• Andrey Bychkov

    Counsel, Ilyashev & Partners

Ilyashev & Partners

Address: 11 Kudryavska Street, Kyiv, 04053, Ukraine

Tel.: +380 44 494 1919

E-mail: office@attorneys.ua

Web-site: www.attorneys.ua

Founded in 1997, Ilyashev & Partners is one of the most prominent and respected full-service law offices in the CEE region. We have achieved this by employing leading experts in various areas of law practice, innovative thinking and strict compliance with ethical standards in relationships with our clients.

Ilyashev & Partners provides services in almost every practice area to well-known European and American companies, leading Ukrainian companies and financial institutions, government agencies, law offices and consulting companies. With offices in Kyiv, Kharkiv, Dnipro, Simferopol, Moscow and Tallinn, the firm employs 50 highly-professional lawyers.

Ilyashev & Partners has many years of experience in international commercial arbitrations according to all major arbitration rules. Chambers Global, Chambers Europe and The Legal 500 — EMEA have been recommending Ilyashev & Partners as one of the leading law firms in Ukraine in the field of dispute resolution and arbitration over the years. According to the survey 50 Leading Law Firms of Ukraine, in 2018 the firm provided legal advice in over 40% of major public litigations and arbitrations.

Our services include:

— International commercial arbitration;

— International investment arbitration;

— Representation in International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry (ICAC at the UCCI) and Maritime Arbitration Commission of Ukrainian Chamber of Commerce and Industry;

— Drafting arbitration clauses, choosing an arbitration body and place of arbitration;

— Recognition and enforcement of
arbitral awards issued in Ukraine and abroad;

— Legal support in foreign courts;

— Enforcement of court judgments and arbitral awards against assets located in and outside of Ukraine;

— Obtaining expert legal opinion on international law for Ukrainian courts;

— Providing expert legal opinion on Ukrainian law for foreign court or arbitration proceedings.

The firm was the first to successfully recognize the order of an English Court in Ukraine in accordance with the principle of reciprocity. Today, Ilyashev & Partners provides legal assistance in the process of challenging arbitral awards and also recognition and enforcement of arbitral awards in Ukraine and abroad.

Enforcement of Arbitral Awards in Ukraine: The Foreign Investor’s Perspective

In order to succeed in attracting fo­reign capital, any country (especially a developing one) will inevitably have to work hard to cultivate its image as a safe and investor-friendly jurisdiction. Ukraine is no exception and with it gradually recovering from the economic crisis, more and more foreign companies are looking at this country as a potential place to expand their business. Such attention is hardly a surprise since Ukraine, with all of its well-known drawbacks, has something to offer which helps it stand out as a potential target for investors — its relatively cheap but well-educated manpower and a location right next to the big EU market.

Investor-State Dispute Settlement Instruments

Any investor looking to enter a foreign market obviously wants to have the comfort of government guarantees that investments will be protected and not be lost at the end of the day. In pursuit of foreign investments, Ukraine has signed bilateral investment treaties (BITs) with over 70 countries, including most EU member states, aimed at protecting foreign investments in Ukraine and the assets of Ukrainian investors abroad. Ukraine is also a party to a number of other international treaties containing investment provisions (e.g. the Energy Charter Treaty, the EU-Ukraine Association Agreement, the US-Ukraine Trade and Investment Cooperation Agreement, etc) and investment-related international legal instruments (the ICSID Convention, the New York Convention, etc).

By ratifying its BITs and the Energy Charter Treaty, Ukraine has bound itself to the dispute settlement procedures prescribed in such treaties which include, amongst other things, international arbitration. A foreign investor normally has a choice of several arbitration procedures under which to resolve its dispute with the State, and the latter is bound by the investor’s choice. This may include one of the following options: the International Centre for the Settlement of Investment Disputes (ICSID), the Court of Arbitration of the International Chamber of Commerce (ICC), the Arbitration Institute of the Stockholm Chamber of Commerce (SCC), an international arbitrator or ad hoc arbitration tribunal to be appointed by a special agreement or established under the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL), etc.

The database of the United Nations Conference on Trade and Development contains 22 reported investment arbitration cases in which Ukraine acted or is acting as a Respondent State. Over a half of the completed cases have either been settled or resolved in favour of an investor. It is obviously a good thing that Ukraine is taking steps towards protecting foreign investments by adopting international dispute settlement mechanisms, but it is far more important for an investor that an arbitral award, if made in its favour, is actually complied with.

Enforcement and Immunity

In most cases, Ukraine tends to comply with arbitral awards made in favour of investors or to even settle a dispute before an award is issued. Otherwise, Ukraine would have faced the risk of ha­ving a reputation of a country that fails to protect foreign investments and becoming even less attractive for potential investors. However, if Ukraine chooses not to settle and an investor obtains an arbitral award in its favour, what steps should be taken in order to make the State pay out the award?

