How to approach a contract dispute-resolution and governing-law clause

A contract signed in haste often produces a dispute resolved in chaos. The governing-law and dispute-resolution clause – frequently the last two lines negotiated and the first two lines consulted when things go wrong – determines which courts or tribunals hear a claim, which substantive rules govern it, and whether any award or judgment can be turned into actual recovered assets. For cross-border contracts touching Hong Kong, the Mainland, and offshore holding jurisdictions, the stakes are sharper than in a purely domestic setting.

A well-drafted dispute-resolution and governing-law clause identifies the substantive law that governs the contract, the forum or mechanism for resolving disputes, the seat of any arbitration, and the enforcement route – four elements that must be coherent with each other and with the jurisdictions where assets actually sit. The Arbitration Ordinance (Cap. 609) and the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 645), which came into force on 29 January 2024, are the governing instruments most relevant to contracts with a Hong Kong or Greater China dimension.

This guide walks through the decision in order: the options on the table, the sequence of drafting steps and the gate at each one, the common mistakes practitioners see in cross-border files, and a short checklist for review.

What decision are you actually making at the drafting stage?

The dispute-resolution and governing-law clause is not boilerplate. It is a strategic election made at a moment when the parties are still cooperative – and one that locks in the mechanics for a moment when they are not. The decision has four interlocking components, and each one affects the others.

The first component is the choice of substantive governing law: which jurisdiction's contract rules will determine formation, interpretation, breach, and remedies. The second is the forum mechanism: litigation before a named court, or arbitration under a designated set of institutional rules. The third, if arbitration is chosen, is the seat – the legal home of the arbitration that determines the procedural law, the grounds on which courts can intervene, and the enforcement character of any resulting award. The fourth is the enforcement route: where the counterparty's assets are, and whether a judgment or award obtained in the chosen forum can actually reach those assets.

In our cross-border practice, we see the same error repeatedly: parties choose a prestigious forum without checking whether a judgment or award from that forum is enforceable in the jurisdiction where the counterparty's real assets are held. The clause looks authoritative. The enforcement route does not exist.

The first gate is therefore this: identify the asset jurisdiction before selecting the forum. The forum must produce an instrument – a judgment or award – that the asset jurisdiction will recognise. Everything else follows from that.

How does governing-law selection work in a cross-border contract?

Governing-law selection determines which body of contract law applies to the substance of the parties' relationship. Hong Kong law – a mature common-law system with a substantial body of commercial case law, English as an official working language of the courts, and no forced-heirship or exchange-control overlay – is a frequently chosen neutral law for contracts across Greater China and the principal offshore centres.

The selection, however, must be distinguished from the forum selection. A contract governed by Hong Kong law can be litigated in Hong Kong courts, arbitrated in Hong Kong under the Arbitration Ordinance (Cap. 609), arbitrated elsewhere with Hong Kong law as the substantive law, or litigated in a foreign court applying Hong Kong law as foreign law. These are four different positions with different enforcement consequences.

Where one party is a Mainland entity, the governing-law election interacts directly with the reciprocal enforcement regime now in force under Cap. 645. A Hong Kong court judgment, made on or after 29 January 2024, in respect of a contract governed by Hong Kong law, may be registered and enforced in the Mainland under that Ordinance – provided the judgment meets the connection-based test replacing the old exclusive-jurisdiction requirement. The choice of governing law is therefore not merely an interpretive decision; it shapes the enforcement topology of the whole arrangement.

The second gate is: confirm that the governing law is one the parties' legal systems will recognise as a valid election, and that the election does not inadvertently engage mandatory rules of the counterparty's home jurisdiction that override the chosen law.

Arbitration or litigation: how should you choose the forum mechanism?

For most cross-border commercial contracts with a Greater China dimension, institutional arbitration seated in Hong Kong is the more reliable forum election than litigation in any single national court. The reason is enforcement geography. An arbitral award made in Hong Kong under the HKIAC Administered Arbitration Rules (the 2024 Rules, effective 1 June 2024) can be enforced on the Mainland via the 1999 Arrangement and 2020 Supplemental Arrangement, which permit simultaneous enforcement applications in both directions since the 2021 amendment. The New York Convention, which applies in Hong Kong, covers enforcement in over 170 contracting states for international commercial awards.

Litigation before the Hong Kong Court of First Instance is equally well-regarded. Under Cap. 645, a Hong Kong court judgment can now be registered and enforced in the Mainland in civil and commercial matters – a significant expansion of the prior regime that was confined to judgments made under exclusive-jurisdiction clauses. The practical difference between the two paths turns on confidentiality (arbitration provides it; litigation does not), on the scope of interim measures available before Mainland courts (the interim-measures Arrangement of 1 October 2019 applies only to Hong Kong-seated arbitrations, not to litigation), and on the nature of the counterparty's anticipated challenge.

