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Partner, Eterna Law
Junior Associate, Eterna Law
Enforcement of Foreign Awards: How to Save Both Time and Money
In recent years, more and more international businesses and foreign investors are choosing arbitration as a way to settle their disputes. There are many reasons why arbitration has become so popular. One of the most significant advantages is the possibility to recognise and enforce arbitral awards almost everywhere around the globe in accordance with a procedure that is efficient both in terms of time and cost. Such a procedure emerged with adoption of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (or commonly referred to as the New York Convention). The parties to the Convention undertook to recognise and enforce awards within a simple and fast procedure with limited grounds for refusal. The list of grounds to refuse recognition and enforcement prescribed in the New York Convention is exhaustive and cannot be extended.
Ukraine is amongst 164 parties to the New York Convention. It implemented the procedure, prescribed in the Convention into its national legislation. Nevertheless, until recently, parties seeking recognition and enforcement of foreign arbitral awards in Ukraine faced certain obstacles, some of which related to the unfamiliarity of courts with international arbitration and its procedure, or broad interpretation of the grounds for refusal of recognition and enforcement of arbitration awards. Court practice has now changed and Ukrainian courts usually have a pro-arbitral approach.
The party applying for recognition of an award should file an application accompanied with the duly authenticated original award (or its duly certified copy) and the original arbitration agreement (or its duly certified copy). If those documents are not in Ukrainian, the party also shall provide the translation. The general rule is that the party should file the application for recognition and enforcement of the award within 3 years from the day when such award was made.
The court, upon receipt of such application, checks if the application was filed within the 3-year term and if it meets requirements in terms of form and content. In addition, the court shall verify on its own initiative two grounds to refuse recognition and enforcement: 1) if the subject matter of the dispute is not capable of settlement by arbitration under the law of Ukraine and 2) if recognition or enforcement of the award would be contrary to the public policy of Ukraine.
Ukrainian courts point out that a court may verify other grounds to refuse recognition and enforcement prescribed in Article V of the New York Convention only at the request of the party. Such party should prove those grounds with sufficient evidence. Furthermore, the courts emphasise that groundless refusal to enforce the award is absolutely unacceptable and violates the rights of the party seeking enforcement.
Duration of the whole procedure of recognition and enforcement of foreign awards in Ukraine may vary significantly. If the opposing party files no objections, the procedure usually includes no more than two hearings and lasts up to 2 months. However, if the opposing party files its objections and tries to delay the process, the procedure may last longer. If the application meets all formal requirements and there are no grounds for refusal, the court issues a ruling to recognise and enforce the award. Once the award is recognised it has the same power and may be enforced as a judgement of a Ukrainian court.
Positive Developments in Case Law
Recent court rulings on recognition and enforcement of awards indicate that Ukraine is implementing the world’s best traditions and practices in this area. Dishonest debtors may still try to delay the process, but it is almost impossible to frustrate the recognition and enforcement of a valid and binding award. When the law is unclear whether the recognition and enforcement is possible, the courts tend to choose pro-arbitral approach and interpret law in favour of arbitration.
Restrictive Measures (Sanctions) May Not be a Ground for Refusal of Recognition and Enforcement of an Award
In Normetimpex JSC v Zaporozhtransformator PJSC, Russian-based company Normetimpex filed an application for recognition and enforcement of an arbitral award to recover debt from Zaporozhtransformator. The debtor objected to the application, asking the court to refuse the recognition based on the ground that two UBO’s of Normetimpex are listed in the Ukrainian sanctions list passed by the Decision of the National Security and Defence Council of 2 May 2018 On imposition and termination of personal special economic and other restrictive measures (sanctions), approved and enacted by Presidential Decree No. 126 of 14 May 2018 and, hence, recognition and enforcement of the award would be contrary to the public policy of Ukraine.
