Ukrainian Courts Imposing Interim Relief in Aid of International Arbitration, a Case Study
As is well known, the new reading of the Civil Procedure Code of Ukraine (the "Code") came into effect in December 2017. This (together with simultaneous enactment of new versions of other procedural codes of Ukraine) was one of the most notable legal developments of 2017 in Ukraine.
In addition to many other novelties, the Code was finally populated with a number of provisions dealing with assistance of Ukrainian courts to parties and arbitrators in international arbitral proceedings. The provisions are aimed at making arbitral proceedings and various procedural steps involved in such proceedings more efficient and predictable from the point of view of Ukrainian legal system. In other words, Ukrainian procedural legislation became even more earnest in recognizing arbitration as an important and widely used dispute resolution instrument where parties should have a clear picture as to mechanisms and ways how local courts could and should “transpose” various steps of arbitral proceedings on the Ukrainian level (i.e. where assets, evidence or witnesses could be located).
Notably, before December 2017 the issue of local courts’ assistance in international arbitration (e.g. interim relief in aid of international arbitral proceedings, etc.) lacked a clear legal framework and was thus highly contentious, with courts not having a unified approach to the matter. The absence of a unified and predictable approach of Ukrainian courts to the enforcement of interim measures in international arbitration could be observed during attempts to impose local interim measures in even the most notable arbitral proceedings with the Ukrainian element (e.g. the JKX Oil & Gas PLC v. Ukraine case).
Now, the Code (in Article 149(3)) clearly sets out that parties to arbitral proceedings may apply for interim measures with Ukrainian courts. The courts should review such application under the general procedural rules established for litigation proceedings.
It is certainly a breakthrough to have these new provisions as part of written legislation. What is even more important, however, is to explore whether and to what extent the provisions on interim measures are workable in practice and whether Ukrainian courts are prepared to provide the necessary assistance to parties (or arbitrators) in arbitral proceedings.
Our research of course would be more complete if it covered not only interim relief measures but also other aspects of possible judicial assistance in arbitral proceedings (e.g. securing or obtaining evidence, etc.). However, such a broad task appears too ambitious given the size of the present article.
Recent ruling on interim relief
With this task in mind let us briefly analyze a recent notable case dealing with interim relief in aid of arbitral proceedings decided by the Court of Appeal of Odesa Region, namely case No. 785/1018/18 initiated by Softcommodities Trading Company S.A., with Ruling of 22 February 2018 (the “Ruling”) containing the gist of the court’s position in this case.
Softcommodities Trading Company S.A. (purchaser) concluded a contract with Elan Soft LLP (supplier) in September 2017 on the supply of grain from the Ukrainian port of Kiliya. Elan Soft LLP purportedly defaulted on its obligations and failed to supply the next instalment of the goods, even though part of that installment was being stored in a warehouse at the port of Kiliya. Softcommodities initiated GAFTA (The Grain and Feed Trade Association) arbitral proceedings in London against Elan under the supply contract with the sum of the claim coming to USD 425,750.
In this regard Softcommodities requested the court to impose inter alia the following interim measures: (i) to attach (arrest) the goods stored in the warehouse, (ii) to enjoin the warehouse operator from transferring the goods in question either to Elan or to any other third party as may be instructed by Elan, (iii) to enjoin the port of Kiliya from loading/unloading the grain stored in the warehouse.
Softcommodities’ request was based on the “well-founded” suspicion that Elan could purportedly remove all grain from the warehouse so as to avoid liability in case the GAFTA arbitral award was unfavorable for Elan. It is unclear from the text of the Ruling what evidence Softcommodities presented to the court in order to substantiate its suspicion. In any event, such evidence proved sufficient for the court to impose the above-mentioned interim measures.
Interestingly, the court also decided to impose counter-injunctive relief so as to ensure that Softcommodities (a non-resident entity that does not have assets in Ukraine) is capable of compensating any losses sustained by Elan as a result of the imposed interim measures. Softcommodities, as a non-resident entity, was unable to deposit with the court the necessary security amount (the equivalent of USD 245,175.05) in the national currency of Ukraine. Therefore, the court ruled that Softcommodities could provide suretyship executed by a Ukrainian party for the above amount of security, which Softcommodities did. The surety is a Ukrainian limited liability company, and the court does not analyze its trustworthiness or solvency in the Ruling.
