Most uncertainties associated with the enforcement of arbitral awards in jurisdictions such as Ukraine are associated with constraints imposed by the laws, regulations, and judicial and administrative practices of those jurisdictions. In this Article, we outline the process of enforcing arbitral awards in Ukraine through empirical analysis of the Ukrainian courts’ judgments in particular arbitration-related cases. This analysis shows that Ukrainian judges sometimes reach surprising results in otherwise straightforward cases. Although the New York Convention greatly facilitates the enforcement of international arbitral awards and ensures that enforcement and recognition are not denied on substantive grounds, the specifics of recognition and enforcement procedure are still regulated by national laws.
Hence, obtaining recognition and enforcement of international arbitral awards is often not without obstacles and even pitfalls.
In Ukraine, the barriers to successful and timely enforcement of a foreign arbitral award can quite often be politically motivated, or attributed to the debtor’s connections with the government or local administration, as well as direct influence on the judiciary.
II. ENFORCEMENT PROCEDURE IN UKRAINE
A foreign arbitral award can be recognized and enforced in Ukraine if (i) an international treaty ratified by the Ukrainian Parliament provides for such recognition and enforcement; or (ii) under the reciprocity principle. The fundamental principles of Ukrainian law related to the recognition and enforcement of foreign arbitral awards are set out in the Civil Procedure Code, the Law on International Commercial Arbitration (based on the UNCITRAL Model Law), the Law on Private International Law, the Law on Enforcement Proceedings, as well as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”), along with other treaties, which are considered part of Ukrainian law.
After the 2010 reform of the judiciary, special attention should be paid to the decisions of the Supreme Court of Ukraine. Although historically Ukraine did not recognize judicial precedent as a source of law, one important aspect of the new 2010 Law on Judiciary and Status of Judges is that it gives Ukraine’s Supreme Court’s decisions a role similar to that of precedents or stare decisis. The Law specifically provides that the decisions of the Supreme Court that resolve the cassation courts’ divergent application of the substantive law governing the same legal relations are binding on all State authorities and on lower courts, which must bring their practice into line with such decisions.
2010 marked the completion of a long-lasting judicial reform in Ukraine, which culminated in the adoption of the Law on the Judiciary and Status of Judges. This law came into force on July 30, 2010. Despite the misgivings of skeptics, the Law does introduce certain positive changes in the quality of procedural laws. Considerable changes are introduced in the Civil Procedure Code, which is the principal act governing the recognition and enforcement of foreign arbitral awards. Another important incorporation of the 2010 legislation was changes to the Civil Procedure Code pertaining to the reciprocity principle which provide that, if recognition and enforcement of a foreign court decision depends on the reciprocity principle (meaning that there is no treaty between the country of the judgment and Ukraine), reciprocity is presumed unless there is evidence that the courts of the given country do not extend reciprocal recognition to Ukrainian judgments. This change is of minor importance for arbitration because, even before these changes, most arbitral awards received recognition under the New York Convention, to which Ukraine is a party.
B. Recognition And Enforcement Of Arbitral Awards
First instance courts of general jurisdiction (also known as “common” courts considering civil and criminal cases) hear petitions for recognition and enforcement of foreign arbitral awards. The rulings of the first instance courts regarding recognition and enforcement of a foreign arbitral award may be appealed first to the Court of Appeal, then to the High Court for Civil and Criminal Cases, and then, in very rare cases, to the Supreme Court of Ukraine.
The party seeking recognition and enforcement of a foreign arbitral award in Ukraine should file an application with the first instance court of general jurisdiction at the location of a person against whom the enforcement is requested. This means, for practical purposes, the registered address of the company or individual or, if that may not be determined, the location of the said person’s property. The application must be filed within three years of the effective date of the award, except in the case of an award providing for recovery of periodic payments, which may be presented for enforcement during the entire payment period; however, in this case enforcement can be requested only within the last three years of indebtedness. The application must contain the name and address of the applicant, the award creditor, the name and address of the debtor or the location of the debtor’s property, and describe the legal grounds for the application. The application must be accompanied by documents required by an international treaty.
If the international treaty does not specify such a list of documents, the application must be accompanied by the following documents:
• A certified copy of the award;
• An official document from the lex arbitri country confirming that the arbitral award came into legal force should the award itself not provide such;
• Evidence that the debtor was duly notified about the place and time of the hearing (if the debtor did not participate in the arbitration hearing);
• A document indentifying the part of the award to be enforced and the moment at which it becomes enforceable (if the award was partially enforced earlier); and,
• A power of attorney in favor of the award creditor's representative.
