International Contracts: Jurisdiction & Governing Law
Learn how to handle governing law, jurisdiction, and dispute resolution in international contracts. A plain-English guide for cross-border deals in the US, UK, EU, Canada, and beyond.
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Why International Contracts Are Different
A contract between two parties in the same country operates within a single, known legal system. Add a second country to the mix and the question immediately becomes: whose rules apply?
That question affects everything — what disclosures are required, whether certain clauses are enforceable, how damages are calculated, and where you go if something goes wrong. The parties can answer most of those questions themselves by drafting the right clauses. Leave them unanswered and you hand the decision to a judge or arbitrator who will apply conflict-of-law rules — an expensive, uncertain process that benefits neither side.
This guide covers the core provisions every international contract needs, how the major legal systems approach cross-border deals, and the practical steps to protect yourself when doing business across borders.
The Two Foundational Clauses
1. Governing Law (Choice of Law)
A governing law clause tells courts and arbitrators which country's (or state's) substantive law applies to interpret the contract. It looks simple — "This agreement is governed by the laws of England and Wales" — but the choice has real consequences.
Popular choices for international contracts:
| Jurisdiction | Why Parties Choose It |
|---|---|
| New York (US) | Sophisticated, well-developed commercial law; large body of precedent; courts experienced with complex contracts |
| England and Wales | Global standard for shipping, finance, and commodities; neutral, respected legal system; common law flexibility |
| Delaware (US) | Default for US corporate matters; predictable courts; extensive case law on M&A and equity arrangements |
| Singapore | Increasingly preferred for Asia-Pacific deals; efficient courts; strong rule of law; English common law tradition |
| Switzerland | Neutral; favored for deals involving parties from politically sensitive jurisdictions |
Under the EU's Rome I Regulation (EC 593/2008), parties to commercial contracts are generally free to choose any governing law. The US follows a similar principle — New York's General Obligations Law § 5-1401 specifically allows parties to choose New York law if the contract involves at least $250,000, even without other New York connections.
One important carve-out: the CISG. The UN Convention on Contracts for the International Sale of Goods applies automatically to contracts for the sale of goods between parties in countries that have ratified it. If you want a specific national law to govern instead, include an explicit CISG exclusion: "The parties expressly exclude the application of the UN Convention on Contracts for the International Sale of Goods."
2. Jurisdiction and Dispute Resolution
A jurisdiction clause determines where disputes will be resolved. You have two main options: courts or arbitration.
Litigation in a chosen court works well when both parties are in countries with mutual enforcement treaties or when the dispute is likely to involve local property or regulatory issues. The main problem: court judgments are hard to enforce internationally. To collect on a US judgment in Germany, you need a separate German court proceeding — and German courts will apply their own rules about whether to recognize the US judgment.
International arbitration solves the enforcement problem. Under the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (ratified by 172 countries), an arbitral award issued in any member country is enforceable in any other member country with minimal grounds for refusal. That's the primary reason arbitration is the standard for international commercial disputes.
Choosing an Arbitration Framework
If you go with arbitration, you need to specify the rules and seat. Common choices:
| Institution | Rules | Typical Use |
|---|---|---|
| ICC (International Chamber of Commerce) | ICC Arbitration Rules | General commercial; Paris seat common |
| LCIA (London Court of International Arbitration) | LCIA Rules | UK-connected deals; financial and commodity disputes |
| AAA/ICDR (American Arbitration Association) | ICDR International Rules | US-connected deals |
| SIAC (Singapore International Arbitration Centre) | SIAC Rules | Asia-Pacific deals |
| UNCITRAL | UNCITRAL Arbitration Rules | Ad hoc arbitration; no administering institution |
The seat of arbitration matters: it determines which national courts have supervisory jurisdiction over the arbitration and which procedural law applies. A London-seated arbitration is governed by England's Arbitration Act 1996. A Singapore-seated arbitration falls under the Singapore International Arbitration Act.
A basic international arbitration clause looks like this:
"Any dispute arising out of or in connection with this agreement, including any question regarding its existence, validity, or termination, shall be referred to and finally resolved by arbitration under the [ICC/LCIA/SIAC] Rules. The number of arbitrators shall be [one/three]. The seat of arbitration shall be [City, Country]. The language of the arbitration shall be English."
