The success of any litigation and arbitration case depends mostly on the capability of the plaintiff to trace and locate sufficient assets of the defendant’s debtor to block and freeze the same as security for the satisfaction of any court decision or arbitral award to be issued in the main court or arbitral proceedings, which in cases of participation of a foreign entity can be prolonged by parties acting in bad faith.
In this article, we would like to provide our clients and colleagues with exclusive information and some examples from our own and other notable judicial practices that will come in handy when dealing with international litigation.
on the recognition and enforcement of a foreign judgment
A judgment that has become final is enforceable throughout the country where it has been issued.
But to enforce it in another country, a special procedure is employed that includes the recognition of this foreign judgment by virtue of a relevant order by a competent court of the country where such enforcement is requested. Apart from judgments of foreign courts, foreign arbitral awards may also be enforced.
For a foreign judgment or arbitral award to be recognized and enforced in Ukraine, the appropriate application needs to be led. Courts consider applications for recognition and enforcement of foreign judgments on the basis of international treaties on mutual legal assistance or on the principle of reciprocity.
Pursuant to Clause 1, Article 390 of the Civil Procedural Code of Ukraine (CPC), an enforceable foreign judgment is recognized in Ukraine if its recognition is warranted by international treaties ratified by the Verkhovna Rada of Ukraine, or on the principle of reciprocity.
Pursuant to Part 2, Article 390 of the CPC of Ukraine, if the recognition and enforcement of a foreign judgment depends on the principle of reciprocity, this principle is deemed active, unless proven otherwise. In addition, the principle of reciprocity (ad hoc) is also applicable on the grounds that the judgments of Ukrainian courts are recognized and enforced in another country.
If such reciprocity is questioned, an answer should be sought from the Ministry of Foreign Affairs of Ukraine. Ukraine is a party to a number of international treaties that govern international arbitration tribunals, allowing foreign trade disputes to be resolved through arbitration. A good example is the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 10 June 1958 (the New York Convention), which came into force for Ukraine on 8 January 1961. This Convention was adopted with reservations regarding its application, meaning that Ukraine applies the Convention to recognize and enforce judgments issued in another signatory state.
Pursuant to Clause 12 of Resolution No. 12 of the Plenary Meeting of the Supreme Court of Ukraine On the Court Practice of Considering Motions for Recognition and Enforcement of Foreign Judgments and Arbitral Awards and Cancellation of International Commercial Arbitral Awards in Ukraine of 24 December 1999, courts consider motions for recognition and enforcement of foreign judgments within the scope delimited by it and may not judge such judicial decisions on merits or amend them.
In filing a motion, the issue of confirmation of the movant’s powers deserves special notice. The Shevchenkivskyi District Court of Kyiv dismissed without prejudice a motion led by a representative of Italy-Ukraine Gas s.p.a. in Case No. 761/38433/15-Ц and seeking recognition of the award issued by the Arbitration Institute of the Stockholm Chamber of Commerce of 19 December 2012 in Arbitration Case No. V007/2008 based on the claim lodged by Italy-Ukraine Gas s.p.a. against NJSC Naftogaz of Ukraine on the grounds that the Italian notary only verified the authenticity of the principal’s signature, not his powers. The Court also noted that the case materials included only the certificate of registration of Italy-Ukraine Gas s.p.a. and the translation of its content evidenced that the principal was the chairman of the board of directors in the company. However, according to the said extract, the company’s interests should be represented by the chairman of the administrative council rather than the chairman of the board of directors. Additionally, as stated in the “Officials” section of the said certificate, the principal is a board member and concurrently chairman of the board of directors, incumbent until the approval of the financial statements of 31 December 2013.
