The matter in brief
How it went
Situation. A foreign counterparty stopped paying under the contract after a partial delivery, citing force majeure circumstances that were not provided for in the terms of the agreement.
What we did. We commenced international arbitration, showed that there were no grounds for force majeure under the contract and, once the award was issued, arranged its recognition and enforcement in the debtor’s jurisdiction.
Result. The arbitration award was enforced in full within 8 months, from the date it was issued to the money actually reaching the client.
The legal framework for recovery from a foreign counterparty
Whether a dispute with a foreign partner can be heard in international arbitration rather than in a state court is, as a rule, determined by the arbitration clause in the contract itself. Without one, the case will most likely have to be pursued in the courts where the defendant is located, which is usually less advantageous and less predictable for recovery from a foreign company.
The key instrument for enforcing an arbitral award abroad is the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Unlike judgments of state courts, arbitral awards are recognised in the contracting states under a simplified procedure, without a re-examination of the merits.
A defendant’s reliance on force majeure works only within the limits expressly set by the contract or the applicable law. The party must prove not only the circumstance itself but also a direct causal link between it and the impossibility of performing the obligation. Courts and arbitral tribunals, as a rule, do not accept general references to an “unstable situation” or “external factors”.
International arbitration: timeframes and figures
General benchmarks worth knowing before a dispute with a foreign counterparty begins.
How recovery from a foreign partner usually runs
The general sequence of steps. The specific timeframes and the scope of work depend on the contract and the debtor’s jurisdiction.
Contract analysis and claim letter
We check the arbitration clause, the governing law and the formal basis of the claim, send a claim letter to the counterparty and record its position on the merits.
Commencing arbitration
We file the claim with the arbitral institution named in the contract, or constitute an ad hoc tribunal, assemble the evidence and formulate our position on the merits of the dispute.
Hearing of the dispute
We take part in the written phase and the hearings and answer the defendant’s objections, including reliance on force majeure or other grounds not provided for in the contract.
Recognition and enforcement of the award
Once the award is issued, we initiate its recognition and enforcement in the jurisdiction where the debtor’s assets are located.
Common mistakes when recovering from foreign partners
A weak or uncertain arbitration clause is a frequent reason why a dispute with a foreign counterparty starts not with a hearing on the merits but with separate proceedings over where, and in what manner, it should be heard at all.
A broad, unspecific force majeure wording in the contract leaves the counterparty room to invoke circumstances the parties did not actually have in mind when they signed. A precise list of force majeure events in the contract removes most such disputes before arbitration is ever needed.
Creditors often check whether the debtor has assets that can be enforced against only after the award has been issued, by which time the assets may already have been moved. It makes sense to establish where the debtor’s assets are before or during the proceedings, not afterwards.
There is also a common misconception that an arbitral award is enforced abroad automatically. In practice a separate recognition and enforcement procedure is needed in the country where the debtor’s assets are located, with its own timeframes and its own grounds on which the defendant may object.
How we handle disputes with foreign counterparties
Before filing a claim, we assess not only the prospects of winning on the merits but also the prospects of enforcing the award afterwards. An arbitration won without a real possibility of recovering the money from the debtor does not solve the client’s problem.
We review the contract terms and the governing law in advance, not after the event. That covers the arbitration clause, the list of force majeure events and the currency terms of payment, all of which determine the arguments a party trying to avoid payment will use.
Where necessary, we involve local lawyers in the jurisdiction where the debtor or its assets are located for the recognition and enforcement procedure. The client deals with one point of contact and does not have to get to grips with the details of the foreign process.
A similar situation? Let us discuss the details at a consultation.
Frequently asked questions
Can I file a cassation appeal after losing on appeal?+
Yes, this is the standard route of challenge. The key is to meet the procedural deadline and to prepare an appeal with new arguments that were not raised before.
How can an international arbitration award be recognised in another country?+
Through recognition and enforcement proceedings under the 1958 New York Convention, to which most countries are party.
Is this a real case or a generalised example?+
It is a real matter from the firm’s practice. We publish it without company names or the names of the participants, as every client agreement includes a non-disclosure clause.