Like all of its legislation, Ukraine inherited its court system structure from the Soviet Union. Only recently the court system has begun undergoing reforms with the passage of a number of laws. The initial steps were made on June 1, 2001, with the passage of amendments to various laws, including Law No. 1789-12 "On the Prosecutor's Office," Law No. 1142-12 "On Arbitration Courts," Law No. 2862-12 "On the Status of Judges," etc.
Reforms continued in 2010 with the complete revamping of the
court system in the Law of Ukraine No. 2453-VI "On the Court
System and the Status of Judges," dated July 7, 2010
("Law No. 2453").
In general, Law No. 2453 provides the overall structure of the new
judicial system after August 3, 2010. It defines the legal bases
for the organization of the judiciary branch of power and the
service of justice in Ukraine, the system of general jurisdiction
courts, the basic requirements in the forming of the professional
judges' corps, the system and procedure of carrying out of
judicial self-regulation, etc. Law No. 2453 also legalizes the
relations, which already exist between the branches of the
executive and judicial powers. Related amendments were also
introduced to the Civil, Commercial and Criminal Procedural
Codes.
Under the reformed judicial system, there is the constitutional
court and a system of general jurisdiction courts based on the
principles of territoriality, specialization and instances. The
currently effective, unified system of general jurisdiction courts
is as follows:
2. Appellate courts which may consider civil, criminal, commercial and administrative cases. Commercial appeals are considered by commercial appellate courts created in appellate circuits pursuant to presidential decrees;
3. Highest specialized courts (cassation courts); and
4. All of the above are subordinate to the Supreme Court, which is the highest judiciary authority in the system of general jurisdiction courts.
A major novelty in this hierarchy is the introduction of
specialized courts, which consider matters in specialized fields
(i.e., civil, criminal, commercial, administrative, etc.).
Administrative courts and courts that review specific categories of
cases (such as land, family, tax and intellectual property matters,
among others) may be established in the judicial system. As a
result of the reclassification, commercial courts (formerly known
as arbitration courts) have also been subordinated to the Supreme
Court, subjecting their decisions to reconsideration by the Supreme
Court as is the case with any other court of general jurisdiction.
Local commercial courts are located in the Autonomous Republic of
Crimea, regions and the cities of Kiev and Sevastopol.
All foreign investors, as well as Ukrainian resident companies
(such as joint ventures and wholly-owned foreign subsidiaries),
have the right to submit their disputes with other Ukrainian
entities to commercial courts. In fact, unless a provision in an
international agreement specifically defers arbitration to take
place elsewhere (e.g., the Ukrainian Chamber of Commerce and
Industry), then national commercial courts have jurisdiction. While
many foreigners may be skeptical of their efficiency and fairness,
both the Ukrainian Chamber of Commerce and Industry and the
national commercial courts are surprisingly good choices of forum
because they are comparatively inexpensive and efficient, handling
many international cases per year.
Although impartiality and predictability are not the strongest
features of Ukrainian judicial system, the local commercial courts
can be occasionally fair, as demonstrated by various rulings. For
instance, a German company "Vero Handels GmbH" applied to
the then High Court of Arbitration to settle its dispute with the
Ukrainian joint venture "Minolta Trading." In its
complaint, Vero Handels alleged that Minolta Trading failed to pay
68,680 US Dollars, due after Vero Handels' delivery of goods.
In the course of the proceedings, the High Court of Arbitration
determined that the joint venture underwent reorganization during
the time of payment by separating into two companies. One of the
resulting companies, "Ukrinvaluttorg," was ultimately
held liable for payment.
The Highest Commercial Court of Ukraine is the highest body for
resolving economic disputes. The Highest Commercial Court of
Ukraine supervises the lower courts' judgments and exercises
control over their activities. The Highest Commercial Court of
Ukraine is also responsible for the preparation and selection of
candidates for judgeships, the improvement of the qualification of
the commercial courts' employees, among other functions.
In the past, submitting a case to arbitration required the
plaintiff to undergo a fairly simple administrative or so-called
"pre-trial" dispute resolution procedure. In fact, this
"pre-trial" procedure was mandatory for all disputes
considered by arbitration courts. Today, as a result of changes to
the Commercial Procedural Code, the unreasonably long and highly
bureaucratic "pre-trial" procedure is strictly voluntary
in all cases (i.e., only if the parties to a dispute previously
agreed to apply the "pre-trial" procedure).
Under the "pre-trial" procedure, the plaintiff must
first send a written letter, which also serves as a complaint, by
confirmed or registered mail, return receipt requested, to the
respondent. According to the Commercial Procedural Code, this
letter must contain information on the plaintiff, the grounds for
the complaint, confirmation of the circumstances under which the
complaint arose, the demands of the plaintiff, the amount in
controversy, various documents which confirm the complaint, among
others.
