Europe & UK: Which governing law to choose for your contract?

Understanding the fundamentals of German, English & Welsh, Dutch, Italian, French, Spanish and Austrian laws

Why should I read this?

When parties to a contract are based in different jurisdictions, choosing the right governing law is critical. The decision affects enforceability, risk exposure and operational flexibility. While there is no universal answer, some jurisdictions offer clearer frameworks and greater predictability than others.

When choosing the governing law, you should take into account certain restrictions which may apply. For example, it is not always possible to opt out of the application of mandatory local law provisions.

While the circumstances of the individual case always need to be taken into account, there are some general Pros and Cons regarding individual jurisdictions’ governing laws.

Guide to contractual laws

Austria: Balanced and predictable, but mandatory rules and unlimited liability can restrict flexibility.

England & Wales: Globally recognised and flexible, yet costly litigation and strict rules on unfair terms pose risks.

France: Structured and stable, but mandatory rules and language requirements limit contractual freedom.

Germany: Predictable and codified, though strict T&C rules and unlimited liability increase complexity.

Italy: Structured and EU-aligned, but mandatory provisions and T&Cs formalities require strict compliance.

Netherlands: Flexible and EU-aligned, yet fairness principle and termination rules may undermine predictability.

Spain: Flexible and autonomy-driven, but mandatory rules and enforcement hurdles can complicate cross-border deals.

Jurisdiction

Pros

Cons

Austria

Statutory law supplements contracts, reducing need for excessive detail and ensuring balance

Highly codified, offering predictability and stability

Protects weaker parties by invalidating clauses breaching minimum standards or public morals (e.g., excessive liability limits, payment terms)

Significant autonomy for individually negotiated agreements, subject to limited mandatory rules

Restrictions on T&Cs and clauses contra mores limit flexibility in standardised contracts

Unlimited liability by default creates significant risk unless expressly limited

Complex statutory framework and mandatory provisions can challenge foreign parties unfamiliar with civil law systems

Mandatory provisions override contractual terms regardless of choice of law

England and Wales

Common law system offers flexibility and strong contractual freedom

Predictable due to extensive case law and commercial precedent

Parties can negotiate bespoke terms with minimal statutory interference

Widely recognised internationally, aiding enforcement

Default unlimited liability unless expressly limited

Complex case law can increase interpretation risk

Mandatory rules on unfair terms restrict boilerplate clauses

Litigation costs can be high compared to civil law jurisdictions

France

Predictable and stable: based on Codes with comprehensive legal framework

Well-developed case law in commercial matters

Specific performance generally available as a remedy

Good faith principle promotes fairness in long-term relationships

Mandatory provisions limit contractual freedom, especially in distribution and agency law

Strict control of standard terms restricts boilerplate clauses.

Mandatory rules on termination reduce flexibility

Language requirements for consumer-facing documents add compliance burden.

Germany

Highly codified, offering predictability

Statutory law supplements contracts, reducing need for excessive detail

Strong protection for weaker parties under T&C rules

Broad autonomy for negotiated agreements within mandatory limits

Strict T&C rules limit flexibility in standard contracts

Unlimited liability by default creates significant risk

Complex statutory framework can challenge foreign parties

Mandatory provisions override contractual terms

Italy

Comprehensive codification ensures predictability

Broad autonomy in B2B contracts subject to limited mandatory rules

Good faith principle encourages fair dealings

Fully harmonised with EU law

Mandatory rules on liability limitations

Courts may reduce excessive penalty clauses

Mandatory provisions override contractual terms

‘Vexatious clauses’ in standard non-negotiated terms require separate written approval, adding complexity

Netherlands

Statutory law supplements contracts reducing need for excessive detail

Few mandatory provisions in B2B contracts, favouring flexibility

Last shot rule applies in battle of forms

Aligned with EU law and offers strong predictability

Broad autonomy for negotiated agreements within mandatory limits

Reasonableness and fairness principle can reduce certainty

Mandatory provisions still apply in specific areas (in areas where public interests are at stake, such as consumer protection or labour law)

Negotiations cannot be terminated without compensation once essential terms agreed

Language and compliance requirements may apply in consumer contexts

Spain

Broad contractual freedom: parties can agree terms provided they do not breach law, morality, or public order

Strong recognition of autonomy of will, enabling tailored agreements

Choosing Spanish law offers legal certainty for operations in Spain, supported by established court interpretation

Mandatory laws cannot be waived, limiting contractual flexibility

Recognition and enforcement of foreign judgments involve complex procedures

Conflict-of-law rules can create uncertainty in cross-border contracts if provisions are unclear

How should I determine which governing law to choose?

The governing law determines how disputes are resolved, which mandatory rules apply, and whether contractual terms will stand. Missteps can lead to unenforceable clauses, unexpected liabilities, and costly litigation.

Strategic considerations:

Select a law that aligns with your business model and risk appetite
Assess predictability and autonomy: civil law systems (e.g., Austria, Germany, Italy) provide codified certainty but impose mandatory provisions; common law systems (e.g., England and Wales) offer flexibility
Factor in cross-border enforcement and language requirements (e.g., French law mandates French in consumer-facing contracts)

Operational priorities:

Explicitly agree on governing law in all contracts
Ensure compliance with mandatory local provisions that cannot be excluded
Review standard terms for restrictions on liability, termination, and penalties

Next steps: Audit existing contracts for governing law clauses and identify exposure to mandatory rules in key jurisdictions. Where new agreements are planned, involve legal teams early to avoid enforceability risks.

Co-authored by Clare Johnston (Knowledge)

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