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Partner, Sayenko Kharenko.
Mr Droug specialises in dispute resolution and restructuring with a special focus on arbitration and commercial litigation. He advises local and foreign clients at all stages of dispute resolution proceedings, including complex multi-jurisdictional proceedings involving Ukraine, the UK, Cyprus, the BVI, Switzerland, The Netherlands and other fora, as well as commercial and investment arbitration under the arbitration rules of all major international arbitration institutions, ICSID Arbitration Rules and UNCITRAL Arbitration Rules.
Senior Associate, Sayenko Kharenko.
Ms Gontar specializes in international investment and commercial arbitration and litigation. She advises international and domestic clients on a broad spectrum of matters at all stages of dispute resolution proceedings. Recently, she has been involved in a number of proceedings, including multiparty and multicontract arbitrations under the GAFTA, LCIA, SCC and NAI Arbitration Rules.
New Procedural Mechanisms Available in Ukraine to Support International Arbitration
Judicial reform in Ukraine introduced significant changes not only to the court system but also to the entire procedure before Ukrainian courts.
Many developments recently introduced by the new Civil Procedure Code of Ukraine also significantly impacted international arbitration. Among others, new developments concern the introduction of long-awaited procedural rules for the support of international arbitration by the Ukrainian courts.
For the purposes of this publication, we will focus on one of the possible forms of support of international arbitration in Ukraine such as interim measures. Introduction of this new procedural mechanism is a notable development which should affect the entire approach to arbitration involving Ukrainian parties or assets.
Status Quo Prior to Adoption of the New Civil Procedure Code of Ukraine
Prior to adoption of the new version of the Civil Procedure Code of Ukraine at the end of 2017, Ukrainian law did not stipulate any mechanisms making it possible to obtain interim measures in support of international commercial arbitration. In other words, it was impossible for the parties in any pending arbitration (seated either in Ukraine or abroad), to apply to Ukrainian courts to freeze assets of a respondent located in Ukraine or to prevent a respondent from taking certain steps in Ukraine which could have negatively affected the prospects of enforcement of the future arbitral award. Consequently, parties to international arbitration involving Ukrainian parties or assets resorted to obtaining interim measures from courts in foreign jurisdictions, which were more supportive of arbitration (such as the UK, BVI, Cyprus, Sweden, etc.) or directly from foreign-seated arbitral tribunals.
At the same time, it is not always sufficient to simply obtain such interim measures in foreign jurisdictions. In many cases, it is also necessary to implement them in Ukraine in view of the location of some or all assets of a respondent in Ukraine.
Therefore, to achieve the desired effect from the interim measures obtained abroad, it is necessary to go through the formal procedure of recognition and enforcement of the respective decision of a foreign court or a foreign-seated arbitral tribunal before Ukrainian courts. This process could involve full-scale proceedings in Ukrainian courts from the court of first instance up to the Supreme Court of Ukraine. This could make the entire effort of obtaining interim measures in foreign jurisdictions completely inefficient. Moreover, there is no certainty whether interim measures granted either by courts in foreign jurisdictions or by foreign-seated arbitral tribunals in general are capable of being enforced in Ukraine in view of their interim (temporary) nature.
As an alternative to obtaining interim measures in support of arbitration in foreign jurisdictions, some parties have also tried in the past to initiate unrelated court proceedings in Ukraine with a view to obtaining interim measures. The difficulty was, of course, that since court proceedings in Ukraine had no direct relation to the dispute heard in the pending arbitration proceedings, it was not possible to ensure that the interim measure achieved the necessary effect and/or remained in place for the entire duration of the pending arbitration proceedings.
Accordingly, both options that were used in the past to secure claims in international commercial arbitrations involving Ukrainian parties or assets were not easy to obtain and implement and were not effective.
Interim Measures under the New Civil Procedure Code of Ukraine
The new version of the Civil Procedure Code of Ukraine that came into force on 15 December 2017 introduced a completely new reality with respect to the securing of claims in international commercial arbitration in Ukraine. As a result, Ukrainian courts now have the express powers to grant interim measures in support of arbitration proceedings conducted both in Ukraine and abroad.
