What are the main problems faced by a lawyer on execution of international arbitrage decisions in Ukraine?
The main condition of dispute consideration via international arbitration is the consent to such consideration by parties that is expressed in an arbitration clause, which is a voluntary one.
A party that freely agrees to arbitration of a dispute thus indicates that there is no need for the state judicial system to influence consideration of the dispute, including through a later analysis if certain norms of arbitration have been applied in a correct way.
However, if a party, in whose favor a dispute has been settled, refuses the influence of the state judicial system on the process of consideration, it should have a guarantee of its real and unconditional implementation with some influence on performance of the state institutions at the place where a decision of the court of arbitration is to be implemented. And the influence of the competent authorities of Ukraine (courts and the state enforcement service (Bailiffs Service) may be described as sufficient, including also for complication of the implementation process.
Civil Procedural Code of Ukraine contains enough grounds to deny an application for a permit to enforce a court decision
The first competent authority is a court, which has an impact on the issue of a permit to enforce a decision. A positive decision of the arbitration does not imply any certainty that it would be recognized in the defendant’s jurisdiction. An entire section of the Civil Procedural Code of Ukraine covers recognition and enforcement of decisions of foreign courts. It contains enough grounds to deny an application for a permit to enforce a court decision. And a number of such grounds leave a lot of possibilities for various applications and interpretations of the legislation not in favor of an applying party.
The other competent authority is the state enforcement service, which carries out direct enforcement of decisions in the manner established by the On Enforcement Proceedings Act of Ukraine. But this stage has no distinguishing features as to implementation of decisions of foreign courts, though there are some clauses in other acts and international agreements. Therefore, we can consider the process of implementation in terms of reality and efficiency of the enforcement proceedings and those still significant problems the parties face in the process of such enforcement.
In order to minimize the possibility of counter-productive influence of state institutions in the process of implementation of decisions of international courts and arbitration, national legislation and practices of application of relevant norms should be completely clear and unambiguous. Guarantees of protection for the parties, in whose favor international arbitration adopted a decision, in the territory where such decision should be implemented, are an important element of international relations and investors’ confidence.
During the last few years Ukrainian businessmen have begun to solve their problems with the help of international arbitration courts even more often. The reasons for this, are, first of all, mistrust in the domestic justice together with difficult and long procedure for solving disputes. Thus, the judgment of international arbitration can be executed in Ukraine only after its recognition by a national court and, as a consequence of this quite often there are a number of difficulties. A very popular mechanism is initiation of legal proceedings for the purpose of recognition void of the arbitration agreement. Such actions are, as a rule, undertaken for the purpose of time tightening. But in case of recognition of the arbitration transaction as void by a Ukrainian court, the arbitration court loses the competence regarding case consideration.
One of the most popular mechanisms of an obstacle to executing the judgment of an arbitration court is initiation of legal proceedings in Ukraine
If an arbitral judgment has already been adopted, Ukrainian legislation provides a number of cases when its execution can be refused. The list of such bases is registered in Article 396 of the Civil Procedural Code of Ukraine. One of the most popular mechanisms of an obstacle to executing the judgment of an arbitration court is initiation of legal proceedings in Ukraine for the purpose of recognizing as void the contract in which the arbitration agreement is found. According to Article 8 of the On International Commercial Arbitration Act of Ukraine a national court is obliged to stop consideration of such a case and to direct it to arbitration. But if the respondent doesn’t react in time and does not submit the corresponding petition, a court can consider question of the claim which is subject to the arbitration agreement and it can even recognize the contract void. Also, the arbitral judgment can’t be executed in case of threat to the interests of Ukraine. In such a situation the court will rely not only on legislative norms but also on its internal beliefs, which can appear rather unexpectedly. Nevertheless, if you correctly use preventive measures with the purpose of not admitting occurrence of such bases, execution of an arbitration court decision is quite real.
It is a well known fact that it is not enough to receive a positive arbitration decision in Ukrainian realities. Its enforcement is as important, as it may become another problem. There is no remedy in Ukraine which could 100% guarantee the complete enforcement of decisions made by foreign arbitration courts and foreign state courts.
The first problems appear at the stage of admission of a decision of a foreign arbitration. The procedure of admission and enforcement of foreign court decisions is rather formal in Ukraine. The non-compliance of a decision to certain formal criteria, real or imaginary, usually becomes the base for refusal by Ukrainian courts to admit and provide permission to enforce arbitration decisions. The consequence of such refusal is impossibility for a creditor to enforce a decision of a foreign arbitration in Ukraine.
There is no remedy in Ukraine which could 100% guarantee the complete enforcement of decisions made by foreign arbitration courts and foreign state courts
In addition, the grounds of refusal to admit and enforce a decision can be different, starting from lack of an arbitration notice (e.g., not exact name of an arbitration body), wrong or incomplete naming of parties (name, address and identification code) in a resolution of an arbitration decision, and failure to submit a complete package of documents, required by Ukrainian legislation.
Therefore, preparation for enforcement of an arbitration decision must start from the stage of drafting of an agreement and, first of all, an arbitration clause. Any mistakes and inaccuracies in the decision must be corrected in due time, and formal procedures, stipulated by Ukrainian legislation — thoroughly adhered to.
Another reason for it being impossible to enforce a decision of a foreign arbitration can be lack of relevant funds and liquid assets, which could be levied. Among other things, financial insolvency of a debtor may be caused by unfair actions of its owners, intentional withdrawal of assets, etc. Unfortunately, legal instruments available are not sufficient to effectively prevent such actions.
Some of the problems that are being faced by arbitral awards’ creditors when enforcing their awards in Ukraine include:
1) The recognition and enforcement of foreign arbitral awards is handled in Ukraine in the first instance by local civil courts at the place of the debtor’s location or that of its assets. In some cases such local civil courts do not have enough experience and competence to deal with matters relating to international commercial arbitration, which may result in an unpredictable outcome for an award creditor. The situation may be especially troublesome if the debtor’s office is officially registered in some remote village in Ukraine.
2) Ukrainian law does not recognise the concept of post-judgment or post-award interest, which accrues on the awarded sums under a court judgment or an arbitral award from the certain moment defined in such judgment or award until full payment of the awarded sums by the debtor has been made. The usual approach of a Ukrainian court is that if any additional interest has accrued after the coming into force of a court judgment, a creditor will have to start fresh proceedings and collect such interest anew. Ukrainian courts may, therefore, take the view that the recovery of post-award interest contravenes Ukrainian public policy and refuse its collection on that basis.
Expiry of the three year deadline may be used as grounds for refusal to recognise and enforce a foreign arbitral award in Ukraine
3) There exists a statutory deadline for filing a foreign arbitral award for recognition and enforcement in Ukraine, which is three years after its entry into force. Expiry of this three year deadline may be used as grounds for refusal to recognise and enforce a foreign arbitral award in Ukraine. This technicality can easily be overlooked by a foreign award creditor. Unfortunately, Ukrainian law does not expressly allow restoration of this deadline, even if it was missed by an award creditor for a valid reason.
4) Only the latest version of the On Enforcement Proceedings Act of Ukraine, which entered into force in March 2011, finally incorporated certain provisions dealing with collection of debt in foreign currency (e.g. it provides that the State Enforcement Service should have its own foreign currency account and that an officer of the state enforcement service (Bailiffs) has the power to instruct banks or other financial institutions to purchase foreign currency). Previously, when enforcing arbitral awards denominated in foreign currency, award creditors experienced significant problems in converting the enforcement proceeds in Hryvnias into foreign currency and transferring such proceeds abroad.
