Applicable law clauses
Applicable law clauses

The following Dispute Resolution practice note provides comprehensive and up to date legal information covering:

  • Applicable law clauses
  • What is an applicable law clause?
  • Example applicable law clause
  • Why include an applicable law clause?
  • Difficulties with agreeing an applicable law clause
  • Disadvantages of not choosing an applicable law
  • Applicable law clause—is it valid?
  • What is a non-national system of law clause and is it valid?
  • What are floating law clauses and are they valid?
  • Retrospective changes to the applicable law
  • More...

Brexit: The UK's departure from the EU on exit day, ie Friday 31 January 2020, has implications for practitioners considering applicable law. For guidance, see: Cross border considerations—checklist—Applicable law—Brexit specific.

This Practice Note considers applicable law clauses also known as a governing law clause, proper law clause or choice of law clause. Such clauses are used to determine the law to be applied by the courts when determining a dispute between the parties. Most commercial contracts will include such a clause. This Practice Note considers the rationale for agreeing an applicable law clause and the factors to take into account when agreeing one. It covers situations where parties can change the applicable law clause in their contract as well as whether specific types of clauses, ie floating applicable law clauses and stabilisation clauses, are valid. A sample applicable law clause is provided.

What is an applicable law clause?

A commercial contract will set out the terms on which the contracting parties will carry out the contract. Where elements of the contract involve different countries, the interpretation and effect of the contract terms may vary significantly depending on which country’s laws are used to interpret the terms. The law applied to do this is the applicable law.

Where the parties agree the applicable law during the contract negotiations, it should be expressly recorded in the contract. This agreement is

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