Dispute resolution

AVELLUM secured a favourable award to the client in a dispute at the GAFTA arbitration for a total amount of more than EUR1.5 million. As agreed by the parties under the contract of sale, our client delivered the goods to one of Iranian ports on C&F (cost and freight) basis and should have been paid within 10 days after delivery of goods to port warehouse. However, upon delivery, final receiver posessed the goods without original B/Ls and seller’s approval. Buyers informed that no goods were in fact delivered and the port warehouse was empty. The buyers refused to pay for the goods and demanded back 50% pre-payment and damages, reaching EUR3 million in total. Given the complexity of the situation, our client was forced to initiate criminal proceedings in Iran against buyers holding them liable for fraud and, at the same time claimed the balance price of the goods in GAFTA arbitration. Particular difficulty was that buyers argued that our client was obliged to deliver the goods to the port warehouse and secure its receipt by buyers Nevertheless, our team successfully proved that the client’s obligation and risk of loss terminated when goods passed the ship’s rail. Thus, the Tribunal dismissed the buyer’s counterclaim and awarded our client full contract price together with damages. Partner Iryna Moroz commented: “Unquestionably, C&F contracts may be modified in accordance with the parties’ consent. Such modifications, however, do not change the essence of the obligations and, most importantly, do not influence the risk allocation.” The AVELLUM team was led by partner Iryna Moroz with support from senior associate Dmytro Koval and associate Iryna Ivanova.

AVELLUM represented a Swiss Company (“Claimant”) in GAFTA arbitration dispute under CIF sale contract with an Egyptian company (“Respondent”) regarding compensation of damages in the form of demurrage and interest for the late payment for the goods. Through these proceedings, AVELLUM established a new practice of representing clients in GAFTA arbitration disputes, which are resolved by a sole arbitrator. The dispute concerned correct calculation of laytime and responsibility for demurrage. The calculation of the incurred demurrage depended on who is responsible for the suspension of discharge of the goods. While deciding upon this case, the decisive factors were specific acts and instructions of each party, since the party who gave direct instructions to suspend the discharge will be held liable. It should be noted that in the present case, the Claimant had not instructed to suspend the discharge, but did warn the Respondent about such consequences, which may incur if the Respondent fails to provide the payment. After analysing all factual circumstances of the case, the arbitrator held that the discharge was suspended by the instructions of the Respondent, which misunderstood the situation, and, consequently, is liable for damages, which incurred thereafter. This case once again demonstrates that in contracts governed by the English law, each word from the correspondence between the parties is important. Liability of the parties is established after overall examination of negotiations, correspondence, and acts of each party. In his award, the arbitrator highlighted that despite the information provided in Statement of Facts (SOF), it was suspended by the Respondent and not the Claimant. Therefore, the arbitrator held the Respondent liable for demurrage incurred due to suspending the discharge. Additionally, the arbitrator obliged the Respondent to pay the Claimant the statutory interest for the late payment for the goods. As a result, the arbitrator has awarded to satisfy the Claimant’s demand for the compensation of damages. AVELLUM team was led by associates Dmytro Koval and Leila Kazimi, under the supervision of partners Ivan Kasynyuk and Iryna Moroz.

