LAW FIRM DIRECTORY

Dispute Resolution

Markian MALSKYY ,
Partner, Arzinger

Oksana KAREL ,
Head of international litigation and arbitration group, Arzinger

A new approach

The year 2018 is the year of opportunities for the renewed judicial system, which should show the ability to compete with foreign state courts and promote rapidly developing international arbitration

For the Ukrainian market in the field of dispute resolution through international arbitration, the year of 2017 was very fruitful both at the legislative level (adoption of judicial reform), and in arbitration and judicial practice.

At international level, 2017 was remembered for a number of qualitative changes in arbitration, which will have an impact on our country.

Some sensational disputes, both international and national, have attracted the close attention of most of the Ukrainian community, including arbitration.

We propose to consider the latest trends of the outgoing year, which are likely to predetermine the further development of arbitration in Ukraine and behavior of the business sector.

 

COMMERCIAL ARBITRATION

Foreign and domestic business continues to do everything possible to withdraw the resolution of its disputes from the remit of state courts in Ukraine. This, as before, is associated with the low level of confidence in the domestic judicial system, the desire to resolve a dispute faster, better, without providing the public with broad access to "sensitive" commercial information. It especially relates to  disputes in the spheres of M&A, financial services, construction, infrastructure and power engineering.

A number of factors induce decision-making in favor of jurisdictions outside CIS states and applicable legislation that differs from Ukrainian legislation. This is particularly due to the rather conservative and inflexible approach of legislators and lack of consistent judicial practice.

Under these conditions, foreign and domestic large and medium-sized businesses find international arbitration most interesting for resolving significant and "delicate" disputes.

Realizing such a level of interest on the part of users in a fast and effective mechanism for resolving disputes, most of the world's leading arbitration institutions revised their approaches and regulations and suggested new tools. Thus, in the second half of 2016, the International Arbitration Center in Singapore, the country known for its "economic miracle," enacted its updated arbitration rules on commercial disputes, and from 1 January, 2017 – the rules of investment arbitration. On 1 January, 2017, the new rules of the International Arbitration Court of Stockholm (SCC) came into force, and on 1 March, 2017 the new rules of the International Chamber of Commerce (ICC) came into force. From the beginning of 2018, the new rules of the International Commercial Arbitration Court at the Chamber of Commerce and Industry of Ukraine will come into force, whose purpose is to enhance the reputation and popularity of international commercial arbitration with the venue of dispute resolution being Kyiv among representatives of domestic and foreign businesses. Arbitration rules, apart from innovations, provide for reduction in arbitration costs, shortening of deadlines, introduction of a compact procedure for dispute resolution and the institution of an emergency arbitrator.

The changes came into effect relatively recently, but statistics already show an increase in the number of disputes submitted to arbitration. This allows us to talk about the increasing competition of arbitration institutions against the general background of improvement in the quality and efficiency of arbitration.

The presence of business demand for a high-quality dispute resolution system influenced, inter alia, judicial reform in Ukraine. Although the new procedural codes adopted in early October have not yet come into force, their provisions significantly improve the legislation and law-enforcement practice relating to arbitration. Finally, at the regulatory level, we see the institution of interim measures in support of arbitration to prevent the withdrawal of assets before the end of the process, new mechanisms for judicial support for arbitration (obtaining information, interviewing witnesses), tools to improve the efficiency and speed of enforcement of arbitral awards (for example, a reduction in instances for the consideration of issues of enforcement).

 

INVESTMENT ARBITRATION

The experience of recent years shows that the mechanisms of investment arbitration can prove to be a powerful tool for protecting the rights of investors. The undoubted advantage is that investment arbitration often offers protection of rights violated while interacting with state authorities, which national mechanisms or the European Court of Human Rights cannot ensure.

The investor can, for example, think of such an instrument as investment arbitration in the event of an unexpected change in the rules of the game in violation of the investor’s legitimate expectations or in the actual absence of effective ways to protect rights that have been violated due to various circumstances.

The mechanisms of investment arbitration provide an opportunity for the investor and the state to sit down at the negotiating table with all interested parties and resolve the issues in the most expeditious and financially justified manner for both parties. At the same time, if the state, for one reason or another, "does not hear" the investor on other platforms, investment arbitration can become a good mechanism at international level, prompting the state and a foreign investor to find a method of reconciliation without losing ground.

Reality shows that Ukraine is ready to reach an amicable agreement with the investor at any stage of dispute resolution, provided that there are good reasons for doing so. According to publicly available data, only a part of many investment disputes, which Ukraine negotiated with the investor, reached the "hot phase", while the rest were settled by the parties before an arbitration decision was made. Among the latest high-profile cases is Gilead Sciences Inc. v. Ukraine, which was resolved in early 2017.

If the dispute has not been resolved peacefully, then the investor can eventually receive real compensation for damages incurred, including for reasonable loss of profits. Let's recall the case of JKX Oil & Gas and others v. Ukraine, which was finalized in favor of the investor (the results were made public last year). The final decisions in arbitration are, as a rule, fully enforced by the state. If successful, the state also remembers to recover arbitration costs, expenses for lawyers from the investor, if the latter has not paid independently.

 

WHAT AWAITS THE MARKET?

It is expected that the above-mentioned judicial reform will be implemented, and the business sector will see first results of its operation in 2018. This year will only usher in the formation of judicial practice on the use of new tools and approaches towards protection. This scenario will continue to encourage big business to look globally and refer its "heavy" disputes to London, Paris, Vienna, Stockholm, and Zurich. The attraction of financing for international commercial and investment disputes will remain "on the radar" of the business sector in order to manage financial risks (for example, to free up funds for investing in those activities that have the potential to increase the company's profitability, instead of investing in arbitration/trials).

In 2018, the market will evaluate the performance of all instruments for protection and draw conclusions for subsequent periods. The year 2018 is the year of opportunities for a rejuvenated judicial system that must show the ability to compete with foreign state courts and promote rapidly developing international arbitration. It is also time for national courts to demonstrate their own viability and win the trust of domestic and foreign businesses for the future.