A One Minute Guide to International Debt Collection
If you are a creditor who is just getting started with shipping to new customers overseas, or a pro who has been doing business globally for decades, allow me to take one minute of your time to tell you what you need to know about international debt collection.
Choice of Foreign Attorney – Finding an attorney in a foreign jurisdiction that is willing to accept claims on a purely contingent basis is a challenge. This can be resolved by utilising attorneys or collection agencies which have a reliable network of international attorneys that accept claims on a purely contingent basis.
Power of Attorney – Creditors and American collection agencies simply forward a claim with instructions accompanied by a statement of account, etc. However, many Latin American countries, as well as Asia and Europe, require a power of attorney to take legal proceedings or even to accept the claim. Such power of attorney must be notarized and, in some instances, authenticated. The reason for this is to demonstrate to the debtor that the foreign lawyer has authority to make the claim.
Fee Structure of Foreign Attorney – In Canada and the United States, those involved with debt collection inevitably accept same on a purely contingent basis. However, in many countries, including Europe, lawyers are prevented by their local bar to accept such claims and must charge on an hourly basis and require an advanced container. However, foreign collection agencies are not so forbidden.
Claiming Attorney and Collection Charges, etc. – Not every jurisdiction will award a collection of attorney’s fees, interest, administration charges and penalty clauses, even though they may be provided for in the contract.
Personal Guarantees – You must be sure that the personal guarantee is enforceable where the debtor resides. For example, in Alberta, the guarantee must be notarized.
Choice of Jurisdiction Clause – When the creditor and debtor have agreed that disputes will be heard before the court of the jurisdiction of the creditor, such a clause can’t be ignored. This means that the creditor would first have to sue in his jurisdiction, obtain a favourable judgement and then it’s required that the judgement is sued upon in the jurisdiction of the debtor. This entails legal fees, for lawyers both in the jurisdiction of the creditor and also in the jurisdiction of the debtor. Such a clause cannot be ignored as, if legal proceedings were taken straight away in the jurisdictions of the debtor, an application by the lawyer for the debtor to have the case dismissed would be maintained.
Arbitration Clause – It is questionable whether an arbitration clause should be used in a contract where the amount involved is modest. Arbitration Centres charge an entry fee in order for lawyers to launch the claim, let alone the fees of the lawyer and the arbitrator. The arbitration award would then have to be sued upon in the foreign jurisdiction.
Statute of Limitations – Creditors, lawyers and collection agencies must pay attention to the time period in the jurisdiction of the debtor, not the jurisdiction of the creditor. However, if, in the contract, the parties agree to the law of the creditor, that time period would prevail, even if it exceeds the time period of the jurisdiction of the debtor.
Recognition of Default Judgments – Obtaining a default judgement against a foreign debtor raises a question why did the court of the creditor accepted jurisdiction, i.e. what was the connection? In Canada, there has to be at least “a real and substantial connection” to the court of the creditor. Also, there are such questions as: Was the debtor given ample notice? Was he properly served? Etc.
Conclusion – The above are just some of the obstacles that creditors will be faced with, let alone availability of witnesses, translation for documents, understanding the language of the proceedings of the foreign court. Whereas international commerce might bring profit, the creditor might be faced with challenges to collect unpaid trade debt.
For any questions, please contact me at:
FRANKLIN & FRANKLIN
4141 Sherbrooke Street West, Suite 545
Montreal, Quebec H3Z 1B8