Dispute Resolution | International Arbitration

Washing Ukrainian Linen in Foreign Laundries

Ukrainian companies are quite active in deciding their disputes in international arbitration courts. Today, there is great demand for Ukraine as a respond-ent in investment arbitration. This provides lots of work for legal advisers, including Ukrainian law firms. But due to the insufficient promotion of arbi-tration in our country, big business representatives prefer to turn to reputed foreign arbitration centers.


Parties regard international arbitration as a rather flexible instrument of dispute resolution with a number of advantages compared to  national courts. Whereas the level of business confidence in the Ukrainian judicial system is still critically low, the number of arbitration institutions involving a Ukrainian element is growing constantly.

 “The years of crisis are always accompanied by an increase in the workload of dispute resolution. This trend covers both domestic disputes and international ones”, noted Yuliya Chernykh, a Partner at Arbitrade Law Firm. According to her estimates, a significant increase of cases is being observed in national arbitration institutions (the ICAC at the UCCI), as well as in foreign arbitration courts. Investment arbitrations, once causing some trouble for Ukraine, are now of great importance: “The International Centre for Settlement of Investment Disputes (ICSID) has registered three cases to which Ukraine is a party. It is also known that several claims against Ukraine have been initiated with the Arbitration Institute of the Stockholm Chamber of Commerce”. Ms. Chernykh  also pointed out a significant increase in the number of Ukraine-related cases, which are conducted in the specialized GAFTA and FOSFA commodity arbitration institutes.

Among global developments, experts make reference to the increasing importance of Asian institutions, such as the Hong Kong International Arbitration Centre (HKIAC), Singapore International Arbitration Centre (SIAC), China International Economic and Trade Arbitration Commission (CIETAC). It is worth noting that Ukrainian lawyers are also on the list of arbitrators working for these institutions.

What’s most interesting is that the International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry (the ICAC at the UCCI) ranks among arbitration institutions with the heaviest workload, but in Ukraine it is disputes of intermediate level which are usually considered —the absence of certain procedural instruments and generally poor support of arbitration encourage business to apply to foreign arbitration institutions. The idea put forward by the Ministry of Economic Development and Trade of Ukraine to create an alternative state platform for dispute resolution has not gained much support in the professional environment. Misunderstanding, among other things, causes a functional discrepancy of the Ministry. The problem of raising investment attractiveness definitely falls within the competence of MEDT. Whereas development of arbitration institutions appears to be beyond its scope of jurisdiction.


Investment boom

Three investment treaty claims against Ukraine are still pending consideration at ICSID, and legal actions in another case involving a claim by Poltava Gas and JP Poltava Petroleum Company were terminated by the ICSID Secretary-General on August 11, 2015 (request for arbitration proceedings was received in March 2015). Two lawsuits were filed in 2014, and the third claim was initiated by Gilward Investments B. V. Dutch Company — on July 31, 2015. This case is at the stage of formation of the arbitration tribunal. Gilward Investments B. V.  is one of the shareholders of AeroSvit. Its claims are confined to reimbursement of damages incurred as a result of an airline company’s de facto bankruptcy. The dispute at the stage of pre-trial settlement was estimated at some 500 million USD.

The investment claim initiated by JV Poltava Petroleum Company was estimated at the same amount of 500 million USD. According to the Ministry of Justice, in early 2015, the Emergency Arbitrator of the Arbitration Institute of the Stockholm Chamber of Commerce adopted a decision which obliged the Defendant (Ukraine) to refrain from using increased payment rates for subsoil use with the purpose of gas extraction (above 28%) in respect of the JV Poltava Petroleum Company as provided by the Tax Code of Ukraine starting from January 14, 2015.

Shortly afterwards, in February 2015, three claims were initiated against Ukraine, interconnected by factual circumstances and, partly, by the subject matter: on February 13, a lawsuit was filed with the Arbitration Institute of the Stockholm Chamber of Commerce pursuant to the Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce (plaintiffs  — JKX Oil & Gas Plc (UK), Poltava Gas BV (the Netherlands) and JV Poltava Petroleum Company (Ukraine); on February 16, a claim was initiated with the Arbitration Institute of the Stockholm Chamber of Commerce under the UNCITRAL Arbitration Rules (as revised in 2010) (plaintiffs —JKX Oil & Gas Plc (UK); on February 16, a lawsuit was filed with the International Centre for Settlement of Investment Disputes pursuant to the ICSID Arbitration Rules (plaintiffs — Poltava Gas BV (the Netherlands) and JV Poltava Petroleum Company (Ukraine).

Since these claims against Ukraine are interconnected by factual circumstances, on which the claim is based, the documents relating to the case, and, partly, by the subject matter, the parties to the dispute agreed on their consolidation under the ad hoc arbitration by signing the Agreement on Arbitration Joinder.


Geopolitical factor

Yuliya Chernykh draws attention to another milestone event in the arbitration environment: “Although political indifference has always been regarded as the undisputed advantage of arbitration, geopolitical changes directly or indirectly affect the formation of arbitration preferences. Since the choice of arbitration is the choice of jurisdiction, meaning the choice of a particular country. I can’t remember any case in the history of arbitration, when several leading arbitration centers (almost competitors) made a joint statement being aware of the impact that sanctions may have on the number of cases generated by the Russian Federation. We are talking about a well-known joint article of the Arbitration Institute of the Stockholm Chamber of Commerce, Court of Arbitration of the International Chamber of Commerce and London Court of International Arbitration “The Potential Impact of the EU Sanctions against Russia on International Arbitration Administered by the European Arbitration Institutions”. The idea of the article is to assure people that arbitration is beyond the realm of politics; sanctions are not directly aimed at arbitral proceedings; those persons subject to the sanctions are not deprived of the right to seek arbitration; EU regulations do not affect any arbitration principles, the most prominent of which are neutrality and equal treatment of the parties. At the same time, arbitration institutions pointed to the necessity for compliance with EU law and forced application of special administrative procedures in cases, when the persons, subject to the sanctions, are involved in the judicial process and pay the arbitration fee”.


International Arbitration

(Grischenko & Partners)
Leading FIRMS
5 Egorov Puginsky Afanasiev & Partners Ukraine
3 Serhii SVIRIBA
(Egorov Puginsky Afanasiev & Partners Ukraine)
4 Markian MALSKYY
(AstapovLawyers International Law Group)
(AstapovLawyers International Law Group)
(AstapovLawyers International Law Group)
Vsevolod VOLKOV
(Egorov Puginsky Afanasiev & Partners Ukraine)
Yaroslav PETROV