Court and Arbitration in Ukraine

Court system

Court system of Ukraine has undergone substantial changes since independence has been declared, but this system isn’t sufficient for democratic and constitutional state yet. Generally, court system consists of the Constitutional Court of Ukraine and courts of general jurisdiction. Then, courts’ system of general jurisdiction consists of unspecialized courts which try cases at law that have common character, and specialized courts which try cases at law that have specific character, these are specialized commercial and specialized administrative courts. The Constitutional Court has jurisdiction only over constitutional matters. Courts’ system of general jurisdiction has a hierarchical structure. This system consists of first-instance local courts, appellate courts and the Supreme Court of Ukraine, which reviews judgments rendered by the appellate courts and it is the highest authority of the court system of Ukraine. The first-instance local courts are local region courts, region in cities courts, town courts and courts for town with its region; there are also military courts for garrisons as first-instance local courts in Ukraine. The first-instance local commercial courts are oblast (big region) courts, Kiev and Sebastopol city courts, and Autonomous Republic of Crimea court. The first-instance administrative courts are district courts which have analogy to commercial ones. Unspecialized appeal courts are analogous to those district courts plus military courts for military districts and the Appeal Naval Court of Ukraine. The systems of appellate commercial and administrative courts are organized according to similar court districts. For instance: Odessa Appeal Court District consists of Odesskaya oblast, Khersonskaya oblast, Nikolaevskaya oblast and Autonomous Republic of Crimea. The High Commercial Court of Ukraine and High Administrative Court of Ukraine act the part of a court of review.

Judges and juries

Article 127 of the Constitution of Ukraine declares that justice in Ukraine is administrated by professional judges and jurymen (narodny zasidately). There are four kinds of procedure in Ukraine: civil process, criminal process, administrative and commercial procedures. The Criminal Procedural Code of Ukraine is the oldest one, it was adopted on December 28, 1960; Commercial and Procedural Code of Ukraine was adopted on November 6, 1991. The Civil Procedural Code of Ukraine and The Code of Administrative Proceedings of Ukraine were adopted by the parliament of Ukraine - Verkhovna Rada in the XXIst century, respectively, on March 18, 2004 and July 6, 2005.
Criminal cases are examined judicially in first-instance local courts by a single judge except cases of grave crime which are examined by two judges and three jurors playing role of judges. In appeal and cassation instances criminal cases are headed by three judges. Commercial disputes in court of first instance are heard by a single judge and in high instances by three judges or more but odd number. New Civil Procedural Code provides for hearing civil matters by a single judge or a single judge and two jurors having legal status of judges in court of first instance. Civil matters in high instances are heard by three or more judges. Administrative cases are disposed by a single judge in court of first instance as a rule, but complex cases, or, if a side in the cause solicits the judge, there to be three judges in composition of the court. Administrative cases which are under the jurisdiction of the High Administrative Court of Ukraine as first-instance administrative court are to be disposed by the chamber composed of not less than five judges. Review of the judicial award in administrative procedure of appeal instance is to be made by the chamber composed of three judges and of cassation instance – by the chamber composed of not less than five judges.

Enforcement

Ex facte, the reform of Ukrainian court is far from normal completion. There are no juries in the sense of common-law in Ukraine. The very goal of the Ukraine’s court reform, that is transformation of inquisitorial judicial proceedings into adversarial ones, is not attained, but there are no grounds to apprehension in its democratic trend. There are many failures in the line of this reform but some attainments have been obtained. For instance: enforcement of court's disposition of civil and commercial cases has become more civilized. The judgment creditor may submit a writ of execution to the Executive Service. This stage of civil process is regulated by the Law of Ukraine On State Executive Service dd. 24 March 1998 and the Law of Ukraine On Executive Procedure dd. 21 April 1999. If a judgment debtor fails to comply with the judgment and creditor wants to execute this judgment, creditor can apply to the authorities for assistance after seven days debtor’s non-performance. This application must be submitted within three years from the decision making. A normal period of completing the execution is six months. Executive Service commences execution proceedings within three days of receiving the writ of execution. In general, Executive Service may levy distress and execution to the property of the debtor; freeze the debtor’s funds, personal and real assets; vindicate tangible assets and assume another measures expressly provided in judicial award. Debtor must pay a charge if he fails to comply with the judgment within the period of voluntary realization of the proceedings - 10 % of the amount of the assets or funds charged from the debtor. The Executive Service may suspend, remit and spread payments in pursuance of the judgment on its own initiative or the debtors’ or creditors’ requests in proper statutory circumstances.
Ukraine has been a party to the Hague Conventions that are Convention on the Taking of Evidence Abroad in Civil or Commercial Matters from 18 March 1970 and Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters dd. 15 November 1965. According to their regulations and regulations of the Ukrainian domestic legislation, the judgment creditor can enforce a foreign judgment in Ukraine. Bilateral treaties between Ukraine and foreign countries also may be legal grounds for enforcement of foreign judgments and for refusing their enforcement. Sometimes such treaty is an ad hoc agreement. The enforcement of foreign judgment may be done within the period of three years from the date the judgment becomes effective. Refusing enforcement of foreign judgment is possible on the grounds provided by law:
- the judgment has not become effective in the country where it was rendered;
- the party, against which the judgment was rendered, was not properly notified of the proceedings and was therefore unable to present its case;
- the case is within the exclusive jurisdiction of the Ukrainian courts;
- there is an Ukrainian court judgment involving the same parties and the same subject matter, or the same case is pending in the Ukrainian court;
- the limitation period has expired;
- the dispute is not capable to judicial settlement;
- enforcement of the judgment threatens the interests of Ukraine;
- other circumstances specified by law.

