Recognizing that Ukraine is a young nation without a long history of rendering and enforcing international commercial arbitral awards involving foreign investors, Western parties naturally prefer dispute resolution to take place in an impartial third country, such as the United Kingdom or Switzerland. Considering the current Ukrainian economic climate, however, decisions concerning the place of arbitration must be made in light of each particular transaction.
For instance, a foreign arbitration provision probably would not serve its intended purpose in a transaction where a private Ukrainian company or an individual cannot afford the arbitration fees and costs. Similarly, a foreign partner in a Ukrainian joint venture that has minimal capitalization or comparatively small project may not seek to effectuate such foreign arbitration provision, particularly if the international arbitration took place in a third (and rather expensive) country. Linguistic restrictions, visa requirements and extensive document production may also have an impact on the choice of forum for arbitration.
Ukrainian commercial law is quite liberal where foreign investors are concerned. For instance, as an alternative to national commercial courts, parties engaged in so-called "foreign economic activities" have the option of submitting their disputes for resolution to any international arbitration forum, applying any substantive law the parties chose in their agreements, except in cases when disputes arise between the parties to a Ukrainian-based joint venture. In cases of joint ventures, the law of the country of registration of the joint venture governs disputes arising between the parties, regardless of the desire of the parties to submit disputes to another arbitration court.
Under Ukrainian laws, the parties to a foreign economic agreement may provide for arbitration to take place in any forum and in accordance with established international rules, including the United Nations Commission on International Trade Law ("UNCITRAL"), the International Convention on Settlement of Investment Disputes ("ICSID"), or the Rules of the Court of Arbitration of the International Chamber of Commerce ("ICC"). This effectively results in two choices: holding international arbitration in Ukraine or anywhere else in the world. Below we discuss the first option in greater detail.
A. International Arbitration in Ukraine
In 1991, the Parliament created the Ukrainian International Commercial Arbitration Court (the "Court") at the Ukrainian Chamber of Commerce and Industry (the "Chamber"). In its usual less-than-swift response to changing circumstances, on February 24, 1994, the Parliament finally adopted the Law "On International Commercial Arbitration," which permits litigation, either on the basis of a court order or the agreement of the parties, by an arbitrator or panel of arbitrators approved by the Court. The above law incidentally also acknowledged the "Maritime Arbitration Commission" of the Ukrainian Chamber of Commerce and Industry as a forum for numerous maritime disputes (most of which took place overseas anyway).
The Court is an independent arbitral tribunal engaged in the resolution of economic disputes involving foreign parties. The Chamber uses UNCITRAL-based rules as the Court's procedural rules to be applied to international arbitration cases. The Chamber selects the Court's Presiding Officers and prepares a list of recommended arbitrators that are "independent and impartial in fulfilling their duties" in accordance with Ukrainian legislation. In contrast to the national arbitration system, the Court currently handles numerous international arbitration cases a year at a surprisingly efficient rate. In fact, the Chamber's reputation has grown increasingly over the past 18 years and many law firms recommend choosing arbitration through the Chamber.
In order for the Court to hear a case, the parties should specifically provide an arbitration clause to that effect at the time they negotiate and document their agreement. Such clauses must be evidenced in writing and can be part of an agreement or signed as a separate agreement. To avoid additional expenses in the future, and to provide greater predictability, the arbitration clause should declare the substantive law regulating the matter, the place of arbitration, the number of arbitrators (1 or 3), the language of the proceedings, translation costs, etc. In fact, the Court has published a recommended text for arbitration clauses in cross-border agreements.
To initiate arbitration proceedings, the plaintiff must submit to the Court its complaint and various documents supporting the complaint (with copies of such documents for the respondent). The signed claim must include various statements, including the circumstances on which the plaintiff bases its claim, evidence that supports the claim, well-grounded calculations of the amount in controversy, the applicable legislation upon which the plaintiff bases its claim, the list of documents and any other evidence attached to the claim, etc. According to the rules of the Court if the claim is improperly submitted, the plaintiff has thirty (30) days to rectify it or such claim may be rejected. Based upon the above documents, the Court decides whether sufficient reasons exist to proceed with the case and issues its decision whether to proceed within ten (10) days from receiving the complaint.
At that time, the Court's secretary will send to the plaintiff a list of recommended arbitrators and an invoice for the arbitration fees and costs, payable to the Chamber (the "Information"). At the same time, the Court's secretary will send to the respondent a copy of the complaint, the attached documents and the list of recommended arbitrators and administrative (arbitration) costs.
In addition to selecting arbitrator(s), the plaintiff and the respondent have other responsibilities. For instance, the plaintiff must pay the arbitration costs within 30 days from the date of receipt of the Information. As should be expected, failure to pay the arbitration fees is grounds for an outright dismissal of the case.
