The globalization of markets and capital has led to the complication and internationalization of Ukrainian business. It is already a rarity when a business has no relations with foreign partners and contractors.
For predictability of outcomes of contractual conflicts, international arbitration has become a frequent choice for business, which allows to independently determine not only arbitrators, but also the rules for resolving disputes and applicable legislation. In fact, already at the stage of concluding a contract, the parties can envisage the institution or persons), to whom they are ready to entrust the resolution of disputes. They can determine the rules according to which they want the dispute to be considered, understanding in advance the specifics of the procedure. They can also choose a place convenient for them to resolve the dispute.
However, as the Latin adage goes, si vis pacem, para bellum — “if you want peace, prepare for war.” If the contract parties are aware of the mechanism of the arbitration dispute resolution itself, then, they do not frequently perceive at a time when they come into the contract how and where they will execute the arbitral award. And often it is this issue that brings unpleasant surprises.
The outgoing year 2020 has revealed important details in the judicial practice of national courts in this category of cases, and domestic and foreign businesses should pay attention when drawing up contracts.
1. Check for threats to the arbitration agreement. An arbitration agreement or an arbitration clause in a contract is the basis for the competence of arbitration. If it is not, there is no arbitration. Therefore, unscrupulous counterparties first of all think about how to challenge the arbitration agreement and invalidate it. But the situation seems worse when an arbitration agreement exists, is not challenged, or its validity is confirmed by the court, and, considering the application for the recognition of the arbitral award, the court finds that there is no arbitration agreement at all. This situation happened in two cases in which the Supreme Court refused on this basis to recognize and enforce the arbitral award. In the first case No. 756/618/14-ц, the court came to the conclusion that the falsity of the document containing the arbitration clause testifies to the fact that the person did not express his will to conduct arbitration at all. In the other case No. 824/181/19, the Supreme Court established that, despite the fact the plaintiff was financing the performance of the contract and his signature was on the supplementary agreement, he has no right to claim under such an agreement, since he is not the party to the arbitration clause in the contract and there is no transfer of rights under it.
2. Check if the dispute can be referred to arbitration under the laws of the opponent’s country and his assets. The aggrieved party wants to receive real compensation for the losses incurred, that means get the real execution of the arbitral award. And since the execution will be carried out in the country of the counterparty or his assets, it is necessary to be aware of the requirements of the state as to whether there are restrictions on the transfer of disputes to arbitration. The most frequently excluded from the category of “arbitrable” are disputes related to real estate, bankruptcy, the registration of various objects, including securities, intellectual property, harm and family, alimony or inheritance disputes. However, the specific list of non-arbitrable disputes may differ between states. And it is definitely undesirable to find out about this during recognition and enforcement of the arbitral award, since it means that it would be necessary to start all over again, but already in the state court. In this context, it is worth paying attention to case No. 907/930/15, in which the Supreme Court recognized that a dispute over the ownership of real estate arising from a joint venture agreement should be resolved only by a state court and not by arbitration.
3. Assess the foreign policy relations between the countries of the contractual parties: whether there is a military or economic conflict, which may cause one of the countries to impose political or economic sanctions. One example: this year, after granting several permissions to Russian Federation residents for the recognition of arbitral awards against Ukrainian companies, the Supreme Court identified a threat to public order of Ukraine if an arbitral award were executed in favor of a Russian defense-industrial company included in the sanctions list by Ukraine. And despite the fact that the courts rarely refuse in recognition of an arbitral award on the basis of a threat to the public order, it is the foreign policy relations between countries that can unexpectedly interfere with private law (contractual) agreements between specific subjects.
In conclusion, we can say that the outgoing year has shown the need for business to study in more detail not only the direct provisions of contracts and arbitration agreements, but also to examine its counterparties and their legislation, so that the signing of the contract is to be followed by its real execution in any case with.
Dr.Yulia Atamanova, partner, head of international arbitration, LCF Law Group
+380 44 455 88 87
[email protected]
47, Volodymyrska st., Ofice 3
Ukraine, 01001, Kyiv
lcf.ua
