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A governing law and choice of forum clause deals with two distinct issues: (1) the choice of law that is to govern any dispute arising under the agreement; and (2) the choice of forum where disputes will be heard. These issues are often dealt with in a single provision but can also be dealt with separately.
Choice of Law
Parties can end up negotiating the choice of governing law where they reside in different jurisdictions, a transaction occurs in different jurisdictions or the law of one jurisdiction is more advantageous than another. Once the governing law is chosen, the selected law becomes the law of the contract and will generally be upheld by courts, provided that it is bona fide, legal and not contrary to public policy.
Governing law clauses often include additional wording such as "...and construed, interpreted and enforced in accordance...", but this additional wording is not necessary.
Conflict of laws principles of the selected jurisdiction can result, in certain circumstances, in the imposition of the laws of another jurisdiction. Wording has been included to avoid this unintended consequence.
Where there is no express law chosen, courts may choose the law that has the closest and most substantial connection with the parties or the transaction.
Choice of Forum
The jurisdiction of the governing law and the choice of forum need not be the same, and parties may take advantage of the benefits of Alberta's substantive laws while submitting to the procedural laws of another jurisdiction. However, in most cases the parties select a governing law and forum from a single jurisdiction.
While the words "attorn" and "submit" are often used in conjunction in a jurisdiction clause, Canadian statutes and international treaties commonly refer to "submitting" to a jurisdiction. Furthermore, the use of "attorn" originated from a real property context and can confuse international parties.
When choosing a forum, the parties may submit to exclusive or non-exclusive jurisdiction. Exclusive jurisdiction means that an action can be commenced only in the chosen forum. Non-exclusive jurisdiction provides some flexibility to the parties as it authorizes more than one jurisdiction to hear the action. Parties intending exclusive jurisdiction must clearly indicate it in the clause. The courts may not enforce an exclusive jurisdiction provision if a party can demonstrate a "strong cause" for an alternate forum, such as the convenience of the forum, the governing law agreed upon by the parties, the strength of jurisdictional connections of the parties and whether there are public policy reasons to deny the forum.
In cases where the parties reside in different jurisdictions, consider adding a provision to this clause appointing an agent for each party for service of process in relation to any disputes arising under the agreement.
There is an argument to be made, both with respect to choice of law and choice of forum, that this wording will only cover claims based in contract and will not automatically cover a claim based in tort. If tort claims are intended to be covered, it may be advisable to include additional wording to ensure that they are covered.
Sample Governing Law and Choice of Forum Clause
This agreement is governed by the laws of the Province of [province], without regard to conflict of laws principles that would require the application of the laws of another jurisdiction. [Subject to the dispute resolution provisions of this agreement,] the parties irrevocably submit to the [non-exclusive/exclusive] jurisdiction of the courts of the Province of [province].
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