A. LEGISLATION AND RULES
Ukraine is a civil law country; thus, the issues of international arbitration are governed primarily by the following:
- Multilateral and bilateral international treaties, which, upon their ratification by the Verkhovna Rada of Ukraine (Parliament), have priority over domestic legislation.
- Domestic legislation.
Court precedents are not considered to be a source of law in Ukraine; however, the courts of lower instances shall give due regard to the conclusions of law made by the Supreme Court and the Great Chamber of the Supreme Court in their decisions.
With regard to international treaties, Ukraine is a party to the New York Convention, the Geneva Convention, the ICSID Convention, and a number of bilateral investment treaties.
In respect of domestic legislation, international arbitration in Ukraine is primarily governed by the Law of Ukraine “On International Commercial Arbitration” (“Arbitration Law”), dated 24 February 1994, which closely follows the UNCITRAL Model Law of 1985. In addition to the Arbitration Law, the arbitrability of commercial disputes is also governed by the Commercial Procedural Code of Ukraine, whereas the procedure for recognition and enforcement of the arbitral awards, as well as the procedure for setting aside the arbitral awards, are established by the Civil Procedural Code of Ukraine.
On 1 July 2021, the Law of Ukraine, by which certain amendments to the Arbitration Law were introduced, came into force.
The respective amendments extended the range of disputes which may be referred to as international commercial arbitration. In particular, the list of the arbitrable disputes is extended with the disputes between the trustee for the bond issue acting in the interests of bondholders in accordance with the provisions of the Law of Ukraine “On Capital Markets and Organized Commodity Markets”, and the issuer of bonds and/or persons, providing security for such bonds if at least one of the parties to such dispute is a company with foreign investments. Accordingly, the arbitration agreement for such disputes may be included in the securities prospectus (decision on the issue of securities), which provides for the appointment of a trustee for the bond issue.
A.2 Institutions, rules and infrastructure
The Arbitration Law provides for two arbitration institutions in Ukraine that function at the Ukrainian Chamber of Commerce and Industry (UCCI) — the International Commercial Arbitration Court at the UCCI (ICAC), and the Ukrainian Maritime Arbitration Commission at the UCCI (UMAC). The statutes of both institutions are set forth in the annexes to the Arbitration Law.
The ICAC is a permanently functioning arbitral institution acting in accordance with the Arbitration Law, the Statute of the ICAC (dated 24 February 1994), and the Rules of the ICAC (approved on 27 July 2017, effective as of 1 January 2018).
The UMAC is a permanently functioning arbitral institution acting in compliance with the Arbitration Law, the Statute of the UMAC (dated 24 February 1994), and the Rules of the UMAC (approved on 27 July 2017, effective as of 1 January 2018), which resolves the disputes that arise out of or in connection with contractual and other civil relations in the area of merchant shipping, regardless of whether the parties are Ukrainian or foreign entities.
The most recent amendments to the Rules of the ICAC and the UMAC (“Rules”), which came into force on 1 November 2020, cover the following:
- The improvement of arbitral proceedings
- The conduct of oral hearings via videoconferencing
- The transition of arbitration into a digital environment
- The recent court practice on cancellation, recognition, and enforcement of arbitral awards.
In particular, the amendments to article 11 of the Rules provide for compulsory submission of all documents relating to the initiation and conduct of the arbitral proceedings in electronic form in addition to hard copies. Article 22 of the Rules was amended to allow a third party to join the arbitral proceedings provided that such third party is bound by the arbitration agreement with at least one of the parties to the dispute (a previous version of the Rules provided the possibility to join only if the common arbitration agreement between the parties to the dispute and the third party exists).
Parties to a dispute may agree to refer the dispute to ad hoc arbitration, for which purpose an ad hoc arbitral tribunal may be formed. In that case, the ICAC may act as appointing authority in accordance with the UNCITRAL Arbitration Rules and provide organizational assistance in arbitral proceedings on the basis of its separate Rules of Assistance approved by the Decision of the Presidium of the UCCI, dated 27 October 2011.
