The two clauses at the end of a cross-border contract, the ones about governing law and jurisdiction, are read last and matter first. They are frequently copied from a previous document without thought, and they determine, before any dispute arises, which country’s law will interpret the contract and which country’s courts will decide any argument about it. Getting them wrong does not usually surface until the moment they are needed, at which point they cannot be changed.
They are two different questions
Governing law is the substantive law that interprets the contract: what the words mean, what is implied, what remedies exist. Jurisdiction is procedural: which country’s courts hear a dispute. They are independent. A contract can be governed by Dutch law and litigated in another country, or governed by one law and referred to arbitration. Conflating them, or specifying one and forgetting the other, is among the most common defects in cross-border drafting.
In Europe each question has its own instrument. Governing law for contracts is set by Regulation (EC) No 593/2008, Rome I, which applies in situations involving a conflict of laws to contractual obligations in civil and commercial matters. Claims that are not contractual, in tort or from dealings before a contract was concluded, fall instead under Regulation (EC) No 864/2007, Rome II. Jurisdiction and the circulation of judgments are governed by Regulation (EU) No 1215/2012, the recast Brussels I Regulation.
Both conflict rules are of universal application: Article 2 of Rome I and Article 3 of Rome II apply the law they designate whether or not it is that of a Member State, so a European court will apply Singaporean or New York law where the rules point there. Article 20 of Rome I adds that the reference is to that country’s substantive rules and not to its private international law, which stops the question being handed back. Article 12 then lists what the governing law decides, in particular interpretation, performance, the consequences of breach including the assessment of damages so far as damages are governed by rules of law, the ways obligations are extinguished together with prescription and limitation, and the consequences of nullity.
The geography is not uniform, so the usual shorthand about the whole Union is wrong. Recital 46 of Rome I records that Denmark is not taking part in its adoption and is not bound by it; Rome II says the same operatively rather than in a recital, Article 1(4) defining Member State, for its purposes, as any Member State other than Denmark. Ireland notified its wish to take part in both. Denmark’s position on jurisdiction is different again, and is described below.
Choosing the governing law
The governing law should be one that both parties can live with and, ideally, one that treats the subject matter predictably. A neutral, well-developed commercial law is often preferable to the law of either party’s home country, because it removes the sense of home advantage and because its outcomes are foreseeable. What matters most is that the choice is deliberate: a contract silent on governing law leaves the question to conflict-of-laws rules, which can produce a surprising and unwelcome answer.
Article 3(1) of Rome I is the source of that freedom and also sets its shape. The choice must be made expressly or clearly demonstrated by the terms of the contract or the circumstances of the case, which means a court can find a choice that was never written down, and equally that a loosely worded clause can be argued about. The same paragraph allows the parties to select the law applicable to the whole or to part only of the contract, so different laws can end up governing different parts of one agreement, deliberately or by accident.
Under Article 3(2) the parties may agree at any time to subject the contract to a law other than the one previously governing it, including after signature. That is not unqualified: a change made after conclusion cannot prejudice the contract’s formal validity under Article 11, nor adversely affect the rights of third parties.
There is a circularity in choosing the law that decides whether the choice worked, and the Regulation resolves it rather than leaving it open. Article 3(5) sends the existence and validity of the parties’ consent to Articles 10, 11 and 13, and Article 10(1) determines the existence and validity of a contract, or of any term of it, by the law which would govern it if that contract or term were valid. Article 10(2) then lets a party rely on the law of his own habitual residence to establish that he did not consent, where it appears from the circumstances that it would not be reasonable to judge the effect of his conduct by the law otherwise applicable.
The parties choose the governing law once, in five minutes, at the end of a negotiation. A court may spend years, and the parties a fortune, on a contract that failed to choose.
What applies when the contract is silent
Article 4 of Rome I answers in four descending steps, and it is worth knowing because it is what a badly drafted contract gets. The first step is a list of eight named contract types, each tied to one country: a sale of goods goes to the seller’s habitual residence and a provision of services to the service provider’s, a franchise to the franchisee’s and a distribution contract to the distributor’s, rights in rem and tenancies in immovable property to the country where the property is situated, an auction sale of goods to the place of the auction where that place can be determined, and a contract concluded within a multilateral trading system to the single law governing that system.
That list carries its own qualification. A tenancy of immovable property concluded for temporary private use for no more than six consecutive months goes instead to the landlord’s country, but only where the tenant is a natural person habitually resident in that same country, so the property rule and its exception turn on facts about the tenant rather than on the drafting.
Where the contract is not covered by that list, or where its elements would fall under more than one of those eight points, Article 4(2) applies the law of the country where the party required to effect the characteristic performance has his habitual residence. Characteristic performance is the performance that distinguishes the contract from other contracts, generally not the payment of money, so in a mixed arrangement the law tends to follow the party doing the work rather than the party funding it.
