How to get out of a situation that seems like a dead end
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Your contract states “disputes will be resolved by arbitration” without specifying a specific court. Is this a valid clause?
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What if the arbitration court specified in the agreement was liquidated? Where should I now file a claim?
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Did you know that even a defective clause can be “saved” in some cases – and how exactly?
Two companies had been working under a contract for three years. The dispute section contained a single line: “Disputes will be resolved by arbitration in accordance with current legislation.” No specific court was specified. When a dispute over 28,000 euros arose, no one knew where to file a claim.
Three types of problematic clauses
The first type: a clause without specifying a specific court. “Disputes shall be resolved by arbitration” – without a name or registration number. This clause is incomplete. Formally, each party has the right to propose any arbitration court – and if the parties fail to agree, the clause may be unenforceable.
The second type: a non-existent court is indicated. The arbitration court named in the agreement has ceased operations or been liquidated. This is a real situation—in Latvia, the number of arbitration courts has significantly decreased since 2014 as a result of the reform.
The third type is a contradictory clause. The contract contains both an arbitration clause and a state court clause, without clearly defining when each applies.
What does the law say?
The Latvian Arbitration Courts Law directly regulates the situation with incomplete or defective arbitration clauses. Article 12.1 stipulates that if an arbitration agreement exists but is defective, the court may uphold it if its content allows for the parties’ intent to submit the dispute to arbitration.
This means that even a clause stating “disputes shall be resolved by arbitration” without a specific court is not automatically invalid—the court evaluates the intention of the parties.
Non-existent court clause: special rule
Article 12.2 of the Law on Arbitration Courts: If the arbitration court specified in the agreement ceases to exist, the parties may mutually select another arbitration court. If no agreement is reached, the dispute may be heard in a state court.
In practice, if the court is liquidated and the other party refuses to agree to another arbitration tribunal, your claims do not “disappear.” You have the right to appeal to the Latvian state court.
How to “save” an incomplete clause
Option one: mutual agreement. The parties sign an additional agreement or exchange letters agreeing on a specific arbitration tribunal. This is the most straightforward method.
Option two: propose a specific court to the defendant in the claim. If you refer to the arbitration clause in the claim and name a specific court, and the defendant does not object, the court may consider the parties to have reached an agreement.
Option three: appeal to a state court. If the arbitration clause is clearly defective and cannot be “saved,” the state court is obligated to accept the claim.
A real case
The 2015 agreement contained a clause naming an arbitration court, which was removed from the register by 2023. The creditor applied to a different arbitration court, citing similar regulations.
The defendant objected: no specific court had been agreed upon. The arbitral tribunal examined the matter and concluded that the parties’ intention to submit the disputes to arbitration was obvious. The designation of a non-existent court does not imply the absence of an agreement, but merely that a specific forum must be determined. The claim was accepted for consideration.
Three steps to take now
First, check the clauses in existing contracts to see if a specific court with a registration number is specified. Vague wording is a risk.
Second: if the contract specifies a court you don’t recognize, check its existence in the Latvian Ministry of Justice’s registry.
Third: when signing new contracts, use precise wording, including the name and registration number of the court. Five seconds of precision means years of peace of mind.
A bad slip of the tongue is better than no slip of the tongue. But a good slip of the tongue is better than a bad one.
This article is for informational purposes only and does not constitute legal advice.