All the documents also must be filed with their certified Ukrainian translation or in the language specified in the international treaty.
Within five days of the application’s receipt, the court notifies the debtor providing him with one month to submit objections to the application. If the debtor objects, the court has a month to schedule the time and place for a court hearing, and notifies the parties at least ten days prior to the hearing. A sole judge in an open court hearing considers the recognition and enforcement case.
Upon considering the case, the court issues a ruling on the recognition and enforcement of the foreign arbitral award. In case of partial enforcement of the arbitral award abroad prior to its recognition and enforcement in Ukraine, the court determines the part of the award that remains to be enforced in Ukraine.
Conversely, the value of debtors’ assets in Ukraine may not be sufficient to satisfy the amount of the arbitral award.
Consequently, the winning party, after partial enforcement of the award by the Ukrainian court, may seek to enforce against assets in other jurisdictions.
As a general rule, a court may refuse the recognition and enforcement of an arbitral award based on grounds provided by the applicable international treaty. Provided such international treaty does not include grounds for refusal, the court under the Civil Procedure Code may refuse recognition and enforcement of an arbitral award on the following non-exhaustive grounds:
• The award is not valid under the law of the country where it was issued, i.e. has not come in to legal force;
• The debtor was not duly notified about the arbitral proceedings and, consequently, was unable to present its case;
• The subject matter of the dispute is under the exclusive competence of the Ukrainian court or other competent authority;
• A judgment was obtained from or a case was initiated before a Ukrainian court in a dispute between the same parties, involving the same subject matter and cause of action, before the opening of the arbitration proceedings;
• The time limit for the submission of the application has expired;
• The court has no jurisdiction to hear the dispute; and,
• The enforcement of the award would be contrary to the interests of Ukraine.
In addition to the aforementioned grounds, the New York Convention provides for additional reasons for refusal of recognition which the debtor can raise, namely the:
• Parties did not have legal capacity to sign the arbitration agreement or the arbitration agreement is otherwise invalid under the governing law;
• Award is issued on a non-arbitrable matter or it contains decisions on matters beyond the scope of submission to arbitration; and,
• Composition of the actual arbitration panel or the arbitration procedure did not comply with the provisions of the arbitration agreement or, if there was no such agreement, were not in accordance with the law of the country where the arbitration took place.
Normally, hearings in the court of first instance should be completed within two months from the commencement of the proceedings. Upon a party’s motion, this term can be prolonged by the court by a maximum of fifteen days.
The ruling granting recognition and enforcement becomes effective and can be used to obtain the writ of execution as soon as the time period for appealing the ruling (five days) elapses without appeal, or as soon as the appeal against the ruling is rejected by the court of appeal.
C. Appellate Review Of The Enforcement Decision
The rulings of the first instance courts regarding recognition and enforcement of a foreign arbitral award may be appealed first to the Court of Appeal, then to the High Court for Civil and Criminal Cases, and then, in very rare cases, to the Supreme Court of Ukraine.
The first instance court ruling granting or denying recognition and enforcement may be appealed to the competent court of appeal of general jurisdiction.14 Ukrainian law grants the right to appeal to the parties and other persons who participated in the case at the first instance level, and to third parties if the court’s ruling affects their rights and obligations.
Appeals to the courts of appeal (as opposed to cassation appeals to the High Court) are possible on grounds of law and fact.
An appeal petition must be filed with the court of first instance that issued the contested ruling within five days after the ruling is announced, and for the persons who did not participate in court hearing, within five days after they obtain a copy of the ruling.
On the day following the deadline for filing appeals, the court of first instance sends the petition together with the case file to the court of appeal.
The court of appeal must decide whether the appeal petition complies with formal requirements, within three days after the receipt of the case materials, and must, during the next ten days, complete preparatory actions, such as requesting additional documents or arguments from the parties. The appeal hearing must be scheduled no later than seven days after completion of the preparatory actions.
Unlike the sole judge at the enforcement stage, the appeal is heard by a panel of three judges. Based on its findings, the court of appeal may (i) uphold the ruling; (ii) alter the ruling; (iii) reverse the ruling and issue a new ruling on the merits; or (iv) set aside the lower court’s ruling which bars further proceedings and sends the case for further consideration to the court of first instance (the “Court of Appeal Resolution”).
