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I INTRODUCTION TO DISPUTE RESOLUTION FRAMEWORK
Ukraine is a civil law country with the Constitution being a principal source of law. The main sources of civil and commercial law are acts promulgated by the legislative and executive branches of state power. International treaties ratified by the Parliament become part of national law and prevail in a conflict with domestic law. Judgments issued by courts of general jurisdiction are not recognised as a source of law in Ukraine, but play a significant role in its interpretation.
There are three branches of state power in Ukraine: legislative, executive and judicial. The legislative branch is represented by the Verkhovna rada of Ukraine (the Parliament). The Cabinet of Ministers of Ukraine is the highest executive body. The judicial system comprises the Constitutional Court of Ukraine and courts of general jurisdiction.
The Constitutional Court is the sole body of constitutional jurisdiction in Ukraine, which decides, inter alia, on constitutionality of laws and the official interpretation of the Constitution and laws. The judgments and opinions of the Constitutional Court are final and binding.
The system of courts of general jurisdiction encompasses: a local courts; b appellate courts; c high specialised courts; and d the Supreme Court of Ukraine.
Based on the specialisation principle, the courts of general jurisdiction break down into general courts (which include courts martial) and specialised courts (represented by commercial and administrative courts).
Local courts are the first-instance courts encompassing local general, commercial and administrative courts. Local general courts try civil and criminal cases, as well as certain types of administrative cases (e.g., cases involving local government). Local commercial courts mainly adjudicate in commercial disputes involving entrepreneurs and legal entities, corporate disputes and bankruptcy cases. Local administrative courts handle administrative disputes with the participation of government authorities or officers.
Appellate courts consist of appellate general, commercial and administrative courts, which examine appeals in relation to judgments of respective local courts that have not become effective.
High specialised courts comprise the High Commercial Court of Ukraine and the High Administrative Court of ukraine. Those courts review cassation appeals from judgments of respective lower courts, as well as issuing recommendations regarding application of laws.
The highest judicial institution of general jurisdiction is the Supreme Court. The Supreme Court reviews cassation appeals in civil and criminal cases, reviews judgments in connection with exceptional circumstances and gives clarifications on the application of law to lower courts.
ADR in Ukraine is represented by arbitration and mediation. ADR procedures are used upon agreement of the parties. They are discussed in more detail in Section VI, infra.
II THE YEAR IN REVIEW
i Official interpretation by the Constitutional Court of the right to suspend company management
The Constitutional Court held that article 99 of the Civil Code, providing that members of a company's executive body may be suspended from their duties at any time, must be construed as the right of a company's competent body to suspend a person from the duties of a member of the executive body at any time and on any grounds. The court also explained that such suspension is a specific protection mechanism for shareholders existing within the corporate and not the labour law framework. The possibility of such suspension can be limited only in company's constitutional documents.
ii High Commercial Court clarification regarding prorogation agreements
The High Commercial Court clarified that the Commercial Procedure Code does not envisage closure of a proceeding if the parties agree to refer the dispute for resolution in a foreign state court (as opposed to arbitration). Thus a Ukrainian court should assert its jurisdiction over a case in such circumstances.
iii High Commercial Court clarification regarding choice of law in shareholders agreements
In 2009 the High Commercial Court amended its earlier recommendations to lower courts regarding choice of law in shareholders agreements. The recommendations provide, inter alia, that an agreement subjecting corporate governance of a Ukrainian company to foreign law is void. This clarification has been vigorously criticised by the business community as having no basis in Ukrainian law. Despite this, the High Commercial Court not only left its recommendations in effect, but also supplemented them to the effect that shareholders agreements may not amend the rules provided in the law or company's charter. The court also clarified that shares circulation, except for the right of first refusal, is not a corporate governance issue and thus is not exclusively governed by Ukrainian law in respect of a Ukrainian company.
iv High Commercial Court clarification regarding acceptance of a claim subject to arbitration agreement
In the context of Article II(3) of the New York Convention, the High Commercial Court clarified that a commercial court should not reject a claim if there is an arbitration agreement between the parties and should accept such a claim for consideration, if the court finds that the arbitration agreement is null and void, inoperative or incapable of being executed, the court should proceed to a case trial. if there are no such facts, the court should close the proceeding.
v Palm SPA v. Brettex LLC
Palm Spa brought a claim to a local commercial court seeking the return of an advance payment for non-delivered goods. The respondent referred to an arbitration clause and petitioned the court to close the proceedings and direct the parties to arbitration, a petition the local court granted. On appeal, the appellate court held that the arbitration clause was ineffective due to expiration of the contract incorporating the clause and referred the parties to the local commercial court.
