With a choice of law clause, you determine which national law applies to your cross-border contract. If it is missing, statutory conflict-of-laws rules decide, and the result is often the law of the counterparty. A good clause runs one to three sentences. It names exactly one legal system, decides on the UN Sales Convention and matches the agreed jurisdiction or arbitration. This guide explains the rules in the EU and the cases in which even a cleanly drafted clause does not apply. It also includes template wording in German and English that you can adapt to your contract with your lawyer.
In short
- In the EU, contracting parties may in principle freely choose the applicable law under the Rome I Regulation, including the law of a state outside the EU.
- Without a choice of law, sales of goods are usually governed by the law of the seller and services by the law of the service provider.
- Those who choose the law of a contracting state of the UN Sales Convention (CISG) usually get the CISG along with it in sales of goods. If it is not to apply, exclude it explicitly.
- Choice of law and jurisdiction should match. Otherwise a court has to determine foreign law, which costs time and money.
- Consumers, employees and mandatory overriding provisions set limits to free choice of law.
What a choice of law clause does in the contract
Every contract with a foreign element raises the same question: under which law is it interpreted when a dispute arises? Almost everything that counts later depends on this. It concerns warranty and limitation periods, liability caps and contractual penalties, interest on late payments and the question whether your general terms were validly incorporated at all. A German, a Swiss and a Polish court may treat the same contract text differently because they apply different legal systems.
The choice of law clause (English: governing law clause or choice of law clause) answers this question in advance. In the EU this is expressly allowed: under Article 3 of the Rome I Regulation, the contract is governed by the law chosen by the parties. The choice may cover the whole contract or only part of it, and the parties may later change it by mutual agreement.
Beyond Europe, party autonomy is also recognized as a founding principle of international trade. The 2015 HCCH Principles on Choice of Law in International Commercial Contracts state that no connection need exist between the chosen law and the parties or the transaction. A German supplier and a Canadian buyer may therefore agree on neutral Swiss law without either of them being based in Switzerland.
What applies when no choice of law has been made
Those who skip the clause leave the decision to the statute. Within the EU, Article 4 of the Rome I Regulation determines the applicable law according to fixed connecting factors:
There is also an escape clause: if the contract is manifestly more closely connected with another state, that state's law applies. For you this means: without a choice of law, it is often impossible to say with certainty before contract conclusion which law will ultimately apply.
In practical terms, the table shows: as buyer or principal, without a clause you usually end up with the law of the counterparty. A German machine builder ordering components from an Italian manufacturer would get Italian law, with all its deadlines and formal requirements that his procurement team does not know.
Caution with partners outside the EU: the Rome I Regulation only binds the courts of the participating Member States, and according to the IHK Köln, Denmark is excluded. A court in Switzerland, the United States or Ukraine applies its own private international law. The results are often similar, but not always identical. An express choice of law largely removes this risk.
How to draft the choice of law clause
Under the Rome I Regulation, the choice of law must be made expressly or must result clearly from the contract or the circumstances. A tacit choice is therefore possible. Under the recitals of the Regulation, for instance, an exclusive jurisdiction agreement is a factor pointing to a particular choice of law. You should not rely on this, however. The IHK Köln expressly recommends writing the choice of law into the contract.
Five steps to a robust clause
- Name one legal system, not a region. Write "law of the Federal Republic of Germany" or "Swiss law", not "European law" or "international trade law". In federal states such as the United States or Canada, name the state or province, e.g. "law of the State of New York".
- Decide on the UN Sales Convention. For deliveries of goods, state expressly whether the CISG is to apply or not (see the next section).
- Set the scope. Should the chosen law also govern non-contractual claims connected with the contract, such as those in tort or unjust enrichment? Then write that in.
- Align with jurisdiction or arbitration clause. The clause never stands alone (more on this below).
- Check language versions. If the contract exists in two languages, both versions of the clause must say the same thing, and the contract should state which version prevails in case of doubt.
