Back to Europe Rankings

UKRAINE: An Introduction to Dispute Resolution: Domestic

Contributors:
Ilyashev & Partners Logo
View firm profile

Ukraine’s judicial system is undergoing significant reform. The changes could boost the protection of foreign investors, including the easier recognition and enforcement of foreign arbitral awards as well as the offering of such specialised courts as the IP court and The High Anti-Corruption Court of Ukraine. However, many reforms are in still process and court practice of new types of cases is limited.

Recognition and enforcement of foreign arbitral awards

Ukrainian courts have taken a new approach to the enforcement of arbitral awards in Ukraine where the debt is assigned to third parties.

For a long time, the Ukrainian courts took precedent from the decision in the case of Euler Hermes Services Schweiz AG v Odessa Oil and Fat Plant PJSC (2012-2015), where Euler Hermes Services Schweiz AG (a new creditor) tried to get recognised and enforced a FOSFA arbitral award made in favour of another company, Pontus Trade SA, the original creditor. The court in this case decided that only an original award creditor had the right to apply for the recognition and enforcement of an award in Ukraine.

The above-mentioned case created difficulty with the enforcement of arbitral awards the rights of which were assigned to other than original creditors. To mitigate this procedural limitation, it was necessary to initiate the process of recognition and enforcement of the arbitral award by the creditor in whose favour it was rendered and then request the substitution of a party in the proceedings. Such a procedure was costly and carried a risk of the debtor delaying the proceedings. The 2017 judicial reform further complicated the issue as it required an application for recognition of an arbitral award to be signed by the company that is expressly named in the award.

However, two new decisions by Ukrainian courts in the recognition and enforcement of foreign arbitral awards signal of a more flexible and investor-friendly approach.

Trading House of the Armavir Heavy Machine-Building Plant OJSC, an original creditor, assigned its rights under the arbitral award of the Interregional Arbitration Court against Azovobschemash PJSC, a Ukrainian debtor, to a new creditor, Solution Finance LLC. The new creditor filed an application for the recognition and enforcement of the award simultaneously with the application for the substitution of a new party as a creditor. The court substituted the original creditor with a new one and issued a writ of execution.

In the MetMachUfaley Ltd. case, an arbitral award of the ICAC at the RF CCI was issued in a dispute between Ufaley Metalware Plant LLC and Donbasstekhnologiya LLC in favour of the claimant. The creditor succeeded in obtaining the recognition of the arbitral award against the Ukrainian debtor by substituting a party in the proceedings.

As these two examples show, Ukrainian courts are moving away from a formal interpretation of the law.

Domestic litigation 

In 2019 the labour disputes brought to the highest court continued to increase. According to statistics of the Supreme Court for the first half of 2019, labour disputes, which are dealt with by the Civil Cassation Court within the Supreme Court, ranked third in terms of numbers of cases. Claims involved compensation for arrears and delay in settlement, and refund of median earnings during forced absenteeism, including in cases where the company declared bankruptcy.

It is important to highlight the appeals against the decisions of the National Agency of Corruption Prevention (NACP) in cases relating to the decisions based on an audit of the declarations of persons authorised to perform the functions of the state or local government. This category of cases is fairly new and the consequences that follow the NACP conclusions are significant. Legislative regulation of the procedure needs improving; in particular, there is a need for a clear definition of the right and timing of an appeal against such a decision, and the adoption of such decision exclusively within the timing of the audit.

In commercial disputes, with court fees increasing annually, the number of cases with insignificant claim value has been reducing. This is because the parties in disputes have been trying to resolve such issues without resorting to the judicial system to minimise their costs. Perhaps this trend could become the basis for the strengthening of the practice of mediation in Ukraine.

Legislative updates  

There are significant pending changes to civil, commercial and administrative procedural codes that are important to foreign investors. It is highly likely that the grounds for reviewing judgments in the Supreme Court will be significantly reduced. So, in filing an appeal, the applicants will now have to more thoroughly weigh all the circumstances of a case to prepare their legal position. Additionally, the civil code will now include a definition of minor disputes, and judgments in such minor cases, by default, will be subject to an appeal only in exceptional cases.

In 2019 the Bankruptcy Proceedings Code was introduced in Ukraine. It establishes a new court procedure enabling individual debtors to commence personal bankruptcy proceedings. Bankruptcy will allow many borrowers to go through the process of judicial settlement of their debts and avoid continuous prosecution by creditors. At the same time, creditors will be able to write off bad debts and clear their accounts. At the beginning of 2020, it was still a rarely used procedure with little court practice available. Also, a year after the introduction of the Code the law on Moratorium on Foreclosure of Ukrainian Citizens' Property Provided as Collateral for Foreign Currency Loans will be abolished. This means that banks will be able to foreclose on mortgage property by clients on loans in foreign currency.

Development of judicial system 

The decrease of the number of judges of the Supreme Court from 200 to 100 could lead to an increased length and price of taking cases to court.

At the end of 2019 the High Qualification Commission of Judges of Ukraine (HQCJ) was disbanded and the number of members of the new commission was reduced from 16 to 12. This body is responsible for the competitive selection of new judges and the qualification assessment of the acting judges. Currently in Ukraine there are about 2,000 unfilled vacancies for judges in the courts of the first instance.

The High Anti-Corruption Court of Ukraine (HACC) started operating in mid-2019. Now cases concerning corruption can be brought directly to this court. The court handed down its first sentence on 30 October 2019. Currently, the court’s practice is too limited to draw any conclusions of its effects.

The Intellectual Property High Court (IP Court) was established on 29 September 2017; however, as of early 2020, the court is not in operation yet.

The authorities are introducing an electronic court system and transferring some of the procedures online. The system is in the early stages of implementation.