The High Commercial Court reversed the appellate court judgment and concluded that:
a expiration of a contract does not imply that such a contract loses effect in respect of legal relationships that arose between its parties during the effective period of the contract; and
b an arbitration agreement is a separate agreement, autonomous from the contract. Therefore, the court should consider its validity separately from the contract.
III COURT PROCEDURE
I Overview of court procedure
The principal statutes governing court procedure are the Commercial Procedure Code, the Civil Procedure Code, the Code of Administrative Justice, the Criminal Procedure Code and the Law on enforcement Proceedings. Civil and administrative procedures generally adhere to the same structure, while commercial procedure is somewhat different. An outline of commercial litigation follows, as well as certain peculiarities of civil and administrative proceedings.
ii Procedures and time frames
Litigation usually commences after a written statement of claim is filed with a local commercial court. unless there are grounds to reject the statement of claim, the court opens proceeding by issuing a respective decree that is served on the parties.
A case at a local court is usually heard by a single judge. Witness statements are not accepted as evidence in commercial litigation, but are in civil and administrative proceedings. At the same time, a commercial court may request explanations from parties' representatives or other participants of a proceeding. According to established practice, most of the evidence comprises written documents.
As a rule, the case trial is completed with issuance of a judgment. The parties or prosecutor may appeal a judgment in full or in part within 10 days of its approval or execution. When that period has lapsed, the judgment becomes effective unless it has been appealed.
Unlike in civil and administrative procedure, the Commercial Procedure Code does not entitle non-parties to the case affected by a judgment to make an appeal. Although the Supreme Court and the High Commercial Court found this widely criticised shortcoming not to be in line with the Constitution, the court practice in this respect still varies. So, in a recent case the High Commercial Court stated that non-parties do not have the right to appeal even if a local commercial court decided on their rights or obligations.
Appeals hearings are held in nearly the same form as the hearings at the first instance. An appellate court verifies legality and relevance of a judgment within the scope of relief sought from the local court and may examine new evidence not submitted previously for justifiable reasons.
Based on its findings, an appellate court has the authority to (1) uphold a local court judgment, (2) alter the judgment, (3) vacate the judgment and render a new judgment, (4) close the proceedings or (5) reject the claim. In a civil or administrative litigation an appellate court may also send the case for retrial to local court.
The parties, prosecutor or non-parties affected by a judgment of a first-instance or appellate commercial court may make a cassation appeal to the High Commercial Court within one month of the judgment becoming effective. As opposed to civil and administrative litigation, appellate review of a judgment is not a prerequisite for a cassation appeal, and a party may proceed to the court of cassation once a local court judgment becomes effective. Cassation appeal may invoke only issues of substantive or procedural law. The cassation procedure does not involve examination of evidence. The hearings are usually very brief, consisting of short speeches by the parties and questions from the court.
The parties to a case or the General Prosecutor may appeal a High Commercial Court judgment to the Supreme Court under exceptional circumstances (e.g., different application of a legal rule by the High Commercial Court in similar cases or determination of a judgment as violating Ukraine's international obligations by an international court whose jurisdiction is recognised by Ukraine).
A commercial court may retry a case based on new facts critical for correct dispute resolution. A party can petition for a retrial based on new facts within two months of their discovery. Importantly, retrial may be granted only if such facts existed at the time of the initial trial, but could not have been known by the requesting party at that time.
Enforcement of judgments is performed by a state enforcement authority pursuant to the Law on Enforcement Proceedings.
