Court assistance in support of arbitration: interim measures and obtaining evidence - Ukrainian perspective

Markian Malskyy
Arzinger, Lviv
Markian.Malskyy@arzinger.ua

Oksana Karel
Arzinger, Kyiv
​​​​​​​Oksana.Karel@arzinger.ua

Volodymyr Nakonechnyi
Arzinger, Kyiv
Volodymyr.Nakonechnyi@arzinger.ua

Several years ago, one could confidently say that Ukraine was among those countries where it was impossible to get judicial support of arbitration in the form of interim measures or obtaining evidence – court assistance to arbitration in the said forms was simply not provided for in the legislation. After the new Civil Procedural Code of Ukraine entered into force on 15 December 2017, introducing the new mechanisms in support of arbitration, things have changed. 

Ukraine provided a legislative framework for claimants in arbitration to request and receive interim measures in Ukrainian courts to preclude debtors with assets in Ukraine from avoiding enforcement of arbitral awards. Ukraine also provided a framework for obtaining evidence for arbitration, which is especially important when documents and witnesses are under the control of a third party, that is, a party that is not subject to the arbitration agreement^[1].

In this article, firstly, we will provide an overview of the recent court decisions on interim measures to assess if requesting interim measures in Ukrainian courts in support of arbitration is now an efficient mechanism to preclude debtors with assets in Ukraine from defrauding good faith creditors. Then, we will discuss obtaining evidence for arbitration through Ukrainian courts. 

Interim measures

During the past several years Ukrainian courts developed a quite consistent court practice on interim measures in support of arbitration. In a variety of cases from different fields of economy, Ukrainian courts analyzed, inter alia, the following issues related to interim measures: (1) circumstances that are sufficient to demonstrate that successful enforcement of the arbitral award may be difficult or impossible without interim measures, (2) proportionality between interim measures and the amount in dispute, (3) the issue of cross-undertaking, etc.

FL Technics UAB v. Eastok-Avia FZC Case^[2]  is the most recent case we are aware of. FL Technics UAB (Lithuania) commenced arbitration in the Vilnius Court of Commercial Arbitration because of multiple breaches by Eastok-Avia FZC (UAE) of its monthly payment obligations under the Aircraft Engine Lease Agreement. The amount in dispute is approximately USD 0.7 M.

FL Technics UAB discovered that the defendant owned three airplanes registered in Ukraine and being used by Ukrainian aviation company Yanair and applied for interim measures to the Ukrainian court. Ukrainian procedural law explicitly allows claimants to apply for interim measures in support of arbitration if defendants' assets are located in Ukraine no matter that defendants may have their domiciles outside Ukraine. 

FL Technics UAB asked the appellate court (as a court of first instance) to simultaneously impose the following interim measures: (1) to prohibit Eastok-Avia FZC from disposing of two out of three aircraft, (2) to prohibit the State Aviation Service of Ukraine from de-registering these two aircraft, and (3) to prohibit cross-border flights for these two aircraft. 

To substantiate the necessity of interim measures FL Technics UAB argued that Eastok-Avia FZC continuously breached its payment obligations, two times requested restructuring of the debt and, when such restructurings were approved by FL Technics UAB, Eastok-Avia FZC also breached such restructured obligations. These actions made FL Technics UAB consider that successful enforcement of an arbitral award would be difficult or even impossible without interim measures. 

The court granted interim measures only in part – it prohibited Eastok-Avia FZC from disposing of one aircraft. Doing this the court referred to the proportionality principle: the court established that the market value of each plane exceeds USD 1 M and attachment of 2 planes will be excessive to secure USD 0.7 M claims. With respect to prohibition of cross-border flights the court concluded that such measures can substantially interfere with the business of and cause damages to Yanair that is not a party to the dispute. Such interference would also violate the proportionality principle.

In another recent case, Agrostudio Group Limited v. Eco Energy Ukraine LLC^[3], interim measures in support of arbitration were contested by the defendant, passed appellate review by the Supreme Court and remained unchanged. 

In its arbitration claims, Agrostudio Group Limited (purchaser under the contract) demanded from Eco Energy Ukraine LLC (supplier under the contract) to pay USD 338 K in fines and interest and to supply 10 000 metric tons of corn as envisaged under the contract. The Ukrainian court secured these arbitration claims and imposed an attachment on USD 338 K at any and all bank accounts of the defendant and on the respective 10 000 metric tons of corn.

