Marta Khomyak

Magister & Partners

A member of the New York and Brussels Conventions, Ukraine is not the easiest jurisdiction when it comes to international arbitration. Despite being a UNCITRAL Model Law country and a member of all major international arbitration treaties, Ukrainian jurisdiction does not offer an arbitration-friendly environment and may be presenting more practical problems than a practitioner would anticipate. Generally, it would be fair to say that any nexus to Ukrainian jurisdiction could potentially present problems, many of which arise due to a general lack of law enforcement in the country. However, many of the nuances emanate from applicable secondary legislation, which often does not lie on the surface.

Arbitrability

Until 2005, under Ukrainian law any dispute could be submitted to international arbitration, except a few exceptions listed in the Commercial Procedural Code, which were:
• disputes with respect to invalidation of acts (statutory and non-statutory acts)
• disputes arising from conclusion, amendment, termination or performance of commercial contracts related to state needs.

However, enactment of the Act on Private International Law (PIL Act) on 1 September 2005 introduced a variety of other exceptions. Currently, the following disputes cannot be submitted to international arbitration:
• where the dispute relates to immoveable property located in Ukraine;
• cases concerning relationships between children and parents, where all parties are residents in Ukraine;
• if the testator in a probate case was a citizen and resident of Ukraine;
• a dispute arising from IP rights that are secured by registration or patent certification in Ukraine;
• a dispute relating to registration or dissolution of foreign companies, non-governmental organisations, charitable foundations or other associations, or a legal entity in Ukraine;
• a dispute relating to the validity of records in one of the Ukrainian state registries, including the Companies’ Register of Immoveable Property Owners and the Land Register;
• if the debtor in an insolvency case was incorporated under Ukrainian legislation;
• cases involving issue or cancellation of securities officially registered in Ukraine;
• cases in which an adoption took place or is taking place in Ukraine; and
• other cases where Ukrainian law provides that national courts take precedence.

The language of exceptions provided in the newly enacted PIL Act is somewhat broad and may give rise to a variety of interpretations. Currently, no case law suggesting trends has been recorded.

Interim measures

Although the Law of Ukraine on International Commercial Arbitration (ICA Law) and the Rules of the International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry (ICAC) permit arbitrators to award preliminary or interim measures at a party’s request (ICA Law, article 17; ICAC Rules, section 1.9), such relief may often be meaningless if parties do not abide.
State courts’ rules of procedure do not include any provisions on application to a state court requesting interim measures in aid of or in connection with arbitration proceedings either in Ukraine or abroad, although theoretically, possibility of such application is implicit in the ICA Law, article 9, as well as the ICAC Rules, section 1.9 (which states that party’s application to a state court for interim measures and the court’s granting such measures are not inconsistent with arbitration agreements).
No argument on record has been made yet of whether interim measures made in the form of an ‘award’ would stand under enforcement procedures on the basis of the New York Convention and no predictable outcome of such application is feasible.

Injunctions

In 2006, a Ukrainian court for the first time granted an injunction, requesting parties to refrain from participating in arbitration proceeding conducted abroad. This injunction followed an earlier decision by the court, which invalidated the main agreement, including the arbitration clause.
Criminal sanctions will apply to managers of companies that fail to abide by the decision of a court of law, such as the anti-arbitration injunction.

Enforcement

Generally, a party seeking enforcement of a foreign arbitral award must turn to the appropriate court at the location of the debtor within three years of the making of the award. If the court is satisfied that there are no sufficient grounds for refusal of recognition and enforcement of the award, it issues an order allowing enforcement. This order can be appealed to an appellate court. If enforcement of an award is allowed by a court order, such award is fully enforceable as a judgment of a Ukrainian court, although problems may be encountered at the execution stage. Although execution of national judgements is compulsory, statistics on how many judgements are actually executed are not very encouraging.
In addition to the above problems, the following arbitration-hostile issues have arisen in practice:
• confusion by the courts of arbitral awards and foreign judgment;
• no priority for the New York Convention and application of the bilateral treaties on mutual legal assistance instead;
• unusually strict adherence to formalities of the award during enforcement;
• ‘ping-ponging’ of applications for years (the Court of Appeals used to be the court of first instance and dealt with the initial application for enforcement but this was changed in 2004, thereby introducing another layer of courts); and
• wide application of public policy.

A noteworthy feature of Ukrainian regulation is that a debtor under a foreign arbitral award may, if the creditor uses the award to the detriment of the debtor, initiate proceedings to stop enforcement in Ukrainian jurisdiction. The case law on the record proves that the standard is not high in this regard.

Separability

The doctrine of separability applies to arbitration proceedings conducted in Ukraine under the ICA Law, although the doctrine has not yet fully found its way into further Ukrainian legislation and practice. Procedural and substantive norms of Civil and Commercial Code do not support the concept and practice has gone in the opposite direction.

Arbitration with the state

A party to over 70 BITs, Ukraine has also ratified the ICSID Convention in 2001. Investors have been quite active in using this facility and, to date, six cases against Ukraine have been registered by the secretariat of the ICSID alone. A few ad-hoc proceedings have taken place and a small number were conducted under the auspices of the Stockholm Institute of International Arbitration. Some disputes were settled and some awards have been issued.
It is too early to see a trend regarding whether Ukraine will abide by ICSID awards. Generally, however, the state has not experienced major problems with the ICSID facility. Some other institutional and ad-hoc experiences have not been very positive and have contributed to the formation of the arbitration system described above.

* * *

One could conclude that Ukraine is, more often than not, an arbitration-unfriendly country. However, as Pierre Tercier noted in his ‘Emerging trends in ICC arbitration and the institution’s vision for the future’: “If arbitration is to prosper and provide the services expected, it must be based on trust. This is the keyword”. As the last 15 years suggest, the world of international arbitration has yet to earn the trust of the legal profession in Ukraine. As the country develops and players become familiar with the rules of the global game, the field and practice of international arbitration will grow and tendencies may perhaps change towards a friendlier approach.