UAA Working Group has elaborated a draft law regarding exercise of judicial control over international arbitration by the Ukrainian courts
We hereby inform you that the Working Group I has completed the first stage of work regarding the elaboration of draft amendments to certain laws of Ukraine (concerning judicial control and support of international commercial arbitration).
The draft has been prepared with the view to enhance the efficiency of judicial control over international commercial arbitration in Ukraine, which would help to establish pro-arbitration practice of state courts and create a positive image of Ukraine as a jurisdiction friendly to arbitration. This will ultimately favor further development of international commercial arbitration in Ukraine and increase popularity of Ukraine as a place for arbitration, which will also reduce the caseload of state courts with complicated disputes involving foreign parties, as well as outflow of such disputes to foreign jurisdictions.
The most significant amendments to the Ukrainian legislation proposed by the Draft are outlined below.
The Draft provides for establishing a specific procedure for recognition and enforcement of arbitral awards in Ukraine irrespective of the place of arbitration, and a procedure for setting aside rulings or awards of arbitral tribunals if the place of arbitration is Ukraine.
Currently these issues are partially regulated by the provisions of Chapter VII-1 (Proceedings in Cases on Challenges against Awards of [Domestic] Arbitration Courts and Issuance of Execution Writs for Enforcement of Awards of [Domestic] Arbitration Courts) and Chapter VIII (Recognition and Enforcement of Foreign Court Decisions in Ukraine) of the Code of Civil Procedure of Ukraine, which do not take into account the particularities of international commercial arbitration and are obviously insufficient.
The Draft provides for limiting consideration of such cases by state courts to two court instances – the Kyiv City Appellate Court and the High Specialised Court of Ukraine for Civil and Criminal Cases.
As the practice of recent years demonstrates, introduction of an additional court instance for such cases in 2005 (local courts of general jurisdiction) substantially dropped the efficiency of judicial control over arbitration in terms of quality and time spent by state courts. Almost every case of this category undergoes all three court instances, which takes up many months, sometimes years. Before 2005 the situation was much better, as such cases were considered only by appellate courts and the Supreme Court of Ukraine. So there are objective preconditions for returning to this more efficient model.
Appointing only one appellate court for consideration of relevant applications will allow to improve the quality of court practice in such cases, concentrate the knowledge and experience of resolving specific problems in the sphere of international commercial arbitration in one court, whose decisions could only be appealed to the High Specialised Court of Ukraine. In addition, timeframes of relevant court proceedings will become more predictable for the parties, as compared to a situation when such applications are considered by all appellate courts of Ukraine, whose caseload may vary substantially, which influences the time for consideration of such cases. With respect to determining such a court, the most suitable one is the Kyiv City Appellate Court. This is the court that has considered almost all cases related to setting aside of awards of both Ukrainian permanent arbitral institutions (the ICAC and MAC at the UCCI), which are located in Kyiv. In addition, this is the court which considers a significant portion of applications for granting permission to enforce arbitral awards, and therefore has the biggest experience in performing judicial control over international commercial arbitration. Existing infrastructure and location are additional arguments in favour of selecting this court for consideration of cases related to international arbitration.
Additionally, it will allow to get rid of jurisdictional uncertainty which is common when submitting an application for granting permission to enforce an arbitral award at the location of the debtor’s assets, especially when the only asset is corporate rights in commercial companies registered in Ukraine.
With a view to procedural economy, the Draft provides for a possibility of considering applications for setting aside and granting permission for enforcement of an arbitral award in a single proceeding, since the grounds for setting an award aside and refusal of its recognition and enforcement are the same. Moreover, in accordance with the Draft both categories of cases must be resolved by the Kyiv City Appellate Court.
The Draft provides for the same time-limit for both proceedings in Kyiv City Appellate Court – two months, which will be suspended in case of need to serve subpoenas and procedural documents abroad under the international treaties ratified by Ukraine.
Under the Draft, as in many developed pro-arbitration jurisdictions, the parties have the possibility to waive their right for recourse against arbitral awards in state courts. In case of such a waiver, judicial control will only concern consideration of the application for enforcement of the arbitral award. In view of the fact that grounds for refusal of enforcement and setting aside of an arbitral award are identical, as mentioned above, such a situation will not prejudice any rights of the party against which the award was rendered; it will only limit the number of proceedings in which such party may use its rights. This will also have a positive effect for the promotion of Ukraine as a place of arbitration. The Draft also eliminates terminological discrepancies related to issues of setting aside of the awards of international commercial arbitral tribunals and domestic arbitral tribunals and introduces a unified term “recourse”, which is used in Article 34 of the Law of Ukraine “On International Commercial Arbitration”, and which differs substantially from the term “challenging”.
The Draft establishes a procedure by which the courts take decisions concerning rulings of arbitral tribunals on their jurisdiction (Article 16(3) of the Law of Ukraine “On International Commercial Arbitration”) which is currently not regulated.