For smaller deals where full institutional arbitration is costly, the Hague Convention on Choice of Court Agreements (in force in the EU, UK, Singapore, and several other countries) offers a lighter alternative — courts in member countries will recognize and enforce exclusive jurisdiction clauses from other member countries.
Jurisdiction-by-Jurisdiction Considerations
United States
US contract law is state-by-state, not federal. New York and Delaware are the most common choices for international deals touching the US. Parties should note:
- The Uniform Commercial Code (UCC) governs sales of goods in all US states (with minor variations); Article 1-301 allows choice-of-law but with limits for consumer contracts.
- Non-compete clauses are void in California (Business & Professions Code § 16600) regardless of the governing law clause, if the affected party works in California.
- Data transfers to the US from the EU are subject to EU adequacy requirements; the EU-US Data Privacy Framework (July 2023) provides a transfer mechanism for certified US organizations.
United Kingdom
Post-Brexit, England and Wales operates its own legal system independent of EU law. Key points for cross-border contracts with UK parties:
- English law remains highly respected and widely chosen for international deals.
- The UK retained the Rome Convention principles for governing law in most cases, though the Rome I and Rome II Regulations no longer apply directly.
- The UK's Arbitration Act 1996 is one of the most arbitration-friendly frameworks in the world; English courts will rarely intervene in an arbitration.
- Data transfers from the EU to the UK require an adequacy decision — the EU adopted one in June 2021, though it is subject to periodic review.
Read more about UK contract law →
European Union
The EU has the most developed cross-border contract framework of any regional bloc:
- Rome I Regulation governs choice of law in contractual matters across EU member states.
- Brussels I Regulation (Recast) governs jurisdiction and enforcement of court judgments within the EU — judgments from one member state's court are enforceable across all member states without a separate recognition proceeding.
- GDPR (Regulation 2016/679) applies to any personal data of EU residents, regardless of where the contract is performed. International contracts that involve data processing must include a Data Processing Agreement (DPA). Standard Contractual Clauses (SCCs) are required for data transfers outside the EU without an adequacy decision.
Create a GDPR-compliant DPA with Pactlio →
Canada
Canada's civil law province (Quebec) and common law provinces operate under different contract law regimes. For international contracts:
- Most international parties choose the law of a common law province (Ontario is most common for commercial deals).
- Canada ratified the New York Convention — arbitral awards are enforceable.
- PIPEDA (Personal Information Protection and Electronic Documents Act) governs international data transfers involving Canadian residents' personal information.
Read more about Canadian contract law →
India
India is an increasingly important party to international commercial contracts. Key points:
- Indian courts apply the Indian Contract Act, 1872 and the Arbitration and Conciliation Act, 1996 (modeled on the UNCITRAL Model Law).
- India has ratified the New York Convention — foreign arbitral awards are enforceable.
- Foreign exchange controls under the Foreign Exchange Management Act (FEMA) can affect how payments are structured; certain transactions require Reserve Bank of India approval.
- Stamp duty on contracts is required at the state level — a contract that isn't stamped may be inadmissible in Indian courts.
Key Clauses Beyond Governing Law
Force Majeure
Every international contract should address what happens when performance becomes impossible due to events outside both parties' control — natural disasters, war, pandemics, trade embargoes. The definition of force majeure varies by jurisdiction: French law has a specific doctrine (force majeure under Article 1218 of the Code Civil); English common law has frustration; US common law applies commercial impracticability.
Don't rely on local law. Draft an explicit force majeure clause that defines triggering events, notice requirements, and what happens if the force majeure extends beyond a defined period (suspension vs. termination).
Currency and Payment
Specify the payment currency explicitly. Address foreign exchange risk — especially for long-term contracts. Consider:
- Fixing payment in a hard currency (USD, EUR, GBP) if your counterparty's local currency is volatile.
- Including a price adjustment mechanism tied to a published exchange rate.
- Checking whether the counterparty's country imposes foreign exchange controls that restrict transferring funds abroad.
Language
If the contract is drafted in multiple languages, specify which version controls in case of conflict. Ambiguity between a French and English version of the same contract has derailed many disputes. One language, one authoritative version.
Import/Export and Regulatory Compliance
Cross-border deals often touch trade regulations: export controls (US ITAR/EAR, UK Export Control Order), sanctions (OFAC in the US, EU restrictive measures), and customs duties. A clause requiring each party to comply with applicable trade laws — and allocating responsibility for obtaining licenses — is standard in international supply and technology agreements.