The ICAC list of arbitrators includes arbitrators from 35 countries, including Austria, Croatia, the Czech Republic, France, Germany, Hungary, Latvia, the Netherlands, Norway, Poland, the Russian Federation, Slovakia, Sweden, the United Kingdom, and the United States.
B.1 Ukrainian courts considering the matters related to granting enforcement of the arbitral awards are not empowered to decide on the postponement of execution of such arbitral awards
Recent court practice in Ukraine affirmed that Ukrainian courts are not empowered to decide on the postponement (restructuring) of execution of the arbitral awards rendered, in particular, by the ICAC. The above follows from the decision of the Supreme Court passed in 2021 in Case No. 824/53/19 upon consideration of the debtor’s request for postponement of execution of the respective arbitral award passed by the ICAC.
In December 2019, the Kyiv Appellate Court satisfied the application of Banke Electromotive Anpartsselskab (Denmark) and granted recognition and enforcement of the arbitral award rendered by the ICAC in 2019. Under the said arbitral award, LLC Joint Ukrainian-German Enterprise Electrontrans (“Electrontrans LLC“) was ordered to pay EUR 226k to Banke Electromotive Anpartsselskab. Thereafter, Banke Electromotive Anpartsselskab received the enforcement writ and, on this basis, initiated the enforcement proceedings against the debtor for collection of the debt under the arbitral award.
In its turn, Electrontrans LLC referred to the Kyiv Appellate Court with the request to postpone the execution of the arbitral award for six months in view of financial difficulties, which were allegedly caused by the spread of the COVID-19 pandemic. The Kyiv Appellate Court, by its ruling, satisfied the respective request in part by granting a three-month postponement.
Banke Electromotive Anpartsselskab (Denmark) challenged the said ruling by submitting the appellate complaint to the Supreme Court, which, by its resolution dated 8 April 2021, canceled the ruling of the Kyiv Appellate Court.
In this respect, the Supreme Court came to the following conclusions. The Civil Procedural Code of Ukraine, as well as the Law of Ukraine “On Enforcement Procedure,” prescribe that postponement or restructuring of execution of a court decision is granted by the court, which considered the case on merits as the first instance court. At the same time, the Kyiv Appellate Court was not the court that considered the respective dispute between Electromotive Anpartsselskab (Denmark) and Electrontrans LLC on merits as the first instance court, i.e., the ICAC was the jurisdictional body, which considered the said dispute on the merits. The Supreme Court emphasized that the Kyiv Appellate Court, given its subject and territorial jurisdiction, (i) exercised only the control powers, the essence of which is to verify compliance with the established procedure for consideration of the cases by the ICAC and (ii) did not resolve the dispute between the parties on merits. Given the above conclusions, the Ukrainian court does not have the competence to resolve the matters related to postponement or restructuring of execution of the arbitral awards rendered, in particular, by the ICAC.
B.2 Assignment of right to claim a debt under arbitral award to another entity is not a ground for denial in granting the enforcement of the arbitral award
The Supreme Court, in its resolution dated 29 April 2021 in Case No. 824/210/20, concluded that a change of the creditor (assignment of claim) under an arbitral award cannot serve as a due legal ground for denial of enforcement of the arbitral award.
In November 2020, Bannion Limited (a resident of the British Virgin Islands) referred to the Kyiv Appellate Court seeking permission to enforce in Ukraine the arbitral award rendered by the ICAC in September 2020 against its Ukraine-based counterparty (public joint-stock company, Budhydravlika, (“PJSC Budhydravlika“):
- The principal debt under the loan agreement
- The interest accrued on such debt
- The amount of 3% per annum
- The arbitration fee paid in the ICAC
In January 2021, the Kyiv Appellate Court, by its ruling, satisfied the respective application and granted enforcement of the said arbitral award.
PJSC Budhydravlika challenged the mentioned court ruling to the Supreme Court, arguing that the Kyiv Appellate Court did not take into account that Bannion Limited had not been entitled to claim the debt under the arbitral award as it assigned such right to another company under the agreement on assignment of claim dated 26 November 2020. PJSC Budhydravlika insisted that after 26 November 2020, Bannion Limited no longer had the right to enforce the arbitral award and, therefore, could not act as a creditor in the Ukrainian court proceedings aimed at obtaining permission for enforcement of such arbitral award.
