Does a foreign governing law clause avoid Australian law?

What the clause actually does

A governing law clause says which country's contract law is used to interpret the agreement. A jurisdiction clause says which courts hear a dispute. They are separate, and a contract can pair Australian law with foreign courts or the reverse.

For an Australian buyer the practical cost of a foreign clause is friction. Running a dispute in an overseas court is slower and more expensive, and it usually means engaging lawyers in that jurisdiction as well as here. For a contract of modest value, that friction can be large enough that you would never actually enforce your rights.

The protection it cannot remove

Section 67 of the Australian Consumer Law deals with this directly. Where a contract for the supply of goods or services to a consumer includes a term that substitutes, or has the effect of substituting, the law of another country, the consumer guarantee provisions still apply to that supply despite the term.

This was tested in Australian Competition and Consumer Commission v Valve Corporation. The court accepted that the proper law of the contract was the law of Washington State, and still held that the supplier could not rely on the choice of law clause to displace the Australian consumer guarantee provisions.

So a supplier cannot escape the consumer guarantees simply by writing its home law into the contract. Read alongside the $100,000 consumer threshold, that covers a lot of ordinary business software purchases.

What to ask for, in order of realism

Australian law and Australian courts

Worth asking. Smaller and mid-sized suppliers will often agree, particularly if the contract value matters to them.

Australian law, foreign courts

A common middle ground. It keeps interpretation familiar even if the venue is not.

Foreign law, but arbitration seated in Australia

Useful where a large supplier will not move on governing law. It removes the need to litigate overseas.

Accept it, and price the risk

For low value contracts this is often the rational answer. Note it as a known exposure rather than pretending the clause is not there.

Common questions

Can an overseas supplier avoid Australian consumer law by choosing its own law?

Not for the consumer guarantees. Section 67 of the Australian Consumer Law provides that where a term substitutes the law of another country, the consumer guarantee provisions still apply to the supply. This was confirmed in ACCC v Valve Corporation, where the court held the supplier could not rely on a Washington State choice of law clause to displace them.

Is a foreign governing law clause worth negotiating?

Usually yes, because the real cost is enforcement. Litigating overseas is slower and more expensive and often means engaging lawyers in both jurisdictions. Smaller suppliers will frequently agree to Australian law, and arbitration seated in Australia is a useful middle ground with larger ones.

What is the difference between governing law and jurisdiction?

Governing law decides which country's law is used to interpret the contract. Jurisdiction decides which courts hear a dispute. They are separate clauses and can point to different countries.