Common Mistakes in International Contracts
No governing law clause. Courts then apply conflict-of-law rules to determine the governing law — a slow, expensive process with an unpredictable outcome.
Jurisdiction and governing law point to different places without intent. New York governing law with London litigation is a coherent choice. New York governing law with litigation in a country that won't recognize New York court judgments is a trap.
Using a domestic template. A US services agreement designed for domestic use may omit clauses that matter internationally — GDPR compliance, foreign exchange controls, international delivery terms (Incoterms for goods), and cross-border IP assignment requirements.
Forgetting local mandatory law. Parties can't contract out of mandatory law in the jurisdiction where performance occurs. A non-compete that's valid under New York law is still void if the person works in California.
No dispute resolution mechanism. "We'll work it out" is not a clause. Specify arbitration or courts, a seat, rules, the number of arbitrators, and the language.
A Simple Checklist for International Contracts
- Governing law clause — specific country and state/province
- Explicit CISG exclusion (for sale of goods contracts)
- Jurisdiction/dispute resolution clause — court or arbitration, seat, rules
- Currency of payment specified
- Force majeure clause with defined triggering events and notice requirements
- Data protection compliance (GDPR DPA, SCCs if EU data is involved)
- Stamp duty or notarization requirements checked for the relevant jurisdiction
- Trade compliance clause (sanctions, export controls) where applicable
- Authoritative language specified if contract is multilingual
How Pactlio Can Help
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- Create an NDA for international use →
- Create a cross-border Services Agreement →
- Create a GDPR-compliant Data Processing Agreement →
This article is for informational purposes. Pactlio generates professional drafts for review — not legal advice.
Frequently Asked Questions
What is a governing law clause and why does it matter?▾
A governing law clause (also called a choice-of-law clause) specifies which country's or state's legal rules will be used to interpret and enforce the contract. It matters because contract law varies significantly between jurisdictions — what constitutes a valid termination, whether a non-compete is enforceable, and what damages are available can all differ. Without a governing law clause, a court or arbitrator has to determine the applicable law using conflict-of-law rules, which creates uncertainty and cost.
Can I choose any country's law to govern my international contract?▾
Generally yes, parties are free to choose any governing law that has a reasonable connection to the transaction — but there are limits. Courts may refuse to apply the chosen law if it violates fundamental public policy in the country where enforcement is sought. Under the EU's Rome I Regulation, for business-to-consumer contracts, mandatory consumer protection rules of the consumer's home country still apply regardless of the governing law clause. Some countries also restrict which laws can govern certain types of contracts (e.g., employment or real estate).
What is the difference between jurisdiction and governing law?▾
Governing law determines which legal rules apply to interpret the contract. Jurisdiction determines which country's courts (or arbitral body) have the power to hear a dispute. The two can differ — you might choose English law to govern the contract but agree that disputes will be resolved in New York courts or through ICC arbitration in Singapore. Specifying both clearly avoids a costly fight over process before you even get to the substance of a dispute.
Is international arbitration better than litigation for cross-border disputes?▾
For most international commercial disputes, yes. Court judgments are difficult to enforce across borders — you need a separate legal proceeding in each country where enforcement is sought, and many countries will not enforce foreign court judgments at all. Arbitral awards are enforceable in 172 countries under the 1958 New York Convention, making arbitration the practical default for international deals. Arbitration is also typically private, allows parties to choose arbitrators with relevant expertise, and avoids home-court advantage.
Does the CISG apply to my international sales contract?▾
Possibly. The UN Convention on Contracts for the International Sale of Goods (CISG) automatically applies to contracts for the sale of goods between parties in different countries that have both ratified it — including the US, EU member states, Canada, China, and many others. If you prefer your chosen national law to apply instead, you need to explicitly exclude the CISG in your contract. Service contracts, consumer purchases, and sales of real estate are not covered by the CISG.
What should I do about currency and payment risk in international contracts?▾
Specify the payment currency explicitly and address currency fluctuation risk. Common approaches: fix the payment in a stable currency (USD, EUR, GBP), include a currency adjustment clause that re-prices if exchange rates move beyond a defined threshold, or require payment in the seller's home currency. Also check whether the counterparty's country has foreign exchange controls that restrict the transfer of funds abroad — countries like India and China have regulations that can delay or limit international payments.