Governing law provisions are necessary when drafting agreements. We mean by governing law provision is the clause in which the field that is eligible to resolve disputes is indicated and governs the agreement.
Every kind of agreement, regardless of its content, should contain such a clause.
The governing law determines the country which laws and regulations are used to execute the agreement, and that governs it and in which in case of disputes it should be relied on. Questions arise around the criteria that we should base on to determine which domain you should give eligibility to.
One of the criteria that can help is the place of execution of the agreement. Suppose the agreement is to be executed in country X. In that case, it is more than logical to give authority to this country to govern and resolve the disputes arising from its execution.
Another criterion is the place of residency of the parties. If they both reside in country X, then practically, it is easier to assign this country as the eligible one.
- Example of when it is needed
Now that we have deeply explained the governing law provisions let us give a few examples of how they are used and used in practice.
Two parties have signed an agreement under Delaware law. This agreement contains a specific clause that is not well-drafted and draws question marks around it. In this case, referring to the Delaware law is essential to explain this clause’s meaning and remove its ambiguity.
If, while executing the terms of the agreement, the people involved got into a dispute. They couldn’t resolve the matter. The governing law provision will indicate how to close the matter legally and effectively.
- Typical clause
One of the clauses used in the governing law provision is the mediation clause. In case of dispute, the parties agree to go to mediation to solve the matter amicably. If the parties couldn’t get on common grounds in a certain number of days, they should refer their disputes to arbitration or to the court to solve them.
Let’s here make a significant distinction between arbitration and court system.
Arbitration is a way of solving disputes by having the arbitrators make a binding award. Arbitration is related to the private sector.
Courts are related to the public sector, and judge issue binding judgments.
- Why is it important?
It is very critical to stipulate the governing law provision for this particular reason:
Let’s take the case where an agreement doesn’t contain the provision mentioned above. A dispute arose between its parties. 2 direct concerns and questions will arise: generally speaking, which jurisdiction will be eligible to solve the dispute? And mainly speaking, in which way will it be solved. Is it by mediation, conciliation, or arbitration, or is it in 2 ways?
Many questions and many uncertainties. For all the above, stipulating such clauses are a must!
- How can a lawyer help?
When you have many options from which you can choose the field that is to govern the agreement you are entering to, having a lawyers’ input is a must. It is because he is the only one that can advise you on which field to choose and how to go with the dispute, knowing that he is the most person who knows about what is best suitable for your case.
If you want any help in this regard, feel free to visit lexyom.com and book an online consultation with a lawyer.