2016 turned out to be extremely eventful yet quite exhausting for the international arbitration community in Ukraine.
The rapidly changing arbitration environment and recent developments in the international arbitration arena leave no other option than to adapt oneself and break through. But would the inner powers of international arbitration in Ukraine suffice?
In changes we trust
The spring of 2016 not only woke Ukraine up from its slumber but also brought a breath of fresh air to international arbitration in Ukraine. On 31 March 2016 Ukrainian MPs submitted a new draft Law No. 4351 (the “Draft law”) aiming to introduce significant amendments to the legislation on judicial control over and support to international arbitration in Ukraine. The Ukrainian Arbitration Association took active part in elaboration of the Draft law to ensure that the new Law meets the most up-to-date needs of international arbitration in Ukraine.
The Draft law introduced remarkable amendments to the current international arbitration legislation: the powers of state courts to grant interim measures in support of international arbitration proceedings. Notably, the state courts may also order a requesting party to lodge a guarantee of potential losses of the opposing party, a mechanism which is also new for Ukraine. As of today a party to an arbitration may apply for interim measures only at the stage of enforcement. However, quite often this option turns out to be futile when it comes to enforcement.
The Draft law also envisages the parties’ right to exclude an option to challenge an arbitral award in state courts, thus making it final and binding. Such novelty will definitely make the defaulted party feel more tense, since it has become a common practice for such party to stake on the challenge of an award rather than on defence in arbitration proceedings.
Another amendment provided by the Draft law stands for the reduction of the court instances of control and support over international arbitration to two, which will enable judicial control over international arbitration in Ukraine to be more prompt and effective.
Eventually, on 2 November 2016 the Committee of the Verkhovna Rada of Ukraine on Legal Policy and Justice recommended to adopt the Draft law.
ICAC Arbitration Rules improvements on the way
For the several past years ICAC at the Ukrainian Chamber of Commerce and Industry worked hard on further improvements of its Rules, primarily to adapt the ICAC Rules to the new high standards of international arbitration.
ICAC at the UCCI kept all negotiations and drafts of the new Rules under seven locks and seals. However, at the First Eastern European Dispute Resolution Forum held in Minsk (Belarus) on 23 September 2016, Ms Tetiana Zakharchenko, the Vice President of the ICAC and MAC at the UCCI, shed some light on what the new Rules would become about.
Broadly speaking, the new ICAC Rules shall elaborate the arbitration procedure in more detail, including rules relating to evidence. In particular, developers of the draft ICAC Rules intend to detail the role of expert witnesses and witnesses of fact. Such novelties would give the parties another weapon to present and protect their case.
The amended ICAC Rules should also introduce arbitration instruments not provided therein earlier. For instance, ICAC Rules would institutionalise the reporters in each case to keep case documents and records of the hearings, and perform other duties and instructions related to arbitral proceedings.
According to Ms Tetiana Zakharchenko, the new ICAC Rules will see the light of day in early 2017.
The State of Active Arbitration
2016 turned to be not only the year of developments and novelties but also a year of big challenges for Ukraine. The number of arbitrations where the State of Ukraine acted as respondent increased significantly as compared to 2014–2015. The claims against Ukraine were filed under BITs, the ICSID Convention and the EСT, and the cases are considered by the ICSID, SCC, UNCITRAL and PCA.
This year, following JKX Oil & Gas Plc, Littop Enterprises Limited, the minority shareholder of PJSC Ukrnafta, filed their claim against Ukraine to SCC under the ECT. Notably, the essence of Littop’s claim almost reproduces that of JKX Oil & Gas Plc. Littop Enterprises Limited’s claims arose out of the Ukrainian government’s measures with respect to PJSC Ukrnafta’s operations, including alleged interference with the sales price of natural gas. Apparently, Littop Enterprises Limited follows the path beaten by JKX Oil & Gas Plc in 2015, seeing that as a good precedent with all relevant facts established.
In April 2016 the Republic of Tatarstan submitted to international arbitration a claim under the UNCITRAL Arbitration Rules against Ukraine for USD 300 million in a case of change of shares of shareholders of PJSC Ukrnafta. Tatarstan holds 28.78% of the shares in PJSC Ukrnafta. However, in 2007 it lost its shareholding as a result of allegedly illegal and discriminatory actions of the Ukrainian judicial authorities.
The most recent case involves two subsidiaries of the Russian aluminium giant Rusal. The Amsterdam-based Emergofin BV and Cyprus-registered Velbay Holdings Ltd brought a claim against Ukraine under the Netherlands–Ukraine BIT. The claimants allege Ukraine’s expropriation of the Zaporizhzhia Aluminium Plant in 2015, in which they hold the controlling stake (68.01%). The noteworthiness of this case lies in its clash with the sanctions imposed by the USA, Europe and Ukraine against Rusal and its largest shareholder, Mr Oleg Deripaska.
On the other hand, Ukraine is struggling to protect its own interests in international disputes. In this respect, a number of Ukrainian entities with their assets in Crimea brought their claims against the Russian Federation to the PCA under the UNCITRAL Arbitration Rules. The active cases involve: Stabil LLC and others v The Russian Federation, LLC Lugzor and others v The Russian Federation, Privatbank and Finance Company Finilion LLC v The Russian Federation, Everest Estate LLC and others v The Russian Federation, Aeroport Belbek LLC and Mr Kolomoisky v The Russian Federation, PJSC Ukrnafta v The Russian Federation, JSC Oschadbank v The Russian Federation.
In June 2016 NJSC Naftogaz submitted a claim to the SCC seeking the establishment of a fair price for gas supplied to Ukraine by Gazprom. The total amount of NJSC Naftogaz’s claim reaches $28.3 billion.
Further, in October 2016 six of its subsidiaries initiated a SCC arbitration against the Russian Federation claiming USD 2.6 billion for unlawful seizure of the group’s assets in Crimea.
In addition to Ukraine’s legal claims against the Russian Federation for annexing Crimea and de facto expropriation of its assets, Ukraine submitted an arbitration claim against the Russian Federation under Annex VII of the UN Convention of the Law of the Sea to vindicate its rights as the coastal state in maritime zones adjacent to Crimea in the Black Sea, the Sea of Azov and the Kerch Strait.
It appears that the upcoming 2017 will bring even more warfare in the terrain of international arbitration for Ukraine.
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