The Supreme Court discussed in detail the following issues: 

(1)    Proportionality and attachment of money at any and all bank accounts. The Supreme Court explicitly stated that attachment at any and all bank accounts of the debtor is a proportionate measure taking into account that the attachment shall not exceed the amount of the claim. In other words, if an attachment is imposed on several bank accounts and the attached money exceeds the amount of the claim, the debtor may apply to the court and lift the attachment imposed on debtor's money above the amount of the claim.

(2)    Attachment of harvest. If the claimant in arbitration demands from the defendant to supply some kind of harvest, an attachment of the available harvest of the relevant amount and quality is a reasonable measure to secure enforcement of the future award. 

In the Agrostudio Group Limited v. Eco Energy Ukraine LLC case the Supreme Court concluded that it may be difficult or even impossible to enforce an award against an agricultural production company because such company normally sells its harvest and may have no harvest of the relevant amount and quality at the time of enforcement. Moreover, agricultural production companies are highly dependent on weather conditions that may mean the defendant will not own a harvest of the relevant amount and quality at the time of enforcement.

(3)    Cross-undertaking. The Supreme Court also emphasized that the failure of the lower court to decide on a cross-undertaking while ordering interim measures, even if a cross-undertaking is obligatory in some situations, may not be treated as a ground for cancellation of interim measures by the higher court. The defendant has a procedural right to apply to the competent court and request a cross-undertaking to be imposed on the claimant.

In this case, the Supreme Court very briefly noted that the small size of the defendant's charter capital and lack of ownership rights to immovable property registered in the defendant's name may indicate that it may be difficult or impossible to enforce the award if interim measures are not taken.

In another recent case, Risoil Europe Ltd v. Piatygirske FG^[4], the court attached money in bank accounts of the defendant in the amount of GAFTA arbitration claims. The court decided that successful enforcement of an arbitral award by Risoil Europe Ltd may be difficult or even impossible without interim measures because (1) the defendant has a significant outstanding debt before Risoil Europe Ltd, (2) the defendant avoided negotiations to settle the dispute amicably, and (3) the defendant faces several commercial court disputes for breach of contractual obligations.

The sale of valuable assets when arbitral proceedings are already commenced may also be a clear sign that the debtor is trying to avoid enforcement. Such arguments and evidence may be of high importance while applying for interim measures, especially considering recent drastic development in Ukraine of court practice on fraudulent transactions.

Change of registered address of the debtor company and / or change of CEO or shareholder in the debtor company may also indicate that it may be difficult or impossible to enforce the award if interim measures are not taken (Shell Lubricants Supply Company B.V. v. Torgovyi Dim Linom LLC^[5]). 

Obtaining evidence

Obtaining evidence for arbitral proceedings through state courts plays an important role when documents and witnesses are under the control of a third person that is not party to the arbitration agreement. 

The Civil Procedural Code of Ukraine provides that Ukrainian courts may help in taking evidence for arbitration if the evidence can be lost or obtaining evidence in the future can become difficult or impossible. Ukrainian courts can support arbitration in obtaining evidence through summoning witnesses, ordering expertise, requesting documents, or reviewing evidence at its permanent location. 

Either the arbitral tribunal or a party to the arbitral proceeding may request the support of the competent Ukrainian appellate court in taking evidence. Copies of claims to arbitration, documents confirming commencement of arbitral proceedings and arbitration agreement shall accompany the request. The appellate court shall issue its ruling within 5 days upon receipt of the request on obtaining evidence.

While the legislative framework for obtaining evidence in support of arbitration is well-developed, this mechanism remains not in use in Ukraine. Since the mechanism became available on 15 December 2017, we are not aware of any court decision on evidence in support of international arbitration, thus, it remains unclear how the said mechanism will work.

Conclusion

To summarize, the recent years demonstrate that Ukraine moves towards becoming a more arbitration-friendly country, and arbitration-friendly court practice on interim measures clearly shows this movement. Business received an efficient mechanism to protect enforcement of its arbitration claims in Ukraine from bad faith debtors. At the same time, court practice on obtaining evidence for arbitral proceedings remains still to be developed by Ukrainian courts.