Is it a Long Way for Ukraine to Become Arbitration-Friendly?

Kyiv Economic Court

A somewhat bizarre court decision has recently been taken in Ukraine which may affect businesses’ perception about Ukraine being an arbitration-friendly jurisdiction.

On 20 January 2010, a Ukrainian company Signus filed a lawsuit against Austrian Slav Handel and others (hereinafter “Signus v. Slav Handel”). Signus sought sought in the Kiev Economic Court invalidation of certain provisions of the agreement for sale of Prominvestbank shares. One of the challenged provisions was a dispute resolution clause referring disputes to LCIA for arbitration. Signus submitted its claim to the court following Slav Handel’s initiation of the LCIA arbitration on December 18, 2009.

Signus requested an order preventing Slav Handel from referring disputes to the LCIA. Otherwise, according to the claimant, the LCIA could render an award that would be contrary to the Ukrainian public policy. The claimant’s main concern is that had the LCIA issued an award regarding the issues examined by the Kiev Economic court, the judgment of the Ukrainian court as to the invalidity of the framework agreement would have been impossible to execute.

It should be mentioned that in Ukraine the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards entered into force as early as in 1961. Taking into account its Art. 5 (2b) whereby the recognition and enforcement of the award can be refused if it would be contrary to the public policy of the country of enforcement the court could have easily ignored the claimant’s request and leave the examination of the public policy issue until the stage of the enforcement of the not yet issued award.

Surprisingly, the court was convinced by the claimant’s arguments and on 9 February 2010 it granted the requested interim measure. The Ukrainian court prohibited the respondent, among others, to submit statements, pay administrative fees to the LCIA, participate in the arbitral proceedings at the LCIA and take any other actions related to the dispute pending in the LCIA. Apparently, the LCIA arbitrators were not impressed and proceeded with the case.

On 13 January 2011, Signus requested the court to stay its proceedings until the LCIA would decide on its jurisdiction over the dispute. The court rejected the claimant’s motion. In doing so it referred to the article 79 of the Ukrainian Commercial Procedure Code. That provision permits the stay of the proceedings only if it is impossible to proceed with the case until there is a decision of another court regarding the issues related to the examined ones. According to the court, Signus failed to indicate in its request the reasons why it was impossible to conduct the Ukrainian court proceedings until the LCIA’s decision on jurisdiction. Thus, pending case in the LCIA was considered an insufficient ground to stay domestic proceedings in Ukraine.

Despite the strong desire of some CIS countries to appear arbitration-friendly, the court practice, unfortunately, still seems to be not in congruence with such aspirations.

Dilyara Nigmatullina
Association for International Arbitration, Brussels

About the Author:

Dr Davydenko is the Director and co-editor of the CIS Arbitration Forum. He is Chief expert of Arbitration and Mediation Center at the Russian Chamber of Commerce and Industry. He also provides expert opinions on Russia-related international business law matters. He is listed as a recommended arbitrator of International Commercial Arbitration Court and Maritime Arbitration Commission at Russian Chamber of Commerce and Industry, as well as some other arbitral institutions.

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