Where confidentiality matters – as it does in most commercial and joint-venture disputes – arbitration is the default. Where the counterparty is an institutional or state-connected Mainland entity, the interim-measures Arrangement adds practical leverage that litigation cannot replicate. Where the parties operate in a jurisdiction that is more receptive to foreign court judgments than to arbitral awards, court litigation may be preferable. The analysis is always bilateral: the forum that suits the claimant in theory may produce an instrument that the enforcement jurisdiction will not recognise in practice.

The third gate is: confirm the enforcement route from the chosen forum to the asset jurisdiction before finalising the mechanism.

Our desk regularly handles matters where a European or CIS principal selects a European arbitration seat on the advice of their home-jurisdiction counsel – without checking that the resulting award is enforceable in Hong Kong or on the Mainland. The award is sound. The enforcement route is not.

How do you draft the arbitration clause correctly?

An arbitration clause must, at minimum, be in writing, refer existing and future disputes to arbitration, identify the arbitral institution or the appointment mechanism, specify the seat, name the procedural rules, and state the language. A clause that omits the seat, or that refers to rules without naming the institution, is a clause that will be litigated before a court before the arbitration even begins. That litigation is expensive, dilatory, and frequently decided in a jurisdiction the parties did not intend to engage.

The HKIAC model clauses – available directly from the HKIAC – provide the drafting baseline for Hong Kong-seated arbitrations. The key elections within that baseline are the seat (Hong Kong, stated expressly, not by implication), the number of arbitrators (one or three; a three-member tribunal is usual for disputes above a material commercial threshold), the language, and the applicable procedural rules. Under the Arbitration Ordinance (Cap. 609), modelled on the UNCITRAL Model Law, the seat determines the procedural law of the arbitration, the grounds on which the Hong Kong courts supervise or assist, and the character of any award under the New York Convention.

The governing law of the arbitration agreement itself is a separate question from the governing law of the main contract. Under recent common-law authority, a difference between the two can arise where the main contract is governed by one law and the seat is in another jurisdiction. The model approach – adopted in the HKIAC standard clauses – is to state the governing law of the arbitration agreement expressly, or to rely on the seat law where that is the intended position.

A scope clause requires care. The clause should cover all disputes arising out of or in connection with the contract, including disputes about formation, validity, interpretation, performance, and termination. A clause confined to disputes "under" the contract risks excluding formation and validity challenges – precisely the disputes a counterparty in difficulty will raise first.

The fourth gate is: have the arbitration clause reviewed independently of the transactional lawyers who drafted the main agreement. Transactional counsel optimise for deal execution. Disputes counsel review for enforceability. They are not the same exercise.

What are the common mistakes in cross-border governing-law and forum clauses?

In our experience of cross-border files, five errors appear with regularity. Each is avoidable at the drafting stage and expensive to remedy after execution.

The first is the mismatch between the forum and the enforcement jurisdiction – addressed in the gates above. The second is the pathological clause: an arbitration clause that requires agreement of the parties on the arbitrator, with no fall-back appointment mechanism, so that a recalcitrant counterparty can simply refuse to participate and stall proceedings indefinitely. Institutional rules – HKIAC, ICC, SIAC – provide appointment mechanisms that remove this leverage from the counterparty.

The third error is the hybrid or multi-tier clause that imposes mediation or negotiation pre-conditions before arbitration, without specifying the trigger, the duration, or the mechanism for declaring the pre-condition exhausted. These clauses generate satellite litigation on whether arbitration is premature. The safe approach is either to omit the pre-condition, or to make it mechanical: a written demand followed by a defined period of silence constitutes exhaustion.

The fourth error is selecting a seat without considering local annulment risk. An arbitral award can be annulled by the courts of the seat. A seat in a jurisdiction with an interventionist judiciary creates annulment exposure that a Hong Kong or Singapore seat does not replicate. Once annulled at the seat, the award's enforceability under the New York Convention in other jurisdictions becomes contested.

The fifth error – and the one most specific to Greater China contracts – is failing to check whether the Mainland party's home court has exclusive jurisdiction under Mainland civil procedure rules, or whether the contract requires Mainland regulatory approval that affects the governing-law election. These are not theoretical risks. We see them materialise in the first year of a contract's life.

A related point: the myth that any major international arbitration centre produces equally enforceable awards in Greater China. Enforcement of arbitral awards in the Mainland runs through the specific Arrangements between the Mainland and Hong Kong, between the Mainland and Macao, and through the New York Convention for international awards from Convention states. The route, the recognition criteria, and the residual public-policy grounds differ across these channels. Choosing a seat because it sounds authoritative, without checking the specific enforcement channel into the Mainland, is a material drafting error.