The last two steps are escapes rather than connecting factors. Article 4(3) displaces the result of the first two paragraphs where it is clear from all the circumstances that the contract is manifestly more closely connected with another country, and Article 4(4) applies the law of the country with which the contract is most closely connected where the applicable law cannot be determined at all. Article 4(1) is expressly without prejudice to Articles 5 to 8, so carriage, consumer, insurance and employment contracts leave this ladder before it begins.
The limits a chosen law cannot cross
A choice of law is respected, but not unconditionally, and the conditions are the part most often left out. Article 3(3) provides that where all other elements relevant to the situation at the time of the choice are located in a country other than the one whose law was chosen, the choice does not prejudice that country’s provisions which cannot be derogated from by agreement. Article 3(4) does the equivalent for Union law where all those other elements are located in one or more Member States and the law chosen is that of a non-member State. The two are not the same test twice. Article 3(3) is aimed at the contract whose other relevant elements sit in a single country, so what it catches is a domestic arrangement dressed up as international; Article 3(4) is aimed at the contract whose other relevant elements sit anywhere inside the Union, so it reaches a genuinely cross-border one. Two companies in different Member States that choose the law of a third State keep the provisions of Union law which cannot be derogated from by agreement, as, where appropriate, implemented in the Member State of the forum.
Article 9 goes further. Overriding mandatory provisions are defined there as provisions whose respect a country regards as crucial for safeguarding its public interests, such as its political, social or economic organisation, to such an extent that they are applicable to any situation falling within their scope irrespective of the law otherwise applicable. Nothing in the Regulation restricts the forum’s own such provisions, under Article 9(2). Article 9(3) is narrower and its conditions are the whole of it: effect may be given to those of the country where the obligations have to be or have been performed only in so far as they render performance of the contract unlawful, and only after regard has been had to their nature and purpose and to the consequences of applying or not applying them.
Article 21 works differently again, permitting refusal of a provision of the designated law only where its application is manifestly incompatible with the public policy of the forum. It is a power to disapply what the conflict rules have selected, not a power to substitute a preferred law, and the word manifestly is doing real work.
Articles 5 to 8 each qualify that freedom, by two different techniques, so it is limited in four places and not two. Articles 6 and 8 set a floor, leaving the choice effective but unable to remove protection the other party would have had anyway. Under Article 6 a consumer contract is governed by the law of the consumer’s habitual residence where the professional pursues commercial or professional activities in that country, or by any means directs such activities to it, and the contract falls within the scope of those activities. A choice remains possible under Article 6(2), but it cannot deprive the consumer of the protection of provisions that cannot be derogated from under the law which would have applied in the absence of choice. Article 6(4) then lifts that regime off certain contracts, among them services to be supplied to the consumer exclusively in a country other than his own, and most contracts of carriage.
Article 8 sets the same kind of floor for individual employment contracts, measuring it against the law of the country in which or, failing that, from which the employee habitually carries out his work, a country which is not deemed to change merely because he is temporarily employed elsewhere.
Articles 5 and 7 use the other technique, closing the menu, and each does so for part of its subject matter rather than all of it. Article 5(2) provides that the parties to a contract for the carriage of passengers may choose only the law of the country where the passenger is habitually resident, where the carrier is habitually resident, where the carrier has its place of central administration, where the place of departure is situated, or where the place of destination is situated; the carriage of goods carries no such restriction. Article 7(3) provides that for an insurance contract covering a risk situated inside the Member States, other than one covering a large risk, only the laws it lists may be chosen, although where the Member States referred to in its points (a), (b) or (e) allow greater freedom of choice the parties may take advantage of that freedom. A contract covering a large risk falls instead under Article 7(2), where the parties choose under Article 3 without that restriction, and Article 7 does not apply to reinsurance at all.
Rome II is stricter still about choice: its Article 14 allows a choice made before the event giving rise to the damage only where all the parties are pursuing a commercial activity and the agreement was freely negotiated, and in every case the choice must not prejudice the rights of third parties.
Finally, the chosen law does not govern everything in the document containing it. Article 1(2)(e) of Rome I excludes arbitration agreements and agreements on the choice of court from the Regulation altogether, so the clause selecting the forum is not tested by the law the same contract selects. Article 1(2)(g) excludes the question whether an agent is able to bind a principal, or an organ a company, in relation to a third party, which is why signing powers and authority across borders are checked against the company’s own law rather than the contract’s.
Jurisdiction, and the enforcement it implies
The jurisdiction clause should be chosen with enforcement in mind, not only convenience. A judgment is only useful if it can be enforced where the defendant has assets, and within the European Union the rules on recognition and enforcement of judgments between member states make a judgment from one member state broadly enforceable in another. Choosing a European court for a dispute with a European counterparty therefore has a practical advantage that a choice of a third-country court may lack, a theme we develop in our note on enforcing a judgment across European borders.
