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The Dispute Resolution Review. Ukraine
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 the state. International treaties ratified by Parliament become part of national law. Judgments issued by courts of general jurisdiction are not recognised as a source of law in Ukraine, although decisions of higher courts play a significant role in its interpretation. Last year the status of the Supreme Court's decisions was upgraded from being binding only on the parties involved in a specific case to a source of law that all judges and administrative authorities in Ukraine must follow. Additionally, recent legislative amendments require courts of general jurisdiction to consider conclusions of the Supreme Court expressed in its decisions on different applications of a legal rule by cassation courts when courts of general jurisdiction choose an applicable provision to merits of a dispute.
There are three branches of government 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 specialised high courts (cassation courts); and d the Supreme Court of Ukraine.
Based on the specialisation principle, the courts of general jurisdiction consider the following types of cases: civil, criminal, commercial and administrative, and cases on administrative offences.
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 individuals registered as 'private 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.
The high courts are specialised. These are the highest courts of appeal for most cases. They comprise the High Specialised Court for Civil and Criminal Cases, the High Commercial Court and the High Administrative Court. These courts review cassation (second instance) appeals from judgments of respective lower courts and issue recommendations regarding the application of laws.
The highest judicial institution of general jurisdiction is the Supreme Court. The Supreme Court reviews cassation appeals when they are based on different applications of a legal rule by specialised courts in similar cases; or judgments when an international court, whose jurisdiction is recognised by Ukraine, determines that Ukraine has violated its international obligations while considering a court case.
Alternative dispute resolution ('ADR') in Ukraine is represented by arbitration and mediation. ADR procedures are used upon the agreement of the parties. They are discussed in more detail in Section VI, infra.
II THE YEAR IN REVIEW i New court fees mechanism
On 1 November 2011 the Law of Ukraine 'On Court Fees' became effective. Previously, payment of court fees was governed by the Decree of the Cabinet of Ministers of Ukraine 'On Stamp Duty'. According to this Decree, a court fee was calculated based on nontaxable minimum incomes or a percentage of the claim value. The system of court fees consisted of two types of payments: a stamp duty and a technical support fee. No payments were required for filing petitions on procedural matters (e.g., petitions for provisional measures). The new Law replaces these two payments with a single court fee, establishing a new mechanism of fee calculation depending on a percentage of the claim value or the statutory minimum salary. In addition, the Law expands the list of instances when a court fee shall be paid including, inter alia, a petition for provisional measures or a writ of enforcement. In view of these recent changes, the dispute resolution process in Ukraine has become more expensive.
ii Decision of the Constitutional Court of Ukraine on certain aspects of court procedure
One of the most significant court decisions was rendered on 13 December 2011 by the Constitutional Court of Ukraine regarding alleged nonconformity of certain provisions of the Law of Ukraine 'On Judiciary and Status of Judges' and procedural codes with the Constitution of Ukraine. In particular, the Constitutional Court recognised as constitutional (i.e., adopted in accordance with the Constitution), inter alia, the following provisions:
a permission to use regional or minority languages in courts;
b procedure, pursuant to which a high specialised court approves cases to be
considered by the Supreme Court of Ukraine; d reduction of time limits to bring an action before a court;
e determination of time limits for the claimant to change the subject matter or grounds for the claim and for the respondent to submit counterclaim; and
f a statement in the Code on Administrative Justice to the effect that waiver of a right to bring a case to court is invalid.
Although the above-mentioned provisions were recognised to comply with the Constitution, there were four dissenting opinions issued by the Constitutional Court judges that demonstrated the controversy over the issues raised in the case.
iii Changes in powers and organisational framework of the Supreme Court of Ukraine
The Law of Ukraine 'On Judiciary and Status of Judges' enacted in 2010 significantly changed the powers and organisational framework of the Supreme Court. In particular, it abolished the specialised chambers within the Supreme Court, more than halved the number of judges, as well as limited the Court's competence.
