The Ministry of Economic Development and Trade of Ukraine offered to establish in Ukraine an independent arbitration body with engagement of foreign arbitrators to regain trust of investors to the country in the context of critically low level of trust towards existing judicial system. What kind of novelties and rules of the game should we expect from the initiative announced by the Ministry of Economic Development and Trade of Ukraine (the “Ministry”) on establishment of new arbitration body in Ukraine?

Currently Ukraine already has an international arbitration institution – International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry of Ukraine (the “ICAC”). This Court is quite a success among similar arbitration centers of the Eastern Europe and has under its consideration several hundreds of cases a year.

Instead of reformation of the existing ICAC or establishment of an alternative authority the Ministry is offering to create the service on appointment of arbitrators – the nomination committee. Hence, instead of mentioning ICAC in their arbitration clauses the parties shall use references to such committee and in case of a dispute the committee will be appointing arbitrator(s) for consideration of the case. At the same time the committee shall not be involved into administration of the case (correspondence, advance payments, scheduling hearings etc., as ICAS does) as this function will be performed by the arbitrators themselves.

As a matter of fact, although the Ministry refers to such procedure as ad hoc arbitration it does have much difference from ICAC procedure: after formation of arbitration tribunal ICAC further plays only a technical function and its functions may be fully performed (however, with certain inconveniences) by arbitrators themselves or by an administrative secretary appointed by them.

Essential difference between ICAC and the nomination committee shall be in the composition of arbitrators proposed to be appointed by each institution.

Within ICAC arbitration the parties may appoint arbitrators only from the recommended list of ICAC arbitrators. This list contains both Ukrainian and foreign specialists approximately in equal proportion. Among Ukrainian arbitrators there are many academicians, doctors of science, honored lawyers of Ukraine, former judges, and high-ranking state officials. Their foreign colleagues are also honored specialists: the heads of East-European arbitration institutions, university professors etc.

As it was announced the nomination committee shall operate using open lists. It means that if the arbitration tribunal consists of three arbitrators which two parties may appoint (roughly speaking) anyone as their arbitrators.

Apparently the head or the single arbitrator shall be appointed by the committee from the list in which 60-70% are foreign specialists with corresponding experience promised by the Ministry.

It is difficult to criticize such new initiative offered by the Ministry. If Ukrainian business and foreign investors will have one more possibility to settle their disputed outside the state courts this initiative is only to be welcome. On any case ICAC will not disappear and supporters of arbitration procedures will always be able to pledge their allegiance to it.

However, a number of points are to be discussed.

Firstly, it is not a problem to immediately transfer a dispute for consideration of highly-qualified foreign arbitrators, the problem is to keep within limits of budgetary expenditures. Ukrainian companies and foreign investors may easily apply for services of one of the first-class arbitration institutions – LCIA, ICC, AAA and ICDR – which will provide an experiences arbitrator at their disposal. But services of such arbitrators are also of a high scale.

Correspondingly the initiative advanced by the Ministry will be viable if it allows engaging foreign arbitrators under Ukrainian budgets, at least compared to the budgets of ICAC.

Secondly, foreign arbitrators rarely have command of Russian or Ukrainian language while, at the same time, our lawyers (especially in-house lawyers) do not always have command of the English language. In such situation the Ministry, which has a long list of Ukrainian arbitrators, has an advantage.

Thirdly, to establish a new arbitration mechanism is a long process. It would be necessary for the parties to make references to the new committee in their arbitration clauses; then (usually in the course of several years) disputes would arise which will be successfully considered by new arbitration bodies and their awards will need to be acknowledged by the courts. It means that it is unlikely that there will be any real (but not the one “for the sake of appearances”) effect from establishment of new arbitration earlier than after expiration of a year or two.

Finally it is evident that successful work of the nomination committee for the most part depends on skillful PR campaign – potential parties to the disputes must be assured that the new committee will have advantages both over the known ICAC and foreign arbitration institutions.

In such situation there is a great temptation to create a superficial demand for services of the new committee – for example, to put an obligation onto the state enterprises subordinate to the Ministry to settle the disputes only through arbitration procedures upon participation of the committee. It is better to be cautious about the said actions: apart from evident corruption risks the rules of conflict of interests must leave out involvement of the Ministry in creation of the committee which will later be resolving disputes between the parties which may be represented by the state enterprises.