Arbitration - Ukraine

Introduction

Like similar laws in more than 50 countries, Ukraine's Arbitration Act 1994 is largely based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law. The provisions on recognition and enforcement procedures in the Civil Procedural Code 2005 conform to international treaties; other complementary sources, including the Directions of the Supreme Court of Ukraine and the High Hospodarsky Court of Ukraine, offer further clarification on international commercial arbitration. Ukraine is a signatory to:

• the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958;
• the European Convention on International Commercial Arbitration 1961; and
• the Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States 1966.

Despite their generally close adherence to international standards, certain provisions of the act strengthen the monopolistic position of the Ukrainian Chamber of Commerce and Industry (UCCI). In particular, the president of the UCCI is empowered to:

• appoint arbitrators if the parties fail to agree;
• rule on challenges regarding the suitability of arbitrators; and
• terminate an arbitrator's mandate.

Moreover, the applicable legislation largely refers to the UCCI's two arbitration institutions: the International Commercial Arbitration Court and the Maritime Arbitration Commission. However, Ukrainian legislation on international commercial arbitration largely reflects international best practices.

Enforcement of Arbitration Agreements

The act includes a provision on the enforcement of arbitration agreements which is similar to Article 8 of the UNCITRAL Model Law. It states that:

"A court before which an action is brought in a matter which is the subject of an arbitration agreement shall - if a party so requests [and] no later than when [that party submits] its first statement on the substance of the dispute - refer the parties to arbitration, unless it finds that the agreement is null and void, inoperative or incapable of being performed."

Despite the clarity of this provision, foreign parties may be surprised by the broad discretion granted to Ukrainian courts to decide that an arbitration agreement is void or inoperative. For example, if an arbitration agreement includes a minor error in the name of an arbitral institution, a court will tend to find the agreement inoperative. This discretion is explicit in Paragraph 5 of the Clarification of the High Hospodarsky Court of Ukraine on Issues of Jurisprudence Involving Foreign Companies and Organizations,(1) which states that "an arbitration agreement is inoperative if the parties have erred in the name of the arbitration court or have indicated an arbitral institution which does not exist". This position is supported by case law: in a number of cases a court has found an agreement inoperative because the parties have mistakenly referred to the Arbitration Institute of the Stockholm Chamber of Commerce as 'the Arbitration Court of the Stockholm Chamber of Commerce'.

Challenging Arbitral Awards

Article 34 of the act, which concerns challenges to arbitral awards, replicates the corresponding article in the UNCITRAL Model Law. Article 34 applies if Ukraine is the place of arbitration. It offers general guidelines on procedure and an exclusive list of grounds for setting aside an arbitral award, reflecting the grounds under the New York Convention.

In 2005 the act was amended and jurisdiction over proceedings to challenge an award under Article 34(2) was transferred from the courts of appeal to the district courts (ie, the lowest courts of first instance). This change does not reflect international best practice. Pursuant to Articles 16(3) and 34(2) of the amended act, the district courts are empowered to rule on challenges to arbitral awards and to a tribunal's provisional ruling on competence.

Unfortunately, neither the act nor the code specifies a procedure for setting aside an award. However, the lack of detailed provisions is partly compensated for by the Direction of the Supreme Court of Ukraine on the Practice of Courts Considering Applications for the Recognition and Enforcement of Foreign Judgments and Arbitral Awards and for the Setting Aside of Awards Made in International Commercial Arbitration in Ukraine.(2)

Recognition and Enforcement of Arbitral Awards

Article 390 of the code states that foreign judgments, including awards, may be recognized and enforced in Ukraine if they fall within the scope of an applicable international treaty or are covered by the principle of ad hoc reciprocity. As a signatory to the New York Convention, Ukraine gives its courts reasonable scope to refuse to recognize or enforce awards which are rendered in violation of essential principles of due process, arbitrability or public order. The most common grounds for non-enforcement are that: (i) a party against which an award is invoked was not given proper notice of the appointment of an arbitrator or of the initiation of arbitral proceedings, or was otherwise unable to present its case; or (ii) the award is found to conflict with public policy. The former reason must be invoked by a party; the latter reason may be invoked by the court.

A foreign arbitral award is enforced by the local district court of the location or place of residence of the party which must comply with the award. If the party's residence or location is unknown, the competent court is the court of the place where the party's property is located.

Article 391 of the code sets a three-year time limit for submitting an award to a court for enforcement; this time limit runs from the date on which the award becomes final and binding. A decision in favour of enforcement must be accompanied by an enforcement order (Article 398). However, a party wishing to enforce an arbitral award in Ukraine must be prepared for the numerous delaying tactics which an opposing party may employ, including the initiation of further court proceedings and attempts to suspend the enforcement of the award until such proceedings are concluded.

ILO