Governing law
Also known as: Choice of law, Applicable law
A clause specifying which jurisdiction's law governs the interpretation and enforcement of the contract.
What it is
A governing law clause tells a judge or arbitrator which legal system to apply when interpreting the contract: what words mean, which default rules fill in the gaps, and which limits on enforceability apply. It is usually paired with a jurisdiction clause that says which courts (or which arbitration seat) actually hear the dispute. The two do different jobs — you can be governed by one system of law while being heard in the courts of another — but in most business contracts they point to the same place.
Why it matters
The chosen law quietly shapes every other clause in the contract. The same words can be interpreted more narrowly in one system and more expansively in another; some jurisdictions are friendlier to liability caps, others more protective of consumers or employees; some imply duties of good faith, others do not. Choosing a familiar, predictable legal system reduces surprise and makes disputes cheaper to resolve. Choosing something obscure because it favors one side rarely survives close scrutiny.
Typical language
An example of how this clause often reads — illustrative only, not a template:
This Agreement and any dispute or claim arising out of or in connection with it or its subject matter shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to its conflict of laws principles.
Common pitfalls
- Picking a governing law that neither party has any connection to, which can create unexpected enforceability problems.
- Forgetting to exclude "conflict of laws" principles, which can accidentally send the judge back to a different legal system.
- Choosing a law without also thinking about mandatory local rules that cannot be contracted out of (e.g. consumer, employment, competition law).
- Mixing governing law with jurisdiction in a way that accidentally creates two different forums.
- Assuming the choice of law overrides local public policy — it generally does not.
Related clauses
Draft a contract with this clause
Open the drafting canvas with a starter prompt for governing law. You can edit every line before anything is saved.
This explainer is general information and is not legal advice.