If the Court of Appeal Resolution upholds the ruling granting recognition and enforcement, further appeals do not prevent the party seeking enforcement from obtaining the writ of execution and proceeding with enforcement.
A cassation appeal may be taken against the Court of Appeal Resolution to the High Court for Civil and Criminal Cases (the “High Court”) within twenty days from the effective date of the Court of Appeal Resolution (subject to extension if the reason for not meeting the deadline is found excusable by the court). The same persons can appeal at this stage as those who can appeal to the Court of Appeal. The High Court examines the validity of the decisions of lower courts as to matters of law only. The cassation procedure does not involve examination of evidence; parties may appeal only on matters relating to substantive and procedural law.
If there are no procedural flaws in the appeal, the reporting judge of the High Court opens the cassation review proceedings, prepares the case for hearing, and sets the time limit for submission of objections to the appeal. These actions must be taken within three days of receiving the appeal. Within five days after the preparation of the reporting judge’s report, a preliminary meeting before a three-judge panel takes place in camera without notice to the parties. In this meeting, the High Court can decide to: (1) reject the cassation appeal, (2) reverse the Court of Appeal Resolution or the decision, or (3) schedule an additional meeting if at least one judge on the panel so requests.
If this additional meeting is scheduled, the cassation appeal is heard within fifteen days of the three-judge panel’s ruling scheduling the meeting and is reviewed by a panel of five judges normally without notice to the parties. However, the parties can be summoned to present their explanations.
The High Court may decide either to: (1) reject the cassation appeal and uphold the Court of Appeal Resolution; (2) set aside the Court of Appeal Resolution which bars further proceedings and send the case for retrial to the court of appeal or to the court of first instance; (3) alter or reverse the Court of Appeal Resolution and render its own decision on the case; or (4) reverse the Court of Appeal Resolution and uphold the ruling of the court of first instance.
3. Review By The Supreme Court Of Ukraine
After the cassation proceedings, parties, or other persons involved in the case may bring a final appeal to the Supreme Court of Ukraine on the following very limited grounds: (i) the cassation decision of the High Court demonstrates different and inconsistent interpretation and application of substantive law by the High Court and/or other specialized High Courts (namely the High Administrative and the High Commercial Court); or (ii) the European Court of Human Rights or other competent international court finds that a decision of the domestic courts violates international obligations of Ukraine. The application based on ground (i) above (different and inconsistent interpretation and application of substantive law) must be filed within one month from the High Court decision being appealed or within one year from the High Court’s decision which demonstrates inconsistency in the application of the substantive law by the lower courts. The application based on ground (ii) above (decision of the domestic courts violates international obligations) must be filed within one month from the time the party in whose favor the decision of the international court was issued became aware of the final status of the decision. Appeals to the Supreme Court must be filed through the High Court. Immediately after receiving the appeal, the High Court sends it to the reporting judge of the Supreme Court, who in three days, must complete preparatory actions and set the deadline for removal of technical defects in the appeal, if any. During the 15-day period following when the appeal is filed, a panel of five High Court judges decides whether to allow or reject the appeal. If the appeal is allowed, the case must be transferred to the Supreme Court of Ukraine within five days with notice to the parties. Within three days of the receipt of the case, the reporting judge of the Supreme Court issues a ruling opening the review proceedings, sends it to the parties, and arranges for a hearing within fifteen days. The case must then be heard by the Supreme Court within a month of the reporting judge’s ruling.
After the hearing, the Supreme Court of Ukraine may (i) grant the appeal in full or in part, or (ii) reject the appeal. Decisions of the Supreme Court of Ukraine are final and cannot be appealed.
D. Execution Of The Court Ruling On The Recognition And Enforcement Of An Arbitral Award
After receiving the final ruling from the Ukrainian court granting recognition and enforcement of the foreign arbitral award, the party/ies seeking enforcement needs to obtain a writ of execution from the court of first instance.
The enforcement of the court’s ruling based on the writ of execution is carried out by the local branches of the State Execution Service of the Ministry of Justice (the “Execution Service”). The enforcing party has three years from the effective date of the court’s ruling to apply to the Execution Service for enforcement. To initiate the enforcement procedure, the applicant’s petition to enforce the court’s ruling and the writ of execution should be filed with the Execution Service. After receiving the enforcing party’s petition, the execution officer issues a resolution commencing the execution procedure (the “Execution Resolution”) and invites the debtor to comply voluntarily with the court’s ruling within seven days. If the debtor does not comply voluntarily, the execution officer must take all necessary actions for its enforcement. The execution procedure should be completed within six months from the effective date of the Execution Resolution.
