Arbitration: your counterparty is a resident of Ukraine

It’s not a secret that all major international instruments in the field of international commercial arbitration are integrated into Ukrainian legislation. Particularly, Ukraine, as the successor of the USSR, is the co-signatory of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) and the European Convention on International Commercial Arbitration of 1961, and the Law of Ukraine “On International Commercial Arbitration” almost verbatim repetition of the Model Law UNCITRAL “On international Commercial Arbitration” of 1985.

Some period of time there were some difficulties in Ukraine with the execution of the arbitration decision on its territory, because the international agreements signed by Ukraine and the Law of Ukraine “On International Commercial Arbitration” did not regulate the procedure for the national courts in the exercise of their control and support functions for international arbitration. It was and it is the task of the national procedural law of Ukraine, primarily – the civil procedural law because the issues of revocation and enforcement of arbitral awards in Ukraine within are the competence of general courts. However, during recent years, Ukraine has finalized its civil procedural law in this area, eliminating many problems: development of procedures for the recognition and enforcement of foreign arbitral awards and cancellation procedures for the execution of decisions made through international arbitration in the territory of Ukraine, resolved issues of security execution procedures measures within the framework of the procedure for obtaining authorization for enforcement of the award in the territory of Ukraine. The legal practice of this category of cases is becoming more favorable to the arbitration.

Thus, the arbitration as a tool can be very useful for companies that have business contacts with Ukrainian companies. The main question is how to make this tool effective and efficient.

So, choosing the arbitration for resolving the dispute the arbitration institutes selection is extremely high, because everything depends on the specific relationship. For example, if you know that the assets of the defendant are located in Ukraine and the dispute can be considered normal in Ukraine, is there the advisability recourse for arbitration in London, New York or Stockholm, spending huge amounts of money? The cost of arbitration with the claim of $1 million in these arbitrations will be minimum at about $50-55 thousand in the simplest cases, and in less authoritative arbitration, such as the ICAC at the UCCI or ICAC at the RCCI is $16-18 thousand. At the same time, it’s just only the cost of the arbitration without the cost of legal support process.

It should also be understood that choosing a foreign jurisdiction for disputes with Ukraine resident the expenditure on legal support process can be quite big, because it may be necessary to involve several teams of lawyers from different jurisdictions spheres, which will deal with specific issues relating to the application of foreign law. The connoisseur, for example, of Ukrainian law in London, New York or Stockholm may be very expensive, it is not possible due to some formalities to get court decision of the enforcement of the arbitration in Ukraine will cost even more.

At the same time, if the parties prefer an ad hoc arbitration and agree the Ukrainian arbitrator or arbitrators, the cost of the arbitration proceedings it is possible to reduce to the $7-10 thousand, and in some cases, such as using the simplified procedure and complicated case, the cost of arbitration proceedings may be $ 4-8 thousand.

However, the question of arbitration cost itself is not determinative. The determinative issue is still the question of execution of decisions. Thus, the competent national court may refuse to execution of a decision that came into force if the decision violates the public policy of the country where enforcement proceedings initiated, provided that both the New York Convention of 1958 and the national procedural law of Ukraine. In the broad sense the refers to a violation of public policy is understood as arbitrators lack of justification of the decision, the lack of impartiality, the violation of national law or disregard for the facts, the breach of good morals and national interests. Also there is the number of disputes that national legislation prohibits to resolve by arbitration, for example, connected with the respect to trusts and competition that makes it impossible to execute the arbitral award in Ukraine. That’s why the knowledge of the national law of Ukraine by the arbitrator in the proceedings and the record of these features through deciding, including solutions in the text in the reasoning part of it, will be very important or maybe even critical, in the initiate procedures for enforcement of such decision in Ukraine.

Freedom of contract allows to register the arbitration agreement very much to the interested parties, including the arbitration procedure ad hoc, which determine all the details and procedures for arbitration, and how everything will happen – all this you can write “for yourself”, protecting such way your interests long before the emergence of situations requiring intervention arbitration. Also at this stage you can significantly reduce costs for the potential arbitration, if such dispute takes place. For example, you can foresee the possibility of video conferencing during meetings, the possibility of an expedited review of the dispute, the restriction or provide evidence to resolve the dispute in a written proceeding if the circumstances of the case do not require the attendance of witnesses or oral hearing, etc.

As for the duration of cases in various arbitrations, then, as practice shows, the proceedings of some arbitrations can be quite long, especially considering the need for arrival of representatives of the parties need a visa. Some opportunity to accelerate arbitration, such as the possibility of London Court of International Arbitration under the rules to decide on the merits as the rationale and justification for such solutions without relevant legal requirements, represent a serious potential threat, because the solution does not contain normative justification it can be difficult and sometimes impossible to recognize and execute on the territory of Ukraine, for the reasons already mentioned earlier (invalidity decision is a violation of the right to a fair trial, and as a result, constitute a violation of public policy).

Thus, in most cases, if the agreement with Ukrainian counterpart is one-time or for a small amount, the ad hoc arbitration procedure with Ukrainian arbitrator or arbitrators to previously agreed in the arbitration agreement procedures and rules can be much better and more efficient than conventional arbitration procedures, which the parties to default agree in their contracts. Also the work with Ukrainian lawyer in this matter has another positive aspect: taking into account the peculiarities of business in Ukraine, a foreign person concerned often makes sense to “observe” the Ukrainian defendant in the arbitration process. This will prevent or attempt the bankrupt or liquidated of fraud Ukrainian debtors, or at least in time to respond to receipt of the award was against whom perform.

The prior consultation with Ukrainian expert on this subject at the stage of pre-contractual and contractual work between foreign and Ukrainian companies will help to prepare the wining position at an early stage and facilitate the protection of rights and interests in cases where such protection is needed by the foreign companies.

Author: Kydalov Igor

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