On the other hand, once a claim has been filed, the respondent must submit to the arbitration court a written response to the claim, all documents supporting any objections to the claim and a statement of offsets or counter-claims (if applicable) within thirty (30) days after receipt of the copy of the plaintiff's complaint. Copies of the respondent's explanations must also be sent to the plaintiff. At the respondent's request, the 30-day period may be extended, but for no more than one (1) month. Failure to submit documents or to participate in the arbitration proceedings may result in continuation of the proceedings in the respondent's absence, which usually concludes in a default judgment.
Unless otherwise provided in the parties' agreement, under the Court's rules (which were collated into the Law "On International Commercial Arbitration"), the parties must agree on the number of arbitrators (1 or 3). If no such agreement exists, the arbitration court will require the selection of 3 arbitrators by default. A single arbitrator may be selected by mutual agreement between the parties or, alternatively, by the President of the Court at the parties' request. In the case of three arbitrators, each of the parties will nominate one arbitrator and these two arbitrators will in turn appoint a chairman of the arbitration tribunal.
Failure by either the plaintiff or the respondent to appoint an arbitrator in a timely fashion will result in the Court appointing an arbitrator or arbitrators on their behalf. The parties can challenge the appointment on only two grounds: (1) circumstances exist which cast doubts about such arbitrator's independence and impartiality; or (2) the arbitrator's lack of necessary qualifications, as specified by the parties. If the challenged arbitrator continues to participate in the arbitration for any reason, an appeal may be brought to the Presidium of the Court, and the challenged arbitrator will most likely be substituted. A new arbitrator is appointed by the same procedure as the substituted arbitrator.
Assuming the arbitration selection proceeds smoothly, the Court's secretary will collect all documents and notify the parties by providing the time and place of arbitration and the arbitral panel selection at least thirty (30) days prior to the first sitting. This timeframe, however, may be abbreviated or extended by an agreement between the parties. Unfortunately, the Court's rules concerning discovery, evidence and hearings are not as extensive or as detailed as those of the UNCITRAL Rules.
During the actual arbitration process, the arbitration tribunal will apply any language and substantive law selected by the parties to the agreement, as well as the trade customs relevant to the particular case. Provided such conditions are met, the arbitration tribunal may decide to examine the case verbally (i.e., presentation of oral evidence and discussions) or to examine the case based solely on written documents and other printed materials. Note that the UNCITRAL Rules are substantially the same, except Article 15.2 of the UNCITRAL Rules specifically gives the parties a right to hold hearings, witness presentations or oral arguments at any stage of the arbitral proceedings.
Like the UNCITRAL Rules, awards or rulings made by a three-person arbitration tribunal are made by a majority vote, unless the parties specifically agreed otherwise. The chairman of the arbitration tribunal, however, may resolve certain procedural issues if such individual is empowered so by the parties or, alternatively, the members of the arbitration tribunal.
Proceedings should not exceed six (6) months from the date the Court receives the plaintiff's complaint or arbitration fees; however, this term may be extended for reasonable cause as demonstrated by the arbitration tribunal or one of the parties. The arbitration proceeding is completed after the arbitration tribunal has delivered its final award or ruling.
The arbitration decision is announced at an arbitral sitting after the proceedings are completed. The final arbitration ruling must be in writing and signed by the arbitrator(s). The ruling must state the specific reasons for the final decision, unless the parties agree ahead of its rendering that such reasons should not be disclosed. The Court sends a copy of the ruling to each of the parties within fifteen (15) days from the date of issuing the ruling, along with the written conclusions of the experts and other documents or evidence upon which the arbitration tribunal based its award.
As in the UNCITRAL Rules, within thirty (30) days of the ruling, any of the parties may request the Court to rectify an administrative error, such as mathematical miscalculations or misprints, or request a clarification of any part of the ruling. If the arbitration tribunal finds the request justified, it will rectify the ruling or award or, alternatively, give the necessary explanations within thirty (30) days from receiving the request.
Any party may submit a request to the arbitration court to hand down additional decisions on claims which were submitted during the arbitration proceedings but not included in the final decision. Such requests must be made within thirty (30) days from the day of the arbitration court's initial decision. Thereafter, if the arbitration court finds grounds for making such additional decision(s), it must do so within sixty (60) days.
Significantly, the Court's awards are final, and must be carried out by the parties within the period indicated by the Court. Awards or rulings not carried out voluntarily are enforced in accordance with the procedure for mandatory enforcement of national and foreign court decisions as described below.
B. International Arbitration in a Foreign Forum
As mentioned earlier, foreign parties may provide in their agreements with Ukrainian entities for the arbitration process to take place in any third country. Unfortunately, due to strict visa requirements and high arbitration costs, many Ukrainian parties are unwilling or unable to attend arbitration hearings in foreign forums. This absence may result in significant impediments in subsequently enforcing the foreign arbitration court's award in Ukraine for many reasons. For instance, the respondent may assert before the Ukrainian court that it was not properly served notice during the arbitration process or was not provided with a fair opportunity to participate in the arbitration hearings. For more details, please see our discussion regarding enforcement of foreign arbitration awards.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.