Governing Law and Choice of Law Clauses in Terms and Conditions
One thing that is very important to include in terms and conditions is a governing law and choice of law clauses. The reason why a governing law clause is used is that you get to declare which legal rules customers should adhere to and which actions are enforced if those rules are violated.
It is quite common to find a governing law clause in contracts as well as legal agreements like terms and conditions because they are contracts between users and providers.
In the event you want to see this for yourself, you can simply download a mobile app or visit a website where you would like to create an account, and the chances are you will be given terms and conditions with the governing law included.
Here we will give a detailed explanation of how these laws work, we will then provide some examples of different governing laws, and give some tips for drafting governing law clauses.
Table of contents
Governing law and a company's geographic reach
One of the most important reasons why the governing law clause should be included in the terms & conditions is because you can have customers from all over the world.
If you are running a local business and your only users are people who live in the same town or country, then the inclusion of these laws is not really necessary. For local customers, it is pretty clear which law applies and how it is enforced, however, what if you have customers from different continents?
If you have users that are located in Japan or Norway for example, and they feel wronged by the product in some way, they have a right to file a lawsuit.
However, the law that would apply is not from Japan or Norway, it would be the law they agreed to in the terms & conditions. Since the governing law has the final say on which laws will apply, it can save both parties the trouble of having to hire international lawyers.
When you wish to include a governing law in your agreement, the courts will have to examine it and ascertain if there is a connection to that location and at least one of the parties.
Alternatively, it can examine the connection between the location and the transaction, or part of the transaction.
There is a list of potential states that are viable for use, and it is going to contain the location of each of the parties, where the business deal occurred, the location of your company, and other elements that are relevant.
Why you must include governing law clause in your terms and conditions
If you provide your users with detailed information regarding the use of a product, they will be more confident to make a purchase or to take action in general.
Another reason is to save both time and money on potential litigation, which is likely to occur in case you do not have a governing law at all.
Finally, we have already mentioned that you do not need to hire international lawyers if it is clear from the beginning which is the active governing law that is enforced in the transaction.
These are all really good reasons to opt for including or in fact, selecting a governing law for your terms and conditions. However, what would happen if you left your agreement without any governing law?
Well, in that case, if something goes south and you have issues with the legislation, the contract is going to be governed by the law of the jurisdiction that has the most connection to the contract.
In other words, the court will have to examine factors like the residency of the parties and where the contract was made in order to identify the jurisdiction law which is best suited for a fair trial.
Difference between law and jurisdiction
It is really important to distinguish between governing law and jurisdiction, so we are going to explain these terms a bit better.
Jurisdiction refers to either the court or court system in which your case is going to be tried. To clarify, this statement jurisdiction can be the state courts of a particular country, whereas governing law can be connected to the state laws of a different country.
In other words, governing law can be applied regardless of jurisdiction, or to be precise, a law clause does not need to match the jurisdiction clause. This means that it is possible to apply a governing law from Florida, for example, in a court case that is under the jurisdiction of California state courts.
Plenty of businesses choose to include jurisdiction information as a part of their governing law, instead of creating two individual clauses. Here is a good example of what we are talking about:
Useful tips and suggestions for drafting the governing law clause
If you have to write the terms and conditions, and you need to include a governing law clause in them, then here are some tips that can come in handy. Basically, all of the companies keep them short and straight to the point, but they also include some variety and personalization, so here are some practical techniques you should implement.
1. Do not confuse the readers
Legal agreements are for average users, and people who did not study law, or who are not native speakers for that matter, might have a hard time figuring out exactly what is implied if you use the same legal language as in the law. It is crucial that you make these agreements clear by simplifying legal clauses. Basically, all you need to do is state, like in the example above with Apple, under which law the agreement is governed.
2. Choose wisely
Considering that there are many options here, it is advised you pick a law that suits you best, for governing your agreements. You have the opportunity to pick something that goes in your favor, so do not miss out on that opportunity by making a decision in haste.
Hiring a lawyer, or finding a friend who has an understanding of these matters, is a smart course of action. Considering how there are many choices, the best one might not always be obvious, so asking for a second opinion is strongly advised in this case.
3. Know your options
We have already stated that you can't simply pick governing law clauses from anywhere. In order to select a viable law, it needs to be the law from the location that is related to transactions in some way. In other words, it can be the headquarters of your store, the location where the transaction took place or the location of one of the parties.
4. Don't leave it open for interpretation
Even though you are not obliged to select a governing law in your agreements, it is better if you do then if you just leave it open for interpretation. First, if you do not pick a law, the courts will try to determine your intention. If they find no vested interest in this arrangement, your contract will be governed by the law of the jurisdiction that has the most connection to the transaction in question.
5. Law needs to be certified
Finally, regardless of the law you choose, there is a possibility of a court not upholding the selected governing law clause. This can happen if the law clause is not bona fide or if the applicable law contradicts public policy in some way. So, if you purposely choose a governing law so that you can avoid the laws of another jurisdiction, it won't apply. It needs to be both bonafide and in accordance with public policy.
Examples of governing law clauses
Here we are going to provide some examples of governing law clauses, which are used in either mobile apps, software, agreements of websites, etc.
In other words, they state that there is a governing law and that it is going to be determined by them eventually.
Amazon operates worldwide, and because of this arrangement, they need to have a different governing law clause for each of their bases of operation. There are governing laws for the Amazon U.S. conditions of use agreement and for Amazon U.K conditions of use and sale agreement.
In the U.S. agreement, it is stated that the laws of the state of Washington are the laws that are going to apply in the event a dispute between Amazon and U.S. users occurs. In the U.K. Amazon agreement, you are going to notice the same law clause under the "Applicable Law" section, however, you will see that there is different country-specific information.
Once users are able to locate their place of residence, they can easily find out the choice of law and jurisdiction that will be applicable for that specific country. So, this would be a good way to address the needs of users that are either large businesses or simply a casual user of the software.
Zendesk uses techniques that are a bit different; it appoints its readers to section 18.1 of the Terms of Service because this is where they can find the relevant information and details regarding the active governing law.
In this section, Zendesk elaborates on each of its services, and supplies the users with essential contact information, email address and, of course, tell them everything they need to know regarding the governing law.
MakerBot has an on-point and precise governing law clause written in their Terms of Sale. Even the title of the section is called "Governing Law" so that users cannot miss it.
As you can see, it states that the legal disputes are going to be handled in accordance with the laws of the State of New York U.S.A, and the issue of jurisdiction is addressed here as well, in the last sentence.
It states that any legal dispute related to their Terms of the Manual is going to be processed by the courts in the State of New York. So, this means that a specific law will apply to you, regardless of the country you are in.
You can find many other examples of governing laws in the terms and conditions, all you need to do is visit a website or an online platform, and click on that section. In other words, there are multiple sources that can aid you in determining how to best address this, in case you need to create one for your business.
To sum up, it is important that you include these clauses in your agreements, and to choose wisely, since they can potentially do more harm than good if you don't.
Follow the tips for drafting provided in the article, and go over our examples to get an idea on how to include this information in your terms and conditions or just use our generators to get it done automatically.
- Updated on November 25, 2020