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Crimean deadlock: judicial protection, recognition and enforcement

Introduction

Crimea is a territory with disputed sovereignty. Judge Max Huber, writing in the landmark Island of Palmas case, stated that "sovereignty in the relations between States signifies independence. Independence in regard to a portion of the globe is the right to exercise therein, to the exclusion of any other State, the functions of a State". Ukraine and Russia both claim sovereignty over Crimea and have tried to exercise their judicial powers over disputes subject to the Crimean courts' territorial jurisdiction.

Judicial power is one of the primary displays of sovereignty. The question of which state's courts -those of Ukraine or Russia - have jurisdiction to adjudicate Crimean disputes is centred on the inter­state territorial dispute over Crimea. This dispute is unlikely to be resolved in the near future.

Ukrainian judicial functions in occupied territories

Ukraine insists that no transfer of sovereignty over Crimea has occurred, and that Crimea should be treated as a temporarily occupied territory. On April 15 2014 the Ukrainian Parliament adopted the Law on the Provision of Rights and Freedoms of the Citizens of Ukraine in the Occupied Territories, which entered into force on April 27 2014. The law provides that the functions of the Crimean courts will be performed temporarily (ie, until the end of occupation or the adoption of a new law) by the courts of Kiev and the Kiev Region.

Russian judicial functions in newly acceded territories

In turn, Russia claims sovereignty over the territory of the so-called 'Republic of Crimea and Sevastopol', which - in Russia's view - has acceded to the Russian Federation based on the Agreement between the Russian Federation and the Republic of Crimea on Acceptance of the Republic of Crimea into the Russian Federation and Constitution within the Russian Federation of New Subjects (March 18 2014).

Russian Federal Constitutional Law 6-ФКЗ (March 21 2014), on the same subject as this agreement, provides for the establishment of the Russian judicial system in Crimea (ie, the establishment of Crimean courts as a part of the Russian court system), as well as the Russian system of enforcement authorities (ie, a Crimean department of the Russian Federal Bailiffs' Service).

Administrative disputes

The Ukrainian law on the occupied territories leaves a wide range of issues unresolved. The law provides that Ukraine recognises neither the legal effect of the Russian authorities nor their decisions in Crimea. However, the law gives little legal grounds for protection against the illegal actions of the Russian authorities.

This raises the following question: as no physical measures have been undertaken, what should be done if the Russian authorities refuse to grant a licence or permit, prohibit a business from operating or impose a fine? Since Ukraine does not recognise the legal effect of the Russian authorities' decisions, there will technically be no infringement of the targeted entity's rights and thus no grounds under Ukrainian law for the entity to seek legal protection in the Ukrainian courts, even if the entity is de facto precluded from doing business in Crimea.

In some cases, acts of the Russian authorities may be qualified as crimes under the Ukrainian Criminal Code (eg, obstruction of legitimate business activity under Article 206). However, Ukraine has limited capabilities to investigate such crimes; nor can it enforce judgments in such criminal matters.

Civil and commercial disputes

The situation with civil and commercial disputes is somewhat clearer. Potential disputes subject to the Crimean courts' territorial jurisdiction can be adjudicated in both the Ukrainian and Russian courts. In this regard, a potential claimant has the semblance of choice as to which forum to use to settle the dispute. The primary function of courts is to resolve disputes and protect infringed rights and interests. There are questions of applicable material (ie, substantive) law; however, in general, contractual disputes are governed by agreements between the parties involved and civil law rules. Civil law norms in both Ukraine and Russia are premised on Roman civil law and are therefore quite similar. The decisive question for a potential claimant might be in which forum the chances of protecting one's rights and obtaining real satisfaction are greater. To answer this, a vice versa approach - from the perspective of successful enforcement - should be applied.

Enforceability of Ukrainian Crimean court decisions

Ukrainian Crimean court decisions will most likely be treated as unenforceable in Crimea and elsewhere in Russia. However, such decisions can still be enforced in other jurisdictions which do not recognise the transfer of sovereignty over Crimea, subject to a relevant exequatur procedure.

