Enforcement of Foreign Interim Measures in Ukraine
by Andrey Bychkov, Roman Protsyshyn
It is not uncommon for claimants in commercial disputes to face recalcitrant debtors deliberately dissipating their assets to render themselves judgment-proof or taking other steps aimed at complicating, or even making impossible, enforcement of a future judgment or arbitral award.
To avoid the risk of actual recovery of the claim being ultimately thwarted, various interim measures designed to preserve the status quo come into play, allowing an aggrieved party to secure enforcement of a judgment or arbitral award if made in its favour. This instrument also ensures that the successful party’s efforts and costs of running litigation or arbitration are not wasted. Thus, the importance of interim measures cannot be overstated.
A party to domestic litigation or arbitration proceedings in Ukraine, a party to international arbitration or even a prospective party to domestic litigation which is yet to be commenced can seek an interim measure from a Ukrainian court in support of such proceedings. Ukrainian courts were granted a power to order interim measures in aid of arbitration at the end of 2017 when most of the procedural codes were restated, making Ukraine a more pro-arbitration jurisdiction (see Article 149(3) of Civil Procedure Code of Ukraine No. 1618-IV of 18 March 2004 (CPC).
However, when it comes to enforcement of interim measures granted by a foreign court, international arbitral tribunal or emergency arbitrator, issues may become complicated.
Enforcement of foreign judgments largely depends on whether there is an international treaty between the country where the judgment was made and the country where it is to be enforced. In international arbitration, the key enforcement instruments, apart from local procedural rules, are the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention or NYC) and the applicable domestic arbitration laws, many of which are based on the UNCITRAL Model Law on International Commercial Arbitration 1985 (Model Law). As the New York Convention is applicable in 168 countries, it would be true to say that a NYC award would be a much more effective weapon in the hands of a creditor seeking enforcement in another jurisdiction than a judgment of a domestic court.
In essence, an interim measure is time-limited relief which may be granted by a competent dispute resolution body, such as a national court or arbitral tribunal, by way of an order or award to secure actual enforcement of a final judgment or arbitral award on the merits of the case that may be made in the future. The rise of the trend for emergency arbitration available under some popular institutional rules of arbitration, which enables parties to apply for interim measures on an urgent basis, has raised issues over the enforceability of such awards.
The problem of enforceability of interim measures is old and its cornerstone lies within the issue of ‘finality’. The Model Law refers to the ‘final’ award in the context of bringing arbitration proceedings to an end: see Article 32(1) of the Model Law, which states that “arbitral proceedings are terminated by the final award”. At the same time, Article 36(1)(a)(v) of the Model Law uses the term ‘binding’ in the context of enforceability and provides that recognition or enforcement of an arbitral award may be refused if the defendant proves that the award has not yet become binding. While the amendments to the Model Law adopted in 2006 are specifically designed to provide for the enforceability of interim measures, these amendments have not been implemented by Ukraine into its national legislation yet.
The Convention on the Execution of Foreign Arbitral Awards (Geneva, 1927), predecessor of the New York Convention, required a party seeking recognition or enforcement of an award to prove inter alia that the award had become ‘final’ in the country in which it was made, meaning that it was not open to opposition or appeal. In practice, this means that the party seeking to rely on the award had to apply for exequatur in the country of origin so as to establish that the award was final (see E. Gaillard, J. Savage eds, Fouchard Gaillard Goldman on International Commercial Arbitration, 1999, p. 971, para. 1677). The New York Convention abolished the requirement of “double exequatur” by merely requiring an award to now be ‘binding’ rather than ‘final’ (Article V(1)(e) of the NYC).
The New York Convention, particularly its English version, does not expressly state that the “arbitral award” includes “interim awards”, nor does it restrict enforceability to awards that are only “final”. The New York Convention is simply silent on the point of finality, but uses the term ‘binding’ without defining its meaning. It is, therefore, up to national courts to decide what awards are to be considered as binding.
Interestingly, the official Russian text of the New York Convention uses somewhat different language in Article V(1)(e), which does require an award to be “final” rather than “binding”. As to Ukraine, while there is no official Ukrainian version of the New York Convention, the CPC mirrors the provisions of Article V of the New York Convention and requires an award to be “binding” in order to be enforceable in Ukraine (see Article 478(1)(1)(´) of the CPC).