AVELLUM represented UK citizen in Supreme Court dispute regarding return of wrongfully retained child to England. AVELLUM successfully represented a UK citizen in the Supreme Court of Ukraine (“Supreme Court”) in a dispute regarding the return of a wrongfully retained child to England. The judgement of the Supreme Court will bring a new approach to dispute resolution related to international child abduction and will become a judicial precedent in Ukraine. The Supreme Court provided the first-ever clarification on the procedure for dispute resolution related to international child abduction, application of the Hague Convention on the Civil Aspects of International Child Abduction of 25 October 1980 (“1980 Convention”), and interpretation of criteria for refusal to return a child to the state of permanent residence. The Ministry of Justice of Ukraine filed a claim in early 2013. Over the last years, this case was repeatedly reviewed by Ukrainian courts of all instances, including the Supreme Court. AVELLUM prepared a cassation appeal and a request seeking the renewal of the term of cassation appeal that were filed on behalf of the client with the High Specialised Court for Civil and Criminal Cases in early 2017. However, due to the judicial reform, it was late August 2018 when the new Supreme Court made its final decision. Thus, the Supreme Court has rightfully held that the primary focus of the above 1980 Convention is that one parent or family member cannot independently decide to change the child’s place of permanent residence. The Court also noted that the child’s place of permanent residence is of major importance in restoring the status quo, since the illegal removal or retention of the child violates the child’s rights and interests, as well as the right (custody right) of the parent without whose consent the child was taken from the country of habitual residence. The Supreme Court also highlighted that when considering the issue on returning the child to the home state, the issue of defining a person who will have custody rights in the future is not resolved. The issue of custody rights to be granted to one or both parents falls within the jurisdiction of competent authorities of the child’s country of permanent residence before the relocation. The Supreme Court also provided official interpretation as to the application of Articles 8, 12, and 13 of the 1980 Convention, thus, shaping a new perspective on this issue in Ukraine. AVELLUM team was led by associate Oleksandr Gubin under the supervision of partner Iryna Moroz. AVELLUM represented UK citizen in Supreme Court dispute regarding return of wrongfully retained child to England AVELLUM successfully represented a UK citizen in the Supreme Court of Ukraine (“Supreme Court”) in a dispute regarding the return of a wrongfully retained child to England. The judgement of the Supreme Court will bring a new approach to dispute resolution related to international child abduction and will become a judicial precedent in Ukraine. The Supreme Court provided the first-ever clarification on the procedure for dispute resolution related to international child abduction, application of the Hague Convention on the Civil Aspects of International Child Abduction of 25 October 1980 (“1980 Convention”), and interpretation of criteria for refusal to return a child to the state of permanent residence. The Ministry of Justice of Ukraine filed a claim in early 2013. Over the last years, this case was repeatedly reviewed by Ukrainian courts of all instances, including the Supreme Court. AVELLUM prepared a cassation appeal and a request seeking the renewal of the term of cassation appeal that were filed on behalf of the client with the High Specialised Court for Civil and Criminal Cases in early 2017. However, due to the judicial reform, it was late August 2018 when the new Supreme Court made its final decision. Thus, the Supreme Court has rightfully held that the primary focus of the above 1980 Convention is that one parent or family member cannot independently decide to change the child’s place of permanent residence. The Court also noted that the child’s place of permanent residence is of major importance in restoring the status quo, since the illegal removal or retention of the child violates the child’s rights and interests, as well as the right (custody right) of the parent without whose consent the child was taken from the country of habitual residence. The Supreme Court also highlighted that when considering the issue on returning the child to the home state, the issue of defining a person who will have custody rights in the future is not resolved. The issue of custody rights to be granted to one or both parents falls within the jurisdiction of competent authorities of the child’s country of permanent residence before the relocation. The Supreme Court also provided official interpretation as to the application of Articles 8, 12, and 13 of the 1980 Convention, thus, shaping a new perspective on this issue in Ukraine. AVELLUM team was led by associate Oleksandr Gubin under the supervision of partner Iryna Moroz.

