A. LEGISLATION AND RULES
A.1 Legislation
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 in their decisions to the conclusions of law made by the Supreme Court and the Great Chamber of the Supreme Court.
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. 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 arbitral awards, as well as the procedure for setting aside 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 that may be referred to as international commercial arbitration. In particular, the list of arbitrable disputes is extended to include 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 resolve 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, respectively, cover the following:
- Improvement of procedures regulating submission and service of documents, including claims, via electronic mail
- Improvement of procedures governing the 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 the dispute is carried out in accordance with the Rules, the Mediation Rules of the ICAC, the Arbitration Law and the 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 mediation in accordance with the mediation-arbitration procedure, the registration fee for submission of a claim to the ICAC is not paid. In case the dispute is successfully settled via 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 Provisions of the arbitration agreement prevail over Ukrainian domestic law on bankruptcy proceedings with regard to the competent court to consider the claims involving the debtor undergoing bankruptcy proceedings
Recent court practice in Ukraine affirmed that the claim for invalidation of the agreement containing the arbitration clause filed against the Ukrainian company undergoing the Ukrainian bankruptcy proceedings shall be considered by the arbitration institution indicated in the respective arbitration clause. This conclusion follows from the resolution of the Supreme Court in Case No. 911/3687/21, dated 23 February 2023.
In November 2021, the Kyiv Region Commercial Court commenced the bankruptcy proceedings of LLC Bora Solar. In February 2022, LLC Bora Solar was officially declared bankrupt, and the liquidation proceeding was commenced.
Within the bankruptcy proceedings, in December 2021 PJSC Prominvestbank (“Guarantor“) submitted a court claim against LLC Bora Solar (“Principal“) and China National Building Materials And Equipment Import & Export Corporation (“Beneficiary“) seeking to invalidate the agreement dated 28 December 2012 on provision of the banking guarantee (entered into between the Guarantor and the Principal) and the banking guarantee dated 28 December 2012 issued by the Guarantor (as instructed by the Principal) in favor of the Beneficiary.
According to the challenged agreement, all disputes arising out of it shall be considered and finally resolved by the Ukrainian courts. At the same time, the agreement also stipulates that the banking guarantee is governed by the ICC Uniform Rules for Demand Guarantees (“URDG 758“). According to the banking guarantee, it is governed by URDG 758, and all disputes related to its validity, construal or enforcement shall be finally considered and resolved in accordance with the ICC Rules.
In December 2021, the Beneficiary initiated the ICC arbitration proceedings against the Guarantor with regard to the latter’s failure to carry out its obligations under the banking guarantee.
Taking into account the above circumstances, on 13 September 2022, the Kyiv Region Commercial Court ruled to leave without consideration the Guarantor’s claim for invalidation of the banking guarantee due to the fact that the arbitration proceedings with regard to its performance were officially commenced by the ICC. On 30 December 2022, the North Appellate Commercial Court canceled the said court ruling and transferred the case for further consideration on merits by the first instance court within the bankruptcy court proceedings.
As a result of the cassation revision of the above court ruling, the Supreme Court concluded that the Guarantor’s claim for invalidation of the banking guarantee could not be considered by the Ukrainian courts due to the arbitration clause contained in such banking guarantee. The Supreme Court added that such arbitration clause is still valid, and the Beneficiary already invoked this arbitration clause before commencement of the Ukrainian court proceedings.
The Supreme Court concluded that provisions of the arbitration agreement prevail over the Ukrainian domestic law on bankruptcy proceedings, under which all disputes against the Ukrainian debtor undergoing the Ukrainian bankruptcy proceedings shall be considered by the Ukrainian court. The Supreme Court emphasized that the Ukrainian Bankruptcy Code does not establish any alternative rules aimed at the realization of the arbitration agreement with regard to the jurisdiction over the dispute, the party to which is the debtor within the Ukrainian bankruptcy proceedings. The Supreme Court also added that the other approach would contradict the imperative provisions of the national law and the applicable international agreements ratified by Ukraine.
In light of the foregoing, the Supreme Court canceled the resolution of the North Appellate Commercial Court and upheld the court ruling passed by the Kyiv Region Commercial Court on leaving the Guarantor’s claim for invalidation of the banking guarantee without consideration.
B.2 Currency control restrictions, introduced for the wartime period, do not constitute the legal barrier for recognition and enforcement of arbitral award prescribing recovery of the debt in favor of a nonresident
The Supreme Court recently confirmed that the temporary currency control restrictions related to the transfer of currency valuables from Ukraine (during the wartime period) do not constitute the legal barrier to recognition and enforcement of the arbitral award prescribing recovery of debt arising out of the contractual relations with the nonresident. The Supreme Court stressed that recognition and enforcement of such arbitral award does not violate Ukrainian public order. The above follows from the resolution of the Supreme Court passed on 14 September 2023 in Case No. 824/53/23 upon consideration of the request to recognize and grant the enforcement of the arbitral award rendered by the ICAC.
According to the background of this case, Croatia-based company CROSCO, Integrated Drilling & Well Services, Co. Ltd (“Applicant“) applied to the Kyiv Appellate Court seeking to recognize and enforce the ICAC arbitral award dated 15 September 2022. Under the arbitral award, Ukraine-based company JSC Ukrgazvydobuvannya (“Debtor“) was ordered to pay EUR 350,906.45 of principal debt, EUR 10,152.25 of interest thereon at 3% per annum, EUR 9,401.06 of the arbitration fee and EUR 175.94 of the additional expenses of the arbitration proceedings.
