Contracting parties will typically consider a “governing law” provision, which identifies the proper law of a contract by express intention. A governing law provision applies to the substantive issues of the contract, provided that it is bona fide, legal and not contrary to public policy. Such provisions will identify the preferred jurisdiction of governing law of a contract (e.g., “the laws of Ontario”, “the federal laws of Canada”, etc.), clarifying the intention of the parties regardless of which court has jurisdiction over a dispute.
Oftentimes, the governing law provision will also include the phrase, “without regard to conflict of law principles”. But, what does this phrase mean? There are two primary reasons for the exclusion of the principles of conflict of laws in a governing law provision.
First, express exclusion of conflict of laws principles prohibits a future argument from either party that conflict of laws principles require a court to apply the laws of a jurisdiction other than the express jurisdiction of governing law. Second, the express exclusion of conflict of laws principles is useful in avoiding a renvoi – which is where a court will refer to the laws of a foreign jurisdiction in a matter involving a conflict of law. In some instances, a renvoi may result in the intention of the parties being lost. Exclusion of conflict of laws principles clarifies that the parties intend that the governing law expressly indicated in the contract is to apply.
The phrase “without regard to conflict of law principles” may be glossed over by a contracting party. Although, however cursory this phrase may appear to be, it is an important inclusion in a contract to avoid the imposition of the laws of another jurisdiction despite the intention of the contracting parties.
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