Governing Law And Jurisdiction Clauses In Contracts: Key Considerations

If you’ve ever skimmed a contract and spotted a line like “This agreement is governed by the laws of…” followed by a place you’ve never done business in, you’re not alone.

A governing law and jurisdiction clause can feel like “fine print”, but it can have a huge impact on what happens if something goes wrong - including where you can take action, what rules apply, and how expensive and practical a dispute will be to resolve.

For New Zealand small businesses, this clause matters whether you’re signing up a new supplier, onboarding a software provider, taking on an overseas client, or leasing premises. Getting it right from day one can save you a lot of stress (and cost) later.

What Is A Governing Law And Jurisdiction Clause (And Why Does It Matter)?

A governing law and jurisdiction clause tells you two key things:

• Governing law: which country or region’s laws will be used to interpret and enforce the contract.
• Jurisdiction: which courts (or dispute forum) the parties agree will hear disputes.

These are related, but they’re not the same thing. A contract can (in some cases) be governed by the laws of one place but require disputes to be heard in another. That mismatch can create uncertainty, extra cost, and strategic disadvantage - especially for a smaller business.

Why You Should Care (Even If You “Don’t Plan To Dispute”)

Most business owners don’t sign contracts expecting a dispute. But disputes often arise from everyday issues, like:

• late or non-payment
• quality or performance problems
• missed delivery dates
• scope creep and unclear responsibilities
• termination disagreements
• data security incidents or confidentiality breaches

If a dispute happens, the governing law and jurisdiction clause can determine:

• how quickly you can enforce your rights
• whether you can sue “locally” (or need lawyers overseas)
• what remedies are available (for example, specific performance, damages, injunctions)
• how much leverage you have in negotiations

In practice, the clause affects your risk profile. And for small businesses, reducing “surprise” legal costs is a big part of staying commercially resilient.

Governing Law Vs Jurisdiction Vs Dispute Resolution: Don’t Mix These Up

Contracts often bundle these concepts together, or spread them across multiple sections. Before you sign, it helps to separate them.

1) Governing Law

This is the “rulebook” for interpreting the contract. If your agreement says it’s governed by New Zealand law (often specified as the law of a particular region), then those laws (including key commercial contract principles and relevant New Zealand legislation) will generally guide interpretation and enforcement.

For New Zealand businesses, a New Zealand governing law clause can feel familiar and predictable - especially if your operations, staff, and records are all here.

2) Jurisdiction

This is about where disputes will be heard (for example, “the courts of New Zealand” or “the courts of New Zealand”). Jurisdiction clauses are often:

• exclusive (you must bring proceedings only in that forum); or
• non-exclusive (you can bring proceedings there, but you may be allowed to bring them elsewhere too).

Exclusive jurisdiction is common because it gives certainty. But certainty can cut both ways - if the exclusive jurisdiction is overseas, it may create a practical barrier to enforcing your rights.

3) Dispute Resolution Process (Courts, Arbitration, Mediation)

Separately, contracts often include a dispute resolution clause that sets out how</em disputes will be handled, such as:

• good faith negotiation between business owners or senior managers
• mediation before court proceedings
• arbitration (a private process where an arbitrator decides the outcome)

Arbitration can be appealing in cross-border deals because it’s private and, in many cases, arbitral awards can be easier to enforce internationally than court judgments (often because of treaty frameworks like the New York Convention). That said, the practical outcome depends on the countries involved, the drafting of the clause, and the dispute itself - and arbitration can still be costly.

This is where having your key commercial contract properly drafted (or at least reviewed) matters - especially for agreements like a Service Agreement or a Master Services Agreement, where the relationship can run for months or years.

What Should New Zealand Businesses Choose For Their Governing Law And Jurisdiction Clause?

There’s no one-size-fits-all answer, but there are some practical “default” positions many New Zealand small businesses aim for.