As a general rule, a case trial in lower court should be completed within two months of receipt of the claim by the court. Similarly appellate and cassation proceedings should be carried out within two months of the court receiving the case file together with appellate or cassation statements respectively. At the same time, the law provides for an extension or stay of proceedings in certain cases, as well as enableing litigants to employ dilatory tactics (e.g., by challenging the judge(s)). Furthermore, a court of cassation, as well as an appellate court in civil and administrative proceedings may send a case for retrial to a lower court. Thus, as a matter of practice, the hearing of a lawsuit in court may continue for months and even years.
The claimant may petition the court for an interim injunction (e.g., by attaching respondent's property or enjoining from certain actions). An injunction may be granted if the applicant demonstrates that it will be difficult or impossible to enforce a prospective judgment in absence of the injunction.
A simplified ex parte procedure is available in the general courts for, inter alia, undisputed claims based on a written agreement or deed. In this case the court issues an order regarding the relief sought within a three-day term without holding a hearing.
iii Class actions
Ukrainian procedural law does not provide for class actions. At the same time, some traces of this legal concept may be found in the Law on Consumer Rights Protection authorising consumer associations to bring lawsuits seeking to recognise as illegal and stop the actions of retailers, manufacturers or contractors with regard to an indefinite number of consumers. The judgments in such cases must be taken into account by courts reviewing the claims of individual consumers seeking damages as a result of such illegal actions. Notably, such claims have not become common in Ukraine so far.
iv Representation in proceedings
Litigants, whether individuals or legal entities, are entitled to represent themselves or act through their representatives. There is no requirement for a representative in court proceeding to be a lawyer or attorney (lawyer admitted to the bar in Ukraine), except for criminal proceedings where defenders are generally required to be attorneys.
v Service out of jurisdiction
Ukrainian courts may request foreign courts or other competent authorities to perform certain procedural actions, including service of process, outside ukraine. unless an international treaty of ukraine provides otherwise, such requests are communicated through diplomatic channels. The procedure applies equally to legal entities and natural persons.
Importantly, Ukraine is party to the 1965 Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, as well as a number of bilateral treaties that may be used for service of process outside Ukraine.
vi Enforcement of foreign judgments
Foreign judgments are recognised and enforced in Ukraine if this is envisaged by an international treaty to which Ukraine is party or under the reciprocity principle. Pursuant to recent legislative amendments, reciprocity is presumed unless there is evidence to the contrary. Previously, an ad hoc arrangement with the state concerned was required making it virtually impossible to enforce a foreign judgment in the absence of an international treaty.
A party seeking to enforce a foreign judgment files a motion with the court at the debtor's location. The motion must be filed within three years of the date the foreign judgment became effective. A foreign judgment may not be enforced if, inter alia, the judgment has not become effective or its enforcement would jeopardise Ukraine's interests.
vii Assistance to foreign courts
Under applicable law, the Ukrainian courts may assist foreign courts with procedural actions (e.g., service of process or witness examination) pursuant to requests communicated under a respective international treaty or, where there is no treaty, through diplomatic channels. Assistance is denied if there is a possibility that such action may infringe on Ukraine's sovereignty or threaten its national security, is outside the court's jurisdiction, or is contrary to Ukrainian law or international treaty.
viii Access to court files
Generally, only the parties to a case have access to court files in respect of that case. At the same time, a non-party affected by a judgment may be permitted to review and copy the judgment.
Under the Law on Access to Court Judgments, the public is entitled to access judgments free of charge through the Unified State Register of Court Judgments, available online. The Register contains only judgments issued after its creation in 2006 and may lack certain judgments due to deficiencies in its administration.
ix Litigation funding
Ukrainian law does not address the issue of litigation funding by a disinterested third party. Notably, litigation expenses include a state filing fee. The High Commercial Court clarified that if a third party paid the state filing fee on behalf of a claimant (appellant) according to the established procedure and in the required amount, a commercial court may not reject the claim (appeal).
It should be noted that the court may order the losing party to reimburse court expenses to the successful party. In the context of a commercial proceeding, the Supreme Court and the High Commercial Court clarified that attorney fees may be reimbursed only if those fees have been paid to the attorney by the party benefiting from such services, and there is evidence of their actual payment. Accordingly, it appears that a court would be reluctant to approve reimbursement of court expenses paid by a third party and not by a litigant.
