Proper Notices in Arbitration in Ukraine – Watch the Details

This article analyses the most recent application by Ukrainian courts of Article V(1)(b) of the New York Convention.  It provides that recognition and enforcement of a foreign arbitral award may be refused where a party was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings. The analysis shows that court practice remains unclear as to what constitutes “proper notice” which sometimes leads to unexpected outcomes of enforcement proceedings in Ukraine.

Proper notices in arbitration – watch the details!

According to of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) recognition and enforcement of a foreign arbitral award may be refused, at the request of the party against which it is invoked, only if that party furnishes to the competent authority, where the recognition and enforcement is sought, proof that it was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings. However simple at first glance, the question of what constitutes a “proper notice” turns out to be not so clear in practice.

In Ukrainian court practice, the absence of proper notice of the appointment of the arbitrator or of the arbitration proceedings remains to be a prevailing ground for the refusal of recognition and enforcement of arbitral awards.

Certainly, many cases in the statistics have involved claimants that either did not pay sufficient attention to notification requirements or intentionally misused their procedural obligations. The latter conduct would usually take place where a party wants to prevent its opponent from presenting its case before the arbitral tribunal. However, occasionally those are the courts that go too far in their conclusions on what constitutes proper arbitration notice.

Restrictive case law approach

On 16 August 2012 the Prymorskyi District Court of Odessa City dismissed the application of Rangedale Limited for the recognition and enforcement of the arbitral award against Southern Airlines, LLC (Case 1522/16182/12). Among other reasons, the court found that notices sent by the arbitral tribunal to the legal address of the respondent did not comply with Ukrainian Rules on the Provision of Postal Services.

In particular, the notices did not specify, in two instances, the position and name of the respondent’s officer receiving the notices or, in another two instances, the name of the representative authorised by the respondent to receive the notices. Upon appeal the judgment was upheld by the Court of Appeal of Odessa Oblast and the High Specialised Court of Ukraine for Civil and Criminal Cases.

In another case, the claimant submitted to the court as proof of proper service of the arbitration notice on the respondent the copies of online DHL tracking and tracing reports printed out from the corresponding web-pages. The Court of Appeal of Dniepropetrovsk Oblast found (Judgment, 28 March 2011, Case 22ц-4091/11) that such reports, containing neither seals nor signatures, could not be considered written evidence, since they were not electronic documents within the meaning of the Law on Electronic Documents and Electronic Document Circulation.

Articles 5 and 6 of the Law state that an electronic document must contain a number of requisite features and an electronic signature. Such features were absent from the copies of the tracking and tracing reports submitted by the claimant. Therefore, the Court reversed the decision of the lower court and dismissed the claimant’s application for recognition and enforcement of the arbitral award of the International Arbitral Centre of the Austrian Federal Economic Chamber against the respondent.

Any changes expected?

In the above cases, the courts took an unnecessarily restrictive view of the notification requirements related to arbitration proceedings. Such an approach, especially in the case involving DHL courier services, obviously does not correspond with the way in which business is done today – there is a great demand for fast and easy communication, while signatures and seals have long since lost their relevance.

However, these cases fortunately represent an exception and not the rule. In particular, in a recent case before the Srybnyanskyi District Court of Chernihiv Oblast, the court found that the notice of arbitration and the claim submissions served on the respondent by means of electronic communication (under Gafta Arbitration Rule 125, applicable in that case) met the notification requirements perfectly (Judgment, 24 January 2013, Case 2521/930/2012 (2-r/746/1/2013). The Court dismissed improper notification objections raised by the respondent and granted recognition and enforcement in Ukraine of the arbitral award delivered by the Gafta tribunal, which decision was upheld by the Court of Appeal of Chernihivska Oblast.

In the authors’ view, this latter approach should be favoured by the courts, rather than one that is too formalistic. At the same time, while the case law remains uncertain on the issue, parties are recommended to use all available means to ensure that their opponents are properly notified of upcoming arbitration proceedings and their course. Otherwise, even the most straightforward case can be lost at the enforcement stage.

Andrey Astapov, Managing Partner

Anna Kombikova, Associate

AstapovLawyers International Law Group