With regard to foreign court decisions, their enforceability in Ukraine would depend in the main on the provisions of the relevant international treaty between Ukraine and the country in which the court decision was made. In the absence of such treaty, or to the extent that certain procedural issues are not covered by an existing treaty, such issues are governed by domestic procedural rules, namely the CPC.
Ukrainian procedural rules do not distinguish between enforcement of foreign interim court orders or interim arbitral awards on the one hand, and the enforcement of foreign judgments or arbitral awards on merits on the other.
Ukrainian law affords the recognition and enforcement of both foreign court interim measure orders and foreign interim measure awards provided that there is an effective international treaty on mutual recognition and enforcement of such orders and awards or, in the absence of such treaty, on the grounds of reciprocity, whose existence is presumed unless otherwise proven (see Articles 462 and 474 of the CPC). The reason is twofold. For enforcement purposes, the CPC, which governs the procedure for recognition of both foreign judgments and arbitral awards, does not define what a foreign court judgment or an international arbitral award is, nor does it limit the application of the procedure to a ‘final’ judgment or award on the merits of a dispute.
As already mentioned, the New York Convention does not address the issue of finality of an award. However, such limitations in respect of foreign judgments may be found in Ukraine’s international treaties, which would apply since they prevail over national rules.
For the last 10 years, Ukrainian courts have shown that foreign interim measures are enforceable in principle under the NYC regime for interim arbitral awards or on the grounds of reciprocity for foreign court interim orders. However, they have not finally formed their approach to the recognition and enforcement of foreign interim measures because the discussion in those cases did not revolve in detail around the finality of foreign court interim orders or arbitral interim measures.
BTA Bank cases. In 2012-2016, BTA Bank commenced several cases in Ukraine on recognition of the interim measures orders issued by the English High Court of Justice in the case of JSC BTA Bank v Ablyazov & Others. In all cases, BTA Bank opted to obtain a mere declaration of enforceability of those orders by seeking their recognition only without actually seeking to enforce them compulsorily (i.e., via bailiffs).
One set of cases (2601/17062/12 and 752/15024/15-ö) relates to the recognition of the receivership order of the High Court of Justice of 6 August 2010 (as amended in 2010-2015) on the appointment of asset managers to the assets of one of the defendants, which were his shareholding in a number of Ukrainian companies. On 5 August 2013, the Golosiivskyi District Court of Kyiv City granted the recognition of the initial foreign judgment, and on 3 March 2016, the same court (in a separate case) granted the recognition of the amended foreign judgment.
The other two cases (2601/23768/12 and 752/20369/13-ö) relate to the recognition of the English High Courts’s worldwide freezing orders of 12 November 2009 and 23 November 2012, respectively, prohibiting one of the English defendants to dispose of or otherwise diminish the value of his assets, which included a shareholding, among others, in Ukrainian companies. The recognition of those WFOs was successful. Although there were numerous strong appeals in 2018-2020, Ilyashev & Partners’ team representing BTA Bank has managed to keep the result and the two High Court WFOs remain recognised in Ukraine.
The key feature of the 2009 WFO recognition case is that the appellate court set aside the first instance ruling on the grounds inter alia that BTA Bank had wrongly applied only for the recognition of the English court judgment instead of seeking its recognition and enforcement. The reasoning of the Kyiv Court of Appeal was that the 2009 WFO did not simply establish certain facts that need to be only recognised in Ukraine but, in fact, restricted the defendant’s property rights in Ukrainian assets, which obviously indicates that such restrictions can be compulsorily enforced. In de novo proceedings, on 5 August 2013, the Golosiivskyi District Court of Kyiv City once again only granted the recognition of the 2009 WFO, stating that this foreign judgment did not require forced execution.
The key feature of the 2012 WFO recognition case is that the appellate court set aside the first instance ruling because the appellant whose shares were indicated as one of the defendant’s assets located in Ukraine, had not been informed about English litigation. By dismissing the appellate court decision and upholding the first instance ruling granting the recognition of the 2012 WFO, the Supreme Court held that the shareholder rather than the appellant-company had been a party to the English court proceedings and the WFO did not and could not interfere with the appellant’s rights.
VAB Bank case (369/9506/13-ö). This case relates to the fate of VAB Bank’s unsuccessful recognition and enforcement of two worldwide freezing orders of the English High Court issued in aid of LCIA arbitration case No. 122147, where the bank was a claimant, to prevent the dissipation of the Ukrainian assets of one of the defendants.