Upon analysis of the parties’ legal positions, the Supreme Court found the arguments of PJSC Budhydravlika unsubstantiated. In its resolution of 29 April 2021, the Supreme Court restated the established principle of the court that Ukrainian courts, when deciding on recognition and granting the enforcement of the arbitral awards, are prohibited from assessing the correctness of the substance of the award or introducing any changes into their content. At the same time, the exhaustive list of legal grounds for denial of recognition and enforcement of the arbitral awards is set forth in the New York Convention and the Civil Procedural Code of Ukraine. Accordingly, the Supreme court concluded that the assignment of the right to claim the debt under the arbitral award to another entity could not be regarded as a legal ground to deny enforcement of the arbitral award in Ukraine. In this context, the Supreme Court stressed that the aspects relating to factual enforcement of the arbitral award are not resolved during consideration of the application for recognition and enforcement of the arbitral award.
In light of the above, the Supreme Court rejected the appellate complaint of PJSC Budhydravlika and, accordingly, upheld the ruling of the Kyiv Appellate Court on granting the enforcement of the arbitral award.
B.3 Enforcement of the arbitral award against the state–owned enterprise that is in the process of privatization does violate the public order in Ukraine
Recently, on 8 June 2021, the Supreme Court, by its resolution in Case No. 824/241/2018, denied recognition and enforcement of the arbitral award under which the defaulting party is a state-owned enterprise in respect of which the privatization procedure had been initiated.
According to the background of this case, Cyprus-based company Ostchem Holding Limited (“Applicant”) applied to the Kyiv Appellate Court seeking recognition and enforcement of the arbitral award of the Arbitration Institute of the Stockholm Chamber of Commerce (SCC), dated 25 July 2016. Under the arbitral award, Ukrainian state-owned enterprise joint-stock company Odesa Port Plant ( “Debtor”) was ordered to pay USD 193.3 million of principal debt and USD 58 million of fines under the gas supply contract.
On 24 April 2019, the Kyiv Appellate Court, acting as the first-instance court, satisfied the application and granted recognition and enforcement of the SCC award in Ukraine. The Debtor and the State Property Fund of Ukraine (SPFU) appealed the respective court ruling to the Supreme Court, asserting that recognition and enforcement of the arbitral award violate the public order in Ukraine.
Having considered the arguments of the Debtor and the SPFU, the Supreme Court arrived at the conclusion that recognition and enforcement of the SCC award would indeed violate the public order in Ukraine in view of the following:
- The Debtor is a state-owned enterprise of strategic importance for the economy and security of the state.
- The Debtor owns the objects of increased danger and is obliged to take respective measures aimed at preventing the accidents.
- the Debtor is in the process of privatization and the SPFU, as an authorized state body, did not grant permission for the debt redemption owed to the Applicant.
In addition to the above, the Supreme Court found that the Applicant owes a vast debt to joint-stock company Gazprom (“JSC Gazprom“) (a resident of the Russian Federation), which is subject to Ukrainian personal economic sanctions. In view of the above circumstance, the Supreme Court upheld the arguments of the Debtor and the SPFU that the JSC Gazprom will be the factual receiver of the funds, which could be collected by the Applicant from the Debtor based on the arbitral award. Taking into account the foregoing, the Supreme Court stated that the above serves as an additional ground for denial of recognition and enforcement of the arbitral award as such enforcement will violate the public order of Ukraine. Notably, the above approach contradicts the earlier practice of the Supreme Court asserting that recognition and enforcement of the arbitral awards that provide for payments in favor of the companies that are somehow related to the sanctioned persons (i.e., if the collection of funds is to be made not in favor of a specific sanctioned person) do not violate the public order in Ukraine.
 According to article 1 of the Law of Ukraine “On Regime of Foreign Investment,” a company with foreign investments is the company (organization) established under the laws of Ukraine, where the foreign investment is not less than 10% of the statutory fund.