Anti-arbitration practice or when the new Supreme Court reverts back to its old practices — Taras Shepel

 

I was going to write an article about the new Supreme Court long ago. I wanted to analyze whether the Supreme Court, which we fought for in recent years and the final establishment of which we can observe these days, has lived up to our expectations for a better future.

A lot of efforts were made to defend the very idea of the need to clear the judiciary. And the result of the embodiment of this idea has been demonstrated on the example of the establishment and activities of the Supreme Court.

And, unfortunately, the result is far from being a victory.

Any sham reform is doomed to failure and – even after its original supposed success – the rematch of old corrupt systems, since it does not have an in-depth effect on them.

Judicial reform has shown no tangible results over these five years, except for the new Supreme Court which was launched in late 2016 and whose results can already be seen and assessed.

Now I will analyze this issue in detail using the example a sphere that is one of the most sensitive for entrepreneurs and affects the investment attractiveness of Ukraine and business security. This is the practice of the Supreme Court in matters of support and non-interference in the sphere of competence of international arbitration.

It is not a secret that both foreign investors and domestic entrepreneurs try to avoid litigation in Ukrainian courts as much as possible and have a much higher confidence in international arbitration courts.

Traditionally, entrepreneurs agree to settle disputes in non-state arbitration courts – international or national arbitration tribunals – rather than in the state courts.

Considerable efforts have been made here. The issue of maintaining arbitration mechanisms is thoroughly and in detail described in the procedural codes (civil and commercial), which are in force as of late 2016, Including the rules that favor the resolution of disputes through arbitration procedures over the state courts.

In this situation, state courts should at least avoid “putting spanner in the works” to international arbitration.

Recognition and enforcement of arbitration institutions’ resolutions should be sacred and inviolable, since it will not make sense to appeal to them if the state court can arbitrarily or for a bribe easily cancel an arbitration award.

And after a fairly progressive procedural reform of 2016, judicial practice initially went the right way.

The Grand Chamber of the Supreme Court in its ruling of August 28, 2018 expressed its opinion on the mandatory recognition and enforcement of an arbitration clause on the settlement of disputes by international commercial arbitration court.

On February 5, 2019, the panel of judges of the Cassation Economic Court, part of the Supreme Court, chaired by Judge Hanna Vronska, annulled the resolutions of commercial courts of two instances, which, in violation of the law, considered a dispute between the parties to the arbitration dispute settlement agreement.

It would seem that a line in the enforcement could be drawn, and the Supreme Court, as well as other courts, had to make the same decisions in the similar cases.

But here’s a new ruling dated March 4, 2019.

On the contrary, in this case, the Supreme Court did not recognize the arbitration clause and, accordingly, the jurisdiction of the international arbitration court in the dispute between the parties. The SC decided that the dispute still had to be considered by the Economic Court.

The dispute concerned the invalidation of an agreement that the parties agreed to consider in the international arbitration court.

Commercial courts of two instances refused to consider the suit because it is within the jurisdiction of the international arbitration court. The International Commercial Arbitration Court found that the dispute was within its competence, considered it and made a decision which validity was been challenged by the Supreme Court.

The worst thing is that anyone who wants to avoid the enforcement of any international arbitration court or arbitration tribunal resolution on the territory of Ukraine can now use this precedent in the Ukrainian courts which both foreign investors and domestic entrepreneurs try to steer clear of.

This is a red line that cannot be crossed, but which, unfortunately, in this case has been grossly violated.

In Europe, which we are moving towards, and in the whole world, most commercial disputes are resolved in arbitration courts.

The right of arbitration courts to resolve disputes concerning the invalidity of agreements, as well as to determine independently the extent of their own competence in a particular dispute, is an important safeguard against possible arbitrary interference by a state court in arbitration proceedings.

Ukraine is a party to the conventions on the international treaties law and the recognition and enforcement of foreign arbitration awards and must adhere to them.

The use of arbitration courts is important not only for creating a favorable investment climate within the country, but also an instrument for protecting the interests of both the state and private businesses in foreign economic activity.

Ukraine and large state-owned enterprises often apply to international arbitration institutions successfully – the well-known result of the resolution of the dispute between Naftogaz and Russian Gazprom in the Arbitration Institute of the Stockholm Chamber of Commerce.

Different judicial practice of the Supreme Court of Ukraine was one of the main reasons behind complaints about its activities, which led to the decision to liquidate this court and create a new one, with new judges, including lawyers and scholars.

New judges had to demonstrate better performance, integrity and respect for other values, the main of which is integrity.

However, the Supreme Court continues to mostly consist of the “old school” members, and many of them have received negative opinions as to integrity.

Here is an example – the presiding judge in this case – Inna Berdnik, who got into the “new” Supreme Court from the “old” Supreme Court of Ukraine, despite the opinion of the Public Integrity Council about her non-compliance with the criteria of integrity and professional ethics.

These days, the second wave for the selection of judges to the Supreme Court is coming to an end. The High Council of Justice may recommend that the President appoint 16 judges with opinions about non-compliance with the criteria of integrity and professional ethics for 78 vacant positions.

The largest number of them – 7 out of 16 – will find themselves in the Cassation Economic Court of the Supreme Court.

Therefore, the country desperately needs a real judicial reform.

Without it, we will have no investment, no work, no money, and Europe will remain a distant dream or become a target of labor migration.

Much depends on the country’s president and MPs who will be elected this year.

What changes are needed and how the judicial reform can take place if there is the will of the new president – find out here.

Taras Shepel, for the UP

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