Controlling law: Overview, definition, and example
What is controlling law?
Controlling law, also known as governing law, refers to the body of law that governs the interpretation and enforcement of a contract or agreement. It specifies which jurisdiction’s legal principles will apply in resolving any disputes or issues that arise under the contract. The controlling law clause is crucial in determining which state or country’s laws will be used to interpret the agreement, resolve conflicts, and adjudicate any claims related to the contract.
In many contracts, the parties agree in advance on the applicable controlling law to avoid uncertainty and ensure that any legal issues will be addressed using familiar and predictable legal principles. It is often included in international agreements to prevent conflicts between different legal systems.
Why is controlling law important?
Controlling law is important because it ensures that both parties have clarity about which legal system will apply if there is a dispute. Without this specification, parties could face uncertainty regarding which jurisdiction’s laws will be applied, leading to potential delays, additional legal costs, or complications in enforcement.
For businesses involved in contracts across different states or countries, determining the controlling law can help streamline legal processes and avoid confusion in litigation or arbitration. Additionally, the choice of law can affect how the terms of the contract are interpreted, the enforcement of obligations, and the resolution of disputes.
Understanding controlling law through an example
Imagine two companies entering into a contract for a joint venture, one based in New York and the other in California. They may include a controlling law clause that specifies that any disputes will be governed by the laws of California, regardless of where the dispute arises. This helps both parties understand that if there is a conflict, California law will govern how the contract is interpreted and enforced.
In another example, a U.S.-based company enters into a contract with a supplier in Germany. The contract might specify that German law will be the controlling law for resolving any issues related to the performance of the contract. This ensures that the parties are clear on which country’s legal principles apply, even though the transaction involves multiple jurisdictions.
An example of a controlling law clause
Here’s how a controlling law clause might look in a contract:
“This Agreement shall be governed by and construed in accordance with the laws of the State of [Insert State] without regard to its conflict of laws principles. Any dispute arising out of or relating to this Agreement shall be subject to the exclusive jurisdiction of the courts located in [Insert Jurisdiction].”
Conclusion
Controlling law is a fundamental aspect of contract law, providing clarity on which legal framework will govern the interpretation, enforcement, and dispute resolution of a contract. By including a controlling law clause, parties can avoid confusion, reduce the risk of disputes, and ensure that legal proceedings are conducted under a predictable and agreed-upon legal system. This clause is especially critical in contracts involving multiple jurisdictions, as it helps streamline the legal process and provides both parties with certainty.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.