On 10 March 2023 the ICAC and the UMAC held an extended meeting of their Presidiums. Invitees included the representatives of the legislative and the judicial branches of powers, business community and the leading arbitration-focused law firms. The ICAC and the UMAC presented the information about ICAC and UMAC activities in 2022 and continued discussing the practicalities of arbitrating disputes involving a sanctioned party as well as the further enforcement of the issued arbitral awards.
Key statistics on the ICAC activities in 2022
Mykola Selivon, the President of the ICAC and the UMAC, opened the meeting with a moment of silence in commemoration of Ukrainian defenders and civilians who lost their lives because of russia’s war in Ukraine. Mr. Selivon stressed that “War is the time for everyone to work as diligently as possible on one’s own front to speed up Ukraine’s victory. The ICAC’s operational results in 2022 proved that the efforts that had been taken by the management of the arbitral institutions, the arbitrators and the secretariats since the first days of war were effective. The parties were provided with the legislative capabilities and organizational facilities to recourse to arbitral proceedings of the highest international standards, while keeping a strong focus on safety considerations”.
The President of the ICAC and the UMAC outlined selected 2022 statistics, in particular:
- 373 cases registered for consideration, which is 25% more than in 2021.
- 202 cases were considered by arbitral tribunals, 86% of which were considered within half a year. The ICAC was able to guarantee as usual the timely and fast duration of proceedings despite the martial law due to effective arbitration process administration and thorough management of the duration of each case consideration stage.
- ICAC boasted top gender equality rates in arbitration globally. In 2022 the parties to the disputes appointed 45,7% female arbitrators.
- Top-5 industries using arbitration for resolving disputes: metallurgy, energy, food processing, agriculture, machinery. In 2022 nine arms industry related disputes were considered, and the ICAC takes pride in trust of the arms industry in the institution.
Summarizing his address Mr. Selivon stated that during the extremely challenging 2022, the ICAC was not only attending to urgent operational issues, but also shaped the outlook for the future. At the martial law time the ICAC launched mediation and dispute settlement using the combined procedures and approved the legal regulation backgrounds for the service. The ICAC will keep on expanding its services for the parties.
Finalizing his remarks, Mykola Selivon invited the attendees of the meeting to the X International Arbitration Readings in memory of Academician Igor Pobirchenko which will commemorate 100 years since the birth of the Academician in 2023.
Having considered the first issue on the agenda of the Meeting, the Presidiums of the ICAC and the UMAC decided as follows:
- Take into consideration the information about the ICAC and the UMAC operational results for 2022, as presented by the ICAC and the UMAC President.
- Approve, based on the conclusions of the discussion, the key areas for improvement of the ICAC and the UMAC operations, which are as follows:
(1) Further digitalization of the administration of cases;
(2) Improvement of arbitral proceedings by the implementation of novel arbitration practices;
(3) Renewal of the technological capabilities of the ICAC and the UMAC, and ensuring better comfort of arbitration for the parties;
(4) Popularization of mediation:
– Mediation advocacy campaign in the ICAC and the UMAC
– Enhancement of the role of arbitrators in advocating mediation
(5) Expansion of the range of services and consideration of investment disputes by enlisting the ICAC as a jurisdictional authority for investment disputes resolution into international treaties on the reciprocal promotion and mutual protection of investments as well as into individual investment contracts. Support of the enactment of the Draft Law of Ukraine “On amending the Law of Ukraine “On International Commercial Arbitration” in part of investment arbitration;
(6) Popularization of the UMAC as a jurisdictional institution for resolving disputes involving the operations of inland water transport in line with the Law of Ukraine “On inland water transport”.
- Hold on 15 November 2023 the X International Arbitration Readings in memory of Academician Igor Pobirchenko which will commemorate 100 years since the birth of the Academician in 2023.
The practicalities of arbitration proceedings involving sanctioned parties and the enforcement of issued arbitral awards
Having completed the discussion of the ICAC’s activities information 2022, the participants of the extended meeting moved to discussing the practicalities of arbitration proceedings involving sanctioned parties.
Volodymyr Nagnybida, Vice President of the ICAC, offered the overview of the existing legal regimes for imposing sanctions and analyzed those regimes referring to the imposing countries. The speaker noted that sanctioning a party to arbitration, depending on the type of sanctions imposed, may certain affect arbitral proceedings in terms of the venue of arbitration, the citizenship of arbitrators and other factors.
The speaker drew attention to issues related to the identification of the fact of a party to arbitration being on the sanctions list, the source of information about such facts, as well as the related compliance activities. The speaker said that the search for and identification of sanctioned entities was becoming a regular activity for business. Such information is usually available on the official websites of state bodies authorized to exercise sanctions policy in a respective country. In selected cases such information might be useful for the composition of the arbitration tribunal and for the arbitration institution as a whole.