Even though several appeals were lodged against the Ruling by Elan and various other parties whose interests were purportedly prejudiced by the imposed interim measures, none of the appeals has been successful so far. When rejecting the appeals, the court (i.e. the same court that issued the Ruling) emphasized that it had been acting in strict compliance with applicable legislation, had not analyzed the merits of the case and was guided by the documents provided by the parties to the proceedings. To be on the safe side and to ensure that Elan’s position is not jeopardized, the court ordered counter-injunctive measures, which, in court’s view, should counterbalance Elan’s possible exposure in the present situation.
Some of the appeals are still pending, including the appeal filed by Elan with the Supreme Court. In case the appeal is successful, it would be interesting to see on what grounds a ruling on interim measures in the international commercial arbitration could be set aside/amended. It would be equally insightful to see what reasoning the Supreme Court would use if it decides to uphold the lower court’s decision. The Supreme Court’s decision on this matter is due to be adopted soon (the first hearing on the merits was scheduled for 3 September 2018).
All in all, the Ruling and other subsequent decisions of the Court of Appeal of Odessa Region in this case leave a general impression that the court, when imposing interim measures, did not perform a thorough enough analysis of all the pros and cons of the interim measures and whether such measure are justified taking into account the provisions of the supply contract in question, the financial situation of the parties, their obligations to third parties and other aspects of the case (in other words, the aspects that a court would normally take into account when considering interim measures in a domestic litigation). On the other hand, it is unclear whether Elan was actually thorough in making its case before the court and whether all the necessary documents and arguments to challenge the interim measures were duly provided to the court. It remains to be seen what guidelines in these important questions will be drawn by the Supreme Court when it decides on Elan’s appeal.
Interestingly, according to the Unified State Register of Court Decisions, apart from the GAFTA arbitral proceedings and the proceedings regarding the imposed interim measures, Softcommodities additionally initiated a number of litigations in commercial courts of Odessa Region (e.g. cases No. 916/3260/17, No. 916/54/18) apparently in an attempt to further solidify its position vis-à-vis Elan. The actual respondent in these court proceedings was the company responsible for storing the goods to be sold to Softcommodities under the supply agreement, which, as Softcommodities claimed, had failed to perform its obligations under the storage agreement. Softcommodities was unsuccessful in its claims.
However, what is noteworthy here is that in none of these subsidiary litigations that were actually revolving around the supply agreement between Softcommodities and Elan did the parties or the court raise the subject of interim measures that were already in place at the time of the proceedings and/or the GAFTA arbitral proceedings that were under way. This is unfortunate for two main reasons. First, these arguments, if artfully presented to the court, could have possibly influenced the outcome of the litigations. Second, the courts could have used this opportunity to voice their position regarding far-fetched court proceedings (i) closely linked to ongoing international arbitration proceedings and (ii) designed to virtually duplicate the interim measures already imposed by the court of a different jurisdiction.
Even though the above case demonstrates how a Ukrainian court could apply the new provisions of the Code on judicial assistance in international arbitral proceedings we were, regrettably, unable to (easily) locate any other meaningful post-December-2017 court cases dealing with the matter of interim relief in international arbitration imposed by Ukrainian courts. This fact may either highlight the unwillingness of parties to involve Ukrainian courts in arbitral proceedings on the pre-award stage, or simply indicate that the parties (or rather their counsel) may still not be fully aware of and alert to the tools granted by last year’s revamping of the Code.
Such neglect of the recently introduced legal mechanisms doesn’t seem to have much merit, as (apart from the mere fact the interim measures may be relatively easily imposed in Ukraine) Ukrainian courts’ early involvement in international arbitral proceedings could potentially make the task of recognition and enforcement of the ultimate arbitral award much easier with assets already attached in Ukraine and courts having already looked (even though superficially) into the subject matter of the dispute. Such initial review of the merits of the arbitral case by a local court could serve as an additional defense in refuting the favorite argument of challenging parties that the final arbitral award contradicts Ukrainian public order.
In summing up, after more than 9 months of the new legal regime, the possibilities of judicial assistance with interim relief in international arbitration granted by the Code remain largely untapped and unexplored. This is despite a large number of arbitral proceedings involving Ukraine and/or Ukrainian parties that are held worldwide. Hopefully the situation will improve, and the next issue of UJBL focusing on international arbitration could feature an article discussing prolific jurisprudence dealing with this topic.
Sergii Zheka, senior associate at Wolf Theiss