Inside High-Stakes Arbitration

Source: Ukrainian Law Firms

From military procurement disputes to sanctions-related claims, the practice of international arbitration in Ukraine is undergoing significant transformation. As courts adopt a more arbitration-friendly stance and Ukrainian companies face new legal challenges, understanding the evolving arbitration landscape becomes even more crucial. In this discussion, leading arbitration practitioners Marina Riashchenko and Roman Protsyshyn, Сounsels at Ilyashev & Partners, delve into key legal trends and strategic approaches for navigating the complex world of dispute resolution.

Olga Usenko (O. U.): What are the key trends in international arbitration for 2024-2025? What challenges and opportunities do they present for Ukrainian businesses?

Marina Riashchenko (M. R.): After the turbulent years of 2022-2023, we are witnessing new geopolitical shifts affecting international dispute resolution. The primary trend originated in 2022 and gaining strength in 2025 is sanctions-related disputes. Global sanctions against aggressor states and their legal entities significantly complicate contract performance, especially given Russia’s refusal to recognize foreign courts and arbitrations from “unfriendly” jurisdictions.

Another key development is the increase in investor-state disputes due to legislative changes, particularly in the energy sector. Regulatory shifts, climate policies, and economic instability may drive foreign investors to initiate claims against states to protect their investments. In Ukraine, we observe continued growth in both sanctions-related disputes and defense procurement disputes.

Roman Protsyshyn (R. P.): As an arbitration practitioner, I always stay attuned to court practice concerning the recognition and enforcement of foreign arbitral awards in Ukraine. Companies involved in arms trading previously preferred private settlements. However, recent cases have shown increased enforcement proceedings. A notable trend is the pro-arbitration approach to dealing with defenses, alleging sophisticated arguments to resist the enforcement on the grounds of public policy. Ukrainian courts have refined the concept of public policy, ensuring its alignment with the rule of law and restricting attempts to evade debt collection under the guise of war.

O. U.: How have sanctions and geopolitical shifts influenced international arbitration, especially for Ukrainian companies?

R. P.: Ukraine has enacted laws aimed at preventing capital flow to Russia, including a special sanction targeting the supporters of Russian terrorism. The Ministry of Justice is empowered with a ‘nuclear weapon’, entitling it to confiscate sanctioned assets by applying the doctrine of piercing the corporate veil. While this mechanism strengthens Ukraine’s position, it may also lead to potentially justified claims from foreign investors against Ukraine, which will, more likely than not, progress to investment arbitration proceedings.

M. R.: The war and international sanctions have triggered a wave of arbitration claims from Ukrainian entities against Russian counterparties. With contract performance often paralyzed, Ukrainian businesses struggle to recover overdue debts. Even when a Russian debtor is willing to pay, Ukrainian companies risk legal repercussions for engaging with sanctioned entities. This creates additional layers of complexity in dispute resolution.

O. U.: When faced with disputes, do Ukrainian companies prefer international arbitration or national courts? Is it just the high cost of international arbitration?

M. R.: The choice of a dispute resolution body depends largely on the nature of the contract and parties involved. For international agreements, disputes are typically referred to arbitration, as foreign companies, regrettably, still have limited trust in Ukrainian courts. Many Ukrainian companies choose ICAC at the Ukrainian Chamber of Commerce and Industry due to its reputation for efficiency and professionalism. Other preferred venues include VIAC, LCIA, SCC, etc., though arbitration costs remain a key consideration.

For domestic disputes, Ukrainian national courts remain the primary choice, eliminating the further necessity to proceed with recognition and enforcement of arbitral awards.

R. P.: In defense procurement contracts, choosing arbitration is vital. I have witnessed a case when a state enterprise prepaid for military equipment to its US counterparty but received poor-quality machines. The contract lacked a dispute resolution clause. The enterprise decided not to sue its counterparty in courts due to a lack of money to fund litigation and had to forfeit a claim worth millions of dollars. Had there been an arbitration clause, the enterprise would have likely proceeded with its claims.

O. U.: In terms of fees, what does a client typically expect – fixed fees, caps, or success fees? Where can an attorney find room for compromise in this regard?

R. P.: Law firms typically charge for their services based on standard hourly rates, which is the most transparent method of price formation. However, this approach lacks predictability, as legal costs can vary depending on the dispute’s complexity, the opposing party’s conduct, and numerous other factors. Clients seeking predictability in budgeting for arbitration often prefer fixed fees. Nevertheless, fixed fees can be restrictive for advocates if additional work is required beyond the agreed budget scope.

A middle ground is a “success fee” arrangement that can take various forms. One example is a hybrid damages-based agreement, where part of the fee is paid upfront, while the remainder – often the majority – is contingent upon success, such as winning a monetary claim or actually collecting the awarded sums. Other models may include a percentage of defended claims.

