Clause primer
Governing law and forum selection clause
Chooses which jurisdiction's law governs the contract and which courts will hear disputes about it.
Legal information, not legal advice. What a clause does depends on its exact words, the rest of the agreement and the governing law.
Also called: choice of law clause, choice of forum clause, jurisdiction and venue clause. Where you find it: Nearly every commercial contract, including NDAs, MSAs, SaaS agreements, purchase agreements and loan documents.
SAMPLE CLAUSE (INVENTED FOR THIS PRIMER)
This Agreement, and any dispute arising out of or relating to it, will be governed by the laws of the State of [State], without regard to its conflict of laws principles. Each party irrevocably submits to the exclusive jurisdiction of the state and federal courts located in [County], [State], for any action arising out of or relating to this Agreement, and waives any objection to venue in those courts, including on the ground of inconvenient forum. A party may seek injunctive relief to protect its intellectual property or Confidential Information in any court of competent jurisdiction.
How it works
Scope of governing law
The words "any dispute arising out of or relating to" may extend the chosen law to tort and statutory claims connected to the contract. Narrower wording, such as "this Agreement will be governed by," may reach only contract claims.
Conflict of laws exclusion
Prevents the chosen state's own conflict rules from pointing to a different state's law. Without it, a court could apply the chosen state's choice of law rules and end up applying another law entirely.
Exclusive forum and waiver of objections
Requires suit in the named courts and waives venue and inconvenient forum arguments. Check whether the clause says "exclusive" or merely consents to jurisdiction, since a non-exclusive clause allows suit elsewhere.
Injunctive relief carve-out
Lets a party seek urgent relief wherever needed. This matters where the other party or its assets are located outside the chosen forum.
Why it is there
The clause gives both parties predictability about which legal rules apply and where they will litigate, which affects cost, timing and the likely outcome of disputes. It usually protects the party whose home state and courts are chosen, because that party knows the law and avoids travel and local counsel costs. A clear clause also reduces the risk of preliminary fights over jurisdiction. Many teams treat governing law as a negotiable business point and forum as the more important practical term.
How it works with other clauses
- An arbitration clause, if present, controls the forum for covered disputes, and the two clauses should be drafted to avoid conflict.
- Limitation of liability, contractual limitations periods and jury waivers may be enforced differently depending on the governing law chosen.
- Mandatory local rules, such as employment, consumer or certain franchise protections, may apply regardless of the chosen law.
- Notices and service of process provisions affect how a suit in the chosen forum begins.
Negotiating it
Who it protects: The party whose home jurisdiction is chosen.
If it protects you
- Keep both the governing law and an exclusive forum in your home jurisdiction.
- Keep broad "arising out of or relating to" scope and the conflict of laws exclusion.
- Keep a carve-out for injunctive relief elsewhere.
If it runs against you
- Standard ask: a neutral jurisdiction for both law and forum; fallback: accept the other party's governing law but split the forum, such as the defendant's home courts.
- Ask for a mutual injunctive relief carve-out rather than one benefiting only the other party.
- Confirm the chosen law has a well-developed body of commercial case law before agreeing.
Escalate before accepting: An exclusive forum in a distant or foreign jurisdiction, combined with law that is unfamiliar to the team and no injunctive relief carve-out, deserves escalation before signing.
What AI explanations get wrong
- Treating governing law and forum as the same thing. Check: confirm the clause addresses both, and whether the forum is exclusive.
- Assuming the chosen law covers tort and statutory claims. Check: read the scope language and consider the governing law's approach.
- Missing a conflicting arbitration clause or a different clause in an order form. Check: search the full agreement and incorporated documents for dispute resolution terms.
- Stating that any chosen law will be enforced. Check: consider whether the chosen state has a reasonable relationship to the parties and whether mandatory local law applies.
Where the law varies
Courts generally enforce choice of law and forum selection clauses between commercial parties, but tests vary, including whether the chosen state has a reasonable relationship to the parties or transaction and whether enforcement would conflict with a fundamental policy of another state. Some states limit forum or law choices in particular contract types.
Sources
TOOLS
Need a primer like this for a clause in front of you? The Clause Primer Kit, included in All-access, produces one in this format inside the AI tool you already use, with checks built in. For reviewing whole agreements, see the Commercial Contracts Starter Pack.