Glossary · Legal and regulation
Governing law clause
Also called Choice of law clause
A governing law clause states which country’s or state’s law applies to a contract, which decides the interest, fees and procedures you can rely on.
A governing law clause chooses the law that interprets the contract. A jurisdiction clause, usually alongside it, chooses which courts hear disputes. Both matter when you trade across borders.
If the contract doesn’t choose, rules fill the gap. In the EU, the Rome I Regulation provides that a contract for services is generally governed by the law of the country where the service provider is habitually resident — usually helpful to the supplier.
For collections, the governing law decides the late-payment interest rate, whether a fixed recovery sum applies, how long you have to sue and which court procedures are available. Put the clause in your terms of business so it isn’t left to chance.
Example
A Dutch consultancy’s terms say Dutch law applies and Amsterdam courts have jurisdiction. When a Belgian client pays late, the consultancy claims Dutch statutory commercial interest and collection costs.