A full analysis of arbitration court jurisdiction: what the law says and what judicial practice has confirmed
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You want to include an arbitration clause in your contract. Did you know that some disputes cannot be referred to arbitration even by mutual consent of the parties?
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What happens if an arbitration tribunal hears a dispute that was not within its jurisdiction—and can this be used against the creditor?
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Which categories of disputes raise the most doubts in practice—and how can one properly assess the situation before filing a lawsuit?
The company recovered a debt under a lease agreement in arbitration court. A decision was obtained. They applied for a writ of execution. The state court denied the request. The reason: the arbitration court exceeded its jurisdiction in the claim for recognition of ownership of the property abandoned by the tenant—such disputes are heard only by state courts.
The court upheld the debt collection decision. The claim for recognition of rights was not. The mixture of permissible and inadmissible claims in a single lawsuit complicated the entire case.
One question asked before filing a lawsuit would have saved months.
General principle: what can an arbitration court do?
Article 1 of the Law on Arbitration Courts of Latvia establishes the general principle: arbitration courts have jurisdiction over civil disputes – disputes arising from contractual and non-contractual civil legal relations between individuals and legal entities.
This means that the majority of commercial disputes fall within the jurisdiction of the arbitration court: debts under contracts for supply, lease, services, construction contracts, loans, assignments, agency agreements, disputes over the quality of goods and work, and the collection of penalties and damages.
What cannot be submitted to arbitration: a closed list
Article 5 of the Law on Arbitration Courts establishes a closed list of disputes that cannot be considered by arbitration. This list is exhaustive; there are no other restrictions.
The first exception: disputes about the rights and obligations of persons who have been declared insolvent.
If bankruptcy proceedings are initiated against one of the parties, disputes over that person’s property are transferred to the jurisdiction of the state court. Important: this applies specifically to bankruptcy proceedings (maksātnespējas proces), not to the legal protection procedure (TAP). Under TAP, the arbitration court retains jurisdiction, as confirmed by case law.
Second exception: cases of special proceedings (sevišķā tiesāšanas kārtībā izskatāmi jautājumi).
Special proceedings include: establishing legal facts (kinship, inheritance), declaring a person missing or deceased, restoring rights to lost securities, adoption, and guardianship. All these categories are handled exclusively by state courts.
Third exception: labor disputes.
Individual labor disputes between an employee and an employer are settled by state court. Arbitration courts are not authorized to hear disputes regarding unlawful dismissal, non-payment of wages, or breach of employment contract.
Fourth exception: consumer disputes under certain conditions.
If one of the parties is a consumer (an individual acting for purposes unrelated to business), there are restrictions on referring disputes to arbitration. A pre-existing arbitration agreement with a consumer may be deemed an unfair contractual term. Arbitration may only hear such a dispute if the consumer consents after the dispute has arisen.
What cannot be claimed in arbitration: limitations on the subject matter
In addition to the categories of disputes, there are restrictions on specific types of claims—established not only by law but also by the practice of the Senate of the Supreme Court.
Recognition of ownership rights to real estate. The arbitral tribunal has no authority to recognize ownership rights to real estate—this is the exclusive jurisdiction of the state court and the land registry. The arbitral tribunal’s decision in this regard will not be enforced.
Intellectual property rights disputes related to registration. Disputes challenging trademark and patent registrations are handled by state courts. Disputes regarding intellectual property rights infringement between parties are handled by arbitration.
What happens if the arbitral tribunal exceeds its jurisdiction?
This is one of the grounds for refusing to issue a writ of execution—Article 536, Part 1, Clause 4 of the Code of Civil Procedure. The state court has the right to refuse enforcement to the extent of the decision that falls outside its jurisdiction.
An important detail: if the decision can be divided between the parts within its jurisdiction and those that are not, the state court will issue a writ of execution only for the permitted part. If it cannot be divided, it will deny the decision entirely.
Practical conclusion: do not mix valid and invalid claims in a single lawsuit. Separate them into separate proceedings.
New mechanism for 2024: challenging jurisdiction through a state court
Before the June 2024 amendments, a defendant could challenge the jurisdiction of an arbitral tribunal only within the arbitration proceedings themselves—and if the court rejected the challenge, the proceedings would continue.
After the amendments: If the defendant believes that the dispute is not subject to arbitration, they have the right to file a corresponding petition with a state court. The state court will then consider the issue of jurisdiction. However, the arbitration process may continue in parallel—an appeal to a state court regarding jurisdiction does not automatically terminate the arbitration proceedings.
How to check the admissibility of a claim before filing
The first question: is the dispute a civil one? If so, the basic condition is met.
Second question: Is the dispute covered by the closed list of exceptions in Article 5? Check: bankruptcy, special proceedings, labor relations, consumer contracts.
Third question: Does the lawsuit involve both admissible and inadmissible claims? If so, separate them into separate proceedings.
Question four: Are the requirements not included in the category that the Senate limited—recognition of real estate rights?
A real case
The landlord owed €18,000 in rent. The tenant abandoned the equipment upon moving out. The landlord filed three claims: to recover the rent, to collect penalties, and to recognize the tenant’s ownership of the abandoned equipment.
The first two requirements are within the jurisdiction of the arbitration court. The third is not: the question of ownership is for the state court.
The arbitration court accepted the claim and ruled on all three counts. The state court, when issuing the writ of execution, divided its decision: it granted the judgment on the debt and penalties, but it denied the judgment on the recognition of ownership. The landlord received the money but wasted time resolving the situation with the equipment.
Three steps to take before filing a lawsuit
First, make a list of all the requirements you want to state. Next to each one, check whether it’s included in the exceptions.
Second: if the claim contains a mixture of admissible and inadmissible claims, separate them. Monetary claims should be filed with an arbitration court. Claims regarding property rights should be filed with a state court.
Third: if you have the slightest doubt about the admissibility of a claim, consult before filing. Correcting an error after a writ of execution has been denied is significantly more difficult and expensive.
Arbitration is a powerful tool, but only within its jurisdiction. Going beyond these limits nullifies the outcome.
This article is for informational purposes only and does not constitute legal advice.