A. LEGISLATION AND RULES
A.1 Legislation
Ukraine is a civil law jurisdiction; 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[1]. 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.
In the course of 2022, the Rules of the ICAC and the UMAC (“Rules”) were amended twice on 1 July 2022 and on 22 December 2022. The respective amendments, which came into force on 1 July 2022 and on 1 January 2023 accordingly, cover the following:
- Improvement of procedures regulating submission and service of documents, including claims, via electronic mails
- Improvement of procedures governing conduct of oral hearings via videoconferencing
- Introduction of combined procedures of dispute resolution such as “arbitration-mediation-arbitration” and “mediation-arbitration”
In particular, the amendments to article 42 of the Rules provide that the parties may agree on settlement/resolution of a dispute with the application of combined procedures (“arbitration-mediation-arbitration” or “mediation-arbitration”). In this case, the settlement/resolution of dispute is carried out in accordance with the Rules, Mediation Rules of the ICAC, the Arbitration Law and Law of Ukraine “On Mediation”. Article 58 of the Rules was amended to enable the arbitral tribunal to suspend the arbitration proceedings for the period of mediation based on the joint motion of the parties to the dispute. If the parties fail to settle the dispute through the mediation in accordance with the “mediation-arbitration” procedure, the registration fee for submission of claim to the ICAC is not paid. In the case where the dispute is successfully settled via the mediation under the “mediation-arbitration” procedure and the parties apply to the ICAC with a request to render the arbitral award on agreed terms, the parties shall pay only 50% of the standard amount of the arbitration fee.
Parties to the dispute may agree to refer the dispute to ad hoc arbitration, for which purpose an ad hocarbitral 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 33 countries, including Austria, Croatia, the Czech Republic, France, Germany, Hungary, Latvia, the Netherlands, Norway, Poland, Slovakia, Sweden, the United Kingdom and the United States.
B. CASES
B.1 Absence of the parties’ signatures on the original of the contract does not constitute a legal ground for invalidity of the arbitration agreement
Recent court practice in Ukraine affirmed that Ukrainian courts grant recognition and enforcement of the arbitral awards even if the original of the contract, which included an arbitration clause, was not signed by one of the parties. This conclusion follows from the resolution of the Supreme Court in Case No. 824/268/21, dated 22 December 2022.
In this case, Cofco Resources SA (“Applicant”) referred to the Kyiv Appellate Court seeking recognition and enforcement of the GAFTA arbitral award, dated 28 May 2021, under the claim of the Applicant against LLC Agrokhim-Partner (“Debtor”) on the collection of damages. According to the arbitral award, the Debtor was ordered to pay USD 476.000 of damages occurred due to a breach of the contract, the arbitration fees and the interest thereon at 4% per annum.
On 8 August 2022, the Kyiv Appellate Court, acting as a first-instance court, denied recognition and enforcement of said arbitral award. The decision of the first-instance court was based on the conclusion that the absence of the Debtor’s signature on the original contract containing the arbitration clause indicates that the arbitration agreement between the parties was not concluded. The court also stated that the arbitration agreement signed by the parties in scan copies is invalid.
The Applicant challenged the respective court ruling to the Supreme Court, arguing, among other reasons, that the Kyiv Appellate Court did not take into account that the contract concluded between the parties was subject to English law, which should apply for determining the validity of the arbitration agreement.
In its resolution, the Supreme Court upheld the Applicant’s arguments and granted recognition and enforcement of the arbitral award. In substantiation of this decision, the Supreme Court affirmed that the validity of an arbitration agreement should be evaluated under the law to which the parties have subjected it, in the present case – under the law of England and Wales. Accordingly, the Debtor did not prove that the contract containing the arbitration agreement is invalid under English law, and, accordingly, the grounds for denial in recognition and enforcement of the arbitral award are absent.