Nonetheless, the court had not received any evidence that he was such an of official when the case was heard. In another Case, No. 1511/2458/2012, the Illichivsk City Court of Odessa Region, in considering a motion for recognition of several arbitral awards of the Federation of Oils, Seeds and Fats Associations (FOSFA), found that some of the awards issued by the FOSFA were annulled by the High Court of Justice of England citing the lack of jurisdiction of the arbitration body. This, however, was no obstacle to granting permission for enforcing these awards. The Illichivsk City Court of Odessa Region explained its judgment by the fact that the principle of reciprocity was not present in the given case, which fact served as grounds for its rejection to recognize the judgment of the High Court of Justice of England.
Given that the procedural rules of the countries signatories of the New York Convention differ, the procedure for recognizing a foreign judgment is different in practice.
Ukraine is not a member of the European Union, therefore its mechanism of recognition and enforcement of foreign judgments does not include elements of EU legislation. Court judgments issued in states that are not EU members are recognized and enforced in accordance with Law No. 121(1)/2000.
Cyprus is a party to various bilateral agreements on the recognition and enforcement of foreign judgments with countries like Ukraine, China, Belarus, Georgia, Egypt, Russia, etc. Also, Cyprus is a member of various multilateral conventions relating to the same. The types of enforceable judgments and orders are usually set out in those agreements. Ukraine and Cyprus are in the Agreement On Legal Assistance in Civil Matters under which the following judgments issued on the territory of the other Contracting Party are recognized and enforced:
a) judgments in civil cases, including family cases;
b) judgments in criminal cases in the part related to damages.
Regarding the procedure for the recognition and enforcement of foreign judgments in Ukraine, it is possible to conclude that if a court in Ukraine is not trying a case based on a dispute between the same parties, regarding the same subject matter, and on the same grounds; the established deadline for submitting a foreign judgment for recognition in Ukraine is not exceeded; a motion seeking cancellation of a given arbitral award is not allowed; the subject of the dispute is preferable to courts under the laws of Ukraine; the recognition of the said judgment does not threaten the interests of Ukraine; and there is no relevant agreement with the country where the judgment was issued, such a foreign judgment may be enforced in Ukraine following the principle of reciprocity.
Cyprus has become an international business center thanks to the existence of a wide network of double taxation treaties, common law legal system, the secure financial and political environment, etc, and to date more than 250,000 Cypriot companies have been established, the majority of which hold and own valuable assets in, inter alia, Russia and Ukraine.
Due to the above, Cyprus is a unique forum for the freezing of assets which are indirectly or beneficially owned by persons residing in CIS countries and, more specifically, Russia and Ukraine.
The adoption of the common law legal system empowers Cypriot courts to issue so-called Chabra freezing injunctions (i.e. which are injunctions blocking assets, prima facie bene officially owned by the debt or/ defendant, but are held and legally registered in the name of a third person).
In addition, Cyprus courts are empowered to grant discovery orders (i.e. Norwich pharmacal type, Bankers Trust type, etc.) in order to assist a claimant to plead his case, to prove his case, to identify other wrongdoers and to trace the assets of a defendant. Such discovery orders can be applied in the context of substantive civil proceedings pending before Cyprus courts, or in the context of special discovery actions for the purpose of obtaining information and evidence to be used in pending proceedings in Cyprus or abroad, or proceedings to be led in Cyprus or abroad (i.e. both court and arbitral proceedings).
The discovery action can be led against service providers who administer Cypriot or overseas companies by providing nominee and trustee services, or against local banks in which the relevant companies keep bank accounts.
In the context of such discovery actions, applicants may request the court to issue an ex parte gagging order, blocking the discovery defendant from alerting his clients or any other person about the pending proceedings.
Through the use of the mechanism of discovery orders, a claimant (i.e. victim of a wrongdoing, a creditor, etc.) may be able to build his case by collecting evidence to plead and prove his claim and to secure his claim by tracing the defendant’s assets.
Applying the New York and Hague conventions
We would like to stress the attention of our foreign colleagues on the practice of use of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) as well as the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters (Hague Service Convention) in Ukraine.
