How to Negotiate A Governing Law Clause
Negotiate a governing law clause by choosing a legal system with a genuine, defensible connection to the deal (or a neutral, commercially well-understood one), and by making sure it aligns deliberately with the dispute-resolution clause rather than pointing in a different direction by accident. The choice matters more than it looks — it decides how every other clause in the contract will actually be interpreted.
This guide describes general, widely-used commercial negotiation practice — it is informational, not legal advice on any specific contract. The right position for your deal depends on your actual leverage, relationship, and governing law. Have your actual clause reviewed by a lawyer before relying on any of this.
What each side typically wants
Often proposes its own home jurisdiction's law by default, for familiarity and home-court advantage in any dispute.
Wants either a genuinely neutral, well-understood governing law, or at minimum an active discussion of why the proposed law was chosen rather than accepting the drafting party's default.
Red flags worth pushing back on
- Governing law defaults silently to the drafting party's home jurisdiction with no discussion of why
- Governing law and dispute-resolution forum point to different, unrelated jurisdictions with no clear reason
- A governing law neither party, and the transaction itself, has any real connection to
- No consideration of whether the chosen law is actually favourable or unfavourable on the specific issues that matter most to the deal (liability caps, IP, restrictive covenants)
- Silence on governing law altogether, leaving it to be argued about only if a dispute actually arises
How to negotiate it
- Ask directly why the proposed governing law was chosen, rather than accepting a default without discussion
- Consider a neutral, commercially well-understood jurisdiction (e.g. English or Singapore law) for cross-border deals where neither side wants the other's home law
- Check how the proposed governing law treats the specific clauses that matter most to this deal — liability caps, restrictive covenants, IP — before accepting it wholesale
- Align the governing law and dispute-resolution clauses deliberately as one strategic package, not two independently negotiated terms
- For genuinely cross-border deals, get a short opinion on how the choice affects your specific risk areas rather than treating it as boilerplate
Sample fallback language
"This Agreement is governed by the laws of [neutral jurisdiction], without regard to its conflict of laws principles, and any dispute shall be resolved in accordance with the dispute resolution clause below, seated in [same or clearly related jurisdiction]."
Illustrative starting language only — have it reviewed and adapted to your actual deal and governing law before using it.
Frequently asked questions
Does governing law matter if we never expect to actually litigate?
Yes — governing law shapes how every clause is interpreted from day one, not just how a dispute is eventually resolved. It affects whether a liability cap holds up, how a restrictive covenant is read, and what happens where the contract is silent, long before any dispute exists.
Is it always better to choose your own home jurisdiction's law?
Not necessarily — familiarity has real value, but a neutral, well-understood jurisdiction can be a better commercial compromise in a genuinely cross-border deal, and some jurisdictions are simply better suited to certain clause types than others regardless of either party's home base.
Don't negotiate this alone.
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