• Andrii Kubko

    Ph.D (Law), Partner, Salkom

SALKOM

ADDRESS:

12 Khreschatyk Street,

Kyiv, 01001, Ukraine

Tel.: +380 44 591 3100, 591 3101

Fax: +380 44 591 3115, 591 3107

Web-site: www.salkom.ua

E-mail: salkom@salkom.kiev.ua

 

The Salkom Law Firm was founded in 1990. Salkom quickly built a reputation for honest and efficient counsel, and is now recognized as one of the leading providers of legal services in Ukraine.

Year on year the firm is being rated by Ukrainian and foreign rating experts as one of the leaders on the legal services market in Ukraine. Famous international publications and guidebooks, such as The Legal 500 (Europe, Middle East & Africa), PLC Which Lawyer?, Chambers Global recommend the Salkom Law Firm as one of Ukraine’s top law firms practising successfully in the fields of antitrust law, contract law, corporate and commercial, securities, bankruptcy and insolvency, international trade, privatization, and litigation, including foreign courts and international commercial arbitration procedures.

The Salkom Law Firm has extensive intellectual and professional potential as it employs 39 highly-experienced lawyers. The firm’s employ­ees speak English and other languages, which enables them to work efficiently with foreign clients.

The firm’s clientele take in foreign and domestic companies, both private and state-owned, engaged in various industries such as the automotive industry, banks, financial institutions and insurance companies, hotel business and leisure, publishing, investments, information technologies, shipbuilding, international trade, metallurgical industry, real estate, oil and gas, the food industry, natural and mineral resources, retail, agriculture, telecommunications and media, transport, chemical industry, power industry.

The Salkom Law Firm enjoys long-standing cooperative relationships with international law and consulting firms in the United Kingdom, USA, Austria, France, Cyprus, Italy, Australia, etc.

Salkom is a member of European Business Association (EBA), British-Ukrainian Chamber of Commerce (BUCC), and American Chamber of Commerce (ACC) in Ukraine. The firm’s partners are members of the International Bar Association.

The Salkom Law Firm cooperates with Squire Patton Boggs.

 

Jurisdiction Issues in Commercial Procedure

The importance of jurisdiction issues in a commercial procedure lies in their direct connection with mechanisms used for the protection of rights and legitimate interests. It is generally acknowledged that protection of rights is a priority of the modern state. This principle is enshrined in the Constitution of Ukraine and also embedded in international commitments undertaken by Ukraine. These international commitments are set out, for instance, by the European Convention for the Protection of Human Rights and Fundamental Freedoms as well as a number of bilateral investment treaties protecting the rights of foreign investors.

The key factor in the protection of rights is the existence of efficient procedural mechanisms. The protection of rights is also important for a commercial segment because it is indispensable for the improvement of the investment climate in the state, increasing its “attractiveness” for both domestic and foreign investors, and reducing risks faced by the state when it is found liable for failing to fulfil its international commitments.

The jurisdiction-related issues in a commercial procedure play a material role in a mechanism available for the protection of rights of a person engaged in a commercial segment. In relationships with foreign persons (including foreign investors), this issue often means making a choice between a competent Ukrainian court and a foreign authority (court, arbitral tribunal, etc.) as an instance where the parties can seek protection of their rights and legitimate interests. In turn, such a choice has a number of theoretical and practical aspects concerning, for instance, the recognition and enforcement of foreign judgments and arbitral awards in Ukraine, the involvement of a Ukrainian party in proceedings in a foreign court as well as involvement of a foreign party in Ukrainian domestic litigation.

This is why it’s important to describe the trends in legislation governing the issues of jurisdiction in a commercial procedure from the standpoint of drawing a line between the jurisdiction of Ukrainian domestic courts and foreign judicial (arbitral) bodies over commercial disputes where at least one of the parties is a foreign company.