Another approach is a discounted contingency fee model based on ‘no win, low fee,’ where a premium ‘success’ hourly rate may apply to high-risk cases.

In today’s legal market, flexibility is essential for securing a client. If clients refuse hourly billing, law firms ought to provide alternatives.

O. U.: How do unnecessary mistakes by clients affect the workload of the lawyer, and what role do risk mitigation strategies or memorandums play in minimizing such mistakes?

R. P.: Good question. I’ve seen significant mistakes in arbitration disputes. For example, a Ukrainian state enterprise negotiated a billion-dollar ammunition contract and included an ambiguous clause stating that the “substantive law of the contract shall be the law of the plaintiff.” In the Western world, such clauses are not understandable, leading to extensive pleadings over whether such a choice-of-law clause is enforceable.

Clients should consult their lawyers during contract negotiations to review and refine clauses to mitigate such risks. Legal advice in the form of a brief memorandum outlining pre-action steps and claim strategies can be beneficial when a dispute arises. This approach helps reduce unnecessary legal costs incurred from rectifying mistakes later in arbitration or litigation.

M. R.: A client can sometimes be their own worst enemy (laughs). Quite often clients make insignificant (in their opinion) mistakes or omissions at the early stages of contracts execution that further result in huge challenges during the dispute resolution procedures. Mostly, it relates to the improper formattion of the arbitration clause, sloppy paperwork and record-keeping, failure to send a notice of claim before submitting the dispute to arbitration, etc.

I always recommend to clients that they consult with their legal advisors from the very negotiation of a contract. This will save significant costs and stress later, ensuring you’re prepared for any dispute that lies ahead.

O. U.: When a commercial dispute carries an element of corruption, should the lawyer take on the role of an investigator?

M. R.: Corruption frequently emerges as a defense strategy in commercial arbitration. A contract tainted by corruption is doomed to be invalid, so parties often weaponize such claims. In such cases, we conduct internal investigations and, when necessary, engage independent forensic experts. Based on findings, we adjust strategies, sometimes involving parallel criminal proceedings.

R. P.: Corruption allegations often serve as narrative tactics rather than substantive claims. The key is to present the client’s case effectively. If the client is the claimant, focus on arguments to strengthen the claims. If the client is the defendant, stick to defenses against the opponent’s claims. If the client wants to clear his or her name, do your best to support that desire within the boundaries of professional ethics. An advocate’s role is not to investigate but to argue the case strategically.

O. U.: How do you approach arbitration in state-related disputes, especially in highly sensitive areas like military contracts? Are there unique challenges or strategies that arise when representing state-owned enterprises or government-related entities in international arbitration?

M. R.: Disputes involving military contracts require extra confidentiality. Many agreements include restricted-access information, limiting document disclosure. Thus, we must ensure high confidentiality to all communications with the client. However, in other terms the handling of state-related disputes does not differ much from other commercial arbitration proceedings.

R. P.: State-owned military enterprises are excessively bureaucratic. This is not a disadvantage; rather, it necessitates strict compliance with formal procedures. Every document request or witness interview must be thoroughly justified. A diligent, structured approach ensures smoother collaboration and ultimately contributes to success in international arbitration.

O. U.: How can Ukrainian business and investors effectively pursue damages for losses caused by russia’s aggression, and what are the key legal and procedural challenges they should anticipate in these cases?

M. R.: We advise clients on three main compensation mechanisms:

First, claims against russia in Ukrainian courts with subsequent enforcement in foreign jurisdictions where Russian assets are located. This is cost-effective but requires recognition abroad.

Second, claims against sanctioned russian entities, treating them as alter egos of the russian state. These cases avoid sovereign immunity issues and have better chances of recovering frozen russian assets.

Third, investment arbitration against russia for expropriated investments. While this method has shown success in Crimea-related cases, it is costly, often exceeding several million euros in arbitration expenses.

Ukraine and its international partners are developing a compensation mechanism for damages caused by russian military aggression. The Register of Damages for Ukraine is now accepting claims, including those from businesses and investors. However, the full compensation mechanism is still under development.

O. U.: Do you prefer handling arbitration as a solo player or as part of a team?

M. R.: I am definitely a team player. Complex arbitration cases require a multi-expert approach, ensuring that no detail is overlooked and strategies remain adaptable. With a team of highly-professional and experienced colleagues, we can develop a state-of-art strategy, envisage the tiniest nuances and potential hurdles, and promptly react to the most unexpected changes.

R. P.: I stick to a streamlined approach where strategy is cohesive and executed efficiently. But as the saying goes, ‘One warrior alone is not a warrior.’ We have a fantastic arbitration team, and although Marina and I take the lead in managing cases, their support is invaluable. While we make the strategic decisions, their insights and expertise are crucial for achieving the best outcomes. It truly is a team effort.