The Verkhovna Rada registered a draft law on the Code of Bankruptcy Procedure (No. 8060). Among other things, it is noted that such a document will increase the efficiency of bankruptcy procedures, the level of protection of the rights of creditors, improve the procedures for selling debtor property at the auction, increase the level of execution of contracts and court decisions. However, does the text of the document correspond to the stated purpose?  Recently, the Verkhovna Rada of Ukraine adopted the Draft Code of Ukraine on Bankruptcy Procedures (No. 8060) in the first reading Both the project developers and the entire legal community agree that the document is necessary, but needs further improvement and is only a first step towards the future creation and implementation of a single codified act in the area of bankruptcy. Let's try to elaborate in more detail whether the initiative corresponds to the saying "bold start brings bold victory", whether there is a need to amend the wording adopted in the first reading and what these changes might be.. The first thing you pay attention to when processing a project is its division into two parts: "Book one. Corporate Bankruptcy" (regulates bankruptcy of legal entities) and "Book two. Restoration of solvency of an individual" (concerns bankruptcy of citizens who are not engaged in business activities). As for the bankruptcy of individuals, today in Ukraine there are rules that regulate only bankruptcy of individuals-entrepreneurs. At the same time, the issue of the need to introduce in Ukraine an institute for bankruptcy of individuals who are not engaged in entrepreneurial activities has been discussed for years and the draft law No. 8060 is not the first one aimed at solving this issue. However, right now we are closest to the introduction of such an institution. It cannot go unmentioned that the bankruptcy of individuals is not new to the world community, but has been long and effectively functioning and is popular in many countries.. Therefore, experts are almost unanimous in that the resolution of the issue of bankruptcy of individuals in Ukraine is a step forward. At the same time, everyone expresses the hope that the specified institute will indeed become a compromise in our realia and will be able to protect the rights and interests of both the debtor-individual and the creditor. Significant changes have also affected the indisputability of creditors' claims. It should be reminded that the current wording of the law provides that a bankruptcy case is violated if the creditor's indisputable claims are confirmed by a court decision and a resolution to start an enforcement proceeding, collectively equate to at least 300 minimum wages and were not satisfied by the debtor within 3 months after the date of setting the term for their settlement. The bill greatly simplifies the approach to the indisputabiliy of the claims of creditors. Thus, with regard to legal entities, it is stipulated that such claims may be confirmed by the debtor himself, or by a court decision, or a decision to start an enforcement proceeding. It is important to pay careful attention to the fact that the draft cancels the requirement for a three-month period for debt settlement and the minimum amount for the starting the proceeding. As for the individuals, the proceedings may be commenced if the indisputable claims to the debtor-individual collectively amount to no less than 100 minimum wages, and to the debtor that is an individual entrepreneur - no less than 300 minimum wages, which were not satisfied by the debtor within two months after the deadline set for their settlement. At the same time, such indisputable claims must be confirmed by a court decision, which has come into force. Experts unanimously agree that such a simplification of the approach to determining the indisputability of claims of creditors will lead to a significant increase in the number of bankruptcy proceedings instituted in courts. Regarding the bankruptcy proceedings. It is an open secret that bankruptcy proceedings in Ukraine can be considered for a very long time, and often this procedure can last for years. One of the reasons is the legislatively provided possibility for unscrupulous debtors to abuse their procedural rights by filing appeals and cassation complaints. So, quite often at first the decision on commencing bankruptcy proceedings in all instances is challenged by the debtor, after which the baton is handed over to its shareholders (participants), resulting in the transition to the next procedure being delayed for years. The new draft law aims to reduce the timing of bankruptcy cases, including by at the expense of reducing the number of cases of such an appeal, which can certainly have positive consequences.. The changes have also touched upon the procedures for the insolvency officer appointment to execute the powers of the asset manager. Thus, it is assumed that in the decision to accept the statement on commencing bankruptcy proceedings the court offers to apply for participation in the case not to one, as it currently functions, but to three insolvency officers determined by automated selection. With that, if the consent to participate in the case is provided by only one insolvency officer, the procedure becomes more or less clear. However, if such consent comes from two or three insolvency officers, the most interesting things may occur. In such case, the court assigns the person to be the asset manager if that person is elected by the three creditors who, according to the information provided by the debtor, have the highest monetary claims against the debtor on the date of acceptance of the statement on commencing the bankruptcy proceeding. The specified innovation immediately raises questions. It can be assumed that the wording "according to the information provided by the debtor" may lead to abuse and, in general, the reason for the complication of the existing procedure for the appointment of the insolvency officer is not understood. Still, many of the provisions stipulated in the draft law are controversial and require further elaboration: remuneration and extension of powers of insolvency officers, procedure for realization of debtor's property, terms of invalidation of transactions entered into by the debtor before the commencement of bankruptcy proceeding, issues arising from labor relations, mechanisms for the prevention of the use of bankruptcy by unscrupulous debtors-individuals in order to evade performance of their obligations, restrictions for individuals declared to be bankrupt etc.. However, despite the fact that the project needs to be substantially and reasonably reworked, the majority agrees that this is a positive initiative, which, if properly regulated, can manage to lead to improvement of bankruptcy procedures, ensuring equal rights and opportunities for the identical protection of all lawful interests of the debtors' creditors, reducing abuses in bankruptcy procedures and, consequently, improving business conditions in Ukraine.   Kateryna Manoylenko   Counsel, Head of Dispute Resolution practice, Attorney at Law