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.
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, with further amendments).
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, with further amendments), 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.
The Rules of the ICAC and the UMAC (“Rules“) were last amended on 12 July 2024. The respective amendments came into force on 15 July 2024 and cover the peculiarities of accepting for consideration claims containing demands arising from two or more contracts.
In particular, the amendments to article 17 of the Rules provide that in case of filing a claim containing demands, arising from two or more contracts that can be allocated into separate claims, and the claimant insists on accepting such case for joint consideration, the president of the ICAC/UMAC may accept such claim when the arbitration clauses are compatible, and when simultaneous consideration of such claims contributes to the efficiency and expedition of the arbitral proceedings. The amount of the arbitration fee in this case shall be calculated as the sum of the arbitration fees calculated for each contract without charging the registration fee (except one).
Parties to the 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 38 countries, including Austria, Croatia, the Czech Republic, France, Germany, Hungary, Latvia, the Netherlands, Poland, Slovakia, Slovenia, Sweden, the United Kingdom and the United States.
B. CASES
B.1 Arbitration clause (arbitration agreement) cannot be challenged within the separate court claim in the national courts under the ordinary court proceedings
Recently, the Supreme Court set out the legal conclusion confirming that the arbitration clause (arbitration agreement) cannot be challenged within the separate court claim in the national courts within the ordinary court proceedings. The Supreme Court stressed that the arbitration clause (arbitration agreement) can be subject to challenge under special proceedings in a limited number of cases. The above follows from the resolution of the Supreme Court passed on 30 August 2024 in Case No. 911/1766/22 upon consideration of the court claim aimed at invalidation of the arbitration clause contained in the supply contracts.
According to the background of this case, Ukraine-based company Farm Enterprise Stoyanova I.S. (“Claimant“) and LLC Nor-Est Agro (“Respondent“) entered into a few contracts aimed at supplying mineral fertilizers. These contracts contained an arbitration clause referring all the disputes for the resolution by the Ukrainian arbitration institution. As the Claimant failed to pay for the supplied goods, the Respondent initiated and won the arbitration cases. Upon the recognition of the respective arbitral awards by the Ukrainian courts, the Respondent enforced the arbitral awards and, accordingly, collected the principal debt, fine, late payment interest, per annum interest and inflation losses from the Claimant.
Thereafter, the Claimant filed with the Ukrainian court the court claim aimed at invalidation of the arbitration clause contained in the respective supply contracts. The Ukrainian courts of the first and the appellate instances took into account the Respondent’s objections and rejected the said court claim arguing that the parties to the supply contracts agreed to resolve all the disputes arising out of such contracts within the arbitration proceedings. The Claimant did not agree with the said court decisions and, accordingly, challenged them to the Supreme Court.
Having considered the arguments of the Claimant, the Supreme Court arrived at the conclusion that the court claim shall be rejected in view of the following.
The Supreme Court asserted that, as opposed to the ordinary civil or commercial contract of a material nature, the arbitration agreement is the parties’ agreement of a procedural nature. Therefore, the general provisions of the Ukrainian civil or commercial law prescribing such judicial mechanism as invalidation of the transaction shall not apply in respect of the arbitration agreement.
The Supreme Court stressed that the matter of invalidation of the arbitration agreement is governed by the Law of Ukraine “On Arbitration Courts”, the Arbitration Law, the New York Convention and the Geneva Convention. As clarified by the Supreme Court, the foregoing legal acts prescribe the following fundamental principles: (1) the autonomy of the arbitration agreement (i.e., its validity is established separately from the matters of validity of commercial or civil agreements, in which the arbitration clause is incorporated) and (2) the “competence-competence” principle meaning that the arbitration tribunal itself resolves the matters of its competence to consider the presented dispute and validity of the arbitration agreement. At the same time, as elaborated by the Supreme Court, the national courts do have the right to resolve the matter of validity of the arbitration agreement, but in the cases directly set forth in the laws and the international agreements effective in Ukraine.