Foreign arbitration awards are generally easier to enforce in Ukraine than foreign court decisions, as Ukraine is a signatory to the 1958 New York Convention on Recognition and Enforcement of Foreign Arbitral Awards.
A foreign arbitral award will be recognized as binding and can be enforced provided that the appropriate motion is led within the competent Ukrainian court, unless the losing party proves that:
(1) the agreement to arbitrate is invalid under the chosen law;
(2) one of the parties was legally incapable of entering into the arbitration agreement;
(3) the losing party was not duly notified of the appointment of the arbitrator or the commencement of the arbitration proceedings;
(4) the losing party could not for valid reasons submit its explanations;
(5) the arbitration award rendered was beyond the scope of the arbitration agreement;
(6) the arbitration panel or procedure did not comply with the arbitration agreement or with the rules of the place of arbitration; or
(7) the arbitration award did not enter into force or was annulled or its execution was suspended by the court of the country under which laws the arbitration award was rendered.
Similarly, the arbitration award may be unenforceable in Ukraine if the Ukrainian court determines that either the object of the dispute cannot be subject to arbitration under Ukrainian legislation or that the recognition and enforcement of such arbitral award contradicts public policy.
Court cases to note
1) JKX Oil & Gas Plc and others. vs. Ukraine, Pechersky District Court of Kyiv, 8 June 2015
The court allowed the enforcement in the territory of Ukraine judgment of the emergency arbitrator made in accordance with the rules of the Arbitration Institute of Stockholm Chamber of Commerce.
2) RosUkrEnergo AG vs Naftogaz of Ukraine, Supreme Court of Ukraine, 24 November 2010
The Supreme Court of Ukraine upheld the decision of the lower court, which was granted an application for recognition and enforcement of separate arbitral awards of the Arbitration Institute of the Stockholm Chamber of Commerce.
3) HSH Nordbank AG vs Bread of Ukraine Pechersky District Court of Kyiv, 19 January 2011
The court allowed the enforcement on the territory of Ukraine of the decision of the London Court of International Arbitration.
In its decision the tribunal, among other things, ordered the debtor to pay the interest accrued from the date the award was made to the actual date of payment (“post- award interest”).
The New York Convention applies to all arbitral awards made in the territory of States other than the States where the permission to recognition and enforcement has to be requested. Criteria of nationalities of the parties to the dispute are absent in the Convention. Ukrainian law does not recognize a separate regulation of intra arbitral awards made in a foreign country. Therefore, the Ukrainian court has no grounds to refuse recognition and enforcement of an intra arbitration award made in a foreign country.
However, it has to be noted that according to Paragraph five of Article 389 CPC of Ukraine on international commercial arbitration, if the place of arbitration is in the territory of Ukraine, it may be challenged by the parties to the court in accordance with the international treaty of Ukraine and / or the Law of Ukraine On International Commercial Arbitration.
Article 34 of Law of Ukraine On International Commercial Arbitration provides the exclusive means of challenging the award and determined the reasons for the cancellation:
1) the party that declares the request for cancellation, will give evidence that: one of the parties to the Arbitration Agreement referred to in Article 7, was to some extent incompetent; or the Agreement is not valid under the Law to which the parties have subjected it, in the absence of such guidance — the Law of Ukraine; or that it was not properly notified of the appointment of the arbitrator or of the arbitration or other valid reasons why it could not submit its explanations; or a decision made does not refer to the dispute of arbitration agreement or one that does not fall under the terms of, or contains decisions on matters beyond the scope of the arbitration agreement, however, if the decisions on matters covered by the arbitration agreement can be separated from those not submitted, it can be abolished only in the part of the award which contains decisions on matters not submitted to arbitration; or the composition of the arbitral tribunal or the arbitration procedure did not meet the agreement of the parties, unless such agreement is not contrary to any provision of this Law from which the parties cannot derogate, or, failing such agreement did not comply with this Act; or 2) the court finds that: the object of the dispute cannot be subject to arbitration under the law of Ukraine; or the award is contrary to the public policy of Ukraine.