IV LEGAL PRACTICE
I Conflicts of interest and Chinese walls
General conflict of interest rules are set forth in procedural statutes and apply equally to all representatives before a court, including non-lawyers. The Law on the Bar and the Rules of Attorney Ethics ('the Rules of Ethics') provide for special conflict of interest rules applicable to attorneys (advokaty, lawyers admitted to the bar in Ukraine).
In civil and administrative proceedings a person may not act as representative in a case where he or she is or has been active in another capacity (e.g., as an expert, judge or witness). Similar practice is upheld by the commercial courts although the Commercial Procedure Code does not expressly provide so.
Under the Law on the Bar, attorneys may not render legal services in a legal matter where they advise or have advised a party with opposing interests (or where they are or have been active in another capacity (e.g., as an expert, arbitrator, claimant, or is a relative thereof). The Rules of Ethics require attorneys to inform clients on the facts that may give rise to a conflict of interest before signing a legal services agreement. An attorney's failure to comply with conflict of interest rules may result in disciplinary sanctions (the maximum available being disbarment).
Notably, neither the Law on the Bar nor the Rules of Ethics apply to the lawyers who are not admitted to the bar or law firms not in the form of attorneys partnership. The Rules of Ethics prohibit an attorney from assisting a client whose interests are or may potentially be in conflict with interests of another client of such an attorney or his or her attorney's firm. This requirement may be waived by express consent of both clients concerned. Thus, in practice, Chinese walls may be established subject to prior consent of both clients, and provided confidentiality rules are observed.
ii Money laundering, proceeds of crime and funds related to terrorism
Currently, Ukrainian anti-money laundering law does not impose monitoring and reporting obligations on lawyers. At the same time, Ukraine has committed itself to further development of its national anti-money laundering legislation in 2010.
There have already been attempts to amend the anti-money-laundering law, in late 2009. However, the President vetoed the legislative amendment approved by Parliament and sent it for revision. The revised law will likely be adopted in 2010 and may impose certain customer due diligence and record-keeping requirements on lawyers and other independent legal professionals when they prepare for or carry out transactions for their clients.
V DOCUMENTS AND THE PROTECTION OF PRIVILEGE
Under the Law on the Bar issues raised by the clients, advice and other information obtained by attorney during his or her professional activities are subject to attorney-client privilege. Attorneys, their assistants and officers of an attorney's firm may not disclose information subject to attorney-client privilege. The said persons, as well as technical staff of an attorney's firm may not be interrogated on the matters covered by attorney—client privilege. The Rules of Ethics also provide for confidentiality of any information about the client and any information obtained from the client. Such confidentiality rule does not, however, apply to this information when given by an attorney being interrogated as a witness unless it is privileged.
Attorney-client privilege does not extend to the information in possession of third parties, including the client. This approach is confirmed by judicial practice where courts ordered clients to produce information subject to attorney-client privilege.
Rights and obligations concerning attorney—client privilege do not apply to in-house lawyers, lawyers not admitted to the bar or law firms not in the form of an attorneys' partnership, as well as to foreign lawyers unless they are admitted to the Ukrainian bar.
Several bills on restatement of the Law on the Bar have been submitted for consideration to Parliament. In respect of attorney—client privilege, the legislative proposals envisage survival of privilege obligations following termination of an attorney's practice or disbarment. It is also proposed to provide that the privilege should not apply to attorney—client disputes and disciplinary procedures in respect of an attorney.
ii Production of documents
As a general requirement, each party must prove the facts it is relying on. Apart from such facts, evidence also includes any other facts important to correct dispute resolution. The court will accept only the evidence relevant to the case and in a form provided for by the law. Documents provided to the court must be original or certified copies. If a copy of the document is presented to court, any party or the court may request that the original also be submitted.
The court may order an opponent or third party, regardless of its participation in the case, to produce documents or other evidence upon a party's motion (or on the court's own initiative, in commercial litigation). The requesting party should specify the particular evidence requested, why it believes that the third party possesses such evidence and facts to be confirmed by such evidence.