In light of the foregoing and based on the analysis of the applicable laws and the international agreements, the Supreme Court arrived at the conclusion that the national courts are entitled to consider the matter of validity of the arbitration agreement in the following cases:
- Within the procedure related to challenge of the arbitral award – such dispute is considered by a national court in the state, where the arbitral award has been made
- By the national court within the procedure related to recognition and enforcement of the arbitral award
- Where one party to the material contract files with the national court a court claim on any matter arising out of such contract (containing the arbitration clause or in respect of which the parties concluded the arbitration agreement)
The Supreme Court specified that the applicable legislation does not authorize the national courts to consider the matter of validity of the arbitration agreement based on the separate court claim aimed at its invalidation. Having determined the arbitration tribunal’s jurisdiction over the disputes under the supply contracts, the Claimant and the Respondent understood (or should have understood) that by doing so, they legitimately limited their right to access the mechanisms of classical justice (consideration of the disputes by the national courts). In the circumstances, the filing of the court claim aimed at invalidation of the arbitration agreement (especially post factum) may evidence the Claimant’s ignorance of the competence of the arbitration court and its relative institutional independence, the contradictory behavior of the Claimant, and its bad faith.
Taking into account the foregoing, the Supreme Court stressed that (1) the arbitration agreement is not considered as an agreement in the classical meaning as it gives rise to the procedural (not material) legal implications only and, accordingly, (2) one of such procedural implications is the exclusion of the dispute from the jurisdiction of the national courts (both commercial and civil).
Based on the above arguments and conclusions, the Supreme Court rejected the Claimant’s cassation complaint.
B.2 Enforcement of the arbitral award that results in sanctions evasion does violate the public order in Ukraine
Recently, on 18 December 2024, the Supreme Court, by its resolution in Case No. 824/107/23, denied recognition and enforcement of the arbitral award (taking into account the additional arbitral award) that provided for a substitution of the claimant after application of the sanctions to the initial claimant.
According to the background of this case, in July 2023, a UK-registered company, Polymerpipe Technologies Limited (“Applicant“), applied to the Kyiv Appellate Court seeking recognition and enforcement of the arbitral award of 8 May 2023, taking into account the additional arbitral award of 27 June 2023 (“Award“). Under the additional award, the initial claimant in the proceedings, a Cyprus-registered company, Radius Systems Holdings Limited, was substituted with the Applicant.
On 14 September 2023, the Kyiv Appellate Court, acting as a first-instance court, satisfied the application and granted recognition and enforcement of the Award. The ruling of the first-instance court was appealed to the Supreme Court by the prosecutor, who acted in the state’s interests. The prosecutor asserted that recognition and enforcement of the Award violated the public order in Ukraine since the additional award was rendered after the application of sanctions to the initial claimant.
Having considered the parties’ arguments, the Supreme Court arrived at the conclusion that recognition and enforcement of the Award would result in sanctions evasion and, therefore, would violate the public order in Ukraine. In view of the above, the Supreme Court canceled the ruling of the Kyiv Appellate Court and denied recognition and enforcement of the Award.
B.3 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 upheld the previously outlined approach and 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 19 August 2024 in Case No. 824/8/24 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, Italy-based company MECMAR S.p.A. (“Applicant“) applied to the Kyiv Appellate Court seeking to recognize and enforce the ICAC arbitral award dated 31 January 2024. Under the arbitral award, Ukraine-based company LLC Company, Agro-Temp (“Debtor“), was ordered to pay EUR 1,488 as the reimbursement of the Applicant’s expenses incurred in the course of the arbitration proceedings.
On 8 April 2024, 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, among other things, that the ICAC arbitral award contradicted Ukrainian public order as it violated 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 did not violate Ukrainian public order in view of the following.
The Supreme Court specified that the public order, among other things, included the rules that ensure the fundamental political, social and economic interests of the state. In light of the foregoing, the Supreme Court argued that the temporary currency control restrictions (i.e., restrictions related to the purchase of foreign currency for the purpose of its transfer abroad) cannot serve a legal ground for the conclusion that the ICAC arbitral award contradicts the public order of Ukraine.
The above approach is in line with the earlier position of the Supreme Court 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 as a formal legal ground to avoid the enforcement of the arbitral awards.
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.