In practice, however, the execution procedure often takes more than six months because of party complaints against the actions of the execution officer. The execution officer may seize the debtor’s property and impose a prohibition on its alienation. All actions of the execution officer may be challenged by filing an administrative complaint with the head of the Execution Service or a petition with the first instance general or administrative court.
The execution procedure shall be suspended if, inter alia:
(i) the debtor undergoes corporate reorganization; (ii) the writ of execution is suspended by the court or other competent authority; (iii) a motion is filed with the court to exclude certain property from execution (such motions are usually based on the fact that certain assets are not owned by the debtor or are subject to the rights of third parties even though they are in the debtor’s possession); (iv) bankruptcy proceedings are commenced against the debtor; or (v) the debtor is granted a grace period by the court. Additionally, the execution officer may in his/her discretion suspend the execution procedure, inter alia, if: (i) the execution officer submits a petition requesting the court to allow the payment of debt in installments; (ii) there is a request to establish a grace period or to change the payment method; (iii) a complaint is filed against the execution officer’s actions; or (iv) the officer appoints an expert to conduct analysis of certain matters requiring specialist knowledge. The execution procedure must resume once the reason for suspension ceases to exist.
During the execution procedure, the debtor’s funds, including those in bank accounts and securities accounts, are subject to seizure. If the debtor does not have sufficient funds in its bank accounts, the execution officer can seize other assets of the debtor (movable and immovable property), which are subject to sale.
In most cases, seized property must be sold by the execution officer at a public auction. The organization of such an auction may take from four to six months. It is usually a costly event, as about 25-35 percent of the sale price must be paid to the appraiser, the company organizing the auction, and the Execution Service.
The debtor must pay an execution fee of up to 10 percent of the collected funds to the Execution Service (the specific amount depends on the type of claims). The execution officer receives two percent of the collected amount, but not more than UAH 510 (approximately US $64). In addition, to ensure the efficient enforcement and payment of the related expenses (such as expenses related to transportation, custody and sale of the collateral, fees of experts, and so forth) the party seeking enforcement may deposit an advance of such expenses to the account of the Execution Service. These amounts must be refunded upon completion of the enforcement procedures.
The funds collected by the execution officer from the debtor are distributed in the following order of priority: (i) refunding the advance payment, if any, to the party seeking enforcement; (ii) reimbursement of expenses of the Execution Service borne in the course of enforcement and not covered by the advance payment; and (iii) satisfying the enforcing party's claims and paying the execution fee.
III. GROUNDS FOR NON-ENFORCEMENTGrounds for Non-Enforcement Under the New York Convention
As detailed above, there are two laws that enumerate the exclusions to enforcement: the Ukrainian Code and the New York Convention. With respect to the New York Convention, it should be mentioned that, according to our analysis of court practice, the most widespread grounds for refusal of recognition and enforcement of an arbitral award under the New York Convention are the grounds under items (b) and (c) of Art. V, part 1. In the paragraphs that follow, we discuss in turn these two grounds of non-enforcement, and summarize notable decisions of the Ukrainian courts based upon them.
1. New York Convention, Article V(1)(b)
Article V(1)(b) of the New York Convention provides that recognition may be refused when, “The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case.” The following two decisions touch upon different angles of improper notice of the arbitration proceedings. In the first case, the allegation of the enforcing party that the other party was notified about arbitration proceedings by means of email and fax was considered as inadequate because no evidence proving such communication was provided to the court. In the second case, the cause of the failure to notify about the arbitration proceedings was the mistake of the arbitration court, since the court’s secretariat was sending all notices of arbitration to the wrong address, resulting in an unenforceable arbitral award.
The first case, Sea Emerald S.A. v. Sudnobudivniy zavod im. Komunara, arises from Sea Emerald’s claims for compensation of indebtedness against Sudnobudivniy, a state enterprise (the “Plant”). The claim was based on an agreement to manufacture the hull of a vessel, in which the Plant failed to properly perform under the contract. Sea Emerald initiated ad hoc arbitration proceedings against the Plant, and the sole arbitrator ruled in Sea Emerald’s favor issuing an arbitral award on November 29, 2006.