For related cross-border contract structuring considerations – including how supply and manufacturing contracts with offshore parties engage the governing-law question – see our briefing at Supply or manufacturing contract with a Cyprus party. For the specific interaction between dispute-resolution clauses and joint-venture governance, the matter note at Shareholders agreement terms – BVI joint venture illustrates how the clause functions in a live structure.

If an earlier drafting approach has produced a clause that does not withstand scrutiny – or if a dispute has already arisen under a defective clause – a second read can identify the strategic error and the procedural routes still available before any limitation or waiver issue closes them.

To discuss how the governing-law and forum election applies to your cross-border contract position, contact info@lockhartyip.com.

How does the enforceability question change the drafting calculus?

Enforcement is not an afterthought. It is the purpose of the clause. A dispute-resolution clause that produces an unenforceable instrument is not a neutral clause; it is a clause that systematically advantages the party with weaker obligations by reducing the cost of breach.

For contracts with a Mainland dimension, the reciprocal enforcement position has materially improved since 29 January 2024. Cap. 645 covers both monetary and non-monetary judgments, removes the old requirement that the Mainland court had exclusive jurisdiction under the parties' agreement, and applies a connection-based test. Excluded from the regime are insolvency matters, certain intellectual property and patent matters, certain arbitration-related decisions, succession, and matrimonial proceedings. For contracts that fall within the regime's scope – the majority of commercial and supply arrangements – a Hong Kong court judgment is now a registrable instrument in the Mainland, and vice versa.

For arbitral awards, the position under the 1999 Arrangement and 2020 Supplemental Arrangement permits simultaneous applications in both directions – a practically significant point where assets are held in both Hong Kong and the Mainland. The interim-measures Arrangement, in force since 1 October 2019, means that a claimant in a Hong Kong-seated arbitration can apply to Mainland courts for interim measures before an award is issued. That is a lever that litigation does not provide.

Where the counterparty's assets are principally in a third jurisdiction – the BVI, the Cayman Islands, the UAE, or a European jurisdiction – the enforcement analysis runs through the New York Convention for arbitral awards, or through that jurisdiction's own rules for recognising foreign court judgments. The Convention's near-universal coverage makes an HKIAC Hong Kong-seated arbitration award one of the most transportable enforcement instruments available in commercial practice.

For a mapped assessment of the governing-law and dispute-resolution options in the context of your broader corporate structure, our corporate counsel practice at Lockhart & Yip – Corporate Counsel covers the full range of cross-border contract advisory work.

A decision checklist for in-house counsel

The following sequence provides a practical review framework. It is not a substitute for advice on specific facts, but it identifies the questions that must be answered before a governing-law and dispute-resolution clause is finalised.

Step 1 – Asset jurisdiction. Where does the counterparty hold material assets? List every jurisdiction. This list determines the enforcement universe and constrains the forum choice.

Step 2 – Forum and enforcement match. For each jurisdiction on the asset list, identify whether a judgment or award from the proposed forum is recognisable there, and on what conditions. If there is a mismatch, the forum must change – not the enforcement analysis.

Step 3 – Mechanism. Given the asset list and the enforcement match, choose between institutional arbitration and court litigation. Default to Hong Kong-seated institutional arbitration where Mainland asset enforcement, interim-measures access, and confidentiality are all priorities simultaneously.

Step 4 – Governing law of the main contract. Select a substantive law that is commercially developed, recognised in the counterparty's jurisdiction as a valid election, and consistent with the forum choice. Check for mandatory rules in the counterparty's home jurisdiction that might override the election.

Step 5 – Governing law of the arbitration agreement. State it expressly, or confirm it follows the seat law. Do not leave it implied from the main contract's governing law.

Step 6 – Clause mechanics. Confirm: written agreement; institutional rules named; seat named expressly; number of arbitrators stated; language stated; scope covers formation, validity, interpretation, performance, and termination. Remove any pre-condition that does not have a mechanical exhaustion trigger.

Step 7 – Independent disputes review. Have the clause reviewed by counsel with a disputes and enforcement perspective, separately from the transactional team that drafted the main agreement.

Step 8 – Counterparty-specific checks. For Mainland counterparties: check whether mandatory Mainland procedural rules affect the choice of forum or governing law. For state-adjacent counterparties: check sovereign or state immunity considerations under the applicable immunity doctrine.

For a structured assessment of your contract's dispute-resolution clause across the relevant jurisdictions, write to us at info@lockhartyip.com.

Related practices

• Disputes & Arbitration – international arbitration strategy, enforcement, and interim measures across Greater China
• Corporate Counsel – cross-border contract advisory, governance, and transactional support for international groups

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