Inna Yemelianova, Vice President of the ICAC, reported on two issues: the fulfillment of obligations by a sectioned party, whether the imposition of sanctions could be viewed as an occasion of force major; and the enforcement of arbitral awards, issued in the cases involving a sanctioned party. Based on the legal nature of sanctions and the grounds for the application of sanctions as defined by the Law of Ukraine “On sanctions” the speaker analyzed whether sanctions correspond to the basic notions of force major. Commenting on the enforceability of arbitral awards issued in the cases involving a sanctioned party, the reporter referred to several decisions of the Supreme Court and concluded that there was no unified court practice on the issue.
Olena Perepelynska, the ICAC arbitrator, disputed the possibility of finding a balance between law and politics when considering cases involving a sanctioned party. Referring to the laws of Ukraine, she stated that the obligations of a party did not vanish at the moment of sanctioning. The speaker motivated the audience to apply a wholistic approach towards cases involving sanctioned parties, and to postpone the control over the proper imposition of sanctions to the sanctioned party till the award enforcement stage.
Sergiy Gryshko, the ICAC arbitrator, summarized the sanctions regimes of the EU, the USA, the UK, focusing on their impacts on arbitration as well as the accountability for overcoming the sanctions. In particular he noted the EU Rugulation No. 833/2014, directly prohibiting granting of selected claims in favor of the sanctioned person. The speaker emphasized that the legislation of Ukraine did not provide for any clearly defined responsibility for the violation of sanctions, which leads to legal uncertainty.
Commenting on the impact on sanctions on the enforceability of arbitral awards, the Justice of the Grand Chamber of the Supreme Court, Konstyantyn Pilkov, discussed the notions of national public order, international public order, transnational public order, that are routinely used by arbitration practitioners. He also stressed that Ukraine has no secondary sanctions mechanism in place – that is when sanctions could be imposed on the counterparty engaged in commercial activities with a sanctioned entity. Justice Pilkov shared an opinion that the uplifting of national sanctions to transnational level might become a burden for arbitration institutions. “If an arbitration institution accepts the high accountability to ensure the public order of a specific country, it will become a first test for neutrality for a foreign investor”.
The speaker also referred to the Resolution of the Commercial Court of Cassation of the Supreme Court, stating that sanctions may not restrict the procedural rights of the entity. This approach was supported by the Grand Chamber of the Supreme Court. The case involved the payment of court fees for filing an appeal in a sanctions dispute, and the Grand Chamber of the Supreme Court ruled that the payment of the court fees should be postponed. “In this case the right for access to justice, guaranteed by the Convention on Human rights and freedoms protection prevails over the lack of specific instructions in the Law of Ukraine “On court fees” and the Procedural Code. This is a consistent step towards the approach that the imposition of sanctions should not restrict procedural rights,” – the Justice summarized.
Mr. Pilkov criticized the approach of viewing sanctions as force major. He noted that business community had developed a far better instrument which was the inclusion of a sanctions clause into contracts.
The Supreme Court Justice in the Cassation Civil Court Vasyl Krat motivated to study the sanctions from the private law viewpoint to assess their impact on private law instruments (e.g. contracts, obligations, the fulfillment or the termination of obligations). He believes that from the private law viewpoint sanctions evolve in a similar way as other forms of interventions into private law (for example similar to how confiscation in rem intervened into the unjustified assets notion under the Ukrainian law). The speaker noted that the Law of Ukraine “On amending the Tax Code of Ukraine and other laws relating to taking out of the market a systematically important bank during martial law time” (dated 6 October 2022 No. 2643-IX) Section XIII “Final and temporary provisions” of the Law of Ukraine “On Capital Markets and Commodities Markets” were amended with clause 15-2. In accordance with such amends, during the martial law time legal actions relating to financial instruments, taken by, on behalf of or in favor of sanctioned entities, as well as legal actions related to securities issued by sanctioned entities shall be deemed null and void. “Sanctions as grounds to acknowledge the legal action null and void is an approach that is closer to private law,”– noted Mr. Krat. The speaker is sure that the identification of the essence of sanctions will help understand the impacts of sanctions, especially those of temporary nature, such as a liability or a contract.
Summarizing the discussion, the participants of the extended meeting agreed that there are still more questions than answers when it comes to arbitral proceedings involving a sanctioned party. In view of this the ICAC and the UMAC President tasked the ICAC Presidium members Volodymyr Nagnybida and Tetyana Slipachuk with developing recommendations as to arbitrating disputes involving a sanctioned party and present them in a month time.