If Your Business Is New Zealand-Based And The Work Is In New Zealand

In many local B2B deals, a sensible position is:

• Governing law: New Zealand law (often a nominated region)
• Jurisdiction: courts of that region (or New Zealand)

This usually reduces complexity, keeps legal costs more predictable, and makes enforcement more realistic if you need to take action.

If You’re Dealing With An Overseas Client Or Supplier

This is where the negotiation often happens. The larger party may push for their “home” law and courts. Before you accept that, think about:

• Where is the other party located? If they have no presence or assets in New Zealand, a New Zealand court judgment may be harder (or more expensive) to enforce overseas.
• Where is the work performed? If services are delivered in New Zealand, New Zealand law/jurisdiction may be more commercially appropriate.
• What is the contract value? If it’s a smaller contract, overseas litigation may be commercially unrealistic (even if you’re “right”).
• What’s your bargaining power? If you can’t move the clause, you may need to manage risk using other terms (like stronger payment protections, shorter termination rights, staged deliverables, or security).

If you’re regularly signing cross-border agreements, it’s worth getting the template checked once and then using it consistently. An International Contract Review can help you understand what you’re actually agreeing to (and what you should push back on).

If You Operate Online (Including SaaS Or E-Commerce)

Online businesses often contract with customers in multiple countries. Your contract may include governing law and jurisdiction terms in your website terms, app terms, or subscription terms.

From a practical perspective, many New Zealand businesses set their online terms to New Zealand law and New Zealand jurisdiction, but you’ll want to make sure the approach fits your:

• customer base (New Zealand-only vs global)
• delivery model (digital vs physical goods)
• consumer vs business customers (consumer law can change the risk profile)

This is one reason it’s worth having properly drafted Website Terms And Conditions rather than relying on a generic overseas template that “defaults” to a foreign jurisdiction.

Common Pitfalls With Governing Law And Jurisdiction Clauses (And How To Avoid Them)

These are some of the issues we commonly see when small businesses sign contracts quickly (especially supplier terms and online platform agreements).

Pitfall 1: Accepting A Foreign Court Without Realising The Practical Cost

A clause might say disputes must be heard in a court in another country (sometimes even a specific city). Even if the contract amount is modest, you could be facing:

• overseas lawyers
• time zone and language issues
• travel or hearing attendance requirements
• higher filing and procedural costs

If the clause is non-negotiable, consider whether the commercial upside is worth the enforcement downside - and whether you can restructure the deal (for example, smaller upfront commitments, staged payments, or a shorter term).

Pitfall 2: Governing Law And Jurisdiction Don’t Match The Dispute Resolution Clause

Sometimes contracts say:

• governing law is New Zealand law; but
• exclusive jurisdiction is overseas; and
• disputes must go to arbitration in a third location.

That kind of drafting can create confusion, delays, and arguments about process before you even get to the real dispute.

You generally want the contract to be internally consistent - and if it isn’t, it’s a good sign the contract needs a proper tidy-up.

Pitfall 3: “Submit To Jurisdiction” Language That Quietly Limits Your Options

Clauses often say parties “submit to the jurisdiction” of a certain court. Depending on the exact drafting (and how the clause reads as a whole), this can be intended as non-exclusive, or it can effectively operate like an exclusive forum clause. If you want certainty either way, the clause should say clearly whether jurisdiction is exclusive or non-exclusive.

If you want flexibility (for example, to pursue a debt claim where the debtor has assets), you’ll want the clause drafted clearly.

Pitfall 4: Not Thinking About Enforcement (Where Are The Assets?)

Winning a court case is one thing. Collecting is another.

Before you agree to a forum, ask:

• Where does the other party have assets (bank accounts, inventory, receivables, property)?
• Where is the other party incorporated/registered?
• Do they have a New Zealand presence you can enforce against?

If the counterparty’s assets are all overseas, a New Zealand judgment may require extra enforcement steps (and in some places, you may need to start fresh proceedings). If the assets are in New Zealand, then New Zealand jurisdiction is often a practical choice.