B.2 Procedural violations committed by the ICAC during arbitral proceedings are considered the violation of the public order of Ukraine leading to annulment of the arbitral award
Recent court practice in Ukraine affirmed that procedural violations, which are committed by the ICAC during the arbitration proceedings, lead to breach of the fundamental principles of justice and are considered the violation of the Ukrainian public order. The above follows from the resolution of the Supreme Court passed on 21 October 2022 in Case No. 824/309/21 upon consideration of the debtor’s request to set aside the arbitral award rendered by the ICAC.
According to the background of this case, Latvia-based company JSC Olaynfarm (“Applicant”) applied to the Kyiv Appellate Court seeking to set aside the ICAC arbitral award dated 29 September 2021. Under the arbitral award, the Applicant was ordered to pay penalty for the breach of the supply contract, damages incurred in light of such breach and compensation of the arbitration costs in favor of LLC OLFA, which was the counterparty under the respective supply contract.
On 30 May 2022, the Kyiv Appellate Court, acting as a first-instance court, refused to satisfy the application on annulment of the ICAC arbitral award. The Applicant appealed the respective court ruling to the Supreme Court, asserting, among other reasons, that the procedural violations allegedly committed by the ICAC constitute the violation of the Ukrainian public order.
Having considered the arguments of the Applicant, the Supreme Court arrived at the conclusion that the ICAC arbitral award indeed violates the Ukrainian public order in view of the following.
The Supreme Court emphasized that the principles of adversariality, disposition and equality of the parties, which are prescribed by the Rules, are the fundamental principles of judicial process in Ukraine including the arbitration proceedings being conducted by the ICAC. Therefore, as explained by the Supreme Court, such principles are constituents of the public order in Ukraine. Taking into account the above, the ICAC’s actions, among others, related to ordering from the Applicant the damages based on the legal grounds, which were not presented by LLC OLFA during the arbitral proceedings, constitute violation of the disposition principle resulting in breach of the Ukrainian public order.
In this context, the Supreme Court also stated that, in breach of the principles of disposition and adversariality of the judicial process, the ICAC, without giving the parties the opportunity to set out their own positions, applied its own approach to calculation of the damages, which ultimately resulted in ordering the damages in the amount more than LLC OLFA sought by its claim.
In addition, the Supreme Court also asserted that the ICAC violated the arbitration procedure agreed upon by the parties in view of the following circumstances. The arbitration clause prescribes that the dispute may be transferred to the ICAC upon expiration of the 30-day term of the pre-arbitration settlement. Despite the above, the ICAC did not resolve the issue of its competence with regard to the additional claim, which was presented by LLC OLFA in the course of the arbitration proceedings without undergoing the pre-arbitration settlement procedure, and considered such claim on merits notwithstanding the objections submitted by the Applicant.
The Supreme Court also indicated that during the arbitral proceedings the Applicant emphasized that the effect of the supply contract containing the arbitration clause was not extended for the period of 2020. Given that, the Applicant objected against competence of the ICAC to consider the dispute as the claim was built on the violations of the supply contract allegedly taking place in 2020. Taking into account the above, the Supreme Court stressed that the ICAC, being guided by the “kompetenz-kompetenz” principle, was obliged to resolve the procedural issue related to its competence to consider the dispute as a whole.
In light of the foregoing, the Supreme Court satisfied the appellate complaint of the Applicant, cancelled the court ruling passed by the Kyiv Appellate Court and set aside the ICAC arbitral award.
B.3 Provisions of the ICSID Convention prevail over the New York Convention in matters related to the legal grounds for recognition of the ICSID arbitral awards
In July 2021, the Republic of Latvia represented by the State Chancellery of the Republic of Latvia (“Applicant”) referred to the Kyiv Appellate Court seeking recognition and permission to enforce in Ukraine the arbitral award rendered by the ICSID on 17 March 2021 ordering to collect from the individual (“Debtor”) EUR 3,223,212.40 of the arbitration costs and USD 250,000 less the amount to be reimbursed by the ICSID Secretary.