This effectively means that in case of arbitration proceedings between two parties. For example, in London under the LCIA Arbitration Rules, it would be possible to request a Ukrainian court to freeze the assets of a party to such arbitration located in Ukraine to support arbitration proceedings in London.
Apart from the freezing (arrest) of assets, the following interim measures are also expressly available for the purposes of securing a claim in international commercial arbitration: freezing of money, prohibition to perform certain actions or obligation to perform certain actions, suspension of sale of frozen (arrested) assets, stay of enforcement under enforcement document, stay of customs clearance of goods, etc. Since this list is not exhaustive, the parties to the proceedings can adjust the requested measures to the circumstances of the case and choose the most appropriate option.
The test for obtaining interim measures is that a requesting party will need to prove that without such interim measures enforcement of a future arbitral award will be significantly impeded or made impossible, or its rights and interests will be otherwise violated.
The Civil Procedure Code of Ukraine provides that the appellate court either at the place of location (registration) of a debtor or its assets or at the place of arbitration shall have jurisdiction to decide on granting interim measures in support of arbitration. Empowering appellate courts (instead of courts of the first instance) to deal with interim measures is an important feature of the new mechanisms for support of arbitration, which will help to streamline and shorten the whole procedure.
Important Procedural Matters
There are several important features of interim measures that may be granted by Ukrainian courts in support of international arbitration.
First, interim measures may be granted by Ukrainian courts only after the respective arbitration proceedings commence. Thus, in order to apply to the court for interim measures, a party should submit a copy of the document by which the arbitration proceedings were initiated (usually this means a Request for Arbitration), as well as evidence that such document was submitted. In some foreign jurisdictions, for example, in Cyprus, interim measures in support of arbitration proceedings may be available even prior to submission of a Request for Arbitration. This allows the claimant to gain a strategic advantage in the proceedings given that even before the respondent is notified of the arbitration proceedings, its assets may be already be frozen. In Ukraine, it is possible to obtain interim measures prior to commencing substantive proceedings only in support of court proceedings in Ukraine.
The Civil Procedure Code of Ukraine does not require a party wishing to request interim measures to obtain the consent of the arbitral tribunal for application for the interim measures (provided the arbitral tribunal has already been constituted). In contrast, such consent may be required for other forms of support of international arbitration proceedings introduced by the Civil Procedure Code of Ukraine, such as support in gathering evidence. Certain arbitration rules, however, explicitly state that a party may apply to the state courts to request interim measures only with prior authorization of the arbitral tribunal. For example, this requirement is included in the LCIA Arbitration Rules. However, the relevance of such requirements specifically for Ukrainian proceedings is not certain in light of the fact that the obligation to notify the arbitral tribunal in such cases is provided neither in the Civil Procedure Code of Ukraine, nor in the Law of Ukraine On International Commercial Arbitration.
Second, in order to eliminate potential misuse of the mechanism of interim measures, a separate mechanism of counter-security is provided. Counter-security aims to compensate any potential damages to a party against whom interim measures are sought. It will not be requested by the Ukrainian courts in all situations. However, counter-security is mandatorily required in case an applicant is a foreign company having no assets in Ukraine or in case the financial standing of an applicant is otherwise doubtful. It is also important that counter-security should be proportional to the interim measures granted. The most common form of a counter-security is a deposit of cash into the court’s bank account. However, the court may also ask for other forms of counter-security (e.g. bank guarantee, surety, etc.).
Third, the procedure for granting an interim measure by Ukrainian courts is quite expeditious. Applications shall be considered within two days from the date of their receipt by the court and usually without notification of the parties. Respondents should only be notified in exceptional circumstances, when a claimant failed to provide sufficient evidence and explanations for hearing of the application without such notification. Therefore, to avoid delays and notification of the respondent, it is advisable that the application for interim measures comprehensively covers all aspects of the dispute.
In finally and expressly allowing Ukrainian courts to grant interim measures in support of international commercial arbitration, the new version of the Civil Procedure Code of Ukraine provides an effective and very helpful tool for the parties involved in international commercial arbitration. This mechanism could dramatically change the way in which disputes involving Ukrainian parties and assets are resolved.