Dynamic Arbitration Industry
In fact, the arbitration industry is a dynamic one and is evolving all the time in line with the needs of business. A current panel gives an updated overview of the most recent developments in venue preferences, costs and concerns, new specific regulations, legal advisor’s role, and self-regulation achievements.
What arbitration institutions are preferred by Ukrainian businesses? What is the reason?
Anna Kombikova,
associate, AstapovLawyers ILG
Ukrainian businesses still opt largely for the International Commercial Arbitration Courts both at the Ukrainian and the Russian Federation Chambers of Commerce and Industry. This fact has a great deal to do with the geographical location of these institutions, the language issue, and, naturally, the cost of arbitration. If we consi-
der the latter factor, then it appears that a claim worth USD 500,000 would require payment of around
USD 41,000 of arbitration fees in ICC Arbitration, USD 32,000 in arbitration under the auspices of the Arbitration Institute of the Stockholm Chamber of Commerce, and only around USD 19,000 in an arbitration case at the ICAC at the UCCI. However, not only these factors matter.
For example, as suggested by the Order of Payment in Foreign Currency Act of Ukraine, fines for untimely crediting by Ukrainian residents of their foreign currency accounts in the course of export-import operations involving non-Ukrainian residents shall not be imposed where the respective claim against the non-resident has been accepted by a court, the ICAC or the Maritime Arbitration Commission at the UCCI.
The issue has been long a subject of discussions between the practitioners, courts, and state authorities. But this factor still remains on the agenda.
Apart from the above, our clients refer a significant number of cases to arbitrations in England. This is especially so where disputes arise between major groups of companies or deep industry businesses such as grains, oils and seeds, sugar and others. The first category would mostly choose the London Court of International Arbitration (LCIA) forum, as it is one of the most popular in the region. The latter refer their disputes to arbitration tribunals of Grain and Feed Trade Association (GAFTA), Federation of Oils, Seeds and Fats Associations (FOSFA), Refined Sugar Association (RSA) and other similar specialized organisations, whose arbitration rules are many times incorporated by reference into standard contracts used by respective market players.
What types of disputes are most often sent to international arbitration? Are there any differences in the attorney’s activities depending on the type of dispute and the arbitration venue?
Anna Tkachova,
junior associate, Asters
Today international arbitration is a convenient and popular means of dispute resolution for a large variety of international disputes.
The notion of international arbitration covers international commercial arbitration and investment arbitration. International commercial arbitration is used to resolve international commercial and contractual disputes between private law entities. For example, disputes between business partners related to breach of contractual obligations by one of them. As a general rule, claimants try to seek recovery of damages for breach of commercial contracts. In order to refer a dispute to international commercial arbitration the parties to the agreement should conclude an arbitration agreement, which is an integral part of the main agreement.
On the other hand, investment arbitration resolves disputes between a private investor and a host state, where the investor was trying to invest its funds. Existence of the arbitration clause is not required for investment disputes. An investor refers a case to investment arbitration based on an instrument of public international law, a Bilateral Investment Treaty (BIT). Disputes in the scope of investment arbitration address issues related to expropriation, breach of fair and equitable treatment by the host state.
Furthermore, it is worth mentioning that there are special procedures for resolution of sport — related disputes, intellectual property disputes, energy and trade disputes. Such disputes are resolved using procedures of the World Intellectual Property Organization, Court of Arbitration for Sport, Energy Charter Treaty and the World Trade Organization.
What reasons do they consider when choosing the venue and rules of international arbitration?
Ivan Zievakov,
senior associate, Antika Law Firm
When choosing a place for arbitration the parties usually rely upon certain subjective circumstances that are relevant specifically for these parties in this particular matter. The following are among the most common criteria for choosing a particular place of arbitration:
The arbitration process entails considerable expenses for the parties. The exact amount that the parties should have to spend to defend their interests is not the same for different arbitration institutions. Accordingly, one or other arbitration may be chosen by the parties based on the size of the arbitration fee and other associated costs.
For example, if the dispute between a resident of Ukraine and a resident of France will be considered in the ICC in Paris, then the resident of France may be in a better position than the resident of Ukraine.
Moreover, there are a lot of other circumstances that can influence the choice of the parties as to the place of arbitration. They are: the previous choice of the applicable law, convenience of the rules of the arbitration institution for the parties, corporate policies of contracting parties, etc.
What is the cost of arbitration in the most popular jurisdictions? How is it determined and what does it depend on?
Kateryna Zviagina,
lawyer, JURIMEX Law Firm
In the past few decades, arbitration has become a mainstay in resolving legal disputes.
The most popular and the most expensive seats of arbitration are London, Paris, New York and Geneva. Singapore has emerged as a regional leader in Asia. According to statistics the most negative attitude and perception is of Moscow and mainland China as seats of arbitration. The International Court of Arbitration (ICC) is the most preferred and widely used arbitration institution. London Court of International Arbitration is the second most preferred institution and American Arbitration Association/International Centre for Dispute Resolution (AAA/ICDR) is in third place.
