Governing Law and Jurisdiction Clauses: Why They Matter for Ontario Businesses

It's easy to skim past the boilerplate at the end of a contract — the paragraph that says the agreement "shall be governed by the laws of the Province of Ontario" and that disputes will be heard "in the courts of Ontario." Until there's a dispute. Then that single sentence can decide whether you're defending your business in a familiar Ontario courtroom or flying to another province — or country — to argue your case under rules you've never worked with.

A governing law clause and a jurisdiction clause do two related but distinct jobs, and understanding both is essential any time your business deals with an out-of-province or international counterparty.

Two Different Questions, One Paragraph

These clauses are often written together, but they answer separate questions:

• Governing law (or "choice of law") decides which set of legal rules interprets the contract — Ontario law, the law of another province, or another country's law entirely.
• Jurisdiction (or "forum selection") decides which court or tribunal will actually hear a dispute if one arises.

It's entirely possible, though less common, for a contract to specify Ontario law as the governing law while designating a different province's courts as the forum — which is exactly why it's worth reading both parts of the clause carefully rather than assuming they say the same thing.

Why This Matters More Than It Looks

For a business that operates only in Ontario with Ontario counterparties, this clause may never come into play in a meaningful way. It matters considerably more the moment you deal with:

• An out-of-province supplier, customer, or landlord.
• A US-based software vendor or service provider.
• An international manufacturer, distributor, or licensing partner.
• A remote employee or contractor based outside Ontario.

In any of these situations, without a clear governing law and jurisdiction clause, you could end up litigating a dispute far from home, under legal rules that differ from what you expected, and at meaningfully higher cost simply to show up.

What Happens If the Clause Is Missing or Unclear

If a contract is silent on governing law and jurisdiction, a court faced with a dispute has to work out which law applies and whether it even has authority to hear the case — an analysis that considers factors like where the contract was signed, where it was to be performed, and where the parties are located. This can be genuinely uncertain and expensive to sort out, which is precisely the risk a clear clause is meant to avoid.

Ontario courts will generally respect a clearly drafted governing law and jurisdiction clause that the parties freely negotiated, provided it isn't being used to unfairly avoid otherwise-applicable protections. That general respect for the parties' own choice is exactly why negotiating for Ontario law and Ontario courts — rather than leaving the clause out or accepting the other side's home jurisdiction by default — is worth the effort.

Drafting Considerations for Ontario Businesses

• [ ] Specify both governing law and jurisdiction explicitly — don't assume one implies the other.
• [ ] Push for Ontario as both, where you have any negotiating leverage, especially in contracts with individual consumers, remote workers, or smaller counterparties.
• [ ] Decide between exclusive and non-exclusive jurisdiction. An exclusive clause means disputes must go to the named court; non-exclusive allows a party to choose that court but doesn't rule out others — worth understanding which your contract actually says.
• [ ] Consider whether arbitration should replace court litigation entirely for certain contract types, since an arbitration clause is a related but separate mechanism that displaces the court process altogether.
• [ ] Review these clauses in every cross-border contract, not just large ones — even a modest supply agreement with an out-of-province vendor benefits from clarity here.

A Practical Comparison

Frequently asked questions