As the facts stand, the Ukrainian enforcement authorities are physically precluded from functioning in Crimea. At present, only the Russian enforcement authorities (ie, the Crimean department of the Russian Federal Bailiffs' Service) are performing functions in the territory of Crimea.

Under the general rule, the enforcement of Ukrainian court decisions in Russia requires a Russian court exequatur to be obtained. Therefore, if a creditor under a Ukrainian court decision wishes to enforce the decision in Crimea, the creditor should apply to local courts for the exequatur.

Ukraine and Russia are both parties to the legal assistance treaties that provide for a simplified procedure of recognition and enforcement of judicial decisions and set grounds for refusal to grant recognition and enforcement - namely, the Kiev Convention on Settlement of Commercial Disputes 1992 and the Minsk Convention on Legal Assistance and Conflicts of Law in Matters of Civil, Family and Criminal Law 1993. Pursuant to these treaties, creditors under a decision issued by a court of one state party may apply to the competent court of another state party to seek recognition and enforcement. The court of the debtor's place of residence or of the location of the debtor's property is generally competent. In light of the recent developments, these agreements should continue to apply only to the territories of Ukraine and Russia with uncontested sovereignty (thus excluding Crimea).

Even if such legal assistance treaties were applicable, or should the reciprocity principle guide recognition and enforcement, there is a high likelihood that the Russian courts in Crimea would refuse to recognise and enforce Ukrainian Crimean court decisions. The grounds for refusal would most likely be that the Ukrainian courts lack jurisdiction in light of the overlap of Ukrainian and Russian jurisdiction in Crimea (and pursuant to Russia's perception that its jurisdiction prevails, since it considers Crimea a part of its territory) or based on public policy reservations.

In view of the above, if a Ukrainian court decision does not prescribe special performance, but simply provides for debt recovery, the creditor under the decision may seek satisfaction in other jurisdictions where the debtor owns or possesses property (except Russia). In such instances, the creditor may initiate the general procedure for enforcement of the Ukrainian decision in the relevant jurisdiction. In taking this approach, the creditor is advised to give regard to due process principles (eg, notification of defendant in the proceedings, observance of the procedural equality of parties to the dispute). However, this option will not work in every jurisdiction - namely, in states that have recognised Russian sovereignty over Crimea. Given that Venezuela, Kazakhstan, Armenia, Kyrgyzstan, Uganda, Afghanistan, North Korea, Syria, Belarus, Cuba, Bolivia, Nicaragua, Sudan, Zimbabwe, South Ossetia, Abkhazia and Nagorno-Karabakh have recognised the results of the Crimean referendum and the emergence of the newly independent 'Republic of Crimea', such states may be considered as recognising the subsequent accession of Crimea to the Russian Federation - and consequently recognising the jurisdiction of the Russian courts over relevant disputes. In such case, the Ukrainian Crimean court will be treated as lacking competence.

Enforceability of Russian Crimean court decisions

Russian Crimean court decisions in turn might not be enforceable in Ukraine and in states that have not recognised the transfer of sovereignty over Crimea.

On March 27 2014 the United Nations General Assembly adopted non-binding Resolution 68/262, calling on states not to recognise changes in the status quo of Crimea; 100 states voted in favour, 11 were opposed and 58 abstained. Thus, the courts of the 100 states that voted in favour of the territorial integrity of Ukraine might not recognise and enforce Russian Crimean court decisions, as the Russian courts lack jurisdiction to adjudicate disputes in Ukrainian Crimea.

Comment

In order for parties to obtain maximum satisfaction and restoration of their infringed rights, they should take the vice versa approach when seeking judicial protection in Crimean disputes. If a debtor has property abroad, the Ukrainian courts may be used. If the only way to obtain satisfaction is to enforce decisions in Crimea, application to the Russian courts should be considered.

As to future disputes, parties to contracts are advised to resort to alternative dispute settlement mechanisms, such as international commercial arbitration and domestic arbitration institutions, depending on the nature of the transaction and the parties involved.

Author: Andriy Pozhidayev, Anna Tkachova
Source: International Law Office. – 2014. – 24 June