Governing law clause

On a Canadian SME deal, the buyer, the seller, the lawyers and the business itself are not always in the same province. The governing law clause decides which province’s statutes and case law actually apply to interpreting the deal terms — how a representation is read, how a breach is assessed, how a restrictive covenant is tested for reasonableness.

The mistake people actually make

Assuming governing law and venue — where a party can actually be sued — are the same clause. They are usually drafted together, but they are legally distinct choices, and a contract can select one province’s law while still allowing disputes to be heard in a different jurisdiction entirely, or through arbitration instead of a court at all.

The Quebec difference

Quebec is a civil-law jurisdiction governed by the Civil Code of Quebec, while every other Canadian province and territory follows the common law. Choosing, say, Ontario law to govern an agreement involving a business that operates in Quebec does not necessarily override Quebec’s own public-order rules on matters such as employment — which is exactly the kind of cross-provincial wrinkle worth flagging for specific advice.