Those enterprises that work with Ukrainian companies shall take into account some peculiarities of the Ukrainian legislation on the procedure of judicial settlement of disputes between Ukrainian and foreign companies.
According to Article 76 of the Law of Ukraine “On International Private Law”, the courts may accept and consider cases with foreign elements in the event:
- when the parties in their agreement have provided for the jurisdiction of the Ukrainian courts (except for certain cases);
- if on the territory of Ukraine the defendant has a place of residence or location, movable or immovable property that can be foreclosed, or there is a branch or representative office of a foreign company-defendant.
It follows therefrom that the provision in the contract on the submission of the dispute to any court in Paris or Berlin will protect the foreign company from the consideration of the dispute with the Ukrainian counterpart in the courts of Ukraine. However, it is not quite so.
In accordance with clause 7) of Part 1 of Article 226 of the Code of Commercial Procedure of Ukraine (hereinafter the “CCP of Ukraine”), the Commercial Court of Ukraine leaves the claim without consideration if the parties have concluded an agreement on the submission of the dispute to the arbitration court or the relevant international commercial arbitration (and the defendant duly informed the court of it).
Therefore, in Ukraine, commercial courts cannot consider disputes between the companies if the contract contains an arbitration clause, i.e. international commercial arbitration is clearly defined.
If there is no indication of international commercial arbitration in the contract, Ukrainian commercial courts have formal grounds not to recognize such contract provisions as an arbitration clause. Some Ukrainian lawyers take advantage of such imperfection of Ukrainian legislation and file lawsuits against foreign companies in Ukrainian commercial courts, supplementing the claims with preposterous “Ukrainian elements”.
As a result, in order to protect foreign companies in Ukrainian courts, advocates have to prove the artificial nature of such claims, refer to international (including bilateral) agreements (conventions) on legal assistance between states, and take part in court hearings several times. All this entails additional expenses for Ukrainian lawyers for foreign companies.
In order to avoid such situations, the Law Firm Zilver recommends that all its clients clearly define the international commercial arbitration, which is authorized to consider all disputes under the contract.
The arbitration clause in the contract may contain approximately as follows:
Х. Все споры, возникшие из-за или в связи с данным контрактом могут быть окончательно решены согласно Правилам применения и арбитража Международной торговой палаты Парижа одним арбитром, назначенным согласно указанным Правилам.
Місце проведення арбітражного розгляду: Париж (Франція). Рішення арбітражного суду буде остаточним і обов’язковим до виконання.
Х. All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce of Parisby one arbitrator appointed in accordance with the said Rules.
The place of arbitration shall be Paris (France). Arbitration award shall be final and binding.
Consideration of a dispute in international commercial arbitration is unquestionably not cheap, but it deprives dishonest counterparties and their professional lawyers of the possibility to submit disputes to the Ukrainian courts, while they should be considered in other countries.
You may consult the Zilver Law Firm on any issue related to the contract drafting, legal representation in court (including in International Commercial Arbitration). Our company is based in Kyiv (Ukraine) and has partner offices in the cities of Dnipro, Kharkiv, Kherson (Ukraine). Our phone: +380980027825.