On September 2, 2022, the Supreme Court of Ukraine had to decide whether the New York Convention applies to the enforcement of awards in Ukraine which had been issued in arbitration proceedings conducted under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (“ICSID Convention”).[1]
Factual background
In the case decided by the Supreme Court, the Ukrainian investor Eugene Kazmin tried to avoid the enforcement of an ICSID cost award in favour of the Republic of Latvia (“Latvia”). Mr. Kazmin had invested in KVV Liepājas Metalurgs, a steel plant on Latvia’s west coast. A dispute between Mr. Kazmin and Latvia arose concerning Latvia’s alleged misconduct in the tender process and subsequent actions which allegedly rendered the steel plant unprofitable and ultimately caused its insolvency in 2016. In February 2017, Mr. Kazmin submitted the case to an ICSID Tribunal.[2]
In April 2020, upon Latvia’s request, the arbitral tribunal ordered that Mr. Kazim had to provide a security for costs. Mr. Kazmin ignored the order and did not comply. The tribunal declared the proceedings closed in accordance with ICSID Arbitration Rule 38(1) and rendered its award on March 24, 2021. In the award, Mr. Kazmin was ordered to reimburse Latvia for the costs of the arbitration proceedings.[3]
Latvia successfully applied for the enforcement of the award with the Kyiv Court of Appeal (the court of first instance for such matters) and Mr. Kazmin filed an appeal to the Supreme Court of Ukraine against the Kyiv Court of Appeal’s decision. The Supreme Court dismissed Mr. Kazmin’s appeal and confirmed that the ICSID award had to be recognized and was enforceable in Ukraine.
The dispute before the Supreme Court
In his appeal against the decision of the Kyiv Court of Appeal, Mr. Kazmin argued that
- the decision of the ICSID tribunal could not be considered an award under the ICSID Convention since the arbitral tribunal had not decided on the merits,
- his failure to provide a security for costs was not the real reason why the ICSID tribunal had closed the proceedings and the closing of the proceedings therefore violated the ICSID Arbitration Rules, and
- the award violated Mr. Kazmin’s right to fair arbitration proceedings and contradicted Ukrainian public policy.
Mr. Kazmin based his appeal on Article V (1)(d) and Article V (2)(b) of the New York Convention, as in his view the arbitration process did not comply with the agreement of the Parties and the decision was contrary to Ukrainian public policy.
Latvia on the other hand emphasized that the New York Convention did not apply to the enforcement of ICSID awards and argued that the recognition and enforcement of the award would not violate Ukrainian public policy.
The decision of the Supreme Court
By upholding Latvia’s position and dismissing Mr. Kazmin’s appeal, the Supreme Court confirmed that for the recognition and enforcement of ICSID awards, the New York Convention is irrelevant.
The Supreme Court clarified that neither the New York Convention nor Ukrainian law apply to the enforcement of ICSID awards in Ukraine. The reason is that ICSID awards are binding on the parties and are not subject to any appeal or to any other remedy except those provided for in the ICSID Convention, Article 53 ICSID Convention. The only remedy available to the unsuccessful party in ICSID arbitration is a request for annulment of the award to the Secretary-General of ICSID in accordance with Art. 52 of the Convention. On receipt of such a request, the President of the World Bank as Chairman of the Administrative Council of ICSID has to appoint an ad hoc Committee of three persons from the ICSID Panel of Arbitrators which has the authority to annul the award or any part thereof on the grounds set forth in Article 52 (1) ICSID Convention. Otherwise, each Contracting State must recognize an award rendered pursuant to the ICSID Convention as binding and must enforce the pecuniary obligations imposed by that award within its territories as if the award was a final judgment of a court in that State, Article 54 (1) ICSID Convention.
The Supreme Court stated that the same result would follow from Article VII of the New York Convention which provides that the provisions of the New York Convention do not affect the validity of international agreements on the recognition and enforcement of arbitral awards and shall not deprive any interested party of the right to exercise any arbitral award in accordance with more favourable rules of an international treaty of the country, where recognition and enforcement are sought. Since Ukraine is a contracting state to the ICSID Convention, Articles 52 and 53 of the ICSID Convention apply as they are more favourable for the recognition and enforcement of ICSID awards in Ukraine than the New York Convention.
The Supreme Court also dealt with the public policy objection raised by Mr. Kazmin. After confirming that there was no indication of a violation of Ukrainian public policy, the Supreme Court stated in an obiter dictum, that Ukrainian courts must examine possible violations of Ukrainian public policy when deciding about the recognition and enforcement of ICSID awards. The Supreme Court explained that a violation of public policy may exist in case an ICSID tribunal’s decision violates (i) defined principles and grounds that form the basis of the existing order relating to Ukraine’s independence, integrity, autonomy, immunity, and to basic constitutional rights, freedoms and guarantees, (ii) generally accepted principles of morality, legitimate interests of persons, society and the state, and (iii) fundamental principles and norms of international law.
Comment
The Supreme Court’s clarification that the recognition and enforcement of ICSID awards in Ukraine is only governed by the ICSID Convention and that the New York Convention or Ukrainian law are not applicable is to be welcomed.
The Supreme Court’s decision that Ukrainian courts could refuse the enforcement of an ICSID award if the award were to violate public policy is surprising. This finding seems also contradictory to the finding that the New York Convention or Ukrainian law – which provide for a public policy exception to enforcement – do not apply.
Should Ukrainian courts refuse to recognize an ICSID award because of a violation of Ukrainian public policy, this would undermine Ukraine’s position in the international arena as it would be contrary to the wording and purpose of the ICSID Convention. The review of an ICSID award by Ukrainian courts on public policy grounds would not be in line with Article 54 of the ICSID Convention which commits signatories to enforce the pecuniary obligations imposed by an ICSID award as if it were a final judgment of its own courts. National courts simply have no discretion to review ICSID awards once their authenticity has been established.[4]
[1] Case No. 824/182/21, see decision here (in Ukrainian)
[2] Eugene Kazmin v. Republic of Latvia, ICSID Case No. ARB/17/5.
[3] For procedural details: https://icsid.worldbank.org/cases/case-database/case-detail?CaseNo=ARB/17/5.
[4] Schreuer/Malintoppi/Reinisch/Sinclair, The ICSID Convention A Commentary, 2nd ed. 2009, Appendix 3, Article 54, para. 85.
