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A court is not obliged to read an arbitration clause

This is another post in the Ukraine – arbitration-friendly jurisdiction set of comments. The Highest Economic Court of Ukraine being a body that is responsible for elaboration of the unified court practice of resolution of commercial disputes in Ukraine, adopted the ruling that answers the question: “Is a court obliged to terminate proceedings if a dispute is based on a contract that contains valid arbitration clause?”

As follows from the decisions of the court of first instance in case No 3/180, which were supported by the court of appeal and the Highest Economic Court of Ukraine as the court of cassation the answer was “No”. The court of cassation stated that the court of first instance should terminate the case and propose the parties to go to arbitration only if the contract contained a valid arbitration clause (or the separate arbitration agreement existed) and if any of the parties challenged the competence of the court because of that arbitration agreement before any objections or clarifications related to the essence of the case were submitted to the court. Probably, this may seem logically and evident, but in several cases economic courts expressed the opinion the court should terminate the case even if both parties agreed to resolve it in the court regardless of the arbitration clause.

Thus, the reasonable position of a respondent in a similar case is to object against the competence of the court as soon as possible and not wait for the decision in essence of the case. Of course the recommendation is worth to apply only if the respondent feels that he will have better position in arbitration than in the court.

Posted by Konstantin Pilkov, MCIArb, Cai & Lenard Law firm

Cai Lenard Logo A court is not obliged to read an arbitration clause

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  1. The Highest Commercial Court of Ukraine in case No. 3/180 confirmed the consensual nature of arbitration and the principle of party autonomy. The Article II(3) of the New York Convention 1958, which Ukraine had ratified in 10 October 1960, states, among others, that the “Court…shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapableof being performed”. The courts should proceed with the consideration of the case, unless one of the parties requests to arbitrate the issue and there is a valid arbitration clause/agreement.

    The courts that refused to proceed with the case and referred the parties to arbitration despite the parties’ will not to arbitrate, did not follow the provision of Article II(3) of the New York Convention and banned the parties from considering their case by state court, violating the Article 1 of the Ukrainian Code of Commercial Procedure.

    Therefore, the Highest Commercial Court of Ukraine gave the right direction to the lower courts in terms of application of the arbitration clause/agreement.

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