The mechanism behind that advantage is compact. Article 36 of the recast Regulation recognises a judgment given in one Member State in the others without any special procedure being required, and Article 39 makes a judgment that is enforceable at home enforceable elsewhere without any declaration of enforceability. What remains is a defence rather than a filter.
Article 45 lets an interested party apply for refusal of recognition on five grounds, and on five only: that recognition is manifestly contrary to the public policy of the state addressed; that a default judgment was given without the defendant being served in sufficient time and in such a way as to arrange his defence, unless he failed to challenge it when he could; that the judgment is irreconcilable with a judgment between the same parties in the state addressed; that it is irreconcilable with an earlier judgment given elsewhere between the same parties on the same cause of action and capable of recognition there; and that it conflicts with the protective sections on insurance, consumer and employment matters where the protected party was the defendant, or with the exclusive jurisdiction rules. Outside that last ground, Article 45(3) forbids any review of the jurisdiction of the court of origin and bars the public policy test from being applied to the jurisdiction rules, which is what keeps cross-border debt recovery inside the Union from becoming a second trial.
Denmark is outside again, and by a different route. Recital 41 records that it is not taking part in the adoption of the Regulation and is not bound by it, without prejudice to its applying amendments to the previous Regulation under Article 3 of the Agreement of 19 October 2005 between the European Community and Denmark. Denmark took that route: by letter of 20 December 2012 it notified the Commission of its decision to implement the contents of the recast Regulation, with the consequence, as the notice in the Official Journal puts it, that its provisions are applied to relations between the Union and Denmark.
Exclusive or non-exclusive, and what a choice cannot displace
A jurisdiction clause can be exclusive, meaning disputes must go to the named courts, or non-exclusive, allowing a claim elsewhere. Exclusive clauses provide certainty; non-exclusive clauses provide flexibility that can be useful when a defendant’s assets are movable. The choice should be conscious, because the difference decides whether a party can be pursued in the most convenient forum or only in the agreed one.
Article 25 sets the default the other way from what many drafters assume. Where the parties, regardless of their domicile, have agreed that a court or the courts of a Member State are to have jurisdiction to settle disputes which have arisen or may arise in connection with a particular legal relationship, that jurisdiction is exclusive unless the parties have agreed otherwise, so silence produces exclusivity. The agreement must take one of three forms: in writing or evidenced in writing; in a form according with practices the parties have established between themselves; or, in international trade or commerce, in a form according with a usage of which the parties are or ought to have been aware and which is widely known to, and regularly observed by, parties to contracts of that type in that trade. Article 25(2) treats any electronic communication providing a durable record as equivalent to writing.
Two further rules decide how robust the clause is. Article 25(1) sends the agreement’s substantive validity to the law of the designated Member State, so the forum clause is tested by that law and not by the law the contract chose for itself. Article 25(5) treats the clause as an agreement independent of the other terms, and provides that its validity cannot be contested solely on the ground that the contract is not valid.
What the parties cannot do is contract out of Article 24, which allocates five categories exclusively regardless of anyone’s domicile: rights in rem in immovable property and tenancies, to the courts where the property is situated; the validity of the constitution, the nullity or the dissolution of companies and the validity of their organs’ decisions, to the courts of the seat; the validity of entries in public registers, to the courts keeping the register; the registration or validity of patents, trade marks, designs and similar registered rights, to the state of registration, whether the point is raised as a claim or as a defence; and proceedings concerned with the enforcement of judgments, to the courts where enforcement takes place. Article 25(4) draws the consequence: an agreement conferring jurisdiction has no legal force if it is contrary to the protective provisions on insurance, consumer or employment matters, or if the courts it purports to exclude have exclusive jurisdiction under Article 24.
A clause naming one court does not stop a claim being filed in another, so the Regulation uses priority rules rather than injunctions. Article 29 requires a court other than the one first seised of the same cause of action between the same parties to stay of its own motion until the first court’s jurisdiction is established, and then to decline; Article 32 fixes when a court counts as seised, generally when the document instituting proceedings is lodged, provided the claimant does not then fail to take the steps required for service. Article 30 gives a discretion, not a duty, to stay where actions are merely related, meaning so closely connected that it is expedient to hear them together to avoid irreconcilable judgments.
Article 31(2) reverses that order where an exclusive choice of court agreement is in play, requiring a court of another Member State to stay until the designated court declares that it has no jurisdiction under the agreement, and by Article 31(3) to decline once that court has established jurisdiction. That is what gives a well-drafted clause practical force against a pre-emptive filing elsewhere, and it is not unconditional: it applies without prejudice to Article 26, so a defendant who enters an appearance without contesting jurisdiction can still confer it on the other court, and Article 31(4) switches the rule off in insurance, consumer and employment matters where the protected party is the claimant and the agreement is not valid under those sections.
