Two separate questions in one clause
Cross-border contracts routinely include a single clause that addresses two distinct questions: which country's law governs the contract (governing law), and which court or arbitral tribunal resolves disputes (jurisdiction/forum). These are related but separate questions, and they can point to different places — a contract governed by English law can name Singaporean courts as the dispute resolution forum.
Governing law: why it matters
Governing law determines how ambiguous contract terms are interpreted, what default rules fill gaps in the contract, what remedies are available (and how they are calculated), and how statutory protections interact with the contract. Two contracts with identical text but governed by different laws can produce radically different outcomes in a dispute.
For commercial contracts between sophisticated parties in most jurisdictions, freedom of choice of law is broadly respected: the parties can choose any legal system, not just one with a connection to the transaction. English law and New York law are commonly chosen by international parties as familiar, well-developed, and commercially oriented systems with extensive case law on complex commercial disputes.
Jurisdiction: courts vs arbitration
A jurisdiction clause designates either a national court (exclusive or non-exclusive) or an arbitral tribunal as the forum for resolving disputes. The choice has significant practical consequences:
National courts are faster and cheaper for straightforward disputes in jurisdictions with efficient courts. However, court judgments are only enforceable in countries that have reciprocal enforcement treaties with the judgment country — a French court judgment may not be enforceable in the UAE or Indonesia without additional steps.
Arbitration produces awards that are enforceable in 172 countries under the New York Convention. For international contracts where enforcement might need to happen in multiple jurisdictions, arbitration provides a significant practical advantage. Leading arbitral institutions include ICC (Paris), LCIA (London), SIAC (Singapore), and Vienna International Arbitral Centre (VIAC) for Central and Eastern European disputes.
The exclusive jurisdiction question
An exclusive jurisdiction clause means disputes must be brought in the designated forum — neither party can sue elsewhere. A non-exclusive clause means the designated forum is available but not mandatory. For most commercial contracts, exclusive jurisdiction clauses are preferable: they prevent tactical litigation in inconvenient forums and create predictability.
Common drafting mistakes
Missing the clause entirely: without a governing law or jurisdiction clause, the applicable law is determined by conflict-of-law rules, which vary by country and can produce unpredictable results. Never omit these clauses.
Asymmetric clauses: some contracts give one party (usually the lender or platform provider) the right to sue anywhere, while restricting the other party to a specific forum. Courts in some jurisdictions will not enforce these as written.
Inconsistency between governing law and jurisdiction: a contract governed by German law with London arbitration creates potential conflicts between English arbitration procedure and German substantive law. Both choices must be compatible and the combination must make practical sense.
Generic arbitration clauses: "disputes shall be resolved by arbitration" without naming an institution, seat, language, and rules is an ad hoc clause that is difficult to enforce and may not lead to any arbitration at all. Always specify the arbitral institution and basic procedural parameters.
Practical recommendations
For contracts between parties in different EU member states: governing law of the country of the party providing the service or delivering the goods; jurisdiction clause naming the courts of that country or an EU arbitral institution. For contracts with parties in common law jurisdictions: English law and LCIA or ICC arbitration seated in London are widely accepted. For contracts with MENA parties: UAE law and DIFC-LCIA arbitration is increasingly standard. Always match the enforcement strategy to the counterparty's jurisdiction of assets.