Manipulation of The Record of Shareholders
The Record of Shareholders is
One of the most common boilerplate clauses in commercial contracts is the governing law clause. It usually looks like this:
“This Agreement shall be construed and governed in all respects, including its formation, applicability, breach, termination, validity or enforceability according to the laws of [●], without giving effect to its conflict of laws principles.”
To the uninitiated, this may appear straightforward: a simple choice of which country’s laws will apply. Yet in practice, the clause can be surprisingly complex and often misunderstood. Parties sometimes believe that by selecting a particular governing law, they can entirely escape the legal framework of their home jurisdiction. That assumption is incorrect.
Why Governing Law Clauses Exist
The reality is that all individuals and companies remain subject to the laws of their own jurisdiction, whether through the territorial principle (laws apply to activities within the country’s borders) or the nationality principle (laws follow individuals or entities abroad). Declaring that a contract is governed by, say, the laws of the State of New York does not immunize the parties from mandatory provisions of Korean or any other relevant law.
So why include such a clause at all? It is because most legal systems recognize the autonomy of contracting parties to choose a “third law” to govern their contractual relationship. Courts and arbitral tribunals generally honor that choice, at least up to the point where the chosen “third law” does not collide with overriding provisions that apply irrespective of such chosen law.
The Role of Private International Law
The body of rules that mediates between chosen law and local mandatory law is called private international law or conflict of laws. These rules determine which law governs a dispute when multiple jurisdictions or relevant laws are involved.
The common phrase “without giving effect to its conflict of laws principles” in governing law clauses is not surplusage. It is a carve-out. Without it, the designated law (say, New York law) could itself point elsewhere through its own conflict-of-laws rules, potentially undermining the parties’ intent. By excluding those principles, the clause fixes the chosen law directly, without the detour.
An Illustrative Example: Korea
Consider Article 20 of Korea’s Private International Law:
“The mandatory provisions of the Republic of Korea shall govern the corresponding legal relationship, irrespective of the applicable law, in light of the purpose of legislation, where a foreign law is designated as the applicable law under this Act.”
In practice, this means that even if two companies agree their contract is governed by New York law, Korean courts may still apply Korean labor protections, consumer safeguards, or competition rules if those rules are deemed mandatory and applicable to the parties or a party.
When Mandatory Provisions Collide
A further complication arises when parties from different jurisdictions face conflicting mandatory rules. What if Korean law requires one outcome and New York or U.S. federal law requires another? This is where judges, arbitrators, and lawyers step in. Resolution depends on the forum, procedure, and the authority of the decision-maker. The choice of forum can be as significant as the choice of law.
The Importance of ADR(Alternative Dispute Resolution) Clauses
Because of these complexities, it is highly advisable to pair a governing law clause with a robust dispute resolution clause. Arbitration is particularly valuable.
If your counterparty sues in their local court, you may be forced to litigate in a forum whose law and procedures favor them. However, if the contract contains an arbitration clause and the counterparty’s jurisdiction is a member of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, you could challenge the court’s jurisdiction and compel arbitration in the agreed forum, depending on the language of the arbitration agreement contained in the contract. This would increase the likelihood that the dispute will be heard in a neutral setting, with procedures and laws chosen by the parties.
Conclusion
The governing law clause is far more than boilerplate. It is a statement of intent, honored in most cases, but subject to important limits. Parties should understand that:
- The governing law does not override mandatory rules of other jurisdictions;
- Excluding conflict-of-laws principles ensures the chosen law applies directly;
- Conflicting mandatory laws from multiple jurisdictions require judicial or arbitral resolution; and
- Coupling the governing law with an effective ADR clause provides a good safeguard for predictability and neutrality.
In international contracts, precision matters. A carefully drafted governing law clause, paired with a well-structured arbitration agreement, provides parties with clarity, reduces uncertainty, and enhances enforceability across borders.
If you are considering how best to draft or enforce governing law and dispute resolution clauses in your contracts, please feel free to contact us for tailored advice on dispute strategy and for our PR, so we can say we helped keep one more contract out of trouble.
Ends.
[ Inquiries ]
