November 2017 – Ukrainian arbitration law, which follows almost to the letter the 1985 UNCITRAL Model Law (the "Model Law"), has been largely unrevised since its adoption in 1994, despite subsequent changes introduced to the Model Law in 2006. As a result, Ukrainian legislation has construed arbitration agreements in a rather out-dated manner and virtually has not provided for court-ordered interim measures.

To remove these discrepancies and finalise the judicial reform process that began in June 2016, on 3 October 2017, the Ukrainian parliament adopted Bill No 6232 “On Amendments to the Commercial Procedure Code of Ukraine, the Civil Procedure Code of Ukraine, the Code of Administrative Proceedings and other legislative acts”, which was signed by the president on 23 November (the “Law”).

The Law contains important novelties such as strengthening the role of the Supreme Court of Ukraine as the only court of cassation, establishing a High Court on Intellectual Property within the system of commercial courts, and implementing an e-court system (i.e., the possibility for the exchange of documents between the courts and parties and for holding videoconferences through a single judicial information and telecommunication system).   

In addition to important changes in the field of dispute resolution, the Law also introduces long-expected changes in the field of arbitration. Namely:

§  The Law ensures that arbitration clauses will be enforced by Ukrainian courts by introducing presumption in favour of the validity and enforceability of arbitration agreements (i.e., it provides that any inaccuracies in the text of the arbitration agreement or doubts regarding its operability, validity and possibility of performance will be interpreted in its favour) (Art. 22 of the Commercial Procedure Code).

§  It broadens the meaning of the arbitration agreement and brings it into compliance with the amended 2006 Model Law by stipulating that the “writing requirement” is met by an electronic communication if the information contained therein is accessible so as to be useable for subsequent reference (i.e., is capable of being reproduced and read).

§  It identifies the list of non-arbitrable disputes and to some extent resolves the problem with non-arbitrability of corporate and public procurement disputes. In particular, Article 22(1)(2) of the Commercial Procedure Code provides that disputes arising from corporate relations, including disputes between business entity participants (founders, shareholders, members) or between a business entity and its participant (founder, shareholder, member), including former a participant, regarding the business entity’s establishment, activity, management and liquidation, cannot be referred to arbitration. However, if such a dispute arises from a contract, it can be arbitrated if there is an arbitration agreement between the business entity and all of its participants. Similarly, the civil law aspects of the disputes arising from execution, modification, termination and performance of the public procurement agreements can be arbitrated. 

§  The Law transfers competence on setting aside and enforcement proceedings from the first instance courts to Kyiv Appellate Court.

§  The Law introduces judicial support to international arbitration undertaken by the Ukrainian courts. The courts may order the provision of evidence (Art. 84 of the Civil Procedure Code); inspect evidence (Art. 85 of the Civil Procedure Code); examine a witness (Art. 94 of the Civil Procedure Code); preserve evidence (Art. 116 of the Civil Procedure Code); order other interim measures (Art. 149 of the Civil Procedure Code). The Law also provides for a cross-undertaking in damages if the arbitral tribunal rejects the claim in full or in part (Art. 159 of the Civil Procedure Code). 

§  It also resolves certain long-standing problems of recognition and enforcement of foreign arbitral awards by determining how the post-award interest shall be calculated and recovered (Art. 479(4)(5) of the Civil Procedure Code) and allowing Ukrainian courts upon application of the party seeking enforcement to determine an equivalent sum of recovery in Ukrainian currency (Art. 479(6) of the Civil Procedure Code).

In January 2018, it will be three years that NIBULON SA is unsuccessfully seeking enforcement of its USD 17,536,000 GAFTA award and interest before Ukrainian courts against PJSC Company Rise. One of the stumbling blocks is the courts’ continuous refusal to calculate the post-award interest for the period between the arbitral award and its execution.

§  The Law changes the consequences of raising arbitration defence in court proceedings from terminating court proceedings to dismissing a case without hearing its merits (i.e., the parties preserve a right to submit the case to the court if the arbitral tribunal denies jurisdiction) (Art. 226 of the Commercial Procedure Code). At the same time if the parties at the start of court proceedings have concluded an arbitration agreement, the court closes arbitration proceedings. In such cases, repeated legal action is prohibited (Art. 231 of the Commercial Procedure Code).  

§  The Law establishes some additional arbitration incentives. For instance, during a preparatory meeting the court shall inquire whether the parties wish to submit their dispute to arbitration.

A new edition of the Rules of the International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry (the “ICAC”), which will be effective as of 1 January 2018, keeps pace with the changes introduced by the Law. In addition, it introduces the presumption in favour of institutional arbitration in Ukraine (stipulating that reference to ICAC Rules means reference to ICAC arbitration); provides for uneven number of arbitrators and two categories of experts (tribunal- and party-appointed); allows expedited proceedings on an opt-in basis; resolves the issue of assignment of claims; and extends the grounds for involvement of third parties; etc. 

While not revolutionary, these changes will certainly make the lives of Ukrainian and foreign lawyers arbitrating or seeking to enforce their arbitral awards in Ukraine easier. With the introduction of a single court hearing the setting aside and enforcement proceedings, the practice will certainly become more uniform, while the presumption of validity and enforceability of arbitration agreements will open the doors to more arbitration cases in Ukraine.

For further information please contact:

Kostiantyn Likarchuk, Partner, at kostiantyn.likarchuk@kinstellar.com, or

Mykyta Nota, Managing Associate, at mykyta.nota@kinstellar.com, or

Mariana Antonovych, Associate, at mariana.antonovych@kinstellar.com,

or visit our website.