One of the key factors in terms of making a choice of arbitration institution is the cost of arbitration. To determine completely the cost of arbitration or whether a particular arbitration process is expensive or cheap, many factors are always considered. These factors include the rules that govern such arbitration, the weight of the case involved, the cost of initiating the arbitration and the type of hearing requested by the parties.
The cost of arbitration includes the fees and expenses of the arbitrators, administrative costs fixed by the Court in accordance with the costs scales in force and the reasonable legal and other costs incurred by the parties for the arbitration.
The arbitrator’s fees are managed by the Court and fixed on the basis of the relevant scale found in its Rules, taking into consideration the diligence of the arbitrators, the time spent, and the rapidity of the proceedings and the complexity of the dispute. For example, in the ICC Rules of Arbitration in Appendix III the minimum of the fee is 0.0100% of the amount over USD 500,000,000 in a dispute.
The maximum fee is 0.0400% of sum over USD 500,000,000.
The administrative costs represent the fee charged by the ICC for administering a case. The minimum amount of administrative costs is USD 3,000 in a dispute with the amount up to
USD 50,000 and it is not refundable.
The cost of legal representation and the other costs incurred by the parties for arbitration are not covered by the advance on costs required by ICC. They are included in the costs of arbitration as fixed by the Arbitral Tribunal in the Award.
What are the functions of an expert in international arbitration?
Olena Perepelynska,
counsel, Sayenko Kharenko
An expert’s report is often used as evidence in international arbitration. However, its evidentiary weight and significance could substantially differ depending on
(i) the method of appointing such an expert as well as (ii) the subject matter of the expert's analysis.
The expert could be appointed by the party, arbitral tribunal or according to the mixed procedure (e.g. Sachs Protocol). Each method has its pros and cons. And the disadvantages of these methods generate discussions if the experts are always “hired guns”, if they are party-appointed, or act as “fourth arbitrators” if they are tribunal-appointed. The mixed method is supposed to eliminate the disadvantages of each of these two methods, but in practice such a mixture could combine their worse, instead of the best features.
The issues to be reported by the experts could vary from purely technical issues to legal issues. However, most often the expert reports are produced to prove the amount of damages suffered by one of the parties to arbitration. It is widely used in commercial arbitration all over the world, but for some reasons this practice is not so common in the CIS countries, where the amount of damages is usually calculated by the counsel to the party.
What is conflict of interest in international commercial arbitration? How is this issue solved in practice?
Dmytro Donenko,
associate, ENGARDE Attorneys at Law
In international arbitration the term conflict of interest is generally used to describe a situation when an arbitrator is involved in multiple interests, one of which could possibly corrupt his motivation to act independently and impartially. Needless to say that the existence of conflict of interest is absolutely unacceptable if the interests of justice are at issue.
In theory, an arbitrator should disclose all the facts that may give rise to concerns as to his impartiality and independence. In practice, however, arbitrators are often unsure about what facts need to be disclosed, and they may make different choices about disclosures than other arbitrators in the same situation. A huge variety of possible situations makes the issue of conflict of interest an incredibly complex one.
The most authoritative and most commonly used document to solve those issues are the IBA Guidelines on Conflict of Interest. IBA Guidelines are not binding, but give a useful insight as to how an arbitrator should act in a particular situation. The document contains so-call Red, Orange and Green Lists of most typical situations. A Red List situation requires an arbitrator not to accept an appointment. In an Orange List situation an appointee may serve as an arbitrator, unless a timely suggestion is raised by either party. Green list circumstances are relatively safe and do not require any disclosure.
Unfortunately, IBA Guidelines are in no case a universal solution. A great number of situations are not covered by the document, and such cases are to be resolved on a case by case basis. Therefore, it is sometimes extremely hard to determine whether there is in fact a conflict of interest in a particular situation.
What are specifics of a lawyer’s work in investment arbitration?
Andrii Kubko,
partner, Ph.D. (Law), Salkom Law Firm
Speaking about a lawyer’s work in this area, one should bear in mind investment arbitration deals with the responsibility of the state. This responsibility is based on international legal standards which include both multilateral and bilateral investment treaties, generally acceptable international legal principles, customary international laws, and awards made by international arbitral tribunals. International arbitration treats conduct of the states from the standpoint of its conformity (or a failure to conform) to the requirements of international law. This is why it not only the knowledge of international law that has crucial importance for a lawyer practising in this area but also his or her ability to put aside the notions of legality as compliance with national legislation that are traditional for a domestic legal system. This ability includes an aptitude to assess acts of the state that are formally compliant with domestic law from the standpoint of international law. Furthermore, a lawyer engaged in investment arbitration should be able to evaluate the conformity of domestic statutes and regulations with international legal principles. Therefore, a lawyer practising in the field of investment arbitration cannot afford to be stuck in traditional approaches that are characteristic of the practice of law on a national level neither from the perspective of theoretical knowledge nor from the perspective of legal thinking.
