputes regularly costs USD 500,000–2,000,000+. For smaller contracts, choose dispute resolution mechanisms proportionate to the contract value — expedited arbitration rules, or local courts.

Next Steps: Get Started Today

MmowW Scrib🐮 helps prepare standard international contract templates incorporating governing law and jurisdiction clauses appropriate to your jurisdiction:

• Cost Calculator: Estimate legal and arbitration costs for international contract disputes → Cost Calculator Tool
• Filing Deadlines: Track limitation periods for contract claims across jurisdictions → Filing Deadlines Tool

MmowW Scrib🐮 is a document preparation service, not a law firm. We do not provide legal advice. Always consult a qualified attorney for international contract drafting and review.

Frequently Asked Questions

Q: Can I choose the law of a country that neither party is based in?

A: Yes, in most commercial contracts between sophisticated parties. English law and New York law are routinely chosen by parties from Asia, the Middle East, and Latin America precisely because they have no connection to those jurisdictions — the choice reflects commercial familiarity and legal predictability, not geographic connection. Consumer contracts are an exception: consumer protection laws typically follow the consumer.

Q: What happens if the contract has no governing law clause?

A: A court will determine the applicable law using its domestic conflict-of-laws rules. Common approaches look to the place of performance, the place where the contract was signed, or (under the Rome I Regulation in EU countries) the characteristic performance of the contract. The outcome can be unpredictable and the analysis expensive. Always include an explicit governing law clause.

Q: Is an arbitration clause enforceable if one party is a consumer?

A: In many countries, arbitration clauses in consumer contracts are voidable or unenforceable as unfair terms. EU consumer law is particularly protective in this regard. In the USA, the enforceability of consumer arbitration clauses (particularly those with class action waivers) is subject to ongoing litigation. For B2B contracts, arbitration clauses are generally well-enforced. Consult a qualified attorney before including arbitration clauses in consumer-facing contracts.

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