Update: a contract dispute-resolution and governing-law clause

The governing-law and dispute-resolution clause is the least-read provision in a commercial contract until it is the only one that matters. For cross-border groups operating through Hong Kong – whether the counterparty sits in the Mainland, the BVI, or a European hub – the clause determines which court or tribunal hears the dispute, which law governs liability, and whether any resulting judgment or award can actually be enforced where the assets sit.

A poorly drafted or outdated dispute-resolution clause can strip an otherwise well-structured contract of its enforcement value. The Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance – Cap. 645, in force from 29 January 2024 – changed the enforcement calculus for Hong Kong-seated proceedings against Mainland counterparties. Contracts executed before that date, or drafted without the new regime in mind, may carry clauses that no longer reflect the fastest or most reliable enforcement route.

This briefing covers what has shifted, who it affects, and the immediate action it calls for.

What changed – and when

Before 29 January 2024, the dominant Mainland–Hong Kong enforcement mechanism required an exclusive-jurisdiction agreement in favour of the Mainland courts or the Hong Kong courts. That condition was the threshold to registration. Many contracts were written to meet it – deliberately, and at some cost to drafting flexibility.

Cap. 645 removed the exclusive-jurisdiction requirement. In its place, a connection-based test applies: effective Mainland judgments in civil and commercial matters may now be registered with the Court of First Instance here without the parties having agreed exclusive court jurisdiction. Monetary and non-monetary judgments both fall within scope, subject to a defined exclusion list covering insolvency, certain intellectual-property matters, and certain arbitration-related proceedings, among others.

The practical consequence is significant. A Hong Kong-law governed contract that designates the Hong Kong courts – but does not elect exclusive jurisdiction – may now generate a judgment that is registrable on the Mainland, and vice versa. Contracts that bent themselves into the old exclusive-jurisdiction shape may now do more than is needed, or less than the parties wanted.

In parallel, the HKIAC Administered Arbitration Rules were updated with effect from 1 June 2024. For contracts that choose Hong Kong arbitration rather than court litigation, the updated Rules are now the operative text. Clauses that reference an earlier edition, or that use a generic reference without specifying institutional rules, introduce ambiguity at the point when the parties least want it.

These two developments – running within months of each other – mean that any commercial contract with a Hong Kong–Mainland or Hong Kong–offshore cross-border interface is worth reviewing against the current position.

Who is affected across the corridor

The review is most urgent for three groups.

First, groups with long-form supply, manufacturing, or services contracts executed before January 2024. The enforcement logic that underpinned the clause choice may have shifted. If the clause was calibrated to the old exclusive-jurisdiction condition, it may be over-specified; if it was drafted around a workaround because exclusive jurisdiction was unacceptable to the counterparty, a simpler route may now be open.

Second, groups using standard-form contracts that were last reviewed more than two years ago. Standard forms circulate across procurement teams and regional offices without tracking the underlying legal changes. The Mainland–HK regime change and the Rules update both post-date most standard-form cycles.

Third, entities with a BVI or Cayman holding structure above a Hong Kong operating entity. Where the contracting entity is the offshore vehicle rather than the Hong Kong company, the enforceability chain – from clause to award or judgment to Mainland or Hong Kong assets – requires a specific analysis. In our cross-border practice, we regularly see governing-law and forum clauses drafted at the BVI holding level that produce enforcement gaps when the assets sit below in the Hong Kong opco or the Mainland subsidiary.

The cross-border interface here is not merely procedural. The choice of governing law has substantive consequences: limitation periods, implied terms, the availability of specific performance, and the standard of proof for certain commercial claims all vary between Hong Kong law, PRC law, and the law of a typical offshore centre. A clause that nominates one governing law and a dispute-resolution forum in a different system creates a bifurcation that a court or tribunal will resolve – but not always in the way the drafter intended.

The sequence above describes the standard position. Your contract's position turns on the actual clause text, the jurisdictions engaged, and the assets in play – which is where the enforcement route is won or lost.

To discuss how Cap. 645 and the current HKIAC Rules affect your cross-border contracts, write to us at info@lockhartyip.com.

The immediate action

Three steps are worth taking now.

Pull the dispute-resolution and governing-law clause from each material cross-border contract and read it against the current enforcement regime. The question is not whether the clause is valid; it almost certainly is. The question is whether it produces the enforcement outcome the business actually needs under the rules now in force.

For contracts under renegotiation or renewal, update the clause text before re-execution. A clause updated to reference the 2024 HKIAC Rules (where arbitration is the chosen method) or to take advantage of the connection-based enforcement test (where court litigation is preferred) will be more efficient to invoke if a dispute arises. The cost of a clause update at renewal is small; the cost of an enforcement fight on a defective clause is not.

For live disputes where the clause is already engaged, take legal advice before serving a notice or commencing proceedings. The sequence of steps – notice, commencement, interim measures, and registration – operates differently under the post-2024 regime than under the old one. The Interim Measures Arrangement, in force since 1 October 2019 for Hong Kong-seated arbitrations, remains available and is a complement to, not a substitute for, the enforcement steps under Cap. 645 in a litigation context.

For advice on your contract dispute-resolution clause across the relevant jurisdictions, contact us at info@lockhartyip.com.

Further context on our corporate-counsel work is at our Corporate Counsel practice. For illustrative cross-border contract matters, see our notes on supply and manufacturing contracts involving BVI parties and on supply and manufacturing contracts with Mainland China counterparties.

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This publication is general information and does not constitute legal advice. For advice on your situation, contact info@lockhartyip.com.