Governing Substantive Law vs. Procedural Law Sample Clauses

Governing Substantive Law vs. Procedural Law. ‌ If not drafted properly, choice-of-law clauses can be confusing or misinterpreted. For example, depending on how the clause is drafted and whether it is placed within the arbitration provision or elsewhere in the contract, the clause might be interpreted as i) a choice of substantive law, ii) a choice of the law that provides the conflicts of law rules, or iii) a choice of the procedural law of the arbitration. In some instances, the interpretation of the clause might be influenced or even determined by treaty or even by extrinsic evidence. It is thus imperative that parties ensure their choice-of-law clause is clear and consistent with their intent. In most modern contract settings, but especially in international contracts, parties should clearly identify the substantive law that is to govern their contract. Otherwise, uncertainty will exist regarding what the applicable substantive law is; which, in turn, will result in uncertainty respecting the exact nature and enforceability of the parties’ rights and obligations. If the parties do not identify their choice of governing law, the choice will be left to an arbitral tribunal when a dispute arises. The tribunal could then potentially select the law of the country with the closest connection to the dispute, the law of the country of operations, the law where the contract was negotiated, the law where it was executed, or some other law. Even though the modern trend is to interpret the choice-of-law provision as supplying the substantive law, when parties intend the chosen law to be the law of the dispute, they should expressly exclude the conflicts of laws rules of the chosen law so that it does not send them to the law of another country. A choice-of-law provision that excludes the conflicts of laws rules of the chosen law, however, will not necessarily serve to eliminate the application of international law or so-called “transnational law” in an ensuing international arbitration proceeding. When contracting parties intend to eliminate the application of such law, they should expressly state so in the governing law provision. Phraseology that purports to eliminate the application of the law of “any other jurisdiction” should be avoided if the parties’ intent in using that phrase is to eliminate the potential application of international or transnational law because international or transnational law inherently is a type of law that transcends the law of any particular jurisdiction. Parties need to be aw...