International Collections: Legal Obstacles & Strategies

International commerce brings with it not only the anticipated profit but also the prospect of uncollected trade debt. The creditor is then faced with the search for unencumbered assets, most likely outside their own jurisdiction. In an international claim or commercial dispute, the creditor is faced with certain challenges that he does not find in a purely domestic dispute, namely:

• Power of Attorney

Unlike the United States and Canada, authorizing a foreign attorney might require a formal Power of Attorney that often must be executed before a Notary Public and then authenticated by the consulate or embassy of the foreign country where the foreign attorney is located. In some countries, a letter of authorization by the creditor addressed to the foreign attorney will suffice.

• Fee Structure of Foreign Attorney

Whereas in Canada and the United States claims are often accepted on a purely contingent basis, in many countries, attorneys are forbidden by their local bar regulations to accept claims other than on an hourly rate and will, therefore, require an advance retainer against such fees.

• Applicable Law

Although the creditor may have agreed, in a contract or a credit application, which law applies in the event of a dispute, invariably the contractual basis is merely an exchange of a purchase order, confirmation and invoice where there is total silence to the applicable law. The question, therefore, becomes: Where was the contract made and, therefore, which law applies? One cannot assume that the legal system of the debtor will be similar to that of the creditor. Even in the provinces of Canada, one could be faced with two (2) legal systems, English and French (Quebec).

• Choice of Jurisdiction Clause

Quite often in the contract the creditor and debtor have agreed that all disputes will be heard before a court of competent jurisdiction, for example New York. This clause cannot be ignored by taking legal proceedings initially in Montreal, where the debtor is located. The lawyer for the debtor no doubt will raise this as preliminary objection and have the case dismissed.

• Arbitration Clause

Quite often the creditor has, in the terms and conditions of its contract or credit application, an arbitration clausethat calls for arbitration to take place in its jurisdiction. There again such a clause has to be adhered to and legal proceedings instituted in the jurisdiction of the debtor may be dismissed if raised by the debtor’sattorneys. Such clauses are valuable in complex commercial matters and especially if the creditor feels uncomfortable in suing in the jurisdiction of the customer/debtor-to be.

• Foreign Language

Documents that are in English will invariably have to be translated by an official court translator into the official language of the debtor’s country. Generally, it is not sufficient for the creditor to provide a translation, as it has to be an authentic translation approved by the foreign court, although this at anadditional cost. Trials will be held in the official language where the debtor is located. However, if an English speaking creditor is entitled to have a translator, it will be at his expense.

• Security for Costs

In many jurisdictions, including that of the Province of Quebec, the debtor may, through his lawyer, apply to the court to require the creditor to deposit into court a cash deposit or bond to guarantee the court costs. The amount of the security for costs depends on the size of the claim and will be forfeited in the event that the creditor does not succeed. Conversely, it will be returned to the creditor upon successful completion of the claim. This should not be confused with lawyer’s fees and will only be required in the event that the lawyer for the debtor makes such an application to the court.

• Statute of Limitations

In every jurisdiction, there is a time period in which claims must be settled or sued upon, otherwise the debt is extinguished. These time periods may even vary within a country, such as the United States and Canada, depending upon the law of the state or the province. One must be careful to determine what the time period is for instituting legal proceedings in the jurisdiction of the debtor as it might be raised as a bar to an action.

• Proper Service and Notification

Commencing legal proceedings against a debtor in your own jurisdiction by service and notification to the debtor by registered mail might not be enforceable when trying to enforce it in the court of the debtor. Objections may be raised that the debtor was not properly served in the originating jurisdiction if the original method of service does not comply with the debtor’s jurisdictional requirements.

• Registration of Foreign Companies

Some jurisdictions require that the foreign creditor be required to obtain a license or legal authorization to carry on business before legal proceedings be taken.

Other obstacles or inconveniences that the creditor might encounter would be the following:
• the availability of witnesses for the creditor to travel to the foreign jurisdiction;
• the unfamiliarity with the foreign local counsel that will represent the creditor in the proceedings;
• the expenses and time incurred in attending examinations, depositions and the actual trial on the merits.

CONCLUSION:

In the world of international trade, there are undoubtedly benefits but one must be aware of some of the obstacles, barriers and challenges in dealing with foreign debtors.

The above discussion, although by no means exhaustive, hopefully will throw some light on this growing field of international debt collection.