The Plant challenged the recognition and enforcement of the arbitral award arguing that it was not notified about arbitration proceedings. Sea Emerald alleged that the Plant was notified about arbitration proceedings by email and fax messages. On March 10, 2010, the Court of Appeal of Mykolayiv region reversed the ruling of the court of first instance granting recognition and enforcement of the arbitral award based on a finding that the applicant failed to prove that the debtor was given proper notice of the appointment of the arbitrator, or of the arbitration proceedings, or was otherwise unable to present his case.
In the second case, TNK-Ukraine LLC v. TAT-GAZGRUP SRL, a Moldovan company, the dispute arose from a breach of contract. TNK initiated arbitral proceedings and, on January 13, 2003, the International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry (“ICAC”) rendered its award in favor of TNK ordering TAT to pay a contractual penalty of US $27,775 plus arbitration costs. In so doing, the ICAC failed to properly notify TAT.
TNK began enforcement proceedings in Moldova but when the Commercial Chamber of Appeal of Chisinau on January 6, 2004, Moldova dismissed its application for recognition and enforcement of the ICAC award, and TNK became aware of the notice defect.
TNK, an enterprise with foreign investments in Ukraine, filed a cassation appeal with the Supreme Court of Ukraine seeking to renew the term for filing of the application to set aside the award. On May 12, 2004, the Court of Appeal for the city of Kyiv refused to renew the term for filing the application to set aside the ICAC Award since TNK failed to meet the 3-month time limit for such appeals provided in paragraph 3 of Article 34 of the Ukrainian Law of on International Commercial Arbitration of 1994. The Supreme Court of Ukraine noted that the Court of Appeal for the city of Kyiv failed to properly apply and enforce the relevant law, and to examine fully and properly the circumstances of the case. The Supreme Court of Ukraine also found that the ICAC, in issuing its award without proper notification of one party to the dispute, violated its Rules and made the enforcement of its award impossible. Since TNK was not able to learn about this failure prior to the decision of the Moldovan Commercial Chamber of Appeal, the Supreme Court of Ukraine granted the cassation appeal and reversed the decision of the Court of Appeal for the city of Kyiv, renewing the term for filing of the application to set aside the ICAC award.
2. New York Convention, Article V(1)(c)
Article V(1)(c) of the New York Convention provides:
The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced.
The following two decisions describe the Ukrainian courts’ position and the way of interpretation of such grounds for non recognition and non-enforcement of arbitration award as stipulated in the Article above.
In the first case, the court stated that the dispute matter has not been covered by the arbitration clause. In particular, during the court proceedings in Ukraine new circumstances were discovered that had a substantial influence on the results of the arbitration proceedings. In the second case, the court rejected the recognition and enforcement of the arbitral award because the arbitration tribunal accepted and considered the defendant’s counterclaim, which was not within the scope of arbitration clause.
In the first case, Oskolcement OJSC v. Dunapack–Ukraina LLC, a company based in the Russian Federation and a Ukrainian company, respectively, had a dispute which arose from a supply agreement under which Dunapack undertook to sell cement bags to Oscolcement. Because a number of the supplied bags were of inadequate quality, Oscolcement demanded the refund of amounts it had paid Dunapack and other expenses it had incurred. Oscolcement commenced arbitration proceedings in the International Commercial Arbitration Court at the Russian Federation Chamber of Commerce and Industry against Dunapack. An award was issued on December 14, 2006, against Dunapack.
However, at the recognition and enforcement stage in Ukraine, it became known that, when the dispute arose with respect to the quality of supplied bags, the parties to the agreement entered into a supplementary agreement. Under this agreement, the parties settled the dispute and agreed that the creditor must return the goods (bags) and the debtor must compensate the creditor for its damages. Upon filing the claim with the Russian Arbitration Court, however, the claimant Oscolcement failed to inform the Arbitration Court about the existence of the supplementary agreement.
The Ukrainian courts tasked with the enforcement of the award reasoned that, if the Arbitration Court had known about the existence of this supplementary agreement, it could have reached a different result. The court concluded that the arbitral award dealt with a dispute not contemplated by the terms of the submission to arbitration, and that it contained decisions on matters beyond the scope of the submission to arbitration. On October 16, 2008, the Court of Appeal of Lviv region upheld the decision that denied Oscolcement its request for recognition and enforcement of the arbitration award.
