Roman Protsyshyn, MCIArb, Attorney at Law, Counsel at Ilyashev & Partners Law Firm

This article by Roman PROTSYSHYN of Ilyashev & Partners’ arbitration team provides practical recommendations for those considering securing an arbitration claim in Ukrainian courts.

Legal Disclaimer: The content of this article has been prepared by Roman PROTSYSHYN, MCIArb of Ilyashev & Partners Law Firm, Ukraine, for informational purposes only, does not constitute legal advice, and may not reflect the most current legal and court practice developments. All summaries of the laws and court practice are subject to change. These guidelines are not intended to provide legal or professional advice on any specific matter. Legal advice should always be sought before taking any action or refraining from taking any action based on any guidelines. Ilyashev & Partners and the named author do not guarantee the accuracy of the article and expressly disclaim any and all liability to any person in respect of the consequences of anything done or permitted to be done or omitted to be done wholly or partly in reliance upon the whole or any part of the article.

Introduction

The necessity of securing a claim by way of interim measures in aid of arbitration has been briefly discussed by Roman Protsyshyn, together with another co-author, in International Arbitration in Ukraine: A Creditor’s Playbook (Debt Recovery from Ukrainian Companies under International Contracts) at Legal 500 (see also Roman Protsyshyn’s (together with another co-author) guideline “How to Enforce Foreign Arbitral Awards in Ukraine: Recent Practices and Challenges” (chapter Interim Measures in Aid of the Recognition and Enforcement Proceedings) at Legal 500).

In today’s business environment, unless an arbitration claim is brought against a solvent company or for other purposes, investing in arbitration to seek monetary recovery from a debtor is unwise without evaluating the likelihood of eventual repayment and securing that possibility through interim measures designed to preserve the status quo and avoid the risk of the claim’s ultimate recovery will be thwarted.

Ukraine is an arbitration-friendly jurisdiction, with a number of legal instruments up its sleeve that may come into play to assist an aggrieved party in securing its regular or maritime claim in arbitration and blocking a debtor’s assets from being dissipated.

Competent court

Regular claims in arbitration

Ukrainian procedural law empowers Ukrainian courts to impose interim measures in aid of international arbitration. Article 149(3) of the Civil Procedure Code of Ukraine (“Civil Procedure Code”) is the central statute that grants civil courts jurisdiction to handle such matters.

The competent court to consider such an application will be an appellate civil court, whose territorial jurisdiction extends to the seat of arbitration (e.g., parties to arbitration have agreed that the place of arbitration will be the city of Lviv rather than Kyiv in Ukraine), the place of a defendant’s registered place of business or the place of a defendant’s property (Article 152(3) of the Civil Procedure Code).

The rule in question gives an applicant a choice to file an application for interim measures in aid of arbitration to any appellate court having such territorial jurisdiction. This statutory flexibility should be viewed as a tactical opportunity for the claimant-applicant to opt for the best solution to actually secure the claim in arbitration.

The point is that a court ruling granting interim measures does not effect the actual imposition of a given interim measure (e.g., in case of the arrest, it does not seize the property, but only imposes a legal prohibition not to dispose of it); it shall be subsequently enforced by a bailiff or other competent authority. If the arbitration has been brought against a private company and the arrest of physical movable property (e.g., trucks) has been sought, it would be wise to engage, on a preliminary basis, a reputable private bailiff, who has territorial jurisdiction over the place where that property is located, in order to swiftly enforce the arrest if the court grants the application.

Maritime claims in arbitration

The issue is not so straightforward when the matter concerns securing a maritime claim in arbitration by arresting a ship.

By way of brief background, Ukraine is a party to the International Convention for the Unification of Certain Rules relating to the Arrest of Sea-going Ships (Brussels, 1952), known as the 1952 Arrest Convention, which sets out the rules on the arrest of ships to secure maritime claims, i.e. claims arising out of one of the statutory circumstances (e.g., salvage, wages of crew, agreement relating to the carriage of goods in any ship whether by charterparty or otherwise, etc.).

Article 7(3) of the 1952 Arrest Convention contains a jurisdictional gateway for a Ukrainian court to arrest a ship, provided she is in the court’s territorial jurisdiction, “[i]f the parties have agreed to submit the dispute … to arbitration.”

Arresting a ship to secure a maritime claim does not fall into the exclusive jurisdiction of Ukrainian civil courts, as that can also be done by commercial courts, since both the Civil Procedure Code and the Commercial Procedure Code of Ukraine (“Commercial Procedure Code”) empower civil and commercial courts, respectively, to impose this specific interim measure, provided a yet-to-be arrested ship is within the court’s territorial jurisdiction.

Unlike securing an ordinary claim in aid of arbitration, the application to arrest a ship shall be filed either with a local (first-instance) civil court (Article 152(2) of the Civil Procedure Code) or a local (first-instance) commercial court (Article 138(2) of the Commercial Procedure Code).