The application for enforcement of the two WFOs was filed in September 2013. By the time that the first instance court considered the case de novo (25 March 2015), the LCIA tribunal had already delivered its award on liability (17 December 2014) terminating the interim measures adopted in the WFOs in the part relating to the arbitration. The issue relates to the ‘finality’ of a judgment. In this regard, the first instance court made two findings: (1) it rejected the argument by defendants that a WFO, being not a ‘final’ judgment on merits, cannot be enforced in Ukraine like any other foreign court judgment, (2) however, it held that the LCIA award terminating the interim measures and had been adopted in aid of arbitration, thus extinguished the force of the WFOs.
JKX Oil case (757/5777/15-ö). In 2015-2018 Ukrainian courts, for the first time in their history, considered an application for recognition and enforcement of an arbitral award of an emergency arbitrator appointed under the SCC arbitration rules in the context of an investor-state arbitration under the Energy Charter Treaty (JKX Oil & Gas PLC & Others v Ukraine). In this case, the emergency arbitrator granted the relief sought by the investor-claimants enjoining Ukraine from collecting royalties on gas production from the investor at a higher rate than was previously in place. Although the Perchersk District Court of Kyiv City granted the recognition and enforcement of the SCC Emergency Award on 8 June 2015, the Supreme Court finally decided the case on 19 September 2018. The case ultimately failed on the grounds inter alia that the recognition and enforcement of such award would be contrary to the public policy of Ukraine, relying on Article V(2)(b) of the New York Convention, because this would mean that courts may change tax rates, which is contrary to the main taxation principles of the state. Interestingly, the ‘finality’ issue that could have been raised under Article V (1) (e) of the Russian version of the New York Convention was not discussed at all. By applying the New York Convention as the grounds for refusal to enforce the SCC Emergency Award, Ukrainian courts thus indirectly construed that those arbitral interim measures are enforceable in principle under the NYC regime.
Mobco Limited case (22-ö/796/2763/2015). In this case, the issue of the “finality” of a foreign court judgment was crucial. On 23 December 2014, the Solomiansky District Court of Kyiv City refused to recognise a decision of the Nicosia District Court of 4 July 2013 in Mobco Limited v Aviacompany Khors LLC on the grounds that it was not a ‘final’ judgment but rather an interim measure order, which is not enforceable under the Agreement between Ukraine and the Republic of Cyprus on Legal Assistance in Civil Matters of 6 September 2004, since the finality of court judgments is an express requirement under Article 21(a) of that treaty. That ruling was upheld by the Kyiv Court of Appeal.
Bank National Credit case (596/522/15-ö). This case also relates to the “finality” of a Cypriot court decision made on 5 February 2015, whereby an injunction was granted over Mriya Argo Holding Public Limited’s assets, including those located in Ukraine. In its ruling of 27 April 2016, the Supreme Specialised Court of Ukraine for Civil and Criminal Cases held that the injunction order is interim and does not amount to a “final” judgment as is required by the Ukraine-Cyprus Treaty on Legal Assistance in Civil Matters of 6 September 2004.
Soufflet Negoce SA case (201/3600/16-ö). In this case, the disclosure order issued the disclosure order issued by the English High Court against, inter alia, a Ukrainian individual to obtain information necessary to locate the assets of a GAFTA award debtor was successfully recognised in Ukraine. Despite numerous unsuccessful appeals, the Supreme Court handed down its final decision in favour of the French company.
VEB.RF case (824/178/19). In this case, VEB.RF, a Russian state corporation, sought the recognition and enforcement of an Emergency Arbitrator’s Award dated 28 August 2019 issued in an SCC investor-state arbitration against Ukraine. The Emergency Award required Ukraine, through its bailiff authorities, to halt the forced sale of VEB.RF’s shares in a Ukrainian bank called Prominvestbank, which were to be sold to enforce a PCA arbitral award, that had been recognized in Ukraine, in the case of Everest Estate LLC & Others v The Russian Federation. Both the Kyiv Court of Appeal and the Supreme Court dismissed VEB.RF’s application on the grounds that the recognition and enforcement of the Emergency Award would violate public policy because it would obstruct the enforcement the enforcement of the PCA arbitral award.
is a counsel, attorney at law at Ilyashev & Partners
is an attorney at law at Ilyashev & Partners