The respondent then has one month to consider the letter
(complaint) from the day it is actually received, which period can
be suspended if any necessary supporting documents are absent from
the letter. In case the parties agreed to review any issues (for
instance, review of defective goods by the manufacturer) the
resulting complaints may be further considered over a two-month
period. The respondent must provide a written answer regarding its
consideration of the complaint. The response must indicate the full
information concerning the respondent, the acceptance or rejection
of the plaintiff's demands, any necessary documents proving the
respondent's position, etc.
Further, if the respondent admits to allegations contained in the
letter/complaint, it must indicate the amount of the claim it is
prepared to repay. If such admission (together with the transferred
amount) is absent, the plaintiff may appeal to the respondent's
bank seeking a so-called "indisputable debit" of the
relevant funds from the respondent's account.
If the respondent's response calls for dispute resolution, the
plaintiff may initiate proceedings in a commercial court at the
location of the party at fault or in an ad-hoc (arbitration) court.
One party may also propose to introduce amendments or terminate the
commercial agreement in question. In this case, such party must
send to the other party a proposition, which must be answered by
the recipient within 20 days. If the parties do not come to an
agreement regarding the proposed amendments or termination, only
then may the claim be submitted to a commercial court.
As a side matter, foreign investors should note that unpredictable
financial issues will most certainly arise unless they are
specifically addressed in the claim. Thus, the claim should state
both the amount in controversy and the currency of payment. For
instance, if foreign currency is involved in a given transaction,
the complaint must state its equivalent at the official National
Bank exchange rate as of the date of submission of the application.
Further, the complaining party should specifically seek
remuneration in foreign currency in order to avoid problems
associated with repatriation under currency regulations and the
risk of loss due to hyper-inflation if forced to accept the award
in Hryvnia with a view to subsequently convert it into foreign
currency for ultimate transfer abroad.
Upon receiving the claim, the judge of the commercial court will
decide whether to proceed with the case. Generally, disputes under
commercial agreements must be considered by the commercial court at
the place of the party which is obliged to perform certain actions
in favor of the other party under the underlying commercial
agreement (e.g., transfer property, perform works, provide
services, make payments, etc.) or at the respondent's place of
location in case of a demand to perform obligations set forth in a
commercial agreement. The claim must contain detailed information
about the parties, the amount of the claim, the circumstances
surrounding the claim, "pre-trial" dispute resolution (if
applicable), security measures, etc.
If the commercial court has jurisdiction and decides to hear the
claim, the plaintiff must send copies of the claim and all
supporting documents to the respondent(s) and all interested third
parties. This is especially important in bankruptcy cases, as the
court may refuse to hear the claim if the plaintiff is unable to
find all interested third party creditors. The plaintiff also
retains this obligation even if the commercial court calls other
respondents to participate in the proceedings.
The respondent may either send a response to the claim and/or
submit a counterclaim after receiving a copy thereof. A response
must be sent to the commercial court with a copy to all other
participants in the proceedings. If a response is signed by an
authorized representative, then the power of attorney or other
document evidencing the representative's authority must be sent
along with the response. Counterclaims must be jointly considered
and directly connected with the plaintiff's initial
claim.
In preparation for the case consideration, the court will
determine whether other respondents should be included in the court
hearing or whether the respondent should be replaced by another
respondent. The judge will also call the representatives of the
parties to the court, if possible, to ascertain the facts of the
case and the need for additional case materials, documents,
evidence, etc. At this point, the judge may also require the
parties to take certain actions, such as verify settlements, review
evidence or appoint court expert examinations. The judge will also
review the written and oral evidence of the parties, hear
explanations of the case facts, resolve to apply security measures
and take any other actions required for the correct, timely and
fair consideration of the matter.
The judge may decide, either at its own initiative or based on the
plaintiff's petition, that security measures are indeed
necessary at any stage of the case. These security measures may
include the arrest of property or cash funds, a ban on certain
actions by the respondent or third parties, and a suspension of
collection actions or property arrest. Note that security measures
may not include a ban on convening a general meeting of
shareholders and its decisions, a ban on participation of
shareholders in a general meeting of shareholders, a ban on
determining the legality of a general shareholders meeting,
etc.
In most cases, the commercial court must resolve disputes within
two (2) months from the date of receiving a claim, unless both
sides ask for an extension. An extension, however, may only be
granted for a further fifteen days. During the two-month term, the
judge may determine the need to set up video conferencing to
resolve the matter, to suspend the consideration for a certain
amount of time, to terminate the proceedings if a settlement
agreement is reached by the parties, etc. In the end, the
commercial proceeding results in a written decision and, if
applicable, an order to execute such decision. For example, the
court may recognize an agreement to be fully or partially invalid,
to decrease the penalties and fines under an agreement, to delay
the execution of the decision, etc.
In contrast to the finality of international arbitration, any
litigant can appeal the final decision of a Ukrainian national
commercial court within ten (10) days from the date of a decision.
Appeals are submitted via the commercial court that issued the
final decision. If the parties to the dispute are not satisfied
with the decision at the appellate level, they may further appeal
the decision to the Highest Commercial Court, whose decision may
only finally be appealed to the Supreme Court.
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.