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Enforcement of Arbitral Awards in Ukraine: Foreign Investor’s Perspective

Date of publication: 20 July 2019

Andrey Bychkov, Counsel, Attorney at Law

Source: Ukrainian Law Firms 2019

In order to succeed in attracting foreign capital, any country (especially a developing one) will inevitably have to work hard on cultivating its image as a safe and investor-friendly jurisdiction. Ukraine is no exception – as it is gradually recovering from the economic crisis, more and more foreign companies look at this country as a potential place to expand their business. Such attention is hardly a surprise since Ukraine, with all of its well-known drawbacks, has something to offer which helps it stand out as a potential target for investors – its relatively cheap but well-educated manpower and a location just next to the EU market.

Investor-State Dispute Settlement Instruments

Any investor looking to enter a foreign market obviously wants to have the comfort of governmental guarantees that his investments would be protected and would not be lost at the end of the day. In pursuit of foreign investments, Ukraine has signed bilateral investment treaties (BITs) with over 70 countries, including most of the EU member states, aimed at protecting foreign investments in Ukraine and the assets of Ukrainian investors abroad. Ukraine is also a party to a number of other international treaties containing investment provisions (e.g. the Energy Charter Treaty, the EU-Ukraine Association Agreement, the US-Ukraine Trade and Investment Cooperation Agreement etc) and investment-related international legal instruments (the ICSID Convention, the New York Convention etc).

By ratifying its BITs and the Energy Charter Treaty, Ukraine has bound itself to the dispute settlement procedures prescribed in such treaties which include, amongst other things, international arbitration. Normally, a foreign investor has a choice of several arbitration procedures under which to resolve its dispute with the State, and the latter is bound by the investor’s choice. This may include one of the following options: the International Centre for the Settlement of Investment Disputes (ICSID), the Court of Arbitration of the International Chamber of Commerce (ICC), the Arbitration Institute of the Stockholm Chamber of Commerce (SCC), an international arbitrator or ad hoc arbitration tribunal to be appointed by a special agreement or established under the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL), etc.

The database of the United Nations Conference on Trade and Development contains 22 reported investment arbitration cases in which Ukraine acted or is acting as a Respondent State. Over a half of the completed cases have either been settled or resolved in favour of an investor. It is obviously a good thing that Ukraine is taking steps towards protecting foreign investments by adopting international dispute settlement mechanisms, but it is far more important for an investor whether an arbitral award, if made in his favour, would actually be complied with.

Enforcement and Immunity

In most cases, Ukraine tends to comply with the arbitral awards made in favour of investors or even settle the dispute before an award is issued. Otherwise, Ukraine would have faced a risk of having a reputation of a country that fails to protect foreign investments and getting less attractive for potential investors. However, if Ukraine chooses not to settle and an investor obtains an arbitral award in his favour, what steps should he take in order to make the State pay the award?

International arbitration awards, including those made in investor-State disputes, are generally enforceable in Ukraine. Most of the international investment treaties concluded by Ukraine, provide that an award issued in an investment dispute is final, binding and enforceable. In order to be able to enforce an arbitral award in Ukraine, a party seeking such enforcement must first go through the recognition process and obtain a permission from the Ukrainian court for the enforcement of the award. This process is regulated by Part IX, Chapter 3 of the Civil Procedure Code of Ukraine, which sets out the procedure based on the relevant provisions of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention). While this procedure is quite straightforward, the court may refuse to enforce the award on the grounds provided for in Article V of the New York Convention.

If the court finds that there are no grounds for dismissing the application, it is required to recognize the arbitral award and allow its enforcement. However, in cases where the debtor is the State, a party seeking enforcement of the award faces a serious difficulty – the State’s immunity from forced execution of judgments or arbitral awards against its assets. While the Ukrainian legislation does not expressly define the scope of sovereign immunity, the existence of such immunity follows from some laws. For example, the Law of Ukraine No. 2864-III dated 29 November 2001 On Imposing Moratorium on Forced Sale of Property prohibits, with some limited exceptions, forced sale of the assets of state enterprises and other companies in which Ukraine holds 25% or more shares. The assets of foreign States located in Ukraine are also protected under Article 79 of Law of Ukraine No. 2709-IV dated 23 June 2005 On International Private Law.