Arbitration

Ukraine is a member of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards adopted on 10 June 1958. The UNCITRAL Model Law On International Commercial Arbitration dd. 21 June 1985 is the basis of the Law of Ukraine On International Commercial Arbitration dd. 24 February 1994. The Rules of the International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry is the Annex to this Law. Those instruments contain the most important rules that regulate the process of international arbitration in Ukraine. Certainly, Ukraine is not the easiest jurisdiction to international commercial arbitration, but the country takes steps to reach international standards of arbitration. There were adopted the Act on Arbitration Tribunals on 11 May 2004 and the Act on Private International Law on 23 June 2005 in Ukraine.

Arbitrability

Any dispute could be submitted to international commercial arbitration, except certain cases: disputes with respect to invalidation of statutory and non-statutory acts; disputes arising from conclusion, amendment, termination or performance of commercial contracts related to state needs, and disputes of exclusive jurisdiction of state courts, such as: related to immoveable property located in Ukraine; concerning relationships between children and parents, where all parties are residents of Ukraine; if the testator in a probate case was a citizen and resident of Ukraine; arising from IP rights secured by registration or patent certification in Ukraine; relating to registration or dissolution of foreign companies, non-governmental organizations, charitable foundations or other associations, or a legal entity in Ukraine; related to the validity of records in one of the Ukrainian state registries, including the Companies’ Register of Immoveable Property Owners and the Land Register; if the debtor in an insolvency case was incorporated under Ukrainian legislation; involving issue or cancellation of securities officially registered in Ukraine; in which an adoption took place or is taking place in Ukraine; and other cases where Ukrainian law provides that state courts take precedence.

Enforcement

A party seeking enforcement of an arbitral award must turn to the appropriate court at the location of the debtor within three years of the award making. If the court accepts that there are no sufficient grounds for refusal of recognition and enforcement of the award, it issues an order allowing enforcement. This order can be appealed to an appellate court. In addition to the above problems, the following arbitration-hostile issues have arisen in practice:
- confusion by the courts of arbitral awards and foreign judgment;
- no priority for the New York Convention and application of the bilateral treaties on mutual legal assistance instead;
- unusually strict adherence to formalities of the award during enforcement;
- ‘ping-ponging’ of applications for years (the Court of Appeals used to be the court of first instance and dealt with the initial application for enforcement, but this was changed in 2004, thereby introducing another layer of courts);
- wide application of public policy.
A noteworthy feature of the Ukrainian regulation is that a debtor under a foreign arbitral award may initiate proceedings to stop enforcement in Ukrainian jurisdiction, if the creditor uses an award to the detriment of the debtor. The case law on the record proves that the standard is not high in this respect.

Conclusions

To draw the conclusion, Ukraine is rather arbitration-unfriendly country, but the development during the years of independence suggests that the world standards of international arbitration may be pave the way for realization of the legal principles of the global game in Ukraine. As the country is developed and players become familiar with the rules of the game, the practice of international arbitration will grow and tendencies may perhaps change towards a friendlier approach not only in this field, but also in public justice as well.

©Vyacheslav Lebedev, Consultant
International law offices, Kiev – Odessa – Nikolayev, Ukraine
lebedev@interlegal.com.ua
www.interlegal.com.ua