Where the competing proceedings are outside the Union the position is weaker, which matters whenever the counterparty is not European. Articles 33 and 34 give a Member State court a discretion to stay in favour of a court of a third State, but only where its own jurisdiction rests on Article 4 or on Articles 7, 8 or 9, only where the third-State judgment is expected to be capable of recognition and, where applicable, enforcement in that Member State, and only where the stay is necessary for the proper administration of justice. The court may continue the proceedings at any time, and once the third-State proceedings have concluded in a judgment capable of recognition there it must dismiss under Article 33 and may dismiss under Article 34.
Arbitration, and the ground outside the Union
For genuinely international contracts, arbitration is often chosen instead of national courts, because an arbitral award is enforceable across most of the world under a widely adopted convention, more readily than a national court judgment is in many countries. Arbitration also offers privacy and a neutral forum. It is not free of drawbacks, cost and limited appeal among them, but for a contract spanning several jurisdictions it frequently answers the enforcement question better than any single national court.
That convention is the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York on 10 June 1958, in force since 7 June 1959 and recorded by the United Nations as depositary with 172 parties. Article II obliges each contracting state to recognise a written agreement to arbitrate and, when seised of a covered dispute, to refer the parties to arbitration. Article V confines refusal of recognition and enforcement to the grounds it lists, five of which must be proved by the party resisting the award, with two more, that the subject matter is not capable of settlement by arbitration and that recognition would be contrary to public policy, available to the court on its own finding.
Arbitration also sits deliberately outside the European machinery. Article 1(2)(d) of the recast Regulation excludes arbitration from its scope, and recital 12 states that the Regulation is without prejudice to the competence of Member State courts to decide on the recognition and enforcement of arbitral awards under the 1958 New York Convention, which takes precedence over the Regulation. The practical consequence is that a fight about whether an arbitration agreement binds does not get the Regulation’s priority rules, and is resolved court by court under national law.
For court judgments rather than awards, the ground outside the Union rests on two Hague instruments whose membership has to be checked rather than assumed. The Hague Convention of 30 June 2005 on Choice of Court Agreements was approved for the Union by Council Decision 2014/887/EU and entered into force for it on 1 October 2015, while Denmark, which took no part in that approval, acceded in its own right with effect from 1 September 2018. Mexico, Singapore, Montenegro, Ukraine, Moldova, Albania, North Macedonia, Bahrain, Switzerland since 1 January 2025 and Monaco since 1 March 2026 are among the other contracting parties. The United Kingdom deposited its own instrument of accession on 28 September 2020, and the status table kept by the Hague Conference records the Convention as in force there from 1 October 2015.
The Hague Judgments Convention of 2 July 2019 is the wider instrument, because it reaches judgments that do not rest on a choice of court clause at all. It entered into force for the Union and for Ukraine on 1 September 2023, for Uruguay on 1 October 2024, for the United Kingdom on 1 July 2025 following ratification on 27 June 2024, and during 2026 for Albania, Montenegro and Andorra. Denmark is not covered here either, and the exclusion is express: Council Decision (EU) 2022/1206 requires the Union to declare on accession that the term European Union, for that purpose, does not include the Kingdom of Denmark.
Consistency across the structure
A group with many contracts should not have a different governing law and forum in each one by accident. Inconsistent clauses across related agreements produce the situation where a single commercial dispute has to be fought in several places under several laws at once. The clauses should be chosen as a coherent policy across the structure, which is part of the coordination we describe in our note on shareholders agreements that actually hold.
Inconsistency also reaches past the contracts themselves. A claim framed in tort between the same parties is routed by Rome II, whose Article 4(1) applies the law of the country in which the damage occurs, irrespective of the country in which the event giving rise to it occurred and irrespective of where the indirect consequences are felt. Article 4(2) displaces that where both parties have their habitual residence in the same country when the damage occurs, and Article 4(3) can displace it again where the tort is manifestly more closely connected with another country, a connection which it says might be based in particular on a pre-existing relationship between the parties, such as a contract.
Article 12 of Rome II makes the point directly for the negotiation stage, applying to non-contractual obligations arising out of dealings prior to conclusion the law that applies to the contract, or that would have applied to it had it been entered into, regardless of whether the contract was actually concluded. A governing law clause chosen once, coherently, therefore does work across claims that were never framed as contractual at all.
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This article is informational and does not constitute legal advice. The law differs by jurisdiction and the treatment of any matter depends on its facts. Each engagement is subject to scope and applicable regulation.