Taking counsel

  • 2005-10-12
  • By Linda Strause [ LOZE, GRUNTS & CERS ]
Businesspeople who decide to enter into a mutual transaction have to include a provision on the settlement of disputes in their agreement. Currently the court of arbitration is the most typical way parties choose to settle their disputes; however, in Latvia there is a possibility to avoid any agreement on bringing a complaint to arbitration if the claim rights are assigned to a third party.

Pursuant to the Civil Procedure Law, commercial disputes can be brought either to a court of law or a court of arbitration if the parties have concluded a preliminary written agreement to that effect. The court of arbitration is a non-governmental institution the aim of which, like the court of law, is to ensure the protection of a person's rights. Since hearing cases in the court of law frequently takes several years, the court of arbitration facilitates both the activities of the court of law and the chance for businesspeople to find the best solution in disputes.

The court of arbitration is perceived as a convenient alternative to the court of law as it ensures:

1) faster hearing of a case,

2) confidentiality,

3) possibly lower litigation costs,

4) possibility for parties to agree on the procedure that differs from the court proceedings of general jurisdiction.

If the parties have agreed to bring a dispute to the court of arbitration, then the court of arbitration is compulsory and the parties have no right to unilaterally withdraw the agreement. In cases when the dispute has already arisen, any of the parties may not want to bring the dispute to arbitration or could prefer deferring settlement of the dispute for as long as possible.

In such cases the claim rights are quite often deliberately assigned to a third party - thus avoiding the dispute hearing procedure - as pursuant to current Latvian court practice the dispute settlement procedure provided for in the agreement does not pass over to the new acquirer of the claim or the assignee. The situation is different in international court practice, which considers that the assignee is bound by the arbitration provision. International court practice has even gone further in its long development and also attributes the arbitration provision to other persons closely related to the transaction but who have not signed the arbitration agreement.

In order to avoid the malicious use of assignment it is advisable to provide in the agreement that the claim rights resulting from the transaction are not assigned without prior consent of the other party. In cases when the claim rights have already been assigned there is a possibility to use arguments that derive from the international court practice.

Linda Strause is associate attorney at law at Loze, Grunte & Cers in Riga