International arbitration awards, in­cluding those made in investor-State disputes, are generally enforceable in Ukraine. Most of the international investment treaties concluded by Ukraine provide that an award issued in an investment dispute is final, binding and enforceable. In order to be able to enforce an arbitral award in Ukraine, a party seeking such enforcement must first go through the recognition process and obtain permission from the Ukrainian court for the enforcement of the award. This process is regulated by Part IX, Chapter 3 of the Civil Procedure Code of Ukraine, which sets out the procedure based on the relevant provisions of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention). While this procedure is quite straightforward, the court may refuse to enforce the award on the grounds provided for in Article V of the New York Convention.

If the court finds that there are no grounds for dismissing the application, then it is required to recognize the arbitral award and allow its enforcement. Howe­ver, in cases where the debtor is the State, a party seeking enforcement of the award faces a serious difficulty, being the State’s immunity from forced execution of judgments or arbitral awards against its assets. While Ukrainian legislation does not expressly define the scope of sovereign immunity, the existence of such immunity emanates from certain laws. For example, the Law of Ukraine No. 2864-III of 29 November 2001 On Imposing Moratorium on Forced Sale of Property prohibits, with some limi­ted exceptions, forced the sale of assets of state enterprises and other companies in which the State of Ukraine holds a share stake of 25% or more. The assets of foreign States located in Ukraine are also protected under Article 79 of Law of Ukraine No. 2709-IV of 23 June 2005 On International Private Law.

Ukraine may waive its immunity against forced execution in certain circumstances. For example, pursuant to Article 16(5) of the Budget Code of Ukraine No. 2456-VI of 8 July 2010, when executing government borro­wing, transactions rela­ting to government debt or providing government guarantees, the Minister of Finance can waive, on behalf of Ukraine, its sovereign immunity with respect to potential disputes relating to the State’s obligations. Another example is Article 32 of Law of Ukraine No. 1039-XIV of 14 September 1999 On Production Sharing Agreements, which provides that, upon a demand made by a foreign investor, the State can waive its immunity in a production sharing agreement. Such waiver covers all court decisions, international arbitration awards, orders relating to the provision of security for claim, enforcement of court decisions and arbitral awards. A similar waiver can be made by the Ukrainian Parliament in a publicprivate partnership agreement under Article 19 of Law of Ukraine No. 2404-VI of 1 July 2010 On PublicPrivate Partnership.


By its Decree No.408 of 7 March 2007, the Cabinet of Ministers of Ukraine adopted the Procedure for the Usage of Funds Allocated in the State Budget for Effecting Payments Relating to Execution of Decisions of Foreign Jurisdictional Bodies Made as a Result of Resolving Cases against Ukraine (“Payment Procedure”). The Payment Procedure sets out a mechanism for using budget funds allocated under a special program aimed at ensuring Ukraine’s compliance with its payment obligations under foreign court decisions and arbitral awards according to international treaties concluded by Ukraine. The Ministry of Justice of Ukraine is res­ponsible for the performance of this budget program.

According to paragraph 3 of the Payment Procedure, the existence of a decision of a foreign jurisdictional body (e.g. a foreign court judgment or an international arbitration award), is one of the grounds on which the Ministry of Justice can make payments from the funds allocated under this budget program. In order to effect the payment under a foreign court judgment or an international arbitration award, the Ministry of Justice must provide the State Treasury with payment instructions accompanied by the relevant documents, including a resolution for the commencement of enforcement proceedings, the judgment or award with an official Ukrainian translation, information from the claimant setting out the banking details where the funds should be transferred, etc.

As can be seen from the above, on the face of it the legislation provides for a quite simple mechanism for paying foreign court judgments or arbitral awards issued against Ukraine. Yet, it should be borne in mind that the Ministry of Justice can use the funds under the above budget program only within the limits provided by the State Budget. Depending on the amount of the outstanding claims, such limit may or may not be sufficient to cover all of the State’s liabilities towards its judgment creditors. Also, if the amounts allocated for this purpose in the previous years were not sufficient to cover all of the claims, part or all of the budget program funds for the current year would be directed to cover Ukraine’s old debts which may leave little resources to cover the State’s current liabilities. According to the 2019 State Budget, as set out in the Law of Ukraine No. 2629-VIII of 23 November 2018, nearly UAH 594.5 million is envisaged for this program for the current year.

A separate budget program is carried out pursuant to Law of Ukraine No. 4901-VI of 5 June 2012 On State Guarantees Relating to Execution of Court Decisions, which introduced a legal instrument to guarantee Ukraine’s compliance with decisions adopted by courts and arbitral tribunals issued against Ukrainian state bodies, state companies and legal entities whose assets are protected by the laws of Ukraine from being sold. Pursuant to Article 3 of this Law, payments under such decisions are made by the State Treasury of Ukraine out of budgetary funds upon an application of a creditor accompanied by the relevant documents and information. The payment must be made to the creditor within three months from the date on which it submitted the required documents and information. Again, such payment can be made only within the amount of budgetary funds allocated for this program. If the available budgetary funds are not sufficient to cover the decision, the creditor would have to wait until the State Budget for the current year is amended to allocate sufficient funds or until the State Budget for the subsequent year is adopted.  A total of UAH 600 million has been alloca­ted for this program in the 2019 State Budget.

Although there is still much to improve, the fact that the above instruments actually work suggests that Ukraine is on the right path to becoming an investor-friendly jurisdiction.