Matter note: a contract dispute-resolution and governing-law clause

A governing-law and dispute-resolution clause is the last thing most commercial parties read and the first thing that matters when a deal goes wrong. In our cross-border practice, the mismatch between where a contract says disputes will be resolved and where the assets and counterparties actually sit is one of the most consistent sources of paralysis we encounter. This matter note describes, in anonymised form, a situation our desk handled where that mismatch came close to foreclosing enforcement entirely.

A dispute-resolution and governing-law clause determines which legal system governs the substance of a contract and which tribunal or court has authority to resolve a dispute. In a cross-border commercial agreement governed by Hong Kong law and providing for Hong Kong-seated arbitration or Hong Kong court proceedings, the clause is the foundation of the entire enforcement strategy. Where the clause is misaligned, enforcement against assets in another jurisdiction – particularly the Mainland of China – may require significant remediation before any substantive step can be taken.

This note traces the situation as presented, the issue identified, the route taken, and the transferable lesson for cross-border commercial counsel.

The situation: a regional distribution contract and a clause written in a hurry

A mid-sized Asian trading group – the principal – had entered into a multi-year exclusive distribution agreement with a counterparty whose operations and assets were primarily on the Mainland. The contract was signed under time pressure at the close of a commercial negotiation. The governing-law and dispute-resolution clause had been adapted from a template used previously for a different transaction, one involving a Singapore-seated counterparty and Singapore law.

The clause specified Singapore law as the governing law. It then provided, in a separate sub-clause, for disputes to be referred to arbitration under the rules of a named institution seated in Hong Kong. No consequential amendment had been made to align the two sub-clauses. The result was a contract under which the substantive rights of the parties were to be assessed under Singapore law, but the arbitration was to be seated and conducted in Hong Kong.

In isolation, that combination is not inherently unworkable. Hong Kong-seated arbitrations regularly apply foreign governing law, and the tribunal had the competence to do so. The practical difficulty emerged when the principal sought interim relief. The counterparty's assets – machinery, receivables and bank balances – were situated almost entirely in Mainland China. The principal wanted to freeze those assets while the arbitration ran.

The cross-border interface: interim measures and the Hong Kong seat

Hong Kong-seated arbitrations can seek interim measures from Mainland courts under the arrangement that took effect on 1 October 2019, which permits parties to arbitrations seated at designated Hong Kong institutions to apply to Mainland courts for preservation orders in respect of assets situated there. This is a significant cross-border tool. But it carries a condition: the arbitral proceedings must be properly constituted under a qualifying institution, and the application must satisfy the requirements of the Mainland court as to identification of the specific assets to be preserved.

When the principal's file came to us, the arbitration had not yet been formally commenced. The dispute-resolution clause identified the institution by a name that no longer matched the institution's current designation. The institution had been through an administrative renaming. The clause therefore created an ambiguity as to whether the arbitration agreement, as written, pointed to the qualifying institution for interim-measures purposes.

This was the turning point. A clause adapted from an older template, using a designation that had since changed, created a jurisdictional question that the counterparty was likely to raise the moment an interim-measures application was filed in a Mainland court. In our experience, Mainland courts apply a strict documentary approach to institutional designation in preservation applications. An ambiguity in the clause's description of the institution was a real and immediate risk to the interim-measures strategy.

The governing-law point added a further layer. The principal's substantive claims turned on questions of contractual performance and remedy. Under Singapore law – as the stated governing law – the measure and scope of those remedies differed in certain respects from the Hong Kong position. The tribunal, applying Singapore law, would need expert evidence or submissions on the applicable Singapore law principles. That was a manageable step, but one that added time and cost to a proceeding where speed mattered because the counterparty's liquidity position was deteriorating.

The route chosen: sequencing before commencing

Before filing any arbitral notice, the principal's team paused to work through the clause carefully. That pause – brief, but deliberate – was itself the substantive decision. Filing first and fixing later is a common instinct. It is also, in our cross-border practice, a reliable way to create problems that a more deliberate sequence avoids.

The first step was to confirm whether the institutional designation in the clause was sufficient to ground an interim-measures application to a Mainland court. We reviewed the institution's formal history and confirmed that the renaming was an administrative change, not a structural reconstitution. The institution had published a formal confirmation of continuity for arbitration agreements made prior to the renaming. That confirmation was available, and we obtained it.

The second step was to advise on whether the governing-law choice would affect the interim-measures application itself. Interim measures before Mainland courts under the 2019 Arrangement are a procedural step governed by Mainland procedural law, not by the governing law of the contract. The Singapore governing-law choice was therefore neutral for the preservation application, though it remained relevant to the substantive merits. That separation – between the procedural vehicle and the substantive law – was an important distinction to make clearly, because confusion between the two had contributed to delay in the principal's earlier internal discussions.

The third step was to structure the arbitral notice in a form that would support, rather than complicate, the interim-measures application. The notice identified the institution by both its current and historical designations, referenced the continuity confirmation, and set out the basis on which the principal was entitled to preservation under the Mainland framework. The interim-measures application was filed contemporaneously.

Parties in this position should verify the current procedural requirements with counsel before filing, as the requirements of Mainland courts in preservation applications can be detailed and change at the operational level.

For a structured read on your contract's dispute-resolution clause before a dispute crystallises – or before a filing is made – the team at Lockhart & Yip is available at info@lockhartyip.com.