Generally speaking, there has been a trend in modern Ukrainian law of departing from the domination of the jurisdiction of national courts over such disputes. It appears that legislators are striving to give the parties involved in a commercial processes wider leeway in submitting disputes between them to foreign jurisdictional authorities. For example, the current wording of the Commercial Procedure Code of Ukraine expressly provides for the rights of parties to proceedings to submit a dispute between them to a foreign court. Pursuant to Article 23 of the CPC, a dispute may be submitted to a foreign court by agreement between the parties. Disputes may also be submitted to a foreign court for consideration whenever such an opportunity is provided for by applicable law or an international treaty.

A comprehensive analysis of Law of Ukraine No. 2709-IV On Private International Law shows that disputes with a so-called foreign element may be submitted for resolution to a foreign court by agreement between the parties involved. A dispute with a foreign element is a dispute when at least one of the parties of which is a foreign individual or a legal entity (a body corporate registered or otherwise incorporated in a foreign jurisdiction); a dispute the subject matter of which is located outside Ukraine; or a dispute where a legal fact that gave rise to disputed relationships took place in a foreign jurisdiction.

Surely the possibility of submitting such a dispute to a foreign court is not unlimited. The PIL Law provides for an exclusive jurisdiction of certain categories of disputes with a foreign element. Those disputes falling in such specific categories may not be submitted to a foreign court as Ukrainian courts have exclusive jurisdiction over them. These categories, in particular, include disputes in connection with real properties located in Ukraine, disputes in connection with the formalisation of intellectual property rights that require registration or certification in Ukraine; disputes regarding the issue or destruction of securities issued in Ukraine, etc. However, some trends towards certain liberalisation of regulation of jurisdiction-related aspects have recently become a noticeable event in this area. For instance, the initial language of the PIL Law that came into force in 2005 absolutely prohibited the submission of disputes in connection with real properties located in Ukraine to foreign courts. In 2015, legislators made an exception to this rule for disputes concerning the execution, termination, and performance of agreements made within the framework a public-private partnerships by the Cabinet of Ministers of Ukraine provided that the real property in question is the subject matter of the partnership and further provided that a dispute does not concern the accrual, termination, or registration of property rights to such real property. The rule about exclusive jurisdiction of Ukrainian courts stopped applying to such disputes, and they can also be submitted to foreign courts. Pursuant to changes that were made in the PIL Law in October 2019, the scope of disputes concerning real property that do not fall within the exclusive jurisdiction of Ukrainian courts was further extended. From now on, not only agreements made by the Cabinet of Ministers of Ukraine within the scope of public-private partnership but all agreements on public-private partnerships, including concession agreements, are not subject to the exclusive jurisdiction of Ukrainian courts. Similarly to the 2015 wording of the PIL Law, the current wording of this Law provides that disputes arising out of public-private partnership agreements and concession agreements regarding real property are not covered by the exclusive jurisdiction of Ukrainian courts and may be submitted to foreign courts provided that such disputes do not concern the accrual, termination, or registration of ownership rights to real property.

The new Law of Ukraine No. 155-IX On Concession, which came into force on 1 February 2020, is another example of a trend towards liberalisation of regulations in matters of jurisdiction in a commercial procedure. This act gives parties to concession agreements wide leeway for availing themselves of alternative dispute resolution mechanisms both in Ukraine and abroad instead of submitting disputes to Ukrainian state courts.  The Concession Law provides that the parties to a dispute are free to choose a dispute resolution mechanism, including mediation, non-binding expert assessment, national or international commercial or investment arbitration including arbitration with a seat outside Ukraine, provided that a founder of a private partner is a company with foreign investments or a foreign company. A specific dispute resolution mechanism as well as a competent jurisdictional institution is determined by the agreement made between the parties to a concession agreement.

At the same time, the Concession Law has introduced rules applicable to dispute resolution that can be construed as somewhat restricting the rights of the parties to submit disputes between them to jurisdictional bodies. In particular, the Concession Law provides that any disputes arising out of, or in connection with, concession agreements have to be resolved by negotiations between the parties. The time frame for such negotiations has to be set out in the relevant concession agreement. This rule can be construed as introducing a mandatory negotiation procedure that has to be followed before a party can file an action or a request for arbitration with a court or arbitration accordingly. Whether or not this approach is accepted will depend on the trends in case law and typical terms and the conditions of concession agreements.

