Cross-border contracts can involve multiple businesses which operate in entirely different legal systems. Not only might the primary contracting parties be based in two different countries but performance of the contract could take place in a third country, making matters even more complicated. This makes it all the more important to decide under which legal system the contract is governed.
A governing clause expressly sets out the choice of law which applies to the contract, eliminating the need for any preliminary arguments about which country's laws should be used when interpreting the contract. These types of clauses are known as 'boilerplate' clauses and are standard in almost every contract and are usually set out towards the end of the agreement.