Dmytro Marchukov, Partner, AVELLUM
Serhii Uvarov, Senior Associate, AVELLUM
Ukrainian assets frequently appear as subjects of disputes in foreign courts. The larger the dispute is the more jurisdictions are usually involved. Interim orders by foreign courts and arbitral tribunals often constitute an important part of such legal battles. This should not come as a surprise. It is well known that interim reliefs are of great importance to maintain status quo, prevent dissipation of assets, and ultimately to make sure that many years of legal fights do not become otiose.
However, to obtain an interim relief in a multijurisdictional litigation is only a half of the battle. Another – equally important – half is to bring them into effect in all relevant jurisdictions. It may be easier to do so outside of Ukraine. Very often, however, respondents, their owners or directors, or the ultimate assets that are the subjects of the legal battles, are located in Ukraine. In such case, the applicants may either hope for voluntary compliance with the interim orders by the parties concerned (on penalty of the contempt of court or adverse inference), or try to recognize and enforce them before the Ukrainian court.
Ukrainian courts have seen recently several quite remarkable cases on recognition of freezing orders issued by foreign courts and interim reliefs granted by arbitral tribunals. They demonstrate that Ukrainian courts tend to consider foreign interim orders as generally enforceable. At the same time, they show that general recognition procedure quite poorly fits to the foreign interim orders, which in their essence are meant to be urgent and immediately (or, at least, without undue delay) enforceable reliefs.
Enforcement of interim measures granted by courts
Ukrainian courts will recognize and enforce a foreign judgment (i) provided that there is an effective international treaty on recognition and enforcement of judgements between Ukraine and the state where the judgment was rendered; or (ii) on foot of reciprocity.
Ukraine has not concluded international treaties on mutual recognition of judgments with majority of jurisdictions where Ukrainian businesses get used to resolving their disputes (the UK, the US, most of the off-shore jurisdictions, etc). It is worth noting that Ukraine has signed and is to ratify the Convention on choice of court agreements. In a long run, it may become a powerful tool for bringing into effect interim orders issued in European jurisdictions (of course, if the parties have expressly conferred jurisdiction to respective courts by their agreement).
In the meantime, in recognizing foreign interim reliefs in Ukraine, the parties should mostly rely on the reciprocity principle. And this is where the first pitfall lies. There has been a controversy as to how reciprocity should be determined. Some courts took extremely conservative approach – widely criticized by practitioners – that no reciprocity exists if, at least, once recognition and enforcement of the Ukrainian judgment in that state was refused. However, the practice developed to an extent over recent years. The latest jurisprudence seems to confirm that in order to prove reciprocity between Ukraine and the other state, one only need to show that Ukrainian judgments may be recognized in that state. In particular, in several cases the courts found that reciprocity between Ukraine and the UK does exist.
Second, Ukrainian law does not provide for separate procedure for recognition and enforcement of interim measures, for example, injunctions or freezing orders granted by foreign courts. However, the Civil Procedure Code of Ukraine defines a foreign judgement broadly and judicial interim orders fall within the plain text of such definition.
The court practice also confirms that interim orders issued by foreign courts may be recognized in Ukraine, at least as a matter of principle. In particular, on 5 August 2013 the Holosiivskyi District Court of Kyiv recognized the worldwide freezing order issued by the English High Court of Justice in BTA Bank v. Abliazov et al. In another recent case, the Kyiv-Svyatoshynskyi District Court of Kyiv Region in VAB Bank v. Maksimov et al., on 2 June 2016 also implicitly confirmed enforceability of freezing orders issued by foreign courts.
However, if the court finds that reciprocity exists and confirms that interim order of foreign court may be recognized in Ukraine as a matter of principle, it still may refuse to enforce it based on a number of grounds set forth by law. One of such grounds, which is particularly important for interim orders, is lack of proper notification. This means that orders issued ex parte are hardly enforceable in Ukraine. Furthermore, the burden is on the applicant to provide evidence and to prove that the process was properly served on the parties who did not participate in the proceeding. Therefore, even if the debtor was aware of the proceeding before the foreign court, failure to comply with all formalities and mandatory procedures may impede recognition of the order in Ukraine.
This issue was fiercely fought in VAB Bank v. Maksimov et al. Both Kyiv-Svyatoshynskyi District Court of Kyiv Region and the Appellate Court of Kyiv Region refused to recognize the English court order based on alleged lack of evidence that respondents had been properly notified of the proceeding before the High Court of Justice. The courts found that in the absence of an agreement on legal assistance between Ukraine and the United Kingdom, which would stipulate the procedure of notification of the parties to a dispute, the English court should have relied on the provisions of the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters of 1965. Thus, in the courts’ opinion, only a letter of request, instruction of the Ministry of Justice of Ukraine and postal notification of the relevant person could be a proper evidence of serving the process upon such person.
The High Specialized Court for Civil and Criminal Matters, when reviewing the decisions of the lower courts disagreed (decision dated 24 February 2016). It has come to quite progressive conclusion. In particular, it stated that requirement of notification, which is mandatory for final judgments, does not necessarily apply to interim orders. Second, even if it does, the courts – instead of requiring service under the Hague Convention – must find out what was the applicable procedure in the courts that rendered respective order and whether it was complied with.
Unfortunately, having expressed such position, the High Specialized Court did not decide the matter on its own but, rather, referred the case for new consideration to the local court. By the moment of the new consideration before the local court, a final award in the dispute was already rendered and the interim order was no longer effective or necessary. Thus, without opposition of the applicant, the recognition was refused on a number of reasons (including improper notification).
Therefore, notwithstanding quite progressive approach shown by the High Specialized Court, proper notification is still one of the major considerations for the application to enforce a foreign interim order in Ukraine. To make sure that recognition proceeding is not a moot (and still expensive) exercise, a party seeking interim relief against its debtor should ensure his proper notification in compliance with the provisions of the effective international treaties, irrespective of how burdensome they may be.
Enforcement of interim measures granted by arbitral tribunals
Foreign arbitral awards are recognized and enforced by Ukrainian courts under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the “New York Convention”).
The New York Convention is silent on whether interim reliefs granted by arbitral tribunals or decisions of emergency arbitrators fall within the scope of the convention. Nor does the Ukrainian law shed more light on the issue.
In 2015-2016 Ukrainian courts for the first time considered an application for recognition and enforcement of the decision of an emergency arbitrator rendered under the Rules of the Arbitration Institute of the Stockholm Chamber of Commerce (JKX Oil et al. v. Ukraine).
In the most recent decision of the Kyiv City Appellate Court (decision dated 21 December 2016), the recognition was rejected on a number of grounds, including improper notification, non-compliance of the procedure with the parties’ agreement and contradiction to public policy. Broad interpretation of these grounds is alarming. At the same time, the courts did not express doubts that recognition of interim awards is encompassed by the New York Convention, and that such award must be recognized in Ukraine, unless the grounds for refusal exist.
Finally, this case once again showed how protracted consideration of the application for enforcement of interim order might be. Similar to Maksimov case, in JKX case consideration of the enforcement application in Ukrainian courts took longer than deciding the case on the merits.
To conclude, Ukrainian court practice related to enforcement of foreign interim reliefs has developed in the past several years. Recent jurisprudence confirms enforceability of judicial interim orders, as well as interim measures issued by arbitral tribunals. However, Ukrainian courts still remain formalistic on many issues, and the parties (and their legal advisors) should mind such pitfalls.