The same reasons set out in Article V of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958.
Thus, an exhaustive list of grounds for cancellation of arbitral awards by Article 34 of Law Ukraine On International Commercial Arbitration, consists of two groups of reasons:
1) subject to review by the court at the request of the parties, which is the burden of proof in the circumstances (paragraph 1 of Article 34);
2) are subject to review by the court ex oficio, even if none of the parties referred to them (paragraph 2 of Article 34), corresponding to the position of point “b” of paragraph 2 of Article V of the New York Convention.
According to the Ruling of the Supreme Court of Ukraine No. 12 On the Practice of Court Consideration of Motions for Recognition and Enforcement of Foreign Court Decisions and Arbitral Awards and Cancellation of Decisions Issued by Way of International Commercial Arbitration in Ukraine of 24 December 1999, it has been explained that the motion for recognition and enforcement of foreign judgments the court considers within its limits and cannot debate the correctness of those decisions in their essence and make any changes.
In judicial practice of reciprocity, the Court of Appeal of Rivne Region applied this in Case No.22-c / 787/2054/2015 and Ostrog Court of Rivne Region in case 567/955/15-c. As a result, the judgment of the United Kingdom and Northern Ireland court was recognized in Ukraine and was granted permission for its enforcement. Bogatyr and Partners are proud to be pioneers in granting recognition of a United Kingdom court judgment in Ukraine.
Thus, if court proceedings in Ukraine is not the case in a dispute between the same parties on the same subject and on the same grounds, the prescribed period is missed, the presentation of a foreign court for recognition in Ukraine not satisfied, the application for cancellation of the award matter of the dispute by the laws of Ukraine shall be subject to judicial review, and the recognition of the said decision does not threaten the interests of Ukraine, a foreign judgment may be enforced in the territory of Ukraine on the principle of reciprocity (ad hoc).
Our lawyers inquired with the State judicial administration of Ukraine and we have received exclusive data on the statistics regarding recognition and enforcement of foreign judgments in Ukraine which can be found below.
Participation of a foreign entity
Participation of a foreign entity in the economic affairs to which the law provides the same procedural rights and obligations in the trial, same as to legal entities established under the laws of Ukraine, is often a pretext for unscrupulous parties to delay the proceedings. After attracting a foreign entity to the case (usually as a third person, who does not claim independent demands on the subject of the dispute) the unfair party tries to hand over the writ of summons to the non-resident in the manner specified by the Convention On the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters of 15 November 1965 and stop the proceedings. In most cases the non-resident is related to the persona in the interest company, which abuses its procedural rights for the purpose of delaying the proceedings.
Taking the Convention into account you can prevent an unwarranted delay in hearing cases involving non-residents.
The order of service of judicial documents established by the Convention applies in cases where a party involved in the proceedings is abroad and does not have branches on the territory of Ukraine, representative of offices and other subdivisions, the location of which is the territory of Ukraine and authorized representatives, i.e. when there is a need for notification of non- residents and servicing of the documents abroad.
If a foreign legal person has, on the territory of Ukraine, a representative (by power of attorney) or a separate subdivision that is authorized to represent the foreign entity in commercial courts of Ukraine, there is no need for the application of the Convention and the termination of the proceedings.
According to the recommendations of the Practical guidance on the application of the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents Article 15 of the Convention, developed by the Permanent Bureau of the Hague Conference on Private International Law, and Paragraph 8 of the explanation of the Presidium of the Supreme Economic Court of Ukraine of 31 May 2002, No.04-5 / 608 On Certain Is- sues of Cases Involving Foreign Companies and Organizations, judicial documents can be serviced to branches, representative of offices and other subdivisions of foreign enterprises and organizations, whose territorial location is in the territory of Ukraine (with notification of receipt of such documents) and should be serviced directly to the authorized representative.