In 2011 many of the former powers of the Supreme Court were restored following adoption of certain legislative changes. The most important is that the Supreme Court regained its powers to cancel court decisions in part or in full and to render new decisions. These changes also increased the number of judges from 20 to 48, as well as reintroducing the provision on chambers in the Supreme Court. Now four court chambers (on administrative, commercial, criminal and civil cases) function in the Supreme Court.
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 a claim is filed with a local commercial court. Unless there are grounds to reject the statement of claim, the court opens the 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 they 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, prosecutor, third parties or non-parties to the case affected by a judgment may appeal a judgment as a whole or in part within 10 days of its approval or execution. When this period has lapsed, the judgment becomes effective unless it has been appealed.
Appeals hearings are held in nearly the same form as the hearings at the first instance. An appellate court verifies the 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 uphold a local court judgment; alter the judgment; vacate the judgment partially or fully and render a new judgment; or vacate the judgment partially or fully and close the proceedings or reject the claim partially or fully. The parties, prosecutor, third parties or non-parties affected by a judgment of an appellate commercial court may take a cassation appeal to the High Commercial Court within 20 days of the judgment becoming effective. The same period for bringing a cassation appeal applies in civil and administrative proceedings. 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 Supreme Court considers cassation appeals on judgments under exceptional circumstances, i.e., (1) different application of a legal rule by the High Commercial Court in similar cases or (2) determination of a judgment as violating Ukraine's international obligations by an international court whose jurisdiction is recognised by Ukraine. For items (1) and (2), the Supreme Court is empowered to cancel court decisions in part or in full and render new decisions. Additionally, for item (2), it can send cases for reconsideration to the court that issued the controversial judgment.
A commercial court may retry a case based on new facts critical for correct dispute resolution. The list of exclusive grounds for retrial based on new facts is provided by the Code of Commercial Procedure. A party can petition for a retrial based on new facts within one month of their discovery.
Enforcement of judgments is administered by the state enforcement authority pursuant to the Law on Enforcement Proceedings (since March 2011, the revised version of the Law is effective).
As a general rule, a case trial in lower courts should be completed within two months of receipt of a claim by the court. Appellate proceedings should be carried out within two months for judgments and within 15 days for procedural rulings starting from the day when the court accepts an appeal for consideration. Cassation proceedings should be accomplished within one month for final judgments and within 15 days for procedural rulings starting from the day when the court accepts a cassation appeal for consideration.
At the same time, the law provides for an extension or stay of proceedings in certain cases and enables litigants to employ dilatory tactics (e.g., by challenging the judges). The claimant may petition the court for an interim injunction (e.g., by attaching the 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 the 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 a court proceeding to be a lawyer or attorney (i.e., lawyer admitted to the bar in Ukraine), except for in criminal proceedings, where defenders are generally required to be attorneys.
v Service out of the 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. Reciprocity is presumed unless there is evidence to the contrary. Before 2010, an ad hoc arrangement with the state concerned was required, which made 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 ofprocess 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 an 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 treaties.
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. Before October 2011, the Register was to include nearly all judgments issued by courts of general jurisdiction after its creation in 2006, although in practice the Register lacked certain judgments due to deficiencies in its administration. However, after recent legislative changes in October 2011, the number of published court files may significantly decrease due to the fact that from now on the list of court files to be published should be approved by the Judges' Council of Ukraine subject to consent of the State Judicial Administration of Ukraine.
ix Litigation funding
Ukrainian law does not address the issue of litigation funding by a disinterested third party. Notably, litigation expenses include a court fee. The High Commercial Court clarified that if a third party paid the court 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 these 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 (i.e., lawyers admitted to the bar in Ukraine).
In civil and administrative proceedings a person may not act as a 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 for it.
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 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 lawyers who are not admitted to the bar or law firms not in the form of an attorneys' partnership.