In October 2021, the Kyiv Appellate Court, by its ruling in Сase No. 824/182/21, satisfied the respective application and granted enforcement of the said arbitral award.
The Debtor challenged the mentioned court ruling to the Supreme Court, advancing as the key arguments that the arbitration process did not comply with the parties’ agreement and that the enforcement of the ICSID arbitral award would violate the public order of Ukraine. The Debtor substantiated its position by the provisions of the New York Convention governing the legal grounds for refusal to recognize and enforce the arbitral award.
Having considered the arguments of the Debtor, the Supreme Court arrived at the following conclusions.
The Supreme Court indicated that provisions of the New York Convention do not affect the validity of multilateral or bilateral agreements, concluded by the contracting states, regulating the matters related to recognition and enforcement of the arbitral awards. The Supreme Court added that the New York Convention does not deprive any interested party of the right to use any arbitral award in the manner and to the extent permitted by the international treaties of the jurisdiction, where recognition and enforcement of the arbitral award is requested.
The Supreme Court explained that the New York Convention allows a party seeking recognition and enforcement of the arbitral award to rely on the rules that are more favorable than the rules set forth in the New York Convention. The international treaty is considered more favorable than the New York Convention if it allows the recognition and enforcement of the arbitral award on the basis of less stringent requirements both as to procedure and legal grounds for denial in enforcement.
As stressed by the Supreme Court, the Republic of Latvia, seeking recognition and enforcement of the ICSID arbitral award, specifically referred to the rules of the ICSID Convention instead of the rules set forth by the New York Convention. Under the foregoing circumstances, the Debtor’s objections against recognition and enforcement of the ICSID arbitral award substantiated by the provisions of the New York Convention are erroneous and should not be taken into account.
Having considered the Debtor’s appellate complaint, the Supreme Court did not find legal grounds for denial in recognition and enforcement of the ICSID arbitral award in Ukraine. Therefore, the Supreme Court by its resolution dated 2 September 2022 upheld the court ruling of the Kyiv Appellate Court granting recognition and enforcement of the said arbitral award.
B.4 Enforcement of the arbitral award that provides for payment in favor of the sanctioned entity does violate the public order in Ukraine
On 22 December 2022, the Supreme Court, by its resolution in Case No. 824/138/21, denied recognition and enforcement of the arbitral award under which the defaulting party was obliged to make payments in favor of a sanctioned Russia-based entity.
According to the background of this case, in June 2021 Russia-based company PJSC Rosnafta Oil Company (“Applicant”) applied to the Kyiv Appellate Court seeking recognition and enforcement of the arbitral award of the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation (“ICAC at the RF CCI”), dated 11 September 2018. Under the arbitral award, Ukrainian company LLC Eurostandart-Avtogaz (“Debtor”) was ordered to pay UAH 2,462 million (USD 67.3 k) of penalties under the oil supply contract and the arbitration fees.
On 16 September 2021, the Kyiv Appellate Court, acting as a first-instance court, satisfied the application and granted recognition and enforcement of the ICAC at the RF CCI arbitral award in Ukraine. The Debtor 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, the Supreme Court arrived at the conclusion that recognition and enforcement of the ICAC at the RF CCI arbitral award would indeed violate the public order in Ukraine given the following: (1) sanctions regulation is one of the aspects of the public order in Ukraine, which appeared as a result of the armed aggression of the Russian Federation against Ukraine; (2) the Applicant is subject to Ukrainian personal economic sanctions since March 2021; (3) application of the sanctions to the Applicant indicates that its actions constitute threats to sovereignty and territorial integrity of Ukraine. In view of the above, the Supreme Court cancelled the court ruling of the Kyiv Appellate Court and denied recognition and enforcement of the ICAC at the RF CCI arbitral award in Ukraine.
[1] 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.