In the second case, Chernigvelikartoplya CJCS v. Leader CJSC, the parties agreed that disputes arising from allegedly inadequate performance of contractual obligations were to be resolved by the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Republic of Moldova. On July 13, 2005, the arbitration tribunal issued an arbitral award based upon the claims of Leader against Chernigvelikartoplya regarding compensation of indebtedness and damages. Upon enforcement, the court of first instance refused to recognize and enforce the arbitral award since the subject matter of the dispute fell beyond the scope of the arbitration agreement. The court reached this result by concluding that, despite the limited scope of the arbitration agreement, the arbitration court accepted and considered a claim falling beyond the scope of the arbitration agreement – namely the counterclaim of Chernigvelikartoplya which requested the arbitral tribunal to declare the sale and purchase agreement
invalid. The Court of Appeal of Chernigiv region upheld the decision of the court of first instance.Grounds for Non-Enforcement That Can Be Invoked By The Enforcing Court Non-Arbitrability of Disputes
Ukrainian legislation neither includes an exhaustive list of non-arbitrable disputes, nor establishes a clear mechanism to determine the arbitrability of international commercial disputes.
Two Ukrainian laws, however, limit the ability of the parties to submit certain categories of disputes to arbitration.
i. Limitations on Arbitrability Under The Code of Commercial Procedure
The Commercial Procedure Code provides that the following disputes cannot be referred to an arbitral tribunal (i.e., are nonarbitrable): (i) claims for annulment of acts of State and municipal authorities; (ii) disputes regarding public procurement; and, (iii) corporate disputes. The Code regulates procedure in the commercial courts, the specialized courts that hear most disputes between legal entities, individuals registered as private business persons, and between such individuals and legal entities.
In a recent case, a Ukrainian commercial court invoked nonarbitrability under the Commercial Procedure Code to deny recognition and enforcement of an arbitral award issued by the ICAC in favor of Polish company Zaklady Gumove Bytom S.A. (the “Supplier”). Four years prior, in May 2006, the Coal Ministry of Ukraine initiated a tender for the procurement of conveyor belts for State-controlled coal enterprises. The procurement was financed by the State Budget of Ukraine. TKP Krymtorg LLC, the Supplier’s dealer (the “Dealer”), won the tender. The Dealer entered into 15 contracts with state coal enterprises and received State funds in exchange for conveyor belts. At the same time, however, the Dealer failed to pay the Supplier for the conveyor belts. The Supplier applied to the ICAC – the forum selected for arbitration – to collect the funds owed to it. The ICAC ruled in favor of the Supplier, which in turn applied to a Ukrainian commercial court for recognition and enforcement of the arbitral award. The court invoked non-arbitrability and denied enforcement, holding that the contractual relationship between the Supplier and the Dealer was closely connected with the public procurement process and therefore could be considered as part thereof. The court’s unstated conclusion was that the Supplier had to apply to Ukrainian State court to collect under its contract with the Dealer.
ii. The Debate Over The Law of Ukraine on Private International Law
In a provision collectively referred to as the “exclusive jurisdiction clause,” the Law of Ukraine on Private International Law provides that a private law dispute falls within the exclusive jurisdiction of Ukrainian courts if it concerns: immovable (real) property located in Ukraine; enforcement of intellectual property rights which are subject to registration or issuance of a certificate (patent) in Ukraine; registration or liquidation of foreign legal entities or private entrepreneurs in Ukraine; validity of the entries in state registers, including the land register; bankruptcy of a debtor established under the Ukrainian law; and issuance or annulment of securities registered in Ukraine.
It is a matter of debate whether any of these issues are actually arbitrable under Ukrainian law. We believe that the exclusive jurisdiction provision of the Law on Private International Law should be considered only as the first step in determining whether any given dispute is arbitrable. Where there is an express arbitration agreement concerning a type of dispute on the list, the exclusive jurisdiction provision should not automatically preclude the arbitrability of the dispute. This approach, however, is challenged by some well-regarded practitioners. The lack of relevant court practice currently makes any definitive resolution of this issue difficult.Public Policy
Public policy is among the grounds most commonly employed by Ukrainian courts to prevent the enforcement of arbitral awards. Ukrainian courts sometimes interpret the public policy ground for refusal of recognition too broadly, however. In particular, some courts tend to consider that the failure of the award or the arbitral tribunal to comply with the ordinary rules of Ukrainian law makes the award offensive to the country’s public policy. Below are some examples of recent cases where courts found a violation of public policy.
