Specifics of the arbitration procedure in dispute resolution

11.01.21

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 the purpose of predictability in the consideration of disputes, 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 (permanent arbitration) or persons (arbitrators or ad-hoc arbitration), 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 it is said, si vis pacem, para bellum. If the contract parties understand the mechanism of the dispute resolution itself by arbitration, since they themselves form it, then, as a rule, they do not think at the stage of concluding the contract how and where they will execute the arbitral award. And often it is this aspect that brings unpleasant surprises.

The outgoing year 2020 has revealed important details in the judicial practice of national courts in this category of cases, which should be paid attention to by domestic and foreign businesses when drawing up a contract.

  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 it is much more difficult to accept a situation when an arbitration agreement exists, is not challenged, or its validity is confirmed by the court, and already at the stage of the recognition of the arbitral award, the court determines that there is no arbitration agreement. This situation was recorded 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 recognized that the falsity of the document containing the arbitration clause testifies to the fact that the person did not express his will to arbitration at all. In the other case No. 824/181/19, the Supreme Court established that, despite the presence of the plaintiff’s signature on the supplementary agreement as a company financing the execution of the contract, there is no transfer of the right to claim under such an agreement to it, since the parties to the arbitration clause are the seller and the buyer.
  2. Check if the dispute can be referred to arbitration under the laws of the country of the counterparty and / or his assets. The goal of the party injured in the contractual relationship is to receive real compensation for the losses incurred, which means 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 find out the requirements of such 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, registration of various objects, including securities, intellectual property, harm, family, alimony, inheritance disputes. However, the specific list of non-arbitrable disputes may differ between states. And it is definitely undesirable to find out about this at the stage of 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 and / or economic sanctions. Just an example. This year, after repeated consideration of applications for the recognition of arbitral awards against Ukrainian residents, the Supreme Court identified a threat to public order in Ukraine by executing such a decision in favor of a Russian defense-industrial complex included in the sanctions list by Ukraine. And despite the fact that the courts rarely refuse to recognize an arbitral award on the basis of a threat to the public order of the state, however, it is the foreign policy relations between countries that can unexpectedly create obstacles to the implementation of private law (contractual) relations 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 its counterparties and their legislation, so that the signing of the contract completes in any case with its real execution.

Dr.Yulia Atamanova, partner, head of international arbitration, LCF Law Group, exclusively for KyivPost