The Supreme Court held that neither the Sanctions Law nor other regulations provide that Ukrainian entities may be released from their contractual obligations. Sanctions in certain circumstance may only delay their fulfilment. Hence, even if Normetimpex itself was on the Ukrainian sanctions list, it would not be a ground to refuse recognition and enforcement of the award in favour of Normetimpex.
Bankruptcy Proceedings of a Debtor do Not Prevent a Civil Court from Considering an Application for Recognition and Enforcement of an Award
According to the Bankruptcy Law, if a debtor is under bankruptcy proceedings, the only court competent to consider claims against such debtor is the commercial court that considers those bankruptcy proceedings. At the same time, commercial courts do not have jurisdiction to hear an application on recognition and enforcement of foreign arbitral awards as this is the exclusive jurisdiction of civil courts.
In Dalmond Trade House Limited v Yenakievo Ironworks PJSC the Supreme Court (acting as a court of appeal instance) upheld the decision of the court of first instance that bankruptcy proceedings of the debtor did not prevent a civil court from considering an application on recognition and enforcement of the award against the debtor. Furthermore, the Supreme Court held that if the award was made before the initiation of bankruptcy proceedings, bankruptcy proceedings should not be a ground to refuse recognition and enforcement of such award.
Local Courts are Willing to Grant Conservation of Evidence or Interim Measures in Support of Arbitration
Ukraine is party to the European Convention on International Commercial Arbitration. The Convention prescribes that a request for interim measures or measures of conservation addressed to a judicial authority shall not be deemed incompatible with an arbitration agreement, or regarded as a submission of the substance of the case to the court. Furthermore, this provision was implemented in the Ukrainian Civil Procedure Code and is recognised by Ukrainian courts.
In Fidobank PJSC v Person 4, the respondent asked the court for a forensic examination in support of local arbitration. Despite the fact that this case concerns local arbitration, the court pointed out that forensic examination as well as other measures for conservation of evidence in support of either local or international arbitration should not be considered as interference in the competence of the tribunal and should, therefore, be allowed.
As reconfirmed in Softcommoditiec Trading Company SA v Elan Soft LLP, the court may grant interim measures in support of arbitration, provided that the applicant can establish that (i) there is a dispute before the arbitration tribunal and (ii) there is a real risk that unless the interim measures are granted the enforcement of the award would be impossible or complicated.
It is worth noting that a Ukrainian court may grant interim measures only with respect to ongoing arbitration. Obtaining such an order before initiation of any arbitration proceedings is impossible.
According to the 2019 Foreign Investor Survey by the European Business Association, for the fourth consecutive year the lack of trust in the Ukrainian judiciary is No. 2 amongst the most decisive obstacles to investing in Ukraine. Nevertheless, a positive approach with respect to recognition and enforcement of foreign awards as well as measures in support of arbitration mean that businesses and foreign investors can now rely on Ukrainian courts when it comes to international arbitration and subsequent recognition and enforcement of foreign awards in Ukraine.
¹Pelagia AS v Laran-07 LLC, Supreme Court, 9 December 2019, No. 796/41/2018, http://reyestr.court.gov.ua/Review/86435489
²Moston Properties Limited v Ukrgasvydobuvannya PJSC, Supreme Court, 17 April 2019, No. 761/41709/17, http://reyestr.court.gov.ua/Review/82001379
³Normetimpex JSC v Zaporizhiatransformator PJSC, Supreme Court, 19 March 2020, No. 824/146/19, http://reyestr.court.gov.ua/Review/88749651
4Dalmond Trade House Limited v Yenakievo Ironworks PJSC, Supreme Court, 16 January 2020, No. 824/125/19, http://reyestr.court.gov.ua/Review/87052957
5Fidobank PJSC v Person_4, Supreme Court, 1 November 2018, No. 23/17, http://reyestr.court.gov.ua/Review/77590093
6Softcommoditiec Trading Company SA v Elan Soft LLP, Supreme Court, 24 September 2018, No. 785/1018/18, http://reyestr.court.gov.ua/Review/76812069