LAW FIRM DIRECTORY

International Arbitration

MARKIIAN MALSKYI,
partner at Arzinger LF, attorney, PhD in Law, MCIArb

YURII RYBAK,
lawyer at Arzinger Law Firm, attorney, LL.M

All to arbitration!

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For the Ukrainian international arbitration market, 2018 will be remembered as a very productive year. Market participants were able to see the first achievements of judicial reform in action, which were widely used in a real-case scenario on resolving disputes in international arbitration.

Moreover, there are new trends in the application of commercial arbitration in specific industries in the market, and Ukrainian business has become more confident in applying international arbitration as means of resolving commercial disputes. Particular attention should be paid to several major cases in the area of international investment arbitration with the participation of Ukrainian investors.

 

Commercial arbitration

This year, domestic and foreign business placed particular emphasis on applying international arbitration in commercial disputes. The electric power industry became the locomotive where, among other things, one can observe the emergence of a completely new segment for the Ukrainian market — price disputes on the natural gas market, as well as an increase in the number of disputes related to well-drilling.

The close attention of the market was attracted both by the victory of Naftogaz of Ukraine PJSC in a dispute with Russia’s Gazprom PJSC at the Arbitration Institute of the Stockholm Chamber of Commerce, and further actions by the parties in simultaneous processes to cancel the arbitration award in Sweden and its enforcement and further arrest of Gazprom PJSC property located in European countries.

Arbitration institutions continue to introduce new technologies to reduce the cost and simplify the proceedings for parties. Separately, it is worth noting the continuing trend of introduction of new regulations by leading arbitration institutions. In particular, the German Arbitration Institute introduced new regulations in March 2018 to resolve commercial disputes.

Significant qualitative changes in arbitration legislation have arisen in connection with judicial reform that began to benefit the arbitration market. The parties began to use mechanisms of interim measures in support of arbitration, as well as mechanisms for voluntary recognition and enforcement of international arbitration awards. Transition from strict formalism to a more liberal approach to the recognition of arbitration clauses containing some inaccuracies in the name of arbitration institutions is one of the key positive changes in judicial practice.

 

Investment arbitration

The delivery of the first positive ruling on the so-called Crimean cases is the main news of 2018 in the area of investment arbitration. The Permanent Court of Arbitration in The Hague (PCA), based on the results of consideration of the case of Everest Estate LLC and 18 other Ukrainian investors, decided to recover $159 million from the Russian Federation as a result of expropriation of assets of companies located in Crimea during annexation of the peninsula in 2014. As one would expect, investors have already begun to fight very hard to recover the amount awarded, while choosing a very non-standard approach, i.e., by recognizing arbitration awards in Ukraine, investors are trying to satisfy their demands by means of shares in three Russian banks, the ultimate beneficiary of which is the Government of the Russian Federation. We should expect further development of this case in Ukrainian courts in 2019.

The PCA award in the case of Everest Estate LLC was preceded by awards on the existence of jurisdiction of arbitration tribunals in other cases initiated by Ukrainian investors against the Russian Federation, such as Lugzor LLC. Similarly, for the parties to the "Crimean cases", 2018 will be remembered by the ruling of the Supreme Court of Switzerland, which refuse the motion of the Russian Federation for cancellation of the PCA's awards on the existence of jurisdiction in cases initiated by gas producer Ukrnafta PJSC and Stabil LLC.

Judging by the positive practice of resolving "Crimean cases" in international investment arbitrations, one should expect that new investors will initiate similar cases against the Russian Federation in 2019. At the same time, the factor of possibility of attracting third-party financing to the arbitration process in order to minimize financial risks for a business may play an important role in these processes.