Arbitration analysis: The Supreme Court of Ukraine held that an Arbitration Institute of the Stockholm Chamber of Commerce (SCC) emergency arbitrator award rendered against Ukraine was not capable of enforcement in Ukraine on public policy grounds, since it restrained execution of an investment arbitration award recognised and enforced in Ukraine. The Supreme Court also reversed the lower court’s decision finding that the SCC emergency arbitrator had jurisdiction to render such award in principle and the SCC emergency procedure was in compliance with the SCC emergency arbitration rules and Ukrainian procedural law. While the emergency arbitrator award in this case could not be enforced, emergency arbitrator awards are, in principle, capable of recognition and enforcement under Ukrainian law. Written by Markiyan Kliuchkovskiy, partner, and Oleksandr Volkov, counsel, at Asters.
What are the practical implications of this case?
The Supreme Court's decision dated 14 January 2021 is of practical significance for the parties intending to enforce the emergency awards in Ukraine. First, as a matter of principle, both the lower court and the Supreme Court's decisions did not rule out a possibility for the emergency awards to be enforced in Ukraine, should such award is in line with the Article V of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958).
Second, relying on its previous jurisprudence, the Supreme Court clarified that enforcement of the emergency award should comply with the public policy, a concept which includes prohibition from intervening into execution of the final and binding Ukrainian court decision on recognition and enforcement of the foreign arbitral awards. Hence, any emergency award aimed at prevention an execution of the Ukrainian court decision will be viewed as contrary to public policy and could not be enforced in Ukraine.
Therefore, the parties seeking an emergency relief should carefully articulate their demands in the emergency arbitration procedure abstaining from the obliging the Ukrainian authorities to suspend execution of the court decisions, which became final and binding. However, the parties are not prevented from obtaining the emergency awards against Ukraine and may legitimately seek their enforcement in Ukraine.
What was the background?
In May 2018, a Ukrainian company Everest Estate LLC as well as a group of other investors ("Everest") obtained an investment arbitral award against Russian Federation for the seized assets in the Russian-occupied Crimea ("Everest Award"). Everest filed the award for recognition and enforcement with the Ukrainian courts, alleging that the Russian Federation has assets in Ukraine, including the shares in the Ukrainian bank owned by Vnesheconombank.
On 25 September 2018, the Kyiv Court of Appeal granted an application for recognition and enforcement of the Everest Award.
On 24 January 2019, the Supreme Court rejected various appeals challenging the ruling dated 25 September 2018. Everest moved to seize and sell the shares owned by Vnesheconombank.
As a response, Vnesheconombank launched an investment arbitration against Ukraine under the Agreement between the Government of the Russian Federation and the Cabinet of Ministers of the Ukraine on the encouragement and mutual protection of investments under the Arbitration Rules of the Arbitration Institute of the Chamber of Commerce in Stockholm.
On 28 August 2019, Vnesheconombank obtained an Emergency Arbitrator Award restraining Ukraine from selling the shares owned by the investor and launched an application for recognition and enforcement of the award in Ukraine. Ukraine, as represented by the Ministry of Justice of Ukraine, opposed enforcement.
On 7 September 2020, the Kyiv Court of Appeal rejected the application finding that the Emergency Arbitrator Award is contrary to public policy of Ukraine, the Emergency Arbitrator did not have jurisdiction to render the award since Ukraine and Russian Federation has never consented to application of the Arbitration Rules dated 2017, and Ukraine had no opportunity to present its case within the shorted timeframe. Vnesheconombank appealed to the Supreme Court challenging all three counts.
What did the court decide?
On 14 January 2021, the Supreme Court decided to partially uphold the appeal, partially reversed the lower court ruling, however, refused to recognize and enforce the Emergency Arbitrator Award.
The Supreme Court relied to Article V of the New York Convention and listed an exhaustive list of the grounds availability of which allows denial in recognition and enforcement of the foreign arbitral award. Furthermore, the court cited its previous judgment dated 17 April 2019 in case No. 761/41709/17 finding that the enforcement court cannot review the merits of the case, while reviewing only compliance with procedural deadline for enforcement of the foreign arbitral award (3 years from the date when the award was rendered), compliance with procedural requirements as to the form and content of the application and presence of the grounds set in Article V of the New York Convention as well as similar list provided in Article 478 of the Civil Procedure Code of Ukraine.
On the first count, the Supreme Court agreed with the lower court and found that the public policy concept serves to safeguard the state from foreign arbitral award, which violate existent fundamental principles of fairness and justice set in the state. Such provisions aimed at imposing a legal barrier to prevent decisions, which contradict fundamental procedural and substantive principles, on which the state and public order are grounded. In this respect, the Supreme Court relied on Article 129(9) of the Constitution of Ukraine, which lists the principle of mandatory nature of court decision as a fundamental basis of justice in Ukraine. Furthermore, the court invoked provisions of Article 6 of the Convention on protection of fundamental rights and freedoms, providing that the judgment as a supreme act of justice shall be capable for execution since execution of the judgment as the final stage of judicial procedure is an integral part of the right to a fair trial. Having said that, the court concluded that a foreign arbitral award aimed at prevention of execution of the final and binding court decision goes afoul the public policy concept and thus cannot be enforced.
On the second and third counts, the Supreme Court disagreed with the lower instance finding that the shortened period of Emergency Arbitration procedure does not prevent Ukraine from duly present its case and that the consent of Ukraine covered application of the Arbitration Rules dated 2017 since there was no reservation as to applying the Arbitration Rules dated 1999.
This article was first published by Lexis®PSL on 3 March 2021.