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Judicial Reform in Ukraine: Crafting Arbitration Friendly Regime

Judicial Reform in Ukraine: Crafting Arbitration Friendly Regime

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International arbitration is often perceived as a preferred method for international dispute resolution, due to its time/cost efficiency as well as enforceability of awards. On the other hand, enforcement of an arbitration award can be rather challenging for the parties – especially if recognition and enforcement is sought in countries like Ukraine, because for a long time, the Ukrainian judiciary has been criticized for its inefficiency and overly bureaucratic approach. However, Ukraine is on its way to changing that.

Between 2014-2018, for the sake of its fledgling democracy and the fulfilment of its obligations under the EU-Ukraine Association Agreement, Ukraine launched and implemented more reforms than it did in the previous 20 years. Judicial reform, among the most eagerly-awaited elements of this process, was designed not only to restore trust in the Ukrainian judiciary, but also to provide it with an efficient legal framework.

On December 15, 2017, brand new procedural civil, commercial, and administrative codes came into force, and the same day the new Supreme Court began its operations. Along with introduction of unified rules for the three types of proceedings, the legislature provided for accelerated proceedings, introduced an e-court system (which provides for exchange/submission of documents between the parties and the courts and videoconferencing), and introduced a number of arbitration-related amendments. These amendments relate to arbitrability and the enforcement of arbitration agreements. 

Traditionally Ukrainian law provided stricter rules regarding the arbitrability of disputes (public procurement and corporate disputes, for example, were not arbitrable). Now the situation has changed – corporate disputes can be referred to arbitration, provided there is an arbitration agreement concluded between the relevant legal entity and all its shareholders. In addition to that, disputes arising out of privatization contracts and public procurement agreements are now also arbitrable, as are civil law aspects of competition disputes. Moreover, both the Civil and Commercial Procedure Codes now provide an arbitration-friendly approach in relation to the enforcement of arbitration agreements, with potential defects in an arbitration agreement interpreted in favor of its validity and enforceability. 

The timeline for the recognition and enforcement of arbitral awards as well as setting-aside proceedings has been limited significantly, at two months and one month, respectively. Previously such terms were left undefined by the Civil Procedure Code, which allowed dishonest debtors to drag the proceedings out significantly. 

In furtherance of procedural efficiency, exclusive jurisdiction for the consideration of matters related to the recognition and enforcement of arbitral awards as well as the setting-aside of awards in Ukraine has been conferred on the competent appeal courts (which will serve as a court of first instance), with the Supreme Court of Ukraine authorized to consider the matters as an appeal instance. Undisputedly, such approach would make the recognition and enforcement procedure more efficient and predictable, by allowing for the unification of relevant case law. 

As part of the procedural reform, a new mechanism for voluntary compliance with arbitral awards was introduced. Previously, due to strict currency control regulation it was impossible for a debtor to voluntarily comply with an arbitral award and pay to a non-resident creditor. Now, in cases of voluntary enforcement, debtor can file relevant application with the court, which will be considered within ten days. As a result of this fast-tracked and simplified procedure, a debtor can timely obtain a writ of execution and make payment to a non-resident creditor in foreign currency without any obstacles.  To date there have been several reported cases on this issue, which demonstrates that the parties will regularly resort to this useful mechanism in the future.

Although the full results of these reforms in Ukraine are yet to be seen, these recent procedural improvements demonstrate that Ukraine is eager to follow global trends and become an arbitration-friendly jurisdiction, which ultimately would be appreciated by foreign investors and businesses seeking to arbitrate or enforce arbitral awards in Ukraine.

By Oleh Beketov, Partner, and Aleksandr Lugovskyi, Partner, Eterna Law

This Article was originally published in Issue 5.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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