Ukraine: Important Developments of 2009

Irina Nazarova, Managing Partner, ENGARDE Attorneys at Law, for PLC Arbitration multi-jurisdictional monthly e-mail
Amendments to Ukraine domestic arbitration lawOn 31 March 2009, the Law of Ukraine “On amending certain laws of Ukraine concerning courts of arbitration functioning and enforcement of their awards” №1076-VI, came into force (see Legal update, Ukrainian parliament reforms domestic arbitration).

The new law, which was enacted to introduce controls over abuse of the domestic arbitral courts, amends the following Laws of Ukraine:

* The Law On Domestic Courts of Arbitration (the Law).
* The Code of Economic Procedure of Ukraine.
* The Law On Enforcement Procedure.

The new law introduces several changes to the functioning of arbitral courts. The main change is the exclusion of certain types of cases from the jurisdiction of domestic arbitration courts. Their jurisdiction will not longer extend to cases involving establishment of facts, land, labour relations, corporate disputes, and certain disputes involving public bodies.
Other amendments introduce or affect:

* The formal requirements affecting arbitration agreements.
* The provisions on judges sitting as arbitrators.
* The rules of the permanent domestic arbitral court regarding the seat of arbitration.
* Third party rights to appeal an award.
* The rules as to whether arbitral awards operate as an estoppel.
* The provisions on challenges and appeals of arbitral awards.

The new law is intended to prevent abuse of the domestic arbitration courts. It is arguable that some types of dispute should be returned to the jurisdiction of domestic arbitral courts, but this is unlikely to happen in the near future.

Severe curtailing of international influence upon the corporate relations In June 2009, the Higher Commercial Court of Ukraine amended its recommendations on disputes arising out of corporate relations (see Legal update, Higher Commercial Court amends recommendations on disputes arising out of corporate relations).

The original Recommendations of 2007 prohibit parties to shareholder agreements from referring their disputes to international arbitration and require the commercial courts to treat as void and contrary to public order any shareholder agreements that submit disputes arising out of corporate relations in joint-stock companies registered in Ukraine to foreign law.

Following the 2007 Recommendations, there was a general trend towards severely curtailing international influence on corporate relations. Although the 2007 recommendations are not mandatory per se, they would normally be followed by lower commercial courts. The recommendations gave rise to a great deal of debate on the arbitrability of corporate disputes among Ukrainian judges, scholars and practitioners, which is still ongoing today. The position of the Higher Commercial Court received limited support in the Ukrainian arbitration community. Many practitioners considered that it was at odds with the domestic legislation governing international arbitration and protection of foreign investments.

However, the Higher Commercial Court’s approach was supported by the Supreme Court in its 2008 Resolution On Court Practice in Corporate Disputes, which regarded any joint-stock company shareholder agreement with a foreign governing law as a “circumvention of law” within the meaning of the 2005 International Private Law Act. The Resolution also confirmed the Higher Commercial Court’s view that the parties to shareholders’ agreements were prohibited from including arbitration clauses with reference to foreign arbitral institutions. However, this rule, unlike the 2007 Recommendations, was not limited to joint-stock companies and applied to all business entities regardless of the legal form.
Subsequently, according to amendments to the Code of Commercial Procedure in March 2009, corporate disputes were excluded from the list of disputes that could be referred to arbitration.
Finally, in June 2009, the Higher Commercial Court amended its 2007 Recommendations by widening the ambit on the prohibition of foreign governing law to cover all legal forms of business companies, rather than just joint-stock companies.

The new law introduces several changes to the functioning of arbitral courts.
The main change is the exclusion of certain types of cases from the jurisdiction of domestic arbitration courts.
Their jurisdiction will not longer extend to cases involving establishment of facts, land, labour relations, corporate disputes, and certain disputes involving public bodies.
Other amendments introduce or affect:

* The formal requirements affecting arbitration agreements.
* The provisions on judges sitting as arbitrators.
* The rules of the permanent domestic arbitral court regarding the seat of arbitration.
* Third party rights to appeal an award.
* The rules as to whether arbitral awards operate as an estoppel.
* The provisions on challenges and appeals of arbitral awards.

The new law is intended to prevent abuse of the domestic arbitration courts. It is arguable that some types of dispute should be returned to the jurisdiction of domestic arbitral courts, but this is unlikely to happen in the near future.
Severe curtailing of international influence upon the corporate relations

In June 2009, the Higher Commercial Court of Ukraine amended its recommendations on disputes arising out of corporate relations (see Legal update, Higher Commercial Court amends recommendations on disputes arising out of corporate relations).

The original Recommendations of 2007 prohibit parties to shareholder agreements from referring their disputes to international arbitration and require the commercial courts to treat as void and contrary to public order any shareholder agreements that submit disputes arising out of corporate relations in joint-stock companies registered in Ukraine to foreign law.

Following the 2007 Recommendations, there was a general trend towards severely curtailing international influence on corporate relations. Although the 2007 recommendations are not mandatory per se, they would normally be followed by lower commercial courts. The recommendations gave rise to a great deal of debate on the arbitrability of corporate disputes among Ukrainian judges, scholars and practitioners, which is still ongoing today. The position of the Higher Commercial Court received limited support in the Ukrainian arbitration community. Many practitioners considered that it was at odds with the domestic legislation governing international arbitration and protection of foreign investments.

However, the Higher Commercial Court’s approach was supported by the Supreme Court in its 2008 Resolution On Court Practice in Corporate Disputes, which regarded any joint-stock company shareholder agreement with a foreign governing law as a “circumvention of law” within the meaning of the 2005 International Private Law Act. The Resolution also confirmed the Higher Commercial Court’s view that the parties to shareholders’ agreements were prohibited from including arbitration clauses with reference to foreign arbitral institutions. However, this rule, unlike the 2007 Recommendations, was not limited to joint-stock companies and applied to all business entities regardless of the legal form.

Subsequently, according to amendments to the Code of Commercial Procedure in March 2009, corporate disputes were excluded from the list of disputes that could be referred to arbitration.

Finally, in June 2009, the Higher Commercial Court amended its 2007 Recommendations by widening the ambit on the prohibition of foreign governing law to cover all legal forms of business companies, rather than just joint-stock companies.