The Supreme Economic Court of Ukraine holds the position that in the event of availability of a foreign entity’s authorized representative in Ukraine, which has the authority to represent such entity in court, there is no need to notify the specified foreign entity on the proceedings in the manner prescribed by the Convention. This approach was expressed by the Court in its decision in Case No. 912 / 243/16 and others.
So before deciding to notify the non- resident in accordance with the Convention, it should be ensured that the latter does not have an authorized representative (by power of attorney) or a separate unit in Ukraine. Thus, it is necessary to establish that there is, indeed, a need to notify a non-resident and to service him documents abroad.
During the process of applying the Convention the question arises on the circle of trial participants which should be covered by the Convention, including the need for notification under the Convention of third parties that do not claim independent demands on the subject of the dispute.
Article 1 of the Convention contains the general rule which states that it applies in civil and commercial matters for all cases where there is a need to service judicial and extrajudicial documents abroad. The list of parties which must be notified is not specified.
When deciding on the need to notify the third party on the proceedings in the manner prescribed by the Convention, we must take notice that, first of all, third parties that do not claim independent demands on the subject of the dispute are included in the circle of the trial parties according to Article 18 CPC Ukraine; secondly, they use the procedural rights and bear procedural obligations of the parties according to Article 27 CPC of Ukraine.
Therefore, commercial courts adhere to the position that third party non-residents, as parties to the proceedings (plaintiff and defendant) must be notified of the proceedings by the commercial court, and the court documents must be serviced to these individuals as prescribed by the Convention. In particular, the Supreme Economic Court of Ukraine and commercial courts below, based on the fact that the notification of the non-resident legal entity in the statutory method is aimed to just notify the latter about the presence of the case before the court, to give the persona the possibility to take protective measures, such as: proper study of the case and the requirements of other parties, preparation of their own position, evidence, arguments and other measures. Therefore, the Court concludes that the suspension of the proceedings in order to notify a non-resident third party of the proceedings is lawful. This can be seen in the Resolution of the Supreme Economic Court of Ukraine of 28 April 2015 in Case No. 916 / 2826/14.
The Convention provides that the service of judicial documents abroad can take place through the Ministry of Justice by a procedure, which includes the following steps:
(1) drawing up and submitting a court request for notification under the forms;
(2) receipt by the Central Authority of the State of the request and delivery of a document or securing the submission of a document;
(3) drawing up and submitting to the Central Authority of the State a confirmation of receipt to the requesting authority.
Articles 3 and 5 of the Convention provide that the authority or judicial of officer competent under the law of the requesting State send to the Central Authority of the State a request in accordance with the request form. The Central Authority of the State itself submits a document or secures its receipt by an appropriate authority.
Article 6 of the Convention provides that the Central Authority of the State or any authority which it may assign to it, provides confirmation in accordance with the form added to this Convention. Confirmation is sent directly to the requesting authority.
Ukraine’s Central Authority is the Ministry of Justice of Ukraine according to p. 2 of the Law of Ukraine On Ukraine’s Accession to the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters.
The service of judicial documents abroad needs not to be made through the competent authorities of the two coun- tries, but can also be done by mail, directly through the judicial of officers, officials or other competent persons of the State.
According to Article 10 of the Convention, if the requested State does not object, the present Convention shall not limit the ability to service judicial documents directly by post to persons abroad; the possibility for judicial of officers, of officials or other competent persons of the requesting State to service judicial documents directly through judicial of officers, of officials or other competent persons of the State; opportunity for any person in interest in the trial to service judicial documents directly through judicial of officers, of officials or other competent persons of the State.
Thus, the Convention establishes that in the absence of objections by the requested State, the servicing of judicial documents to non-residents abroad can take place by sending the following documents directly by post or through judicial of officers, of officials or other competent persons of the State, without application of the procedure under Articles 3, 5 and 6 of the Convention.
