Commercial litigation vs arbitration in Ukraine

Litigation usually takes place when the parties have not agreed or decided on the method of dispute settlement. The choice of jurisdiction is based simply on the place of incorporation of one of the parties. The post-Soviet Ukrainian legal system is not well-established and there are many procedural loopholes, despite gradual improvement. The trouble-free settlement of a commercial case (without opposition to choice of jurisdiction, challenges to legal decisions, requests for further or unnecessary expert opinions, and other procedural delaying or opposition tactics) normally takes three to four months. The commercial court system is composed of the courts of first, appellate and highest instances, and is supported by the Supreme Court of Ukraine which may review the judgments on a limited number of grounds.

It has become common for most cases to end up in the Highest Commercial Court of Ukraine. There are a number of reasons for this: inconsistent approaches and legal decisions among lower court judges and as a result of ambiguity in the law, and several other internal and external problems affecting the legal system. For instance, in 2007 and 2008 the average number of new claims submitted to one judge in a court of first instance was between 50 and 70 each month. Such a high flow of cases does not permit the judges to pay in-depth attention to each.

Another litigation option is to agree to accept the decision of a foreign commercial court. This could be extremely useful, if the Ukrainian legal system provided for the straightforward recognition and enforcement of foreign court judgments. However, as only a small number of special treaties have been agreed to, and those that do exist mainly concern CIS countries, there is no effective method of enforcing foreign court judgments.

For these and other reasons beyond the remit of this article, disputes arising out of international transactions are mostly subjected to international commercial arbitration.

International commercial arbitration

Ukraine in 1994 adopted the Uncitral Arbitration Model Law as its national law on international commercial arbitration. In 1959, the country acceded to the New York Convention on enforcement and recognition of foreign arbitral awards; starting from 1964 it is a party to the European Convention on International Commercial Arbitration.

As a result, many commercial disputes are now settled through this method. One of the biggest advantages is of course the general impossibility of making an appeal on the merits of the case and the limited procedural reviews. The enforceability of arbitral awards is also much greater; and decisions may allow for the seizure of assets in a number of jurisdictions, using clearer and simpler procedures. Although there are numerous other advantages to using international arbitration, the truth is that many awards rendered in the course of arbitration, either in or outside the jurisdiction of Ukraine, cannot be enforced easily. The grounds of non-arbitrability or infringement on public policy may render invalid both the arbitration agreement and the award. It is also important to be aware of local mandatory Ukrainian legislation affecting in particular real estate, intellectual property rights, bankruptcy proceedings and corporate disputes (including those under shareholder agreements). Due to lack of legal consistency in Ukraine, aspects such as company due diligence and transaction securing methods should also be examined when entering into a contract. Therefore, local legal advice may have to be taken in order to secure the respective rights and interests.

Conclusion

As briefly mentioned above, careful legal drafting, with due consideration of any jurisdictional particularities involved, is a prerequisite for successful execution of a contract concluded with a Ukrainian party; parties should bear this in mind from the very outset of contractual arrangements. There are limits to how successfully disputes can be predicted and a limited number of methods to deal with them once they occur: however it is vital that those involved in business, especially in Ukraine, pay a great deal of attention to ways of both minimising risk and dealing with existing disputes in the most appropriate manner.