Template wording
For a supply contract under Swiss law without the UN Sales Convention:
This Agreement and all disputes arising out of or in connection with it are governed by the substantive law of Switzerland. The United Nations Convention on Contracts for the International Sale of Goods of 11 April 1980 (CISG) does not apply.
The same clause in English:
This Agreement and any dispute arising out of or in connection with it shall be governed by the substantive laws of Switzerland. The United Nations Convention on Contracts for the International Sale of Goods of 11 April 1980 (CISG) shall not apply.
For a services contract under German law:
This contract is exclusively governed by the law of the Federal Republic of Germany.
The superfluous addition "excluding private international law"
Many templates append the sentence "excluding conflict-of-laws rules" or "excluding private international law" to the clause. Behind this stands the worry that the chosen law might refer onwards to a third law. Within the EU, this is unnecessary: Article 20 of the Rome I Regulation defines the law of a state as its substantive rules only, and no renvoi or further reference takes place. Worse still: the addition can be read as if the conflict-of-laws rules on which the choice of law itself rests were also to fall away. It can also trigger a dispute as to whether the CISG was intended to be excluded as well. The wording "substantive law" achieves the goal without these risks.
UN Sales Convention: choose or exclude deliberately
The Vienna UN Sales Convention (CISG) was adopted in 1980 and entered into force in 1988. It regulates international sales of goods between businesses uniformly. Germany, Austria and Switzerland are among the contracting states. From this follows a trap often overlooked in practice: the CISG is part of national law. Those who choose "German law" or "Swiss law" for a sale of goods therefore usually get the UN Sales Convention and not the German Civil Code or the Swiss Code of Obligations. The Austrian Chamber of Commerce describes this for Austria as follows: the CISG takes precedence over national law as a special statute and must be expressly excluded if it is not to apply.
Exclude or not? The CISG is not bad, it is a balanced body of rules known to many trading partners. However, it departs from national law in places that matter in a dispute, for example on notice of defects, on damages and on contract formation. The IHK Region Stuttgart also lists the question of the UN Sales Convention as a fixed checkpoint before contract conclusion. Our rule of thumb: decide deliberately and write the decision into the clause. Silence is also a decision, just not a considered one.
Choice of law and jurisdiction belong together
The choice of law says which law applies. The jurisdiction or arbitration clause says who decides. The two should match. A regional court in Munich can apply Swiss law, but it has to determine it first, often through expert opinions. That prolongs the proceedings and makes them more expensive. The IHK Köln expressly draws attention to this point.
Three typical constellations:
- Alignment: German law and jurisdiction in Germany. This is the simplest case, the court applies its own law.
- Divergence: German law, but suit filed in Poland because the debtor's assets are there. That is possible, but the Polish court has to determine German law.
- Neutral law with arbitration: for partners outside Europe, the IHK Köln often recommends international arbitration. The reason: German judgments may not be recognized or enforced there, whereas arbitral awards are enforced in many states.
Before an arbitral tribunal, you have even more leeway. Under the HCCH Principles, parties may also choose, instead of a state law, generally recognized, neutral and balanced bodies of rules, such as international contract principles, as far as the law at the place of arbitration allows. Before state courts in the EU, this does not work: there only a state's law can be chosen; a body of rules can at most be incorporated as contract content.
Where the choice of law meets limits
Freedom of choice is broad, but not unlimited. The Rome I Regulation imposes the following limits:
- Purely domestic cases: if all elements of the situation lie within a single state, that state's mandatory rules remain applicable, even if a foreign law was chosen. Two German companies cannot opt out of German general-terms law merely by agreeing on English law.
- Internal market cases: if all elements lie in EU states, mandatory EU law applies even when the law of a third state has been chosen.
- Consumer contracts: the choice of law may not deprive the consumer of the protection of mandatory rules of his state of residence.
- Employment contracts: employees also retain the protection of the mandatory rules of the law that would apply absent a choice of law, usually of the state in which they ordinarily work.
- Overriding mandatory provisions: certain rules always prevail, for example from foreign trade, competition or sanctions law. This applies to the overriding mandatory provisions of the forum state and, under certain conditions, also to those of the place of performance.