The Draft establishes a procedure of realisation by the court of provisions of Article 34(4) of the Law of Ukraine “On International Commercial Arbitration”, under which the court may, where it finds it appropriate, suspend the setting aside proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the arbitral tribunal’s opinion will eliminate the grounds for setting aside.
The Draft eliminates discrepancies in the current procedural legislation of Ukraine concerning a situation where a action in a matter which is the subject of an arbitration agreement is brought to court. The Draft provides that in such a situation the court must leave the claim without consideration if the defendant raises a plea hat the court does not have jurisdiction not later than when submitting his first statement on the substance of the dispute, unless the court finds that the arbitration agreement is null and void, inoperative or incapable of being performed. This will be in line with Article 8 of the Law of Ukraine “On International Commercial Arbitration” and Article II(3) of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
In order to establish a general approach of the courts to enforcement and interpretation of arbitration agreements, the Draft provides that any defects in the arbitration agreement and/or doubts as to its validity, operability and capability of being performed should be interpreted by the court in favour of its validity, operability and capability of being performed. This will promote pro-arbitration court practice in cases when, for example, the arbitration agreement has certain defects which may be remedied by interpretation (e.g. mistake in the name of arbitration institution).
The Draft solves the problem of voluntary compliance with arbitral awards, which is a serious obstacle for Ukraine becoming a pro-arbitration jurisdiction. In view of applicable currency restrictions, it is currently not possible to voluntarily comply with an arbitral award if the amount in it is indicated in a foreign currency, since the payer must provide to its servicing bank an execution writ in addition to the arbitral award itself. The execution writ may be obtained only after a permission for enforcement of an arbitral award was given by a state court.
Since the Draft is not aimed at amending currency restrictions, as a compromise, it provides for a simplified procedure of issuance of such execution writs upon the debtor’s application, with the judicial control limited to issues of public policy and arbitrability. Such procedure includes mechanisms for prevention of possible abuse by unfair debtors, which may try to purposefully obtain a refusal, and protection of creditors’ interests, who, logically, should not participate in such simplified procedure, and, accordingly, will not have a possibility to timely react to such abuse.
The Draft solves the problem of the currency of payment pursuant to an arbitral award. Under current provision of the Code of Civil Procedure, the court must determine in the ruling on granting permission for enforcement of an arbitral award the amount of payment in national currency of Ukraine in accordance with the National Bank of Ukraine rate as of the date of the ruling. This means that the amount is indicated in the Ukrainian national currency in the execution writ as well, and the Execution Service recovers funds in national currency (UAH). However, in the majority of cases the foreign creditor does not have an account in UAH in a Ukrainian bank, so it will be impossible to get the money from the Execution Service. In addition, there are currency risks connected with conversion of debt into national currency of Ukraine. The Draft provides that conversion of the amount to be paid under the arbitral award into national currency of Ukraine or a freely converted currency may be made only pursuant to the creditor’s relevant application.
The Draft regulates the issue of recovery of annual interest on payments due under arbitral awards. This is an efficient stimulus for voluntary compliance with an arbitral awards and encourages the debtor not to drag payments. The Draft defines the court’s powers and the procedure for calculation of amount of annual interest pursuant to an arbitral award accrued as of the date of the ruling on recognition and enforcement of an arbitral award.
The Draft contains provisions as to the court fee rates, in particular:
- for consideration of an application for setting aside of rulings and awards of international commercial arbitral tribunals – 2 per cent of the amount of claim brought to arbitration, but no less than 12 minimal salaries and no more than 120 minimal salaries, and
- for consideration of applications for recognition and enforcement of awards of international commercial arbitral tribunals – 1 minimal salary
The Draft establishes a general approach to application of res judicata principle in connection with a dispute decided by an arbitral tribunal: circumstances established in the operative part of an award of a domestic arbitral tribunal or international commercial arbitral tribunal need not be proved in other cases between the same parties, provided that a court decision was rendered in Ukraine pursuant to which such award was recognized and/or enforced, or setting aside of such award was refused.
The Draft eliminates discrepancies in the Ukrainian legislation related to arbitrability of disputes and establishes a general rule that the parties may refer to domestic or international commercial arbitration a dispute which falls under jurisdiction of civil or commercial courts and in respect of which the parties may enter into a settlement agreement, unless otherwise provided by law. Currently, such special rules for international commercial arbitration are established in the Law of Ukraine “On International Commercial Arbitration”, and for domestic arbitration – in the Law of Ukraine “On Domestic Courts of Arbitration”.
The Draft also eliminates a number of other discrepancies and lacunae related to judicial control of international commercial arbitration.
The nearest plans of the Working Group Include drafting provisions aimed at filling existing regulatory gaps with respect to such issues as types and procedure of application of interim measures in support of international commercial arbitration, other support of arbitration by courts. We are planning to complete the work in nearest future in order to make additional proposals on these issues.
The full text of the document may be found at link.
We will be grateful for any commentaries and additions, which you may forward to the Working Group’s coordinator Olena Perepelynska (firstname.lastname@example.org)
Ukrainian Arbitration Association