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9Feb/10Off

Ad hoc arbitration

This is the second post in the Ukraine – arbitration-friendly jurisdiction set of comments after the post dedicated to Ukrainian “perception” of the Arbitration Institute of the Stockholm Chamber of Commerce.

It may sound strange, but in some cases the practice of Ukrainian courts concerning recognition and enforcement of foreign arbitration awards is based not on laws and international treaties that specify international obligations of Ukraine to recognize and enforce the awards, but on domestic currency control rules and even tax legislation. Let the currency control rules be formally interpreted, which was the case during several years, and you may come to a ridiculous result: the monopoly of the International Commercial Arbitration Court and the Maritime Arbitration Commission at the Ukrainian Chamber of Commerce and Industry “on the market” of resolution of disputes where one party is a Ukrainian entity.

ad hoc

Let me illustrate this statement. On the basis of the Law of Ukraine "On the Procedure of the Settlement of the Accounts in Foreign Currency" the tax authorities of Ukraine are entitled to levy the fine in the amount of 0.3% from the sum of non-received earnings for each undue day, if the Ukrainian resident does not obtain the earnings within 90 days starting from the date of customs clearance of shipped goods (or acceptance of services). The same rule is for delivery of goods paid by Ukrainian residents. Thus, the maximum term for the return by a Ukrainian exporter of foreign currency proceeds under the export contracts after the goods were shipped abroad as well as for the delivery of goods into Ukraine under the import contracts after the payment abroad was made is 90 days, unless an extension thereof is approved by the Ministry of Economy.

According to the above Law Ukrainian residents are able to avoid the losses by addressing the “court, International Commercial Arbitration Court or the Maritime Arbitration Commission at the Ukrainian Chamber of Commerce and Industry” within the mentioned 90 days since, according to the Law of Ukraine "On the Procedure of the Settlement of the Accounts in Foreign Currency", the calculation of the fine ceases at the moment when a claim is lodged with the specified institutions.

Ukrainian tax authorities applied that provision quite formally. They did not recognize the right of a Ukrainian party to stop the application of fines if the claim was lodged with any other institution except those three specified in the Law. Naturally, the tax authorities levied the fines in case of ad hoc arbitration as well.

However, recent court practice gives us examples of systematic interpretation of the mentioned provision of the Law. The economic court of Ghernigiv Region in its decision of 9 February 2007 (case No. 11/63а) stated that the list of arbitration institutions specified in the Law of Ukraine "On the Procedure of the Settlement of the Accounts in Foreign Currency" should not be treated as an exhaustive one. According to the Law of Ukraine “On International Commercial Arbitration” the arbitration means any arbitration (third-party tribunal) whether conducted by a tribunal set up specifically for a given case or administered by a permanent arbitral institution, in particular the International Commercial Arbitration Court or the Maritime Arbitration Commission at the Ukrainian Chamber of Commerce and Industry. Thus the parties were entitled to agree about ad hoc arbitration.

We may not consider that court case as a landmark one, but the tendency is rather positive. The decisions of the Supreme Court of Ukraine and those of highest specialized courts (Supreme Economic Court and Supreme Administration Court) are considered as giving unified court practice by Ukrainian lawyers. Actually, the Supreme Economic Court of Ukraine in 2002 stated that the courts should take into account the parties’ right to agree about arbitration of a dispute. It means that “the parties of the foreign trade agreement have the right to agree therein or by way of execution of a separate agreement (arbitration agreement, arbitration clause) to submit arbitration disputes which may arise out of that agreement for settlement to an arbitration (third-party tribunal) whether conducted by a tribunal administered by a permanent arbitral institution or set up specifically for a given case – ad hoc). That agreement should clearly define the body chosen by the parties: the International Commercial Arbitration Court, the Maritime Arbitration Commission at the Ukrainian Chamber of Commerce and Industry or other arbitration in Ukraine or abroad.”

Though there were particular misinterpretations of the meaning of the word “body” mentioned in the above quote (in certain cases the courts stated that ad hoc arbitration may not be considered as a “body”) Ukrainian court practice is on its way to perception of the parties’ right to arbitrate disputes. As you can see this comment is related not only to ad hoc arbitration, we also tried to illustrate here the attitude of Ukrainian courts and the legislator to any other arbitration institution except for those administered by the Ukrainian Chamber of Commerce and Industry. Now the things are changing.

(c) by International arbitration blog

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