- Ordre public: a court may refuse a provision of the chosen law if it is manifestly incompatible with the fundamental values of its own legal order.
Companies tend to underestimate these limits especially in employment contracts with a foreign element. Those who send staff abroad or employ foreign staff will find a good overview in the guide to international employment law for companies. What should be regulated in the contract itself is shown in our article on employment contracts with a foreign element.
This holds especially for sanctions: choosing a neutral law does not protect against EU or Swiss sanctions rules if a court applies them as overriding mandatory provisions. For transactions with partners in Russia or the region, the contract therefore needs its own sanctions and termination clauses, not only a choice of law.
Checklist before signing
Before you sign a cross-border contract, run through these points:
- Is the choice of law expressly worded and does it name exactly one legal system?
- For sales of goods, is it defined whether the UN Sales Convention applies?
- Do the choice of law and the jurisdiction or arbitration clause fit together?
- Can a judgment or arbitral award be enforced where the counterparty holds assets?
- Are your general terms validly incorporated under the chosen law? (For the Swiss perspective, see our article on general terms and conditions in Switzerland.)
- Does the counterparty's own general terms contain a diverging choice of law? Clashing clauses quickly lead back to the statutory rules.
- Do mandatory rules apply, e.g. on consumer protection, employment law or sanctions?
- Do all language versions say the same thing, and is it defined which prevails in case of doubt?
The IHK Region Stuttgart also lists the core points of this checklist: express choice of law, alignment with jurisdiction, UN Sales Convention and incorporation of general terms.
Our view from practice
In our work on contracts between Switzerland, the EU, Ukraine and other states, we rarely see choice of law clauses that are wrong. Much more often, we see clauses that do not match the rest of the contract. The law is Swiss law, the jurisdiction lies in Kyiv, and the English version says something different from the Russian one. Such contradictions only come to light when a dispute arises, and then they are expensive.
Our advice is therefore: do not negotiate the choice of law as a last-minute formality. Ask early where you would have to sue and enforce in a worst case, and choose the law to match. Review every language version with someone who has legal command of both languages. We work directly in German, English, French, Ukrainian and Russian, without an interpreter in between, because precisely for choice of law and jurisdiction clauses, a single word makes the difference. For contracts involving Ukraine, we have summarized the typical pitfalls in a separate article on contracts with Ukraine. The same applies to shareholders' agreements across borders, see international shareholders' agreement.
— Bitblade
Contract review with a foreign element
Are you negotiating a supply, distribution or services contract with a foreign partner? We review your choice of law, jurisdiction and arbitration clauses in the context of the entire contract, redraft them or support the negotiation in the language of your counterparty. An initial consultation with an assessment starts at CHF 150 per hour. For SMEs with ongoing Eastern European business, there is a retainer model from CHF 500 per month. All services are listed under Packages and fees, and the overview of our contract law practice under international commercial and contract law.
Frequently asked questions
Is a choice of law also possible orally or tacitly?
Yes. Under the Rome I Regulation, it is enough if the choice results clearly from the contract or the circumstances, for example from an exclusive jurisdiction clause. Whether a court will see it the same way later is uncertain, however. A written, express clause spares you this dispute.
May I choose the law of a country with which no party has any connection?
In commercial dealings, usually yes. The Rome I Regulation does not require a connection to the chosen law, and the HCCH Principles expressly confirm this. Neutral legal systems such as Swiss law are often chosen precisely because neither side wants to accept the other's law.
What happens if both sides have different choice of law clauses in their general terms?
Then the clauses contradict each other, and often neither becomes part of the contract. The statutory connecting factors then apply, which in the EU for sales of goods usually means the law of the seller. Those who want certainty agree on the choice of law in the individually signed contract rather than only in the general terms.
Can I change the choice of law later?
Yes, the parties may change the applicable law under the Rome I Regulation at any time by mutual agreement. The formal validity of the contract and third-party rights remain unaffected. Record the change in writing and adjust the jurisdiction clause at the same time.