Estonia and Finland have a very close relationship when it comes to business connections between the two countries. However, also due to this close relationship, it is easy to forget that the jurisdictions in those neighbouring countries are different and therefore, before signing, all agreements should be reviewed from another angle, taking into account the question about the governing law and dispute resolution. If this is not done before the agreement is signed, it may later be difficult to determine what the applicable law is and how to start legal actions.
In an agreement, the applicable law is often dictated by the more “influential” or bigger party or chosen according to the main place of business. Choosing a suitable mean for dispute resolution can however be an even more important question. It is common that agreements both in Estonia and Finland include a provision that reads something like the following: „Any dispute arising out of or relating to the agreement shall be tried to be settled by means of negotiations. “ This is of course clear without stating it in the agreement. Important is to have an understanding about what happens if the negotiations fail.
The law both in Estonia and Finland allows to agree on different means of dispute resolution. Parties often presume that starting court proceedings is the only option, forgetting that actually it is allowed to use alternative dispute resolution methods (ADR), like conciliation procedure or arbitration proceedings. Depending on the nature of an agreement and the relationship between the parties, those alternative methods should also be considered. Court proceedings often last for years and end up being very expensive for both parties, whereas using arbitration or mediation would probably lead to a much faster and cost-optimal solution.
At the European level, the European Commission is trying to guide member states to use more out-of-court dispute resolution mechanisms. This is currently regulated by the Directive 2008/52/EC on certain aspects of mediation in civil and commercial matters. Using conciliation or mediation in both Estonia and Finland is in practice quite rare, but the mechanism is completely acceptable in both countries. The practice regarding arbitration differs: in Finland, arbitration proceedings are common and it is often agreed in contracts that disputes shall be resolved in arbitration. When an Estonian company enters into an agreement with a Finnish company, the arbitration agreement may come as a surprise, since in Estonia the current understanding supports to refer the dispute to the court, despite the fact that court proceedings tend to be time and money consuming.
It is also worth noting that if the matter of a dispute is the recovery of debt and there is no agreement between the parties about dispute resolution, then it would be possible to apply the regulations in force at the European level. Companies involved in cross-border business relationship should be aware of the regulation on European order for payment procedure and regulation on European small claims procedure. Those regulations simplify and speed up cross-border cases, including between Estonia and Finland. Order for payment covers cross-border monetary claims and small claims procedure is for claims of up to EUR 2000. Both procedures use standard forms.
Other questions that should be considered when talking about cross-border dispute resolution is the service of procedural documents. There is a regulation in force at the European level, but the issues may arise from the fact that the accepted manners of service of documents are not all the same in Estonia and Finland. This is another reason why it is important to determine how and where the proceedings take place.
As a result, there are many aspects and details to consider when there is a possibility for a dispute between a company based in Estonia and the counterparty based in Finland. The best way to prevent negatively surprising situations and problems is to think about the possible dispute before entering into an agreement and choose the most suitable means for dispute resolution. Therefore, if your company’s business connections extend across the Gulf of Finland, the different options and measures are worth looking into in more detail.
If you are interested in learning more about this subject, make sure to register to our webinar on Tue, Feb 2, 2016 at 2:00 PM - 2:45 PM EET.