Pitfall 5: Assuming “New Zealand Law” Overrides Mandatory Overseas Laws

Even if a contract says New Zealand law applies, other mandatory laws can still apply depending on the transaction and the parties involved (for example, certain consumer protections in the customer’s country, or sector-specific regulations).

This doesn’t mean you shouldn’t choose New Zealand governing law - it just means it’s worth getting advice if you’re selling to consumers overseas or operating in regulated areas.

How To Negotiate A Governing Law And Jurisdiction Clause (Without Derailing The Deal)

Negotiating legal terms doesn’t need to be confrontational. The goal is to reduce uncertainty and keep dispute resolution commercially realistic.

Start With A Clear, Reasonable Position

For many New Zealand SMEs, a reasonable starting proposal is:

• New Zealand governing law (often the region most connected to the deal)
• local courts (exclusive jurisdiction)
• a staged dispute resolution process (negotiation → mediation → court)

If you’re contracting with an overseas party, you might instead propose:

• New Zealand governing law; and
• arbitration seated in New Zealand (or another neutral location); or
• non-exclusive jurisdiction (to preserve options).

Use A “Neutral” Compromise If Needed

If neither side wants the other’s home courts, a compromise can be:

• a neutral jurisdiction (less common for smaller deals, but sometimes workable); or
• arbitration with a neutral seat; or
• keeping governing law in one place but allowing non-exclusive jurisdiction.

The right approach depends on the relationship, deal value, and where performance happens.

Support The Clause With Other Risk Controls

If you have to accept a less favourable forum, you can often reduce risk elsewhere in the contract, such as:

• payment terms (shorter payment windows, late payment interest, upfront deposits)
• clear scope (what is included/excluded, change request process)
• limitation of liability (caps and exclusions that match your insurance and risk tolerance)
• termination rights (for non-payment, convenience, or material breach)
• confidentiality protections (especially if you’re sharing pricing, know-how, or customer lists)

For example, if you’re disclosing sensitive business information early in negotiations, it’s smart to put a Non-Disclosure Agreement in place before documents start flying back and forth - it’s a simple step that can prevent bigger problems later.

Get The Contract Reviewed Before You’re “Locked In”

Timing matters. Once work has started (or you’ve onboarded a supplier into your systems), it becomes harder to renegotiate legal terms.

A quick Contract Review before you sign can flag whether the governing law and jurisdiction clause is standard and workable for your situation - and whether it conflicts with any other clause (like arbitration, service levels, or termination).

The same goes for property deals. If you’re signing a lease and the dispute clause pushes you into an inconvenient forum, you want to know that upfront, ideally as part of a Commercial Lease Review.

Key Takeaways

• A governing law and jurisdiction clause can heavily influence your cost, leverage, and ability to enforce the contract if a dispute arises.
• Governing law is the “rulebook” for interpreting the contract, while jurisdiction is about where disputes will be heard (and whether that forum is exclusive or non-exclusive).
• For many New Zealand-based contracts, choosing New Zealand law and New Zealand courts keeps things more predictable and commercially practical.
• In cross-border deals, think beyond “what’s fair” and focus on what’s enforceable - including where the other party’s assets are located and how realistic overseas litigation would be for your business.
• Watch out for internal inconsistencies, such as a mismatch between governing law, jurisdiction, and arbitration clauses, as these can create disputes about process before the real dispute is even addressed.
• If you can’t negotiate the forum, manage risk through other terms like payment protections, clear scope, termination rights, and confidentiality obligations.
• Getting a contract reviewed before signing is often the simplest way to spot a risky forum clause early and avoid expensive surprises later.

Note: This article is general information only and doesn’t take into account your specific circumstances. It isn’t legal advice.

If you’d like help reviewing or drafting a contract (including the governing law and jurisdiction clause), you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.