Governing law and dispute clauses in cross-border contracts: step by step means fixing three decisions in order: which country's law governs the contract, which forum resolves disputes, and how the two clauses align with related agreements in the same deal. Drafted out of order, the clauses conflict and both sides end up litigating over forum before reaching the merits.
Who this concerns
This question comes up for anyone negotiating a supply, distribution, licensing, services or joint venture agreement with a counterpart based outside Sweden, and for the in-house team or outside counsel drafting the boilerplate section once the commercial terms are settled. In most negotiations, governing law and dispute resolution sit on the last page, get drafted last, and are frequently copied from a previous deal without checking whether the choice still fits this one.
The mismatch usually surfaces only once a dispute has already started, which is the worst possible moment to discover that the clause names a forum neither party wanted, that the arbitration clause and the governing law clause point to inconsistent legal systems, or that a related agreement signed on the same day names a different court. None of these problems are visible on a first read. They surface when someone tries to enforce the clause against a counterparty that no longer wants to cooperate.
The calculation changes the moment the counterparty, its assets, or its parent company sit outside Sweden. A Swedish court judgment against a company with no assets in Sweden and no assets in a country that recognises Swedish judgments under a reciprocal arrangement is, in practical terms, a judgment that cannot be enforced without a separate recognition procedure abroad, and that procedure has its own grounds for refusal. The same applies in reverse: a foreign judgment against a Swedish party is not automatically enforceable in Sweden. This is precisely why the choice of forum in the contract should be made with an eye on where enforcement will actually happen, not only on where the negotiation is comfortable.
What the law says
Under Swedish law as it currently stands, parties to a commercial contract have wide freedom to choose the law governing their agreement and the forum for resolving disputes arising from it. That freedom is not unconditional. Certain categories of contract, notably those involving consumers, employees, or specific categories of real property, cannot be moved outside mandatory protective rules by a choice of law clause, whatever the parties agreed. A chosen forum can also be displaced in practice if enforcement is later sought in a jurisdiction whose courts decline to recognise the clause, for reasons ranging from public policy to a mandatory local rule on jurisdiction.
Within the EU, a shared framework determines which country's law applies to a contract when the parties have not made a valid choice, and a separate set of rules governs which courts have jurisdiction over a cross-border dispute and how a judgment issued in one member state is recognised and enforced in another. Outside the EU, recognition and enforcement depend on whether Sweden and the counterparty's home country have a bilateral or multilateral arrangement covering judgments, and in the absence of one, enforcing a Swedish court judgment abroad can be considerably harder than enforcing an arbitral award.
For disputes resolved through arbitration rather than litigation, an international convention adopted by the great majority of trading nations is what makes an arbitral award enforceable across borders on broadly consistent terms. This is the practical reason many cross-border commercial contracts choose arbitration over litigation even when neither party has a particular preference for the process itself: enforcement of the outcome is more predictable than enforcement of a foreign court judgment.
How it works in practice
The order in which the two clauses get drafted, and the questions answered along the way, follows a fixed sequence in a properly reviewed contract.
Step 1: Decide whether litigation or arbitration fits this transaction
Litigation in the courts of a chosen country is usually faster to start, cheaper at the outset, and gives access to interim relief that some arbitral tribunals cannot grant quickly. Arbitration costs more to set up but produces an award that is generally easier to enforce internationally, and keeps the dispute out of a public court record. The right answer depends on where the counterparty's assets sit, how sensitive the subject matter is, and whether either party has a structural reason to avoid the other's home courts.
Step 2: Choose the forum before drafting the wording
Naming a court or an arbitral institution is a decision, not a formality. For litigation, the choice usually comes down to the courts of one party's home country, a neutral third country, or, in some sectors, a specialised court with subject matter expertise. For arbitration, the choice includes the seat, which fixes the procedural law applying to the arbitration itself, and the administering institution, whose rules govern everything from how the tribunal is appointed to how costs are allocated.
Step 3: Draft the governing law clause first
Governing law and dispute resolution are separate questions and can, in principle, point to different countries: a contract governed by the law of one country can still send disputes to the courts or an arbitral tribunal seated in another. In practice, an unnecessary split between the two invites argument about which country's rules govern which question, so most well-drafted contracts align the two unless there is a specific reason not to.
Step 4: Draft the dispute resolution clause to match
Once governing law is fixed, the dispute clause should state, without ambiguity, whether disputes go to litigation or arbitration, which court or institution has jurisdiction, the seat if arbitration is chosen, the language of the proceedings, and the number of arbitrators. A clause that leaves any of these open invites a preliminary fight over procedure before the substance of the dispute is ever reached.
Step 5: Check the clause against every other agreement in the same transaction
Cross-border deals rarely involve a single contract. A supply agreement is often accompanied by a separate licence, a guarantee, a side letter, or a related services agreement, each negotiated by a different team and each capable of carrying its own governing law and dispute clause. Where these clauses conflict, a dispute touching more than one agreement can end up split across two forums, litigated twice, or stalled while the parties argue over which clause controls which claim.