i. Cases Where the Court Denied Enforcement of the Arbitral Award Based upon Public Policy
In the first case, Telenor Mobile Communications AS and Storm LLC were shareholders of the Ukrainian mobile operator Kyivstar, and entered into a dispute over their shareholders agreement. While Telenor initiated arbitration proceedings in New York, Storm’s shareholder successfully sought to nullify the agreement’s arbitration clause before Ukrainian courts. In the New York arbitration, Storm argued that the tribunal should terminate the proceedings because the Ukrainian courts had already decided the issue. The arbitral tribunal, however, found that it had jurisdiction and ruled in favor of Telenor. Surprisingly, although the arbitration decision had been issued on behalf of Telenor, Storm sought enforcement of the arbitral award to confirm its position that the award was invalid. As Storm hoped, the Ukrainian court invoked public policy and refused to recognize and enforce the arbitral award, since the award was inconsistent with decisions of the Ukrainian courts. This ruling of the Ukrainian court led to further litigation in other jurisdictions.
In the second case, Eastand International LLC applied for recognition and enforcement of the award issued by the ICAC in a debt collection case. The Ukrainian court ruled that recognition and enforcement of the award would violate the public policy of Ukraine since Eastand International failed to submit to the court a proper translation of the arbitral award into Ukrainian made by a certified translator or a consular office. It was not enough for the court to see the original text of the award. Eastand also failed to provide an original or duly certified copy of the arbitration agreement.
ii. Cases Where the Court Quashed the Arbitral Award Based upon Public Policy
In another line of cases, Ukrainian courts notably refused to enforce the award and instead vacated it completely. In the first of these cases, Tekom CJSC entered into arbitration proceedings with Zaporizhya Production Aluminum Industrial Complex OJSC. The ICAC, the forum selected for arbitration, ruled in favor of Tekom and ordered the respondent to pay the claimant more than US $1 million. The losing party applied to the Ukrainian court invoking “public policy.” The court quashed the arbitral award, finding it inconsistent with another decision by a Ukrainian court, invalidating both the contract containing the arbitration clause and the arbitration clause itself.
In the next case, HS C-Tech Fa. Herbert Severin challenged an arbitral award issued by the ICAC in the proceeding initiated by Zakarpatya Construction Administration. The Ukrainian court ruled that the arbitral award was offensive to public policy because the arbitration court failed to comply with rules regarding admissibility of evidence. Specifically, in their findings the arbitrators relied primarily on an auditor’s report that was inadmissible under the Ukrainian rules of evidence.
Finally, Nafimp Ex Limited entered into arbitration proceedings with Burat LLC at the ICAC. Although the arbitration clause referred to the Arbitration Court at the Kyiv Chamber of Commerce and Industry – a non-existent institution – the ICAC accepted jurisdiction over the dispute. The ICAC did so reasoning that the parties made a mistake in the arbitration clause by choosing a non-existent forum, while their real intent was to refer their potential disputes to the ICAC. The ICAC ruled in favor of Nafimp Ex Limited and Burat applied to Ukrainian court to challenge the arbitral award. The Ukrainian court invoked public policy and quashed the award since the arbitration institution was not contemplated under the arbitration clause.
In summation, as Ukrainian legislation does not include a clear definition of what should be construed as public policy, Ukrainian courts have applied the public policy exception liberally in various circumstances, reaching conclusions that often would not be similarly recognized as violation of public policy in other more pro-arbitration countries.
Looking at the development of Ukrainian law historically, the law and practice in relation to the recognition and enforcement of foreign arbitral awards in Ukraine have evolved dramatically. Currently, the Ukrainian reality is that enforcement proceedings in the majority of cases require a substantial amount of time. However, companies that choose to enforce an award will usually manage to obtain enforcement orders for damages close to the full amount of the award. The failure of the enforcing party to recover the full amount of the award can usually be attributed to the losing party’s particular financial situation (in particular, the lack of assets or the difficulties in identifying them), rather than inadequacies of the recognition and enforcement system as such.
Finally, although Ukraine’s enforcement procedure looks rather simple and clear, as in many other jurisdictions, enforcement of foreign arbitral awards without engaging a domestic attorney may in practice turn out to be complicated and time-consuming. The principal obstacle to be overcome in Ukraine at the present time is the relative inexperience of the judiciary in handling the sometimes complex issues arising in the context of arbitration proceedings.