Proper law: Overview, definition, and example
What is proper law?
Proper law, also known as governing law or choice of law, refers to the law of the jurisdiction that will govern the interpretation, enforcement, and resolution of disputes in a contract or legal agreement. It is the legal system chosen by the parties involved to apply to their contract, determining the rules and principles that will guide the rights and obligations of each party. The proper law is critical in international or cross-border agreements, as it helps establish certainty about which country’s laws will apply in the event of a conflict or legal issue.
For example, if a business in the United States enters into a contract with a supplier in the United Kingdom, the contract may specify that it will be governed by the laws of England, meaning that any disputes will be resolved according to English law.
Why is proper law important?
Proper law is important because it provides clarity and predictability for the parties involved in a contract. By agreeing on the proper law, the parties ensure that they are subject to a consistent set of legal principles, regardless of the jurisdiction in which a dispute arises. This is especially important in international transactions, where different legal systems may have varying rules and procedures. A well-defined proper law clause helps prevent confusion, conflicts, and costly legal proceedings by making the governing legal system clear from the outset.
Understanding proper law through an example
Imagine a company based in Japan enters into a partnership agreement with a company in Germany. Both companies agree that in the event of a dispute, the proper law governing the agreement will be German law. If a legal dispute arises over the terms of the contract, such as non-performance or breach, the dispute will be resolved using German legal principles, even if the companies are located in different countries.
In another example, an e-commerce company based in the U.S. enters into a contract with a supplier from China. The contract specifies that the proper law will be U.S. law, meaning that any legal issues or disputes related to the contract will be resolved according to the laws of the United States, regardless of where the supplier is located.
An example of a proper law clause
Here’s how a proper law clause might appear in a contract:
“This Agreement shall be governed by and construed in accordance with the laws of [jurisdiction], without regard to its conflict of law principles. Any dispute arising out of or in connection with this Agreement shall be subject to the exclusive jurisdiction of the courts of [jurisdiction].”
Conclusion
Proper law plays a crucial role in defining the legal framework for a contract or agreement. By choosing a governing legal system, the parties involved ensure that any disputes or legal issues will be resolved according to a predictable set of rules. This is especially important in international agreements where different countries' legal systems may apply, offering clarity, reducing risks, and enhancing legal certainty for all parties involved.
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.