Step 6: Confirm the clause survives termination and assignment
A governing law and dispute resolution clause needs to state, expressly, that it survives termination of the contract and continues to bind an assignee if the contract is assigned. Without that wording, a party attempting to enforce a claim after the underlying contract has ended can find itself arguing that the clause it is trying to rely on no longer applies.
Step 7: Review the clause against the counterparty's home jurisdiction
The final check is not about drafting technique but about enforceability. A perfectly drafted clause naming a forum whose decisions cannot practically be enforced against the counterparty's assets has achieved nothing beyond looking correct on paper. This step means identifying where the counterparty holds assets, whether that country recognises the chosen forum's decisions, and what a recognition procedure there would actually require.
What to check before signing:
- Whether the governing law clause and the dispute resolution clause name consistent legal systems, or whether the split is deliberate and justified
- Whether every related agreement signed as part of the same transaction carries a matching clause
- Whether the clause specifies the seat, the institution, the language, and the number of arbitrators, if arbitration is chosen
- Whether the clause expressly survives termination and binds an assignee
- Whether the counterparty's home jurisdiction recognises the chosen forum's judgments or awards, and on what conditions
- Whether any mandatory local rule at the counterparty's location overrides the choice regardless of what the contract says
Can the parties choose a governing law that has no connection to either party or the contract?
In most cross-border commercial contracts, yes. Swedish law, along with the shared EU framework on choice of law, generally allows commercial parties to select a neutral legal system with no connection to either side, provided the contract is genuinely commercial and does not fall into a category subject to mandatory protective rules. The more common problem is not whether the choice is valid, but whether either party's lawyers are familiar enough with the chosen law to rely on it with confidence.
Does choosing a country's law also mean disputes go to that country's courts?
No, and this is one of the most common drafting mistakes. Governing law and jurisdiction are two separate clauses, and a contract can validly choose the law of one country while sending disputes to the courts or an arbitral tribunal of another. Leaving this unaligned without a deliberate reason is what usually causes the argument described in step three above.
What happens if the governing law clause is silent or unclear?
A court or tribunal asked to rule on a contract with no valid choice of law clause will apply whichever rule its own procedural framework uses to determine the applicable law in the absence of agreement, which within the EU usually points to the country most closely connected to the contract. The outcome is workable but unpredictable, and it removes a decision the parties could otherwise have controlled themselves.
The numbers
There is no statutory deadline attached to choosing a governing law or dispute resolution clause itself; the clause is agreed as part of the contract, on whatever timeline the negotiation follows. Once a dispute exists, the relevant time limits come from two different sources that are easy to confuse: limitation periods, which depend on the law chosen to govern the contract and can differ substantially between legal systems, and procedural deadlines set by the chosen court or arbitral institution's own rules, which govern how quickly a claim must be filed once the clock has started.
Arbitral institutions publish their own fee schedules and case timelines, and these vary by institution and by the value and complexity of the dispute, so no single figure applies across the board. The practical consequence for drafting is that the clause should name a specific institution and a specific set of rules rather than a generic reference to arbitration, because the applicable timeline and cost structure are fixed by that choice, not by the contract itself.
Where it usually goes wrong
The clause fails in practice more often from internal inconsistency than from bad drafting of either clause on its own. A governing law clause naming one country's law combined with a dispute clause naming a court in a different country, with no institution or seat specified, is enforceable in principle but invites a preliminary dispute over interpretation before the underlying claim is ever addressed.
A second recurring failure is treating the clause as boilerplate that does not need updating between deals. A clause copied from a contract with a different counterparty, in a different sector, with assets in a different country, carries assumptions that may no longer hold. The clause that worked for a supply contract with a counterparty holding assets in an EU member state does not necessarily work for a licensing agreement with a counterparty whose only assets sit in a jurisdiction with no recognition arrangement for foreign judgments or awards.
A third failure appears in multi-contract transactions: a share purchase agreement, an earn-out arrangement, and a transitional services agreement signed as part of the same deal, each carrying a different governing law or forum, produce exactly the kind of split dispute described earlier, where a single commercial disagreement has to be litigated or arbitrated in two places at once because no one aligned the boilerplate across the document set.
Finally, the clause stops working the moment enforcement becomes the actual question rather than a theoretical one. A well-drafted, internally consistent clause naming a forum whose decisions cannot be enforced where the counterparty's assets are located has solved the drafting problem without solving the underlying commercial risk. Reviewing the clause for internal consistency and reviewing it for enforceability against the counterparty's actual assets are two different exercises, and the second is frequently skipped.
What to do next
Reviewing a governing law and dispute resolution clause for internal consistency is work a contracts team can do without outside help, using the checklist above as a starting point. What that review cannot do on its own is assess whether the chosen forum's decisions are actually enforceable against a specific counterparty's assets in a specific country, because that question depends on facts outside the contract itself. Our contracts and transactions practice handles this review as part of broader deal work, including the asset deal transfer undertakings guide where similar boilerplate questions arise on the transfer side of a transaction.
Where the concern is not the wording of the clause but whether a dispute is already forming under it, the next step is an assessment of the specific contract and counterparty, not a further reading list. Book an assessment to have the clause and the underlying transaction reviewed against the counterparty's actual position.