Keywords

Ukraine; Arbitration reform

Background

Although largely based on the 1985 UNCITRAL Model Law on International Commercial Arbitration, the existing Ukrainian Arbitration Act contemplates limited involvement by courts in support of international arbitration. The Act does not empower courts to grant interim measures or to order the production of evidence in support of international arbitration. Moreover, actions to enforce or set aside awards typically take a long time, due in large part to the availability of numerous appeals.

In 2014, the Judicial Reform Council under the aegis of the President of Ukraine initiated law reform aimed at, inter alia, removing chronic impediments to the development of arbitration in Ukraine and making Ukraine an arbitration-friendly jurisdiction. In March 2017, the President submitted draft legislation to the Parliament and it is expected that the proposed amendments will be approved in the course of 2017.

‘Specialised’ courts for arbitration-related actions will speed up the process

Currently, applications for the recognition or setting-aside of arbitral awards can be reviewed by up to three different courts. In addition, the highest court’s ruling may be appealed to the Supreme Court of Ukraine where there have been conflicting interpretations of the law in similar cases. As a result, arbitration-related court proceedings commonly last for years.

According to the draft law, all arbitration-related court applications must be submitted directly to the appellate courts. Their decisions can be appealed only to the Supreme Court, whose decision will be final.

Further, the draft law gives the appellate courts the power to consolidate applications for setting aside and for the recognition of awards into one proceeding and address both actions in a single ruling. This is bound to lead to faster and more efficient administration of those applications.

In practice, it is likely that nearly all applications relating to international arbitration will come before the Kyiv Appellate Court, because the draft act provides that the Kyiv Appellate Court will be the only court competent to consider applications for recognition and enforcement of foreign arbitral awards. Moreover, the only arbitral institution in Ukraine authorised to administer international disputes is the International Commercial Arbitration Court (ICAC) at the Ukrainian Chamber of Commerce and Industry, which is seated in Kyiv. Thus, applications for setting aside international arbitral awards issued in Ukraine will also be considered by the Kyiv Appellate Court.

Such centralization may lead to the creation of court chambers dealing exclusively with arbitration-related matters and thus to greater specialization and to decisions of a higher quality. Also, it is expected that the treatment of arbitration-related matters will become more predictable and quicker under the new legislation.

Interim measures in support of arbitration

Under the draft law, Ukraine’s courts of appeal will be allowed to grant interim measures in support of arbitration, but only after the arbitration has been initiated. As the draft stands, such measures remain unavailable before the start of the arbitration. According to the draft legislation, an application for interim measures may be submitted to the court where the arbitral institution is situated, where the respondent is established or incorporated, or where the assets subject to the interim measures are located.

Applications are to be considered ex parte and without an open hearing, unless otherwise decided by the court.

Interim measures are available if: (i) failure to take such measures may substantially impede or prevent performance of the award; or (ii) if they are necessary for the effective protection or restoration of the infringed or disputed rights of the applicant.

There is no exhaustive list of measures that can be issued by a court.

The court may order the applicant to provide security for costs as a condition for granting the interim measure.

Judicial assistance in securing evidence in support of arbitral proceedings

The draft law expressly provides that the appellate courts shall assist arbitral tribunals and parties in obtaining evidence for arbitral proceedings. Namely, upon the application of a party or the arbitral tribunal, the courts may hear witnesses or order evidence to be examined where it is located, or may order the production of evidence to the interested party or directly to the arbitral tribunal.

If there is a risk of the evidence being lost, or if the collection of evidence will be complicated or become impossible, the court may also issue orders to secure evidence. There is no exhaustive list of measures that can be issued by a court in order to secure evidence. For example, courts may enjoin a party from taking certain actions or compel a party to undertake certain actions.

Currency, interest, and voluntary performance issues

Another important novelty is the right for the debtor to apply to the court to seek recognition of the award and offer payment. This amendment would correct the current law, which precludes the debtor from making a voluntary payment unless and until the creditor initiates and completes the exequatur proceedings.

The appellate courts will also be allowed to recognise the award without having to convert the awarded amount into the local currency (Ukrainian hryvnia). This is intended to avoid the problems created by the double currency conversion. In the existing system, the domestic court’s ruling first fixes the amount of the debt in the local currency, then the bailiff in charge of enforcement converts the amount back into a foreign currency and purchases such currency to transfer the collected funds to the creditor. Such double conversion creates currency risks and losses.

The draft law finally solves the issue of interest accrual between the date of the court’s recognition of the award and the date of performance, by empowering the state bailiff to calculate the amount of interest due at the date of payment. Currently, the creditor has to obtain an additional enforcement document for the interest accrued during that period.

Concluding remark

If passed, the arbitration reform will be a significant step forward in making Ukraine an arbitration-friendly jurisdiction.