Since the application to arrest a ship must be considered within two days on a without-notice basis, filing it with an incompetent court may cause (i) the ship to sail away and be out of jurisdiction of Ukrainian courts until the application is re-filed to, and granted by, a competent court, and (ii) the whole interim measures exercise become fruitless.

To distinguish jurisdiction between Ukrainian courts of various specialisation, one must determine (i) the parties to a dispute, (ii) the subject matter of the dispute, and (iii) the nature of the legal matter. The criteria for distinguishing civil cases from other types of cases including those of a commercial nature – and so the criteria for determination whether a civil or commercial court is competent to consider a particular claim – are (i) the existence of a civil law dispute (i.e., cases relating to claims arising from any legal relationships, except when the adjudication of certain cases is to be conducted according to other procedural rules), and (ii) the parties to such dispute (one of the parties to the dispute is usually an individual).

So, when a member of the crew has a maritime claim that can be secured by the arrest of a ship and brought in arbitration, the competent court to hear the arrest application would be a local civil court.

If a maritime claim arises from a charterparty between two companies, the court with jurisdiction to file an application is a local commercial court.

Timing

Regular claims in arbitration

Article 149(3) of the Civil Procedure Code provides that “[u]pon the request of a party to a matter that has been referred to international commercial arbitration …, a court may grant interim measures….”

The statute is clear that for a Ukrainian court to have jurisdiction to hear an application for interim measures in aid of arbitration, the arbitration must already have been commenced at the time the interim measures are sought.

Put differently, a Ukrainian court will not have jurisdiction to apply interim measures in aid of an arbitration yet to commence, unlike in domestic litigation and in matters relating to the arrest of ships to secure maritime claims in arbitration (discussed below).

Article 151(7) of the Civil Procedure Code reinforces the above rule by requiring a party (the claimant in arbitration) to submit, apart from a copy of an arbitration agreement, two key pieces of evidence: (i) a procedural document, the filing of which commences arbitration under the applicable arbitration rules (e.g., a statement of claim, a request for arbitration, a notice to appoint an arbitrator, etc.), and (ii) a proof of proper filing of that procedural document under the applicable arbitration rules.

It follows from the statute in question that when every minute counts, increasing the risk of dissipating assets against which an aggrieved party intends eventually to satisfy its claims, there is no need to wait until, for example, an arbitral institution issues a formal document acknowledging receipt of a claim and confirming the start of the arbitral proceedings several days after the moment when the arbitration has been formally initiated (e.g., an Order of the President of the International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry on commencing arbitral proceedings, a letter from the VIAC Secretary General, etc.).

Given that Ukrainian rules on evidence prohibit a court from collecting evidence on its own motion, the court is thus estopped from searching for the applicable arbitration rules, etc., triggering the need for an applicant to submit such with their Ukrainian translation (see, e.g., the positive case of Shell Lubricants Supply Company B.V. v. LLC “Trading House “Galpap Plus”, where the applicant submitted the LCIA Rules, and the negative case of Exoil Trading SA v. Mimier Trade SA, where the applicant did not submit the FOSFA Rules of Arbitration and Appeal).

Maritime claims in arbitration

The position regarding securing maritime claims in aid of arbitration by arresting a ship in Ukraine differs from that for securing regular claims referred to arbitration.

Ukrainian procedural law follows the regime of the 1952 Arrest Convention, Articles 7(2) and 7(3) of which provide that if the arresting court has no jurisdiction to determine the case upon its merits, that court shall fix the time within which the applicant (intended claimant) shall bring an action before a court having such jurisdiction or submit its claim to arbitration.

Article 138(3) of the Commercial Procedure Code provides that if an application to arrest a ship is submitted before filing a statement of claim, the applicant (intended claimant) shall file its statement of claim within 30 days of the day of a ship arrest order unless otherwise provided by law. The same rule is mirrored in Article 152(4) of the Civil Procedure Code for the matters where a maritime claim is brought by or against an individual.

Arresting a ship before her arrival. The 1952 Arrest Convention does not provide an answer to the question whether, at the time when an application for the arrest of a ship is submitted to the competent court of a Contracting State and a warrant of arrest is issued, the ship must already be within the jurisdiction of that State.

The 1952 Arrest Convention merely provides that the arrest of a ship is permissible pursuant to an order of the judicial authority of the State in whose jurisdiction the arrest is made but does not regulate the conditions under which a court of a Contracting State may accept to exercise its jurisdiction. That, pursuant to Article 6, is a matter governed by the law of each Contracting State. What matters, under the Convention, is that a ship should not be arrested except under an order of a judicial authority of the State in which the arrest is made.

It may be that a ship enters waters falling within the jurisdiction of a particular court and sails out of them in one day, which raises the question of whether the ship must be within the jurisdiction of a particular State at the time the arrest is applied for.

