Two working mechanisms, the New York Convention and why the arbitration clause is most important here
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Your foreign partner isn’t paying—you think collecting the debt abroad is too difficult and expensive. Is this really true?
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Did you know that the Riga Arbitration Court’s decision can be enforced in more than 170 countries worldwide—and that there’s no need to file a new lawsuit?
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What should be done when concluding an agreement with a foreign partner to avoid being dependent on its jurisdiction in the event of a dispute?
A Latvian supplier had been working with a Lithuanian company for three years. A debt of €32,000 had accumulated. Negotiations reached an impasse. The supplier decided to go to court and faced the following dilemma: which court to go to and how to enforce the judgment in Lithuania?
This question arises for everyone who works with foreign partners. And there are very specific answers—if you understand the mechanisms.
Two ways to collect from a foreign debtor
The first path: arbitration decision and the New York Convention.
The 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards has been signed by more than 170 states. It establishes a standardized mechanism: an arbitral award rendered in one country is recognized and enforced in another signatory country without re-examining the merits of the case.
How it works in practice: you receive a decision from the Riga Arbitration Court in Latvia. Then you file an application with the court of the country where the debtor or their property is located. The court verifies compliance with procedural requirements and issues a local writ of execution. The local bailiff then processes it.
A key condition: your contract must include an arbitration clause specifying a specific arbitration tribunal. Without it, this mechanism is unavailable.
The second option: a decision by a state court and EU Regulation 1215/2012.
If the debtor is located in an EU country and you do not have an arbitration clause, Regulation (EU) 1215/2012 applies. It allows for the enforcement of a judgment of a state court of one EU country in another EU country without a separate recognition procedure.
Important limitation: The Regulation applies only to EU countries and only to decisions of state courts. For debtors outside the EU, only the New York Convention and arbitration are applicable.
Why is the arbitration clause critical in international treaties?
If the contract does not contain an arbitration clause, jurisdictional issues arise in a dispute with a foreign partner. A Latvian court may not have jurisdiction to hear the dispute if the contract contains a clause stipulating the jurisdiction of a foreign court or if the applicable law specifies a different jurisdiction.
The Riga Arbitration Court arbitration clause and the New York Convention together give you control: the dispute is heard here under clear terms, and the decision is enforced where the debtor is located.
The wording for international agreements must also contain: the language of the procedure, the applicable law and an indication that the parties accept the jurisdiction of the Riga Arbitration Court.
Practical steps before filing a lawsuit
First, check the contract. Is there an arbitration clause? What is the applicable law? If the applicable law is that of another country, this will complicate the process, but it won’t make it impossible.
Second: determine where the debtor’s assets are located. Real estate, accounts, vehicles—in what jurisdiction? The judgment must be enforced wherever the property is located.
Third, consider the costs. International debt collection is more expensive than domestic collection: document translations, legal support in the debtor’s country, and the services of a local bailiff. For debts of up to €3,000–€5,000, the costs may be disproportionate. For larger amounts, everything is justified.
A real case
A Latvian IT company completed a development project for an Estonian client. The debt was 28,000 euros. The contract contained an arbitration clause specifying the Riga Arbitration Court and specifying that Latvian law would govern.
The claim was filed with the Riga Arbitration Court. A decision was received within 45 days. Subsequently, an application was filed with an Estonian court under the New York Convention. The Estonian court reviewed the procedural aspects and granted permission for enforcement. The local bailiff collected the debt from the debtor’s bank accounts.
The entire process, from filing the claim to receiving the money, took about five months. Without the arbitration clause, just determining jurisdiction would have taken the same amount of time.
Three steps to take now
First: check your contracts with foreign partners to see if they include an arbitration clause. If not, add one during the next renewal or signing of a new contract.
Second: when concluding new international agreements, always specify the arbitration clause, the applicable law, and the language of the proceedings. These are the three elements that determine everything if a dispute arises.
Third: if the debt already exists, assess the debtor’s assets before filing a lawsuit. This will determine the enforcement strategy.
With the right contractual clause, a foreign debtor isn’t a dead end. It’s simply a longer road. But it exists.
This article is for informational purposes only and does not constitute legal advice.