Should it be necessary to obtain documents stored abroad, the court may address a foreign court with a relevant request. The request is communicated through diplomatic channels unless a Ukraine's international treaty provides for another procedure.
Parties to a court proceeding have no obligation to produce documents in possession of a third party. Also, as follows from Ukrainian law the court may request only particular documents or evidence and not all documents held by a litigant or a non-party.
The Law on Electronic Documents and their Circulation provides that the court may not reject a document as evidence only because it is in an electronic form. Electronic documents must be given the same legal effect as their paper equivalents, as long as certain requirements envisaged by the law are met. In particular, an electronic digital signature (used for identification of signatory and confirmation of entirety of the document) must be affixed to an electronic document by its signatory. Electronic documents bearing an electronic digital signature with a certified public key must be accepted by the court as written evidence except where electronic document may not be used as an original document (e.g., inheritance certificate). However, neither law nor court practice is clear as to whether documents bearing digital signatures without a certified public key may be accepted as evidence.
Following on from a recent High Commercial Court judgment, copies of electronic documents to be produced to the court should be certified by an authorized key certification organisation.
VI ALTERNATIVES TO LITIGATION
i Overview of alternatives to litigation
In Ukraine, arbitration has proven to be an efficient method of dispute resolution owing to the impossibility of making an appeal on the merits of an arbitral award and limited procedural review. While arbitration is rather common, especially in cross-border transactions, mediation is relatively rare due to an insufficient legal framework.
Two separate statutes govern international and domestic arbitration in Ukraine. International arbitration is governed by the Law on International Commercial Arbitration ('the ICA Law'), which is a virtually verbatim translation of the UNCiTRAL Model Law on International Commercial Arbitration, except for a few minor deviations. Domestic arbitration is governed by the Law on Courts of Arbitration.
The main international arbitration institution in Ukraine is the International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry ('the ICAC'). Disputes arising from foreign trade or other foreign commercial relations may be brought to the ICAC provided that the parties agree in writing to resort to the ICAC and at least one of them is headquartered abroad. The ICAC may also handle disputes involving companies with foreign investment, international associations and organisations established in Ukraine.
Around 75 permanent domestic arbitral institutions provide arbitration services for domestic disputes in Ukraine. Ad hoc arbitrations, on the contrary, are not common. An arbitration agreement must be in writing and refer to an arbitral institution selected by the parties or expressly provide for ad hoc arbitration. There have been a number of cases in Ukraine where the courts refused to uphold the validity of an arbitration agreement due to the incorrect naming of the arbitral institution.
An arbitral award may be appealed within three months of its receipt by an interested party. Ukrainian law provides for limited rights of appeal of an arbitral award. The grounds for setting aside an international arbitral award issued in Ukraine are equivalent to Article 34 of the UNCITRAL Model Law and Article v. of the 1958 New York Convention on the recognition and Enforcement of Foreign Arbitral Awards ('the New York Convention').
A domestic arbitral award may also be vacated if the composition of the tribunal did not comply with the Law on Courts of Arbitration or the tribunal decided on rights or obligations of non-parties to the case.
Ukraine is a signatory to the New York Convention. Thus, arbitral awards issued in any of the more than 140 countries that are parties to this Convention are enforceable in Ukraine, making arbitration a vital component of any international contract involving Ukrainian parties.
A foreign arbitral award is binding in Ukraine and shall be enforced upon its recognition by a competent Ukrainian court. Recognition and enforcement of foreign arbitral awards may be denied only in cases stipulated by the New York Convention. Ukrainian courts are generally inclined to grant enforcement of foreign arbitral awards. Procedural irregularities most often serve as grounds for denying such recognition and enforcement while Ukrainian courts sometimes also invoke Ukraine's public policy in relevant judgments.
A party seeking to have a foreign arbitral award recognised in Ukraine should file a motion with the first-instance general court at the debtor's location. The motion should be filed within three years of the date the foreign arbitral award became effective.
An appeal from the judgment granting or denying enforcement of the award may be taken to the appellate court and then to the Supreme Court. If a party does not carry out the judgment granting enforcement of an arbitral award voluntarily, a compulsory enforcement procedure applies. The party relying on the arbitral award has three years after the judgment granting enforcement of such award became effective to enforce the award.