Ukrainian procedural law provides that an application for the arrest of a seagoing ship shall be filed with a court having its territorial jurisdiction over (i) “the port of registration of the ship,” (ii) “the seaport where the ship is located,” and, most importantly, (iii) “the seaport … to which [the ship] is arriving” (Article 138(2) of the Commercial Procedure Code and Article 152(2) of the Civil Procedure Code).

Under Ukrainian law, it is sufficient that the ship is expected to arrive within the jurisdiction of a particular court in order to obtain an order of arrest, which may then be enforced if the ship actually arrives.

In Telia Aqua Marine Limited v. Unicorn Trade LTD (The Uni Trader), a local commercial court effectively arrested the ship on her way to the port of Reni upon considering a key evidence on the point, a letter from the Reni Seaport, stating that “the vessel “UNI TRADER” (IMO 9175169) is en route to the waters of the Reni Seaport,” noting that the respective information was also available at MarineTraffic, an international vessel-tracking database.

Types of Interim Measures

Among the statutory types of interim measures a Ukrainian court is entitled to impose (see Article 150(1) of the Civil Procedure Code), the following can be sought in aid of arbitration: (i) the arrest of a defendant’s property; (ii) the arrest of property or money due to a defendant from third parties; (iii) the prohibition of any person from taking specific actions; (iv) the prohibition of third parties from taking any action with regard to the subject matter of a dispute; (v) the prohibition of third parties from making payments and/or transferring property to the defendant; (vi) the prohibition of third parties from fulfilling other obligations towards a defendant (other than making payments and/or transferring property); (vii) the suspension of customs clearance of goods or items; (viii) the arrest of a ship (to secure a maritime claim); (ix) other measures provided for in Ukrainian laws and international treaties to which Ukraine is a party.

The most sought-after type of interim measure is the arrest of a debtor’s property, which imposes a ban on the right to dispose of the property to preserve it until the property’s further fate is determined.

The arrest of property or money owed to a defendant by third parties is also a powerful measure, resembling the common-law concept of garnishment.

The regular property arrest should be distinguished from the arrest of a ship under the 1952 Arrest Convention. The former does not, by default, entail taking physical possession of the property when it is arrested, whereas the Convention arrest involves the detention of a ship.

If a party has no maritime claim that can be secured by the Convention arrest of a ship, it can still secure its arbitration claim by the regular property arrest of the same ship, provided that the ship belongs to the defendant. The arbitration claimant may ask a Ukrainian court, in addition to arresting a ship, to impose an obligation on a harbourmaster to prohibit the ship from sailing out of Ukrainian waters (to keep the ship within the jurisdiction for the purpose of a bailiff exercising compulsory enforcement against her, if the arbitration claim succeeds and is further enforced). The combination of such interim measures will have an effect similar to that of arresting a ship to secure a maritime claim under the 1952 Arrest Convention.

Bottom line

If a party seeks to secure its claim in aid of arbitration by asking a Ukrainian court to impose interim measures against a defendant or its property, it must do its homework before going into court.

For regular arbitration claims, the practical recommendation is to initiate arbitral proceedings, collect sufficient evidence of their commencement (including the applicable arbitration rules), and then immediately file an application for interim measures.

If the arbitration claim is maritime and a ship is within the jurisdiction of Ukrainian courts, or en route to Ukrainian ports and subject to the 1952 Arrest Convention, arresting the ship may be a better option from a time and cost perspective, as there is no need to invest in commencing arbitration before the asset against which the claim may ultimately be satisfied is frozen.

Ilyashev & Partners is one of Ukraine’s leading law firms advising international businesses, investors, financial institutions, exporters, traders and multinational corporations on international arbitration, cross-border dispute resolution, debt recovery, asset recovery and enforcement proceedings in Ukraine. The firm’s arbitration team has extensive experience representing clients in international commercial arbitration.

Ilyashev & Partners regularly advises clients on interim measures in support of arbitration, including asset freezing, seizure of assets, injunctions, preservation of evidence, ship arrest for maritime claims, cross-border enforcement strategies and protection against asset dissipation. The firm also represents clients in recognition and enforcement of foreign arbitral awards in Ukraine, proceedings involving Ukrainian courts, and enforcement actions conducted by both private and state enforcement officers.

A particular focus of the firm’s practice is assisting foreign creditors with debt recovery from Ukrainian companies, cross-border asset tracing, enforcement planning, insolvency-related proceedings, sanctions-related disputes, fraud investigations and complex multi-jurisdictional recovery strategies. The team combines arbitration, litigation and regulatory expertise to maximise the prospects of successful enforcement in Ukraine, including in wartime conditions.

With one of the strongest international arbitration practices in Ukraine, Ilyashev & Partners provides practical legal solutions for businesses seeking to secure arbitration claims, freeze assets in Ukraine, enforce foreign arbitral awards and recover debts from Ukrainian counterparties.

To learn more about international arbitration and enforcement in Ukraine, please visit the Ilyashev & Partners Law Firm website or contact Roman Protsyshyn directly.