Ukraine may waive its immunity against forced execution in certain circumstances. For example, pursuant to Article 16(5) of the Budget Code of Ukraine No. 2456-VI dated 8 July 2010, when executing government borrowings, transactions relating to the government debt or providing government guarantees, the Minister of Finance can waive on behalf of Ukraine its sovereign immunity in respect of potential disputes relating to the State’s obligations. Another example is Article 32 of Law of Ukraine No. 1039-XIV dated 14 September 1999 On Production Sharing Agreements, which provides that, upon a demand of a foreign investor, the State can waive its immunity in a production sharing agreement. Such waiver covers all court decisions, international arbitration awards, orders relating to the provision of security for claim, enforcement of court decision and arbitral awards. Similar waiver can be made by the Parliament of Ukraine in a public-private partnership agreement under Article 19 of Law of Ukraine No. 2404-VI dated 1 July 2010 On Public-Private Partnership.


By its Decree No. 408 dated 7 March 2007, the Cabinet of Ministers of Ukraine adopted a Procedure for the Usage of Funds Allocated in the State Budget for Effecting Payments Relating to Execution of Decisions of Foreign Jurisdictional Bodies Made as a Result of Resolving Cases against Ukraine (“Payment Procedure”). The Payment Procedure sets out a mechanism for using the budgetary funds allocated under a special program aimed at ensuring Ukraine’s compliance with its payment obligations under foreign court decisions and arbitral awards according to the international treaties concluded by Ukraine. The Ministry of Justice of Ukraine is responsible for the performance of this budget program.

According to paragraph 3 of the Payment Procedure, the existence of a decision of a foreign jurisdictional body, e.g. a foreign court judgment or an international arbitration award, is one of the grounds on which the Ministry of Justice can make payments out of the funds allocated under this budget program. In order to effect the payment under a foreign court judgment or an international arbitration award, the Ministry of Justice must provide the Treasury with payment instructions accompanied by the relevant documents, including a resolution for the commencement of enforcement proceedings, the judgment or award with an official Ukrainian translation, information from the claimant setting out the bank details where the funds should be transferred etc.

As can be seen from the above, on the face of it the legislation provides for a quite simple mechanism of paying foreign court judgments or arbitral awards issued against Ukraine. However, it should be borne in mind that the Ministry of Justice can use the funds under the above budget program only within the limits provided by the State Budget. Depending on the amount of the outstanding claims, such limit may or may not be sufficient to cover all of the State’s liabilities towards its judgment creditors. Furthermore, if the amounts allocated for this purpose in the previous years were not sufficient to cover all of the claims, part or all of the budget program funds for the current year would be directed to cover Ukraine’s old debts which may leave little resources to cover the State’s current liabilities. According to the State Budget for 2019, which is set out in Law of Ukraine No. 2629-VIII dated 23 November 2018, nearly UAH 594.5mln is envisaged for this program for the current year.

A separate budget program is carried out pursuant to Law of Ukraine No. 4901-VI dated 5 June 2012 On State Guarantees Relating to Execution of Court Decisions, which introduced a legal instrument to guarantee Ukraine’s compliance with decisions of courts and arbitral tribunals issued against Ukrainian state bodies, state companies and legal entities whose assets are protected by the laws of Ukraine from being sold. Pursuant to Article 3 of this Law, the payments under such decisions are made by the State Treasury of Ukraine out of budgetary funds upon an application of a creditor accompanied by the relevant documents and information. The payment must be made to the creditor within three months from the date on which he submitted the required documents and information. Again, such payment can be made only within the amount of budgetary funds allocated for this program. If the available budgetary funds are not sufficient to cover the decision, the creditor would have to wait until the State Budget for the current year is amended to allocate sufficient funds or until a new State Budget for the next year is adopted. A total of UAH 600mln has been allocated for this program in the State Budget for 2019.

Although there is still much to improve, the fact that above instruments actually work suggests that Ukraine is on the right path to becoming an investor-friendly jurisdiction.