The recognition and enforcement of foreign judgments and arbitral awards in Ukraine is another aspect that has to be addressed when considering jurisdiction issues. The enforcement stage is essentially part of a judicial process in its wider meaning. In the absence of an efficient enforcement of court decision, the right of access to a court guaranteed by international law becomes futile. This approach was taken on numerous occasions by the European Court of Human Rights in its case law.

At present, Ukrainian law establishes different rules governing the recognition and enforcement of decisions made by foreign state courts and awards rendered by foreign arbitral tribunals. These procedures are established in the Civil Procedure Code of Ukraine, which contains two distinct sets of rules for the enforcement of decisions made by foreign state courts and awards made by foreign arbitral tribunals. At the same time, both judgments made by foreign state courts and awards made by foreign arbitral tribunals are recognised and enforced in Ukraine whenever such a procedure is established by an international treaty or on the basis of reciprocity. Foreign arbitral awards are enforced on the basis of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, to which Ukraine is a party. This is why the recognition and enforcement of foreign arbitral awards made in the Contracting States of the New York Convention is also generally governed by the rules of the New York Convention, which prevail over the rules of the CCivP.

The key issue within the scope of the recognition and enforcement of foreign judgments and arbitral awards are grounds for refusal of recognition or enforcement. The CCivP sets out a wide range of grounds for the refusal in the recognition and enforcement of foreign judgments and arbitral awards. These differences are mainly attributed to the nature of court and arbitral proceedings. However, such a ground for the refusal of recognition and enforcement of foreign judgments, as a threat to the interests of Ukraine, appear the most questionable. The CCivP provides that the recognition and enforcement of a foreign judgment can be denied in Ukraine if it poses a threat to the interests of Ukraine. However, this ground for the refusal applies only to the recognition and enforcement of judgments made by foreign state courts. The CCivP does not provide for refusal on the ground of a threat to the interests of Ukraine in connection with foreign arbitral awards. Instead, the CCivP replicates the rules of the New York Convention in the part regarding public order of Ukraine: recognition and enforcement of an arbitral award can be refused if its recognition or enforcement were to be contrary to the public policy of Ukraine.

The definition of public policy is set out both by legislation and case law. The plenary session of the Supreme Court in Ukraine in its resolution No. 12 dated 24 December 1994 stated that public order should be understood to mean the legal order of the state, the fundamental principles and foundations that make up the basis of the existing political system. The PIL Law defines public order as the foundation of a legal order in Ukraine. At the same time, the term “interests of Ukraine”, that can constitute a ground for the refusal of recognition and enforcement of a foreign court judgment under the CCivP, appears rather ambiguous and questionable. Ukrainian law does not provide for a definition of the interest of Ukraine as such. The concept of the interests of Ukraine can be construed ambiguously and constitute an impediment to improving the efficiency of a mechanism for the enforcement of foreign court judgments in Ukraine. On the other hand, the state needs some protective mechanism that enables it to prevent a threat to state interests that can arise as a result of the enforcement of certain foreign judgments in Ukraine. Such a mechanism is also provided for by the PIL Law, which prevents the enforcement of foreign judgments concerning the recovery of debts owed by strategic defence companies to companies incorporated in an aggressor state. This restriction is objectively required in existing circumstances. It is expected that case law and a legal doctrine will have to develop a steady approach to the application of the rule about the state interests of Ukraine. In particular, an answer should be given to the question as to whether or not the interests of Ukraine should be equated with public order in Ukraine, or whether the interests of Ukraine should be viewed as an equivalent of the national interests of Ukraine that have been defined by laws aimed at ensuring the state security of Ukraine, etc. This answer will make a contribution to the further improvement of regulation of jurisdiction issues in a commercial procedure.