This position is held by the Supreme Economic Court of Ukraine and courts of lower instances. In particular, the judgment in Case No.32 / 1pn of Supreme Economic Court pointed out that the non-resident complainant’s, who are abroad, right to notify that person of the time and place of the court hearing was not violated because the decision of the Economic Court was serviced by courier, which is not inconsistent with the requirements of Article 10 of the Convention On the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters.
In Case No.916 / 4695/14, the Odessa Economic Court of Appeal expressed the position at which it agreed with the Supreme Economic Court of Ukraine, in which it addresses that the application of the economic court with a judicial request for legal care is a right, not an absolute duty of the commercial court in the case involving foreign entities, which the court uses due to specific circumstances, guided by the law. So, given the lack of reservations on the part of Cyprus to Article 10 of the Convention, the Court concluded that the Commercial Court in the case is not limited to the possibility of servicing judicial documents in the manner specified by paragraph “a” of chapter 1 of Article 10 of the Convention, namely to service judicial documents directly by post to the party, not to the Central Authorities of Cyprus and the UK.
In paragraph 5 of the Law of Ukraine
On Ukraine’s Accession to the Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters Ukraine has made a reservation that it will not use the methods of service of judicial documents under Article 10 of the Convention (by post, by court staff) on its territory. However, the following disclaimer does not affect the ability to service documents by mail to non-residents, since it applies only in the case of service of documents on the territory of Ukraine on the orders of a foreign court.
In the event that Ukraine is the requesting state, i.e. documents from Ukraine are serviced to persons abroad, the possibility of servicing documents by mail should be addressed on the basis of reservations to the Convention made by the requested State, on the territory of which handing will be made.
According to Article 15 of the Convention, a judge can make a decision only after a certain period from the sending of a document, that is at least 6 months.
The CPC of Ukraine stipulates that the commercial court must stop the proceedings in the case of appeal of a commercial court with a judicial request for legal assistance to a foreign court or another foreign competent authority.
Consequently, the economic courts, given the provisions of Article 15 of the Convention, following the requirements of Article 79 CPC of Ukraine, tend to stop the proceedings for a period of at least 6 months.
It should also be noted that Ukraine joined the Convention with reservations. In particular, when the conditions set out in Part 2 of Article 15 of the Convention are fulfilled, the judge, notwithstanding the provisions of Part 1 of Article 15 of the Convention, may conduct judgment even if he did not receive any confirmation of receipt or delivery of documents directly.
Article 6 of the Convention on Human Rights and Fundamental Freedoms states that everyone has the right to a fair and public hearing within a reasonable time by an independent and impartial tribunal.
The European Court of Human Rights has repeatedly emphasized that the reasonableness of the length of the proceedings should be determined taking into account the circumstances of the case, including the criteria prevailing in court practice, consisting of the complexity of the case, conduct of the parties and the relevant authorities. This can be seen in the cases Yakimenko vs. Ukraine, Moroz and others vs. Ukraine and others.
Moreover, in the judgment of the European Court of Human Rights in the Smirnov vs. Ukraine case, the Court emphasized that the obligation of prompt administration of justice relies primarily on the respective state courts. The inability of the court to counteract obstacles to cases created by bad faith members to the movement of the case is a violation of Article 6 of the Convention.
Thus, as the judicial practice and the Convention are a source of law, national courts are obliged in each case to determine the need for the procedure under the Convention, subject to notifying a non-resident of the case for effective combating of abuses and obstacles to the movement of the case.
In order to contribute to the full picture, we would like to bring up some recent statistics of the Index for Monitoring Reforms (iMoRe) from VoxUkraine, which is designed to give a comprehensive assessment of the efforts of the Ukrainian authorities in providing economic reforms. In accordance with this Index, the period of growth of the legitimacy of the Ukrainian political system was influenced in 2016 when the reforms stopped, and power was concentrated in the hands of a single financial and political group. The Economic Reform Index clearly shows how throughout the year activity related to reforms gradually decreased until it reached zero on the index by the end of 2016. By contrast the acceptable index is viewed to be around 2 points.