Choice of Law Clause
There is no universal law of contract.
Although the law of contact may be similar across many countries, it's a different law. Different rules apply. They may be small differences, but they can make monumental differences to the way a contract is interpreted.
Enter Choice of Law clauses, otherwise known as "Governing Law clauses" and "Applicable Law clauses".
It would be a mistake to think that the law of the country in which a legal entity was formed also governs the contracts that the legal entity enters into. It's something that should be picked up in a contract review by a solicitor.
It's a fundamental part of the agreement: which law will be used to interpret the contract.
Choice of Law of a Country
Choice of Law clauses designate the law of a country to read and interpret the legal obligations and the benefits to be received under a contract.
Country in this context means a country which has its own system of contract law.
There is no contract law of the "United States", "the United Kingdom" or the "European Union". When a contract designates, say "the United Kingdom" as the law of the contract, it creates doubt as to the system of law which is to be used.
International Contracts
Choice of law clauses have most value when the parties to the contract are located in different countries.
When the contracting parties are all located in one country, it could be said that the clause adds nothing to the contract.
Choice of law clauses can get quite complicated. In law, simplicity promotes certainty. Here's a basic form:
Example: Choice of Law clause
This agreement shall be interpreted in accordance with the laws of England.
Jurisdiction Clauses
Jurisdiction clauses don't say or do the same thing as choice of law clauses. It's important to get the difference in purpose right, because it's so fundamental to the reading and interpreting a contract.
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