The Rules of Ethics prohibit an attorney from assisting a client whose interests are or may potentially be in conflict with the 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
Adoption of the Law of Ukraine 'On Prevention and Counteraction of the Legalisation (Laundering) of the Proceeds from Crime or Combating Terrorist Financing' ('the AML Law') on 21 August 2010 put lawyers in a complicated situation, despite the fact that the AML Law was adopted to reflect the Financial Action Task Force requirements. According to the AML Law, attorneys and private entrepreneurs or companies providing legal services are required to act as monitoring institutions when they are involved in the preparation and exercise of any transaction concerning sale and purchase of real estate; asset management;
bank or securities account management; raising of funds for the incorporation of legal entities, support of their activity and their management; incorporation of legal entities, support of their activity and their management; or sale of legal entities. In accordance with the AML Law, an attorney, a legal practitioner or a company providing legal services cannot refer to an attorney—client privilege, except where the information is privileged because it is connected with representing the client in court.
V DOCUMENTS AND THE PROTECTION OF PRIVILEGE
Under the Law on the Bar, issues raised by clients, advice and other information obtained by an 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 a 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 information in possession of third parties, including the client. This approach is confirmed by judicial practice where courts have 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.
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 originals 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 Ukrainian 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 2010 High Commercial Court judgment, copies of electronic documents to be produced to the court should be certified by an authorised 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. Ukrainian legislation on international commercial arbitration does not provide for an exhaustive list of non-arbitrable cases. Arbitrability is assessed in every particular case with reference to lex specialis.
More than 100 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.
Ukrainian procedural legislation lacks any provisions in support of arbitration, e.g., collection of evidence, granting of interim measures and others. As a consequence, the efficiency of arbitration proceedings may suffer should one of the parties apply obstruction actions.
An interested party may bring a motion seeking to have an international arbitral award issued in Ukraine set aside within three months of receipt of the award by such a party. The grounds for setting aside an international arbitral award 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'). However, Ukrainian procedural legislation does not contain any rules governing consideration of motions for setting aside of international arbitral awards.
A domestic arbitral award may also be set aside 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. In 2011 the Commercial Procedure and Civil Procedure Codes were supplemented with procedural rules for the setting aside of domestic arbitral awards.
Ukraine is a signatory to the New York Convention. Thus, arbitral awards issued in any of the more than 145 countries that are party 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 High Specialised Court for Civil and Criminal Cases. 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.
After the recent changes to the Civil Procedure Code, a creditor may seek provisional remedies through the courts at the stage of recognition and enforcement of an international arbitral award.
There are no specific rules governing mediation in Ukraine. Thus a 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 retains the right to bring a claim to a court or to arbitration.
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.
In the course of 2011 there were two attempts to adopt legislative framework for mediation. However, these attempts were unsuccessful, with one draft law rejected and another one withdrawn.
VII OUTLOOK AND CONCLUSIONS
2011 has been marked by some significant changes to Ukrainian procedural legislation, inter alia, introducing a procedure for setting aside and enforcement of domestic arbitral awards; granting the right to a creditor to seek provisional remedies through the courts at the stage of recognition and enforcement of an international arbitral award; implementing a new system of court fees; and restoring the former powers and organisational framework of the Supreme Court of Ukraine. Many such changes are considered by legal practitioners as positive steps aimed at the improvement of dispute resolution procedures in Ukraine. The negative side of the 2011 legislative amendments is that access to court files may potentially be restricted in the future. Previously published court files used to be an efficient source for interpretation of Ukrainian legislation that is conflicting and ambiguously drafted in many instances.
 Clarification of the High Commercial Court of Ukraine on Certain Issues of Practice of Application of Chapter VI of the Commercial Procedure Code of Ukraine as of 4 March 1998 No. 02-5/78, as amended.
 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 LLC Monolit-2002 v. JSCB East-European Bank as of 26 January 2010 No. 25/160.