Governing law and jurisdiction clauses: what businesses should check

A governing law clause states which legal system is used to interpret a contract. A jurisdiction clause states which courts may hear disputes. They are related, but they do different jobs: a contract can be governed by English law while requiring proceedings in another country, or it can send disputes to the courts of England and Wales while another law applies.

For a small business, this can determine the language, procedure, travel, legal advisers, court fees and practical enforceability of a claim. The clause often looks like boilerplate only because no dispute has happened yet.

This article is general information, not legal advice. Cross-border disputes, arbitration, employment, consumer, insurance and property contracts can involve additional rules.

Governing law and jurisdiction are not the same

A common clause says:

This Agreement and any dispute or claim arising out of or in connection with it shall be governed by English law, and the courts of England and Wales shall have exclusive jurisdiction.

The two parts should be read separately.

Governing law: Which system of contract law determines interpretation, performance, breach, remedies and related questions?
Jurisdiction: Which country’s or territory’s courts are permitted or required to decide the dispute?

“English law” is commonly used to mean the law of England and Wales. The court wording should normally refer to the courts of England and Wales, not vaguely to “UK courts”. The United Kingdom contains three legal jurisdictions: England and Wales, Scotland, and Northern Ireland.

What happens if there is no governing-law clause?

The contract does not become lawless. A court will apply conflict-of-laws rules to decide which law governs it.

For many contractual obligations, the rules applied in England and Wales are found in the UK version of the regulation commonly called Rome I. It generally permits commercial parties to choose the law governing their contract. Where they make no choice, rules based on the type of contract and its closest connection are used to identify the applicable law.

That exercise can create an additional dispute before the court reaches the commercial issue itself. A clear clause reduces, but does not remove, uncertainty. Mandatory rules, public policy and subject-specific laws may still apply despite the parties’ choice.

Official legislation: Regulation (EC) No 593/2008 on the law applicable to contractual obligations (Rome I).

Exclusive and non-exclusive jurisdiction

An exclusive jurisdiction clause generally requires the parties to bring covered court proceedings only in the named courts.

A non-exclusive jurisdiction clause permits proceedings in the named courts but may leave one or both parties free to sue elsewhere if another court has jurisdiction.

An asymmetric clause may restrict one party to a particular court while allowing the other to choose among several courts. These clauses are common in some financing arrangements but may create enforcement or interpretation issues in particular countries.

For a small business, non-exclusive wording is not automatically more flexible in a useful way. It may allow the other party to choose a distant or tactically advantageous forum while the small business still faces uncertainty about where it can safely sue.

Why a foreign jurisdiction clause matters

Suppose an England-based supplier signs a customer’s standard terms stating that New York law governs and New York courts have exclusive jurisdiction. Even if the work and supplier are in England, the clause may require the supplier to obtain foreign-law advice and pursue an unpaid invoice abroad.

The practical questions include:

Can proceedings be started and documents served effectively?
What court fees, lawyers and evidence will be required?
Can urgent relief be obtained where assets or data are located?
Will a judgment be recognised and enforced where the losing party has assets?
Does the likely claim value justify cross-border proceedings?

A legally valid right can be commercially weak if enforcing it costs more than the claim.

Enforcement of judgments across borders

Winning a case and collecting the money are separate stages. A judgment from the courts of England and Wales may need to be recognised or enforced in the country where the defendant or its assets are located.

International conventions can help in qualifying cases:

The 2005 Hague Choice of Court Convention supports exclusive choice-of-court agreements and the recognition and enforcement of resulting judgments between Contracting States, subject to its scope, exclusions and timing rules.
The 2019 Hague Judgments Convention entered into force for the United Kingdom on 1 July 2025. It provides a broader framework for recognition and enforcement of qualifying civil or commercial judgments between Contracting States, again subject to exclusions and conditions.

These conventions do not make every judgment automatically enforceable everywhere. Check whether the other country is bound, whether the contract or judgment falls within scope, and whether local procedures must still be followed.

Official sources: 2005 Choice of Court Convention and 2019 Judgments Convention enters into force for the United Kingdom.

Court jurisdiction and arbitration are different choices

Some contracts replace court jurisdiction with arbitration. An arbitration clause may specify:

the seat or legal place of arbitration;
the governing rules;
the number and appointment of arbitrators;
the language; and
the law governing the arbitration agreement.

The seat is not merely the physical hearing location. It determines the arbitration’s legal framework and which courts supervise it. A contract should not casually combine an exclusive court clause and a broad arbitration clause without explaining which disputes go where.

For modest claims, arbitration can be disproportionate if the clause requires an expensive institution, multiple arbitrators or hearings abroad. For some international or confidential disputes, it may be appropriate. The choice should match the likely value and nature of disputes.

Common drafting problems

Look for:

No clause at all. The parties may spend time and money arguing about applicable law and forum.
Mismatched clauses. English governing law is paired with an unrelated foreign court without an obvious reason.
“UK law” or “UK courts”. These phrases overlook the UK’s separate legal jurisdictions.
Conflicting documents. The order form, master terms and purchase terms each select a different law or forum.
One-sided forum rights. One party has a wide choice; the other is restricted.
A narrow dispute definition. The clause may cover contractual claims but not related non-contractual claims or formation disputes.
Court and arbitration overlap. Both appear mandatory for the same dispute.
An impractical venue. The named court is expensive or remote compared with the likely claim value.
No enforcement analysis. The chosen court has little connection with the place where assets are located.

A practical governing-law and jurisdiction checklist

Before signing, ask:

Which law applies? Use a recognised legal system rather than an imprecise geographic label.
Which courts hear disputes? Identify the correct jurisdiction clearly.
Is jurisdiction exclusive? Understand who may sue elsewhere.
Does the clause cover related claims? Check formation, validity and non-contractual disputes.
Is there an arbitration clause too? Resolve any overlap.
Where are the parties, evidence and assets? A convenient forum is not necessarily an enforceable one.
What is the likely dispute value? Procedure should be proportionate.
Do incorporated terms conflict? Apply the contract’s order-of-precedence clause.
Are mandatory local laws relevant? A chosen law does not necessarily displace them.
Can a judgment be enforced? Check treaties and local rules before a dispute arises.

What is usually sensible for an England and Wales small business?

Where both parties and performance are centred in England and Wales, English law and the exclusive jurisdiction of the courts of England and Wales often provide a clear and practical starting point. That does not mean the same choice is automatically best for every international deal.

A foreign-law or foreign-court clause may be commercially acceptable where the other party, project or assets are genuinely centred there. The risk comes from accepting it by default without considering the cost of enforcing the contract.