In 2009 the Parliament enacted important legislative amendments pertaining to arbitration. Pursuant to these amendments, the Commercial Procedure Code incorporated earlier recommendations of the High Commercial Court regarding impossibility to refer corporate disputes to arbitration. Moreover, a larger scope of disputes (including labour disputes and disputes regarding real estate) now may not be referred to domestic arbitration due to widespread abuses of local arbitral institutions.
There are no specific rules governing mediations in Ukraine. Thus mediator or the parties (or both) are free to determine the mediation procedure at their discretion. Although mediation may result in a binding agreement, consented to and signed by the parties, each party preserves the right to bring a court claim. In Ukraine mediation is rarely used as an alternative to court proceedings or arbitration. However, mediation is sometimes used as a method of reconciliation of victims and offenders. The government plans to promote mediation in Ukraine. To this effect, the Ministry of Justice has prepared a bill that is now pending before the Cabinet of Ministers and, if approved, would be submitted to the Parliament.
VII OUTLOOK AND CONCLUSIONS
Procedural law reform is ongoing in Ukraine. As a part of this process, a new Civil Procedure Code was approved in 2004 to replace the 1963 Code. The Code of Administrative Justice was enacted in 2005 introducing a new framework for adjudication of administrative disputes.
The Commercial Procedure Code was adopted back in 1991 and no longer meets the needs of commercial proceedings. Although several draft restatements of this Code have been submitted to the Parliament over recent years, the legislator so far has proved reluctant to endorse the long-awaited reform of commercial procedure. It remains to be seen whether the fate of the new draft Commercial Procedure Code, currently pending before the Parliament, will be any different.
¹Judgment of the Constitutional Court of Ukraine on Official Interpretation of Article 99 of the Civil Code of Ukraine as of 12 January 2010 No. 1-2/2010.
²Recommendations of the Presidium of the High Commercial Court of Ukraine on Amendment of Clarification of the Presidium of the High Commercial Court of Ukraine as of 31 May 2002 No. 04-5/608 on Certain Issues of Practice of Consideration of Cases Involving Foreign Enterprises and Organisations as of 9 November 2009 No. 04-06/159.
³Recommendations of the Presidium of the High Commercial Court of Ukraine on Amendment of recommendations of the Presidium of the High Commercial Court of Ukraine as of 28 December 2007 No. 04-5/14 on the Practice of Application of Law in Consideration of Cases Arising from Corporate Relationships as of 18 June 2009 No. 04-06/83.
⁴Information Letter of the High Commercial Court of Ukraine on Certain Issues Raised in Reports on Activities of Ukrainian Commercial Courts in the Second Six Months of 2008 as to Application of the Commercial Procedure Code of Ukraine as of 12 March 2009 No. 01-08/163.
⁵Judgment of the High Commercial Court of Ukraine as of 7 October 2008 No. 20/316.
⁶Judgment of the Supreme Court of Ukraine in Odesa City Council v. JSCB Porto-Franko as of 26 September 2006 No. 22/401-05-10793.
⁷Clarification of the Presidium of the High Commercial Court of Ukraine on Certain Issues of Application of Chapter XII of the Commercial Procedure Code of Ukraine as of 28 March 2002 No. 04-5/366, as amended.
⁸Judgment of the High Commercial Court of Ukraine as of 8 July 2009 No. 2-15961/06 vacated by the Supreme Court on 29 September 2009.
Judgment of the Supreme Court of Ukraine in RAFAKO SA v. OJSC 'Donetskoblenerho' as of 1 October 2002 No. 30/63, Information Letter of the High Commercial Court of Ukraine on Certain Issues Raised in Reports on Activities of Ukrainian Commercial Courts in 2003 as to Application of the Commercial Procedure Code of Ukraine as of 14 July 2004 No. 01-8/1270, as amended.
 Judgment of the High Commercial Court of Ukraine in TIC Monolit-2002 v. JSCB East-European Bank as of 26 January 2010 No. 25/160.