On 12 June 2023, the Kyiv Appellate Court, acting as a first instance court, satisfied the application on recognition and enforcement of the ICAC arbitral award. The Debtor appealed the respective court ruling to the Supreme Court, asserting that the ICAC arbitral award contradicts Ukrainian public order as it violates the restrictions on the transfer of the currency valuables from Ukraine established by Resolution of the National Bank of Ukraine No. 18 dated 24 February 2022.
Having considered the arguments of the Debtor, the Supreme Court arrived at the conclusion that the ICAC arbitral award does not violate Ukrainian public order in view of the following.
As substantiated by the Supreme Court, the existing relations between the parties in this case are based on the parties’ agreement (contractual relationship), and the Debtor failed to present any evidence to prove that the ICAC arbitral award could affect the public, economic and social fundamentals of the State of Ukraine or that such arbitral award could harm the sovereignty or security of Ukraine.
The Supreme Court also set forth that an unjustified refusal to grant permission for enforcement of the arbitral award could be considered as blockage of a court decision and could have the nature of an artificial regulatory barrier, which is unacceptable from the standpoint of international law. Such a scenario would not only contradict the purpose of international arbitration but would also violate the legitimate rights that the arbitral award provides for the Applicant in other countries.
The Supreme Court also added that the legal norms of the Ukrainian Constitution, the Arbitration Law and the Civil Procedural Code of Ukraine prevail over the legal force of Resolution of the National Bank of Ukraine No. 18 dated 24 February 2022, which, accordingly, cannot be used by the Debtor as a formal legal ground to avoid the enforcement of the ICAC arbitral award.
In light of the foregoing, the Supreme Court rejected the Debtor’s appellate complaint and, accordingly, upheld the court ruling passed by the Kyiv Appellate Court granting recognition and enforcement of the ICAC arbitral award.
B.3 Enforcement of arbitral award against an enterprise of the defense-industrial complex during the state of martial law does not violate public order
Recent court practice in Ukraine affirmed that the Ukrainian courts grant applications for recognition and enforcement of the arbitral awards even if domestic legislation provides for suspension of the enforcement actions against enterprises of the defense-industrial complex during the state of martial law. This conclusion follows from the resolution of the Supreme Court in Case No. 824/87/22 dated 9 February 2023.
In this case, North Macedonian company Specijalna Oprema Skopje — D. O. O. (“Applicant“) applied to the Kyiv Appellate Court seeking recognition and enforcement of the ICAC arbitral award dated 19 July 2021. Under the arbitral award, Ukrainian state-owned enterprise “Ukroboronservice,” the subsidiary of the state-owned company “Ukrspetsexport” (“Debtor“), was ordered to pay USD 56,000 for the goods supplied to the Applicant and compensate its arbitration costs.
On 25 October 2022, the Kyiv Appellate Court, acting as the first instance court, satisfied the application and granted recognition and enforcement of the ICAC arbitral award. The Debtor appealed the respective court ruling to the Supreme Court, asserting that recognition and enforcement of the arbitral award violate the public order of Ukraine in view of the fact that the Debtor is an enterprise of the defense-industrial complex, against which executing enforcement actions is expressly prohibited during the state of martial law.
Having considered the parties’ arguments, the Supreme Court concluded that recognition and enforcement of the ICAC arbitral award would not violate Ukrainian public order. As explained by the Supreme Court, the suspension of the enforcement actions against enterprises of the defense-industrial complex during the state of martial law does not release the Debtor from fulfilling its monetary obligations to counterparties but only makes the arbitral award temporarily unenforceable.
In view of the above, the Supreme Court upheld the court ruling of the Kyiv Appellate Court on granting recognition and enforcement of the ICAC arbitral award.
B.4 Arbitration clause is binding for the non-signatory to the primary contract that acquired the rights and obligations of the party to such contract based on a later additional agreement
The Grand Chamber of the Supreme Court, in its resolution dated 1 November 2023 in Case No. 910/3208/22, concluded that the arbitration clause contained in the primary contract shall be binding for an entity that further acquired the rights and obligations of the party to such contract based on the additional agreement entered into later.
According to the background of this case, the dispute arose between two Ukraine-based companies — LLC Berezanskyi Processing Plant (“Claimant“) and LLC Grain Power (“Respondent“) — due to the failure of the company Orsett Trading SA (“Company“) to fulfill its obligations under the supply contract (“Contract“) concluded between the Claimant and the Company. Pursuant to the additional agreement to the Contract (entered into later), the Respondent, as a guarantor, undertook all the obligations of the Company under the Contract.
On 27 September 2022, the first instance court left the claim without consideration due to the existence of an effective arbitration clause contained in the Contract. In contrast, the appellate court, in its resolution dated 9 May 2023, stated that the arbitration clause is not binding for the Respondent since the additional agreement is a separate agreement that does not contain the arbitration clause.
The Respondent challenged the resolution of the appellate court to the Supreme Court, which, in turn, transferred the case to the Grand Chamber of the Supreme Court. Having considered the parties’ arguments, the Grand Chamber of the Supreme Court concluded that the arbitration clause incorporated into the contract shall be binding for the entity that acquired the rights and obligations of the party to the primary contract, subject to the condition that the parties to such contract did not terminate the arbitration clause, did not narrow its scope, and did not exclude its binding force for such joining party. In view of the above, the Grand Chamber of the Supreme Court upheld the decision of the first instance court on leaving the claim without consideration and referred the parties to arbitration.
[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.
