In February 2016, the Highest Specialized Court of Civil and Criminal Cases of Ukraine (HSC) made public its Overview of case law related to the recognition and setting aside of international arbitration awards by Ukrainian courts. The HSC confirms with this Overview* their pro-arbitration approach. The Overview increases the level of certainty for foreign parties seeking enforcement of their arbitration awards in Ukraine.
In particular, the HSC confirmed the application of the following concepts:
International law rules prevail over the national law rules
The courts must look for relevant international agreements when considering cases on setting aside or on recognising and enforcing an arbitral award. The HSC states that where there is an international treaty governing recognition and enforcement procedure, only the requirements for refusal of recognition and enforcement stipulated in that international agreement or treaty shall apply.
In the past, Ukrainian courts sometimes applied the rules of the Code of Civil Procedure, which were less favourable for a party seeking recognition and enforcement, instead of the more favourable rules of the 1958 New York Arbitration Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The HSC position communicated by means of the Overview is intended to put an end to this misapplication and to benefit foreign parties seeking enforcement of their arbitration awards in Ukraine.
The place of arbitration defines the law governing arbitration proceedings, including the rules for setting aside
The HSC sets out the difference between the place of arbitration as agreed in the arbitration clause and the place of hearing or of deliberations of the arbitral tribunal, and establishes that only the former is relevant for establishing which court is competent with regard to applications to set the award aside.
As applicable to Ukraine, the HSC specifically comments that the current Rules of Ukraine’s leading arbitration institution, the International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry (ICAC) do not allow parties to the arbitral award to choose any other place then Kyiv, Ukraine. Under this rule any ICAC award may be challenged only to the Ukrainian court at the location of ICAC in Kyiv.
The above interpretation, however, appears to contradict the ICAC’s model arbitration clause, which specifically allows parties to choose a “place of arbitration”. Accordingly, when parties to ICAC arbitration agreement would choose other place of arbitration than Kyiv, this may easily lead to a situation where two courts would accept jurisdiction over setting aside of the arbitral award, one being the Ukrainian court at the location of ICAC office, and the other being a court at the place of arbitration chosen by the parties. These parallel proceedings would inevitably lead to problems in enforcement of such award.
Accordingly, when drafting arbitration clauses in their contracts, it is advisable for parties to choose ICAC Rules only when they agree that Ukrainian courts would be competent to set aside the award and Ukrainian procedural law would apply in that respect.
Refusal of recognition on the grounds of contradiction to the public policy of Ukraine is an “extraordinary” measure; each case should be carefully substantiated
The HSC points out that the concept of “public policy” has been difficult for Ukrainian courts due to its “non-specific and relative nature”. In fact, the HSC joined the courts in this uncertain attitude and avoided providing any clear definition or specific criteria that would help a court to establish a case of contradiction to public policy. Instead, the HSC listed, in the relevant part of the Overview, a number of situations where the application of the public policy concept would be unsuitable. For example, the application of foreign law by arbitration tribunal does not constitute a contradiction to public policy per se, even if foreign law rules appear to be contradictory to Ukrainian law rules.
The overall tone and context of the relevant part of the Overview, despite all its vagueness, leaves an impression that the HSC is of an opinion that courts should normally refrain from applying “public policy” grounds for refusal of recognition when dealing with a foreign arbitral award. Where the court, however, believes that there was a breach of public policy, it should perform a thorough analysis of the case and give full and specific substantiation for the application of the “public policy” grounds.
This position of the HSC is of high value because Ukrainian lawyers have been stating for years that the application of the “public policy” grounds is one the biggest risks for a foreign party seeking enforcement of its arbitration award in Ukraine. Now we can report that this risk has been considerably curbed by the HSC position expressed in the Overview.
With this Overview, the Ukrainian court system has made another step towards making Ukraine an arbitration-friendly jurisdiction and ensuring a more consistent approach towards the enforcement of foreign arbitral awards. Some of the issues, however, remain unclear, and parties are advised to seek advice from Ukrainian lawyer before including arbitration clauses in their contract with a Ukrainian element, or, at the latest, before filing a request for arbitration.