What are the key issues related to recognition of foreign arbitral awards by Ukrainian courts and their enforcement in Ukraine?
Oleksandr Denysenko,
attorney at law, Ilyashev & Partners
The main challenges in recognition and enforcement of foreign arbitral awards in Ukrainian courts are related to the low level of awareness about relevant legal norms among Ukrainian judges, especially those who work in courts of first instance. The recognition and enforcement of foreign arbitral decision require from judges a good understanding of the main international treaties which are binding for Ukraine, such as the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, the European Convention on International Commercial Arbitration of 1961, the Kiev Agreement on Settlement of Commercial Disputes of 1992 and others.
That is why applications for recognition and enforcement of foreign arbitral decisions are often returned by local courts on various puzzling grounds. Most of them are related to misunderstanding by courts of the correct legal norm to be applied.
As an example the following situation can be presented. A couple of years ago an author applied to one local district court of Kiev for the recognition and enforcement of an award issued by the International Commercial Arbitration Court at the Russian Chamber of Commerce and Industry. Under Article 5 of the above-mentioned Kiev Agreement, the documents can be presented in Russian. So, the award wasn’t translated into Ukrainian, being presented in the original language — Russian. Nevertheless the local court returned the application on the ground that under the Civil Procedure Code of Ukraine all documents presented to the court must be translated into the Ukrainian language.
It goes without saying that the judge didn’t even take a look at the Kiev Agreement.
What are advantages and disadvantages of the arbitration centres that exist in Ukraine?
Markian Malskyy,
partner, head of West Ukrainian Branch, Arzinger
There are two international arbitration institutions at the Ukrainian Chamber of Commerce and Industry (UCCI): International Commercial Arbitration Court (ICAC) and International Maritime Commission (IMC). The main advantages of those dispute resolution forums are the reasonable costs of arbitration and a less formal procedure compared to litigation in Ukrainian courts. At the same, time the rules of the ICAC and IMC at the UCCI may be not the best choice for complex, complicated and multi-party disputes.
One of the features of arbitration at the ICAC or IMC at the UCCI is a list of recommended arbitrators. The most famous international arbitral institutions, such as LCIA, SCC or ICC, do not have this type of list. At the same time, taking into account that arbitration is still quite a “young” dispute resolution mechanism for Ukraine and most practitioners are not familiar with all the details of its procedure, the list of recommended arbitrators may be quite helpful in practice. There are supporters and opponents of such a list.
The duration of arbitration at the ICAC or IMC at the UCCI is quite quick compared with other arbitration rules and in some cases even commercial courts. Besides, a case is considered only on its merits and an issued award may be set aside only on procedural grounds. At the same time, the parties may expect longstanding setting aside and enforcement proceedings involving a few court instances.
Professional education in the field of international commercial arbitration is becoming more and more popular in the world. The Ukrainian Arbitration Association and the Russian Arbitration Association were established recently. It is already one year since the Ukrainian Arbitration Association was established. Were there any achievements during this period?
Tatyana Slipachuk,
partner, Sayenko Kharenko
The launch of the Ukrainian Arbitration Association (UAA) in November 2012 created strong stimuli for those interested in international commercial arbitration to join efforts and contribute to promoting arbitration and developing an arbitration-friendly environment in Ukraine.
Following its creation the UAA organised and co-organised several arbitration events and carried out a range of educational and promotional activities. Among the latter activities:
— a meeting with the Chairman of the Cyprus-Eurasia Dispute Resolution and Arbitration Centre (CEDRAC), Professor Loukas Mistelis, to discuss the peculiarities of dispute resolution through international arbitration in Cyprus;
— co-organising a discussion on professional ethics in international arbitration with the Ukrainian Bar Association; and
— granting a special prize to the best speaker in the competition on international arbitration, which was held under the auspices of European Arbitration Chamber (Brussels, Belgium) in March 2013 in Kiev.
The greatest efforts have been made in improving the arbitration climate in Ukraine.
To this end, the UAA co-organised two roundtables and the Arbitration Forum to discuss the urgent measures to improve Ukrainian legislation and court practice in arbitration-related matters with the Ukrainian arbitration community and state judges.
On 5-9 August the UAA jointly with the National University of Kyiv Mohyla Academy’s Faculty of Law ran the First Summer School in International Arbitration. It was the first educational event of its kind in the field of international arbitration ever held in Ukraine. To diversify the learning experience of the participants, a visit to the International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry and a meeting with its President Mr. Selivon was set.
Within the discussion with UAA members specific gaps in the legislative regulation related to the issues of arbitrability, as well as control and support functions of state courts, were revealed. As a result of the discussions, the UAA established a Working Group to develop a draft amending a number of legislative acts of Ukraine in the field of international and domestic arbitration.
Besides, another Working Group took initiative to consider the perspectives of ad hoc arbitration in Ukraine and the provision by UAA to give administrative support to such procedures. The latter would not only enable Ukrainian business to settle their disputes in Ukraine, but also will make Ukrainian arbitration specialists visible for international arbitration community.
