The seemingly straightforward governing law clause in any contract holds immense power, acting as the legal compass that guides the interpretation and enforcement of an agreement. While its fundamental purpose—to specify which legal system will apply in a dispute—remains constant, its practical application, particularly in dispute resolution forums like adjudication and arbitration, presents a fascinating array of challenges and jurisdictional distinctions. This post demonstrates how governing law truly operates across different legal systems.
The Foundational Role of Governing Law: Certainty in an Uncertain World
At its core, governing law is about establishing certainty. It clarifies the legal framework under which a contract’s terms are construed. For instance, in an international agreement, explicitly stating “This Agreement shall be governed by and construed in accordance with the laws of the State of New York” prevents costly battles over which jurisdiction’s laws apply. This principle is crucial not only in cross-border transactions but also within a single country like the United Kingdom, which comprises distinct legal systems.
The distinction between governing law and jurisdiction is vital. Governing law dictates which laws apply to interpret the contract, while jurisdiction determines where disputes will be heard (e.g., a specific court or arbitration tribunal). Both clauses are critical for a robust contract, guiding parties on how their agreement will be interpreted and where any legal challenges will unfold.
Insights from the UK: A Mosaic of Legal Approaches
Discussions among legal professionals reveal that while the overarching concept of governing law is universal, its practical implementation in adjudication and arbitration varies significantly across the UK’s legal landscapes: England, Ireland, and Scotland.
The English Perspective: A Territorial Act and Expert Reliance
From an English standpoint, the Construction Act is largely territorial in its application. Legal experts frequently point out that regardless of the stated governing law in a contract, one often cannot contract out of the provisions of the Construction Act for matters falling within its scope in England. This implies that even if a contract stipulates a foreign governing law, English adjudicators operating under the Act will still apply its territorial provisions.
A key observation among practitioners is the role of legal experts. While English-trained tribunals are generally familiar with English law, the need for external legal expertise arises when a foreign governing law is involved. English legal frameworks empower adjudicators to take the initiative in ascertaining the facts and the law, even allowing them to utilize an expert, a legal advisor, or assessor by simply giving notice to the parties, without needing their permission. This flexibility is crucial when dealing with complex foreign legal systems, such as those based on civil code jurisdictions, where tribunals may require assistance to correctly apply the law.
However, a practical challenge emerges when parties, especially in dispute resolution scenarios, lack legal representation or fail to provide adequate submissions or expert evidence on the implications of a chosen foreign governing law. This can leave a tribunal unfamiliar with the foreign law in a difficult position, as they cannot simply rely on basic translations of civil codes to correctly apply them.
The Irish Landscape: Constitutional Context and Payment Focus
Ireland’s approach to construction adjudication, while recognizable to those familiar with other common law models, carries a unique constitutional context. Irish law mandates that “justice shall be administered in courts established by law by judges,” which impacts the categorization of an adjudicator’s role as exercising “limited functions of a judicial nature.” This constitutional underpinning differentiates Irish adjudication, even if the day-to-day work of an adjudicator appears similar to their English counterparts.
A significant distinction lies in the scope of disputes that can be referred to adjudication. In Ireland, the right to refer for adjudication is specifically for “any dispute relating to payment arising under a Construction contract.” This is a narrower scope than the “any dispute” provision found in English legislation. While practitioners often argue that “every dispute has to do with payment,” this narrower definition could potentially exclude purely declaratory actions from adjudication in Ireland.
Furthermore, the Irish judiciary, while supportive of adjudication, is not “deferential.” Courts will scrutinize adjudicators’ decisions, and challenges to appointments or procedural aspects can lead to lengthy judicial reviews, as evidenced by real-world cases. While Irish courts historically looked to English precedent, recent judgments emphasize that despite similarities, “significant differences between the legislative approaches” mean English case law “must… be approached with a degree of caution.”
The Scottish Position: A Mixed System with Convergences
Scotland, as a distinct mixed civil law and common law jurisdiction within the UK, also offers a unique lens on governing law in construction. While historically rooted in civil law, centuries of shared parliamentary history have led to significant convergence with English law, particularly in construction. As one expert humorously put it, Scottish and English construction law are essentially the same, though they may use different terminology.
The adjudication regimes in Scotland are almost identical to England, with minor differences in wording within their respective schemes. Enforcement procedures do vary, for instance, with distinct court procedures and concepts like “registration of the books and Council and session.” However, these are often theoretical differences in practice.
A notable cultural observation is a greater tendency for adjudicators in Scotland to hold hearings in cases of any size, though this is not a strict rule. Despite the distinct legal systems, English and other non-Scottish solicitors frequently appear before Scottish adjudicators, demonstrating the practical interoperability, albeit with an awareness of the nuanced differences.
The Broader Implications: International Contracts and Expertise
The application of governing law extends to international contexts, particularly within widely used forms of contract like those by FIDIC (Fédération Internationale Des Ingénieurs-Conseils). These contracts often prescribe a specific governing law for the main contract and the Dispute Avoidance/Adjudication Board (DAAB) agreement. A practical challenge can arise when DAAB members, appointed as a standing board, must agree to expert remuneration upfront without knowing future disputes, making the provision for legal experts difficult to implement if parties cannot agree.
In international arbitration, parties appearing before a tribunal will typically provide expert evidence on governing laws when necessary, which is highly beneficial. However, in dispute resolution scenarios, where parties might not have legal representation, they often rarely feel the need to make adequate submissions on what the implications of the choice of governing law are, nor do they call expert evidence. This can leave tribunals dealing with an unfamiliar governing law at a disadvantage.
Ultimately, a key takeaway for practitioners involved in any dispute resolution process is the critical need to give consideration to expert evidence when an issue is impacted by a different governing law from the tribunal’s familiar jurisdiction. Parties bear the burden of supporting their assertions, and failing to provide such expertise can significantly hinder the tribunal’s ability to apply the correct law.
Conclusion: A Dynamic and Evolving Landscape
Discussions among legal professionals across various jurisdictions highlight that while the foundational principle of governing law is clear, its practical application in real-world dispute resolution is dynamic and complex. Whether dealing with statutory adjudication, international arbitration, or specific contract forms, the choice and understanding of governing law remain paramount. It shapes the interpretation of rights and obligations, influences procedural nuances, and ultimately impacts the enforceability and outcome of disputes. Ensuring proper legal expertise, clear contractual drafting, and proactive engagement with the chosen legal framework are essential for navigating this crucial aspect of contractual agreements successfully.