When it comes to dispute resolution, there are various views on what works best, the court system or arbitration. The truth is that there are pros and cons to both approaches. Arbitration may be faster, and it may appear to be more consistent with the objective of maintaining confidentiality, yet a number of observers have recently concluded that the court system in Latvia, which has sometimes been criticized as too slow, is, at the end of the day, often the more reliable of the two alternative approaches. There are many arbitration service providers from which to choose, and particular arbitration selection should be approached with care and caution.
If you are engaged in entrepreneurial activity and your client is a person to whom you are providing services or selling goods in accordance with an agreement between yourselves, it may interest you to know that when selecting a form of dispute resolution, certain additional factors need to be taken into account. Specifically, your relationship may be caught within the ambit of the Consumer Protection Act.
As a seller of services or products, it is perhaps a glimmering insight into the obvious that you would ordinarily expect to receive payment on a timely basis. Believing that recourse to the Latvian court system may entail delays due to backlogs, you might wish to insert an arbitration clause into the agreement as the applicable method of dispute resolution. But wait, there may be trouble ahead...
Section 6 of the Consumer Protection Act enumerates what constitutes as unfair contract conditions that have the effect of nullifying such conditions, and it also stipulates that insertion of arbitration as the exclusive method of dispute resolution into the agreement is unfair. As a result, it may be impossible to rely upon such stipulation,
Under the Civil Law, after obtaining an arbitral award, the judgment creditor must apply to the regional court for issuance of an execution order based on the arbitral award. The execution order is a document based upon which, with the intervention of the sheriff's office, judgment is executed.
Recent practice shows that regional courts are prepared to reject the application for an execution order if the agreement entered into by the consumer stipulates arbitration only as a dispute resolution mechanism. The courts have justified the rejection on the grounds of the applicability of the Consumer Protection Act and Section 92 of the Constitution. Section 92 stipulates that anyone may seek to defend and protect their lawful rights through the court system. The result in such cases is that the agreement clause stipulating arbitration as the method for dispute resolution may be ruled void with the court system deemed to have jurisdiction by default.
What should one do to minimize the likelihood of rejection of the arbitration clause?
When drafting the arbitration clause, it may be helpful to foresee an alternative mechanism for dispute resolution in the Latvian court system, as the claimant may select. Care should be taken in the drafting of such clause. It may also be helpful to produce an evidentiary paper trail verifying that both parties have specifically considered the dispute resolution mechanism language prior to its finalization, otherwise there may be non-compliance with the Consumer Protection Act. Such evidentiary documentation is best drafted with the assistance of a legal professional, to maximize the likelihood of enforceability of the dispute resolution mechanism originally envisioned by the parties.
Martins Mezinskis is an associate at Kronbergs & Cukste, a member of Baltic Legal Solutions, a pan-Baltic integrated legal network of law firms which includes Teder, Glikman & Partnerid in Estonia and Jurevicius, Balciunas & Bartkus in Lithuania, dedicated to providing a quality 'one-stop shop' approach to clients' needs in the Baltics.