Governing Law Clause: What It Is and Why You Need It

When writing a contract or Terms and Conditions, the governing law clause is essential because it defines what jurisdiction will be applied in case of disputes.

In this guide, we explain what a governing law clause is, how to write it, and why you should add it to your documents.

In short

What does Governing Law Mean?
What is a Governing Law Clause?
Why is it Important to Have a Governing Law Clause in your Terms and Conditions?
How Should You Choose Your Governing Law?
How to Write a Governing Law Clause
Governing Law Clauses Examples
Is a Governing Law Clause Enough?

What does Governing Law Mean?

Governing law – also called choice of law – refers to the law that will apply in the event of a dispute.

It is particularly relevant in contracts between parties located in different jurisdictions. The chosen law provides certainty and helps avoid conflicts over which legal system governs the agreement.

What is a Governing Law Clause?

A governing law clause specifies which jurisdiction’s laws will apply to interpret and enforce the contract. It is commonly included in agreements and documents such as Terms and Conditions.

Why is it Important to Have a Governing Law Clause in your Terms and Conditions?

Terms and Conditions help you define the conditions that apply to your business and prevent potential problems. If your business has an international scope – for example, if you sell your goods or services in multiple countries – defining your governing law can help you avoid legal complications.

Without this clause, it may be complicated to later agree on the legal framework to apply in case of a dispute, and it would also be more time-consuming and costly.

Instead, with a governing law clause both parties already know how a potential dispute will be handled.

Moreover, together with governing law, you should also define your venue of jurisdiction. The venue of jurisdiction clause specifies which court will take care of the dispute.

While governing law and venue of jurisdiction are often the same, they don’t necessarily have to match. For example, an agreement could be governed by the laws of one country but require disputes to be resolved in the courts of another.

How Should You Choose Your Governing Law?

For simplicity, businesses usually choose their governing law depending on their location. This means that disputes are resolved according to the law of the country they reside in. However, there are cases when the governing law is not the law of the country you’re based in.

Here are a few things to consider when choosing your governing law:

Neutrality: if two parties are involved, it could be beneficial to choose a law that’s neutral to both parties.
Enforceability: your governing law could also be a law that allows you to enforce every aspect of the agreement.
Nature of the agreement: some jurisdictions are more favorable than others in certain aspects, so the governing law could also change based on the nature of the agreement.

In principle, you may decide which law will govern your terms and any potential controversy. However, in some jurisdictions – such as EU countries, Switzerland or Brazil – mandatory regulations might override your choice of law. In these cases, the related national law may apply if the user qualifies as a consumer.

Of course, choosing your governing law is not a decision to take lightly, so always consult with a lawyer before making any decision.

How to Write a Governing Law Clause

When writing your clause, you should keep in mind the following aspects:

Have clear what your governing law is: before starting to draft your clause, you should have clear which law will govern your agreement or Terms and Conditions document.
Avoid using complicated language: since it’s an important part of your document, avoid using language that’s too complicated or technical. You want your users to understand what they’re agreeing to.
Don’t forget your venue of jurisdiction: as we said earlier, a governing law clause should always go with a venue of jurisdiction, so don’t forget to add it too.

A simple governing law clause could read something like this:

Governing law
These terms are governed by the law of the place where we are based.

Venue of jurisdiction
The jurisdiction over any controversy related to these terms lies with the courts of the place where we are based.

Governing Law Clauses Examples

Let’s take a look at how the choice of law clause is used in different documents and Terms of Use.

Apple has chosen the laws of the State of California as its governing law. As for the venue of jurisdiction, they also grant that European users can make a claim in the courts of the countries they reside in.

In our Terms and Conditions document, we’ve specified that our governing law is the one of the country we’re based in, which is Italy, but we grant some exceptions to particular consumers, such as the one based in Brazil.

Is a Governing Law Clause Enough?

While this is an extremely important clause to have, having just a governing law clause is not enough. This clause should be part of a more comprehensive Terms and Conditions document – that is the document that helps protect you and your business from potential liabilities.