The turning point: what the clause did not say

As the arbitration commenced and the procedural timetable was set, a second issue emerged from the clause. The dispute-resolution sub-clause was silent on one point that most standard Hong Kong-law or Mainland-connected commercial contracts address explicitly: the language of the proceedings. The distribution contract had been negotiated in both English and Mandarin, with an English-language version expressed to be controlling. But the arbitration clause did not specify the language of the arbitration.

Under the HKIAC Administered Arbitration Rules – the 2024 Rules, in force from 1 June 2024 – where the parties have not agreed on the language of the arbitration, the tribunal determines the language having regard to all relevant circumstances, including the language of the contract. The tribunal here determined that the arbitration would proceed in English, consistent with the controlling language of the contract. That determination was not contested, but it required a procedural application, correspondence and a reasoned order – all of which added weeks to the early phase of the proceedings at a point when speed was commercially important.

The transferable lesson is straightforward, though routinely overlooked. A clause that specifies governing law, institution and seat, but leaves language, number of arbitrators and any procedural currency open, will require those points to be resolved by the tribunal or by agreement once a dispute has arisen. Resolving them then, under adversarial conditions, costs more in time and fees than specifying them at the drafting stage costs in lawyer hours.

Our corporate-counsel desk regularly encounters this gap. The operative terms of the dispute-resolution clause – the ones that control the procedure once things go wrong – are often compressed into a single paragraph that has not been reviewed in light of the specific cross-border profile of the transaction.

The qualitative outcome and the transferable lesson

The interim-measures application was received by the Mainland court and a preservation order was made in respect of identified assets. The principal's position was protected while the arbitration ran. The substantive hearing was conducted in English, on Singapore law, with expert evidence on the applicable Singapore law principles provided by counsel familiar with the material. The matter resolved at a stage after the interim measures were in place, on terms the principal considered satisfactory in the circumstances.

No outcome of this kind can be guaranteed in advance. The facts of each matter are different, and the availability and effect of interim measures under the 2019 Arrangement depend on specific procedural compliance that must be verified at the time of filing.

The transferable lesson is not about the result. It is about the sequence. The pause before filing – to confirm the institutional designation, to separate the procedural from the substantive governing-law question, and to structure the arbitral notice in a form that supported the interim-measures application – was the decision that kept the full range of strategic options open. A hurried filing, before those questions were resolved, would have created ambiguities that the counterparty could have exploited to delay or resist the preservation order.

For cross-border commercial contracts with exposure to Mainland China, the governing-law and forum clause is not a boilerplate finishing item. It is the document that determines what is possible when the relationship breaks down. The gap between what the clause says and what the enforcement route requires is the gap where disputes stall and assets move.

Counsel on our desk advise on this interface routinely – both at the drafting stage, before a contract is signed, and at the enforcement stage, when a clause as written needs to be worked through carefully before the first procedural step is taken. The corporate counsel practice at Lockhart & Yip addresses exactly this category of cross-border contractual exposure.

If an earlier filing or a clause drafted under time pressure has produced a stalled result, the options open from that position depend on the specific documents and the jurisdictions engaged. A fresh read of the clause and the procedural position can identify the routes still available. To discuss your position, write to us at info@lockhartyip.com.

What foreign counsel get wrong: the day-two operating reality

The most consistent error we see from foreign counsel advising on cross-border contracts with Hong Kong or Mainland exposure is treating the dispute-resolution clause as a standard commercial provision that can be adapted from a previous transaction without structural review. That assumption has a cost.

A Singapore-law clause adapted for a Hong Kong-seated arbitration is not the same as a Hong Kong-seated arbitration clause under Singapore law. The interaction between the governing law, the seat, the institution and the available enforcement routes in the counterparty's jurisdiction forms a system. The parts of that system must align. Where they do not – as in the matter described above – the misalignment does not produce an immediate problem during the life of the transaction. It produces a problem at the worst possible moment: when a dispute arises and the enforcement clock is running.

The second error is conflating the governing law of the contract with the law governing the arbitral procedure. These are distinct. The seat of the arbitration determines the curial law – the procedural framework governing the conduct of the arbitration and the supervisory jurisdiction of the courts. The governing law of the contract determines the substantive rights and remedies. Both matter. Neither substitutes for the other.

A third and related error is failing to consider the enforcement destination at the time of drafting. Where the counterparty's assets are in the Mainland, the enforcement destination is Mainland China. The tools available to enforce there – including the arbitral-award enforcement arrangements and the interim-measures arrangement applicable to Hong Kong-seated arbitrations – carry their own requirements. A clause that is well-drafted for enforcement in a Western jurisdiction may be inadequate for enforcement in the Mainland unless those specific requirements are taken into account at the drafting stage.

For context on corporate restructuring considerations across related hubs, our briefing on corporate restructuring across Hong Kong and Singapore addresses a related set of cross-border structural questions.

For a deeper treatment of the governing-law and forum clause as a drafting and enforcement instrument, our guide on the contract dispute-resolution and governing-law clause sets out the full framework.

Related practices

• Disputes & Arbitration – cross-border enforcement, arbitration strategy and interim measures across Greater China
• Corporate Counsel – ongoing cross-border contract review, governing-law structuring and compliance

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Related

• Corporate Counsel
• Corporate Restructuring Across Hong Kong Singapore Singapore Briefing
• Contract Dispute Resolution Governing Law Clause Guide

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