In February 2010 the Act of Ukraine No. 1837-VI “On Amending Certain Legislative Acts of Ukraine in respect of Regulating Private International Law Issues” (“Act No. 1837”) introduced important changes to the process of enforcing foreign court judgments and arbitral awards. This article summarizes that process in the context of English judgments and arbitral awards.
Judgments
The jurisdiction to enforce foreign judgments stems from Section VIII (Articles 390 – 398) of the Civil Procedure Code of Ukraine (“CPCU”). Under Article 390 Ukrainian courts will enforce a foreign court judgment:
(i) if this is permitted under an international treaty ratified by the Verkhovna Rada (Parliament) of Ukraine; or
(ii) under the reciprocity principle.
There is no bilateral treaty between Ukraine and the United Kingdom providing for the mutual enforcement of each country’s court judgments. Therefore, the only means of enforcing English judgments in Ukraine would be under the reciprocity principle (i.e. if an English court would enforce a Ukrainian judgment in the same circumstances). The reciprocity principle used to apply only to signatory countries of enforcement treaties to which Ukraine was also a party.
However, Act No. 1837 recognizes reciprocity as a self-standing principle for the first time. This means that it is now possible at least in theory for an English court judgment to be enforced in Ukraine.
A further significant change effected by Act No. 1837 is the reversal of the burden of proving reciprocity. This used to lie on the claimant. However, the Act provides for reciprocity to be presumed. Therefore the burden now lies on the defendant to prove a lack of reciprocity. Will a defendant be able in reality to displace this presumption in the context of an English judgment? The answer is, regrettably, far from clear. Ukraine is not a country covered by the legislative regimes on enforcement of foreign judgments in England.
Nevertheless, it is possible to enforce a Ukrainian court judgment in England under the common law rules on enforcement. These enable any foreign judgment to be enforced in the jurisdiction by issuing proceedings seeking the same relief as granted under that judgment. A claimant need only rely on the foreign judgment itself without having to re-litigate the merits of the dispute. Such a claim could be defended if:
(i) (for our purposes) the Ukrainian court acted without jurisdiction (on territorial or consensual grounds);
(ii) enforcing the judgment would be contrary natural justice;
(iii) the judgment was procured by fraud;
(iv) enforcing it would be contrary to public policy;
(v) enforcing it would be irreconcilable to a prior judgment; or
(v) enforcing it would be contrary to a jurisdiction agreement.
There is certainly a danger that just one example of an English court refusing to enforce a Ukrainian court judgment could be regarded by a Ukrainian court as evidence of a lack of reciprocity between Ukraine and the UK, irrespective of the similarity between that example and the case before the Ukrainian court. The current lack of experience of Ukrainian judges at first instance in relation to the enforcement of foreign court judgments can result in a cautious approach that is hostile to this concept and a readiness to accept tenuous reasons for refusing enforcement.
As yet, there is no example of which the authors are aware of an English judgment having been enforced under the reciprocity principle. However, given the limited time since Act No. 1837 came into force, this is, perhaps, not surprising.
Refusal of Enforcement
Article 396 provides that the court may refuse to enforce an English judgment if:
➤ it is not enforceable under the English law 5;
➤ the defendant did not have an opportunity to participate in the English proceedings because he did not receive appropriate notification of them;
➤ it relates to an issue which falls under the exclusive jurisdiction of the Ukrainian courts;
➤ Ukrainian proceedings involving the same issues and parties were commenced prior to the English proceedings or there is a prior Ukrainian court decision involving the same parties and the same subject matter;
➤ the limitation period for enforcement has expired;
➤ the dispute is not subject to judicial consideration under Ukrainian law; or
➤ enforcement would harm the interests of Ukraine (“public policy”).
The most problematic and widely employed of these (against both foreign court judgments and arbitral awards) is the public policy ground. The definition of “public policy” is not clearly established under Ukrainian law. Consequently, its application can be unpredictable. The 1999 Decree of the Supreme Court of Ukraine “On Courts’ Practice Regarding Recognition and Enforcement of the Decisions of Foreign Courts and Arbitral Tribunals and Setting Aside Arbitral Awards Rendered within the Territory of Ukraine” provides some (limited) guidance by defining this as “the legal order of the state, the determining principles and basis fundamental to the existing state order relevant to its independence, integrity, inviolability, main constitutional rights, freedoms, guarantees etc.”
However, the November 2010 Supreme Court decision in the high-profile case of NJSC “Naftogaz of Ukraine” (“Naftogaz”) v. ROSUKRENERGO AG (Austria) placed an interesting limit on the concept of ‘public policy”. The court ordered enforcement of arbitral awards that obliged Naftogaz (a state company) to transfer 12.1 bln. cubic meters of gas to ROSUKRENERGO. In so doing it rejected the argument that such a transfer (amounting (so Naftogaz alleged) to 50% of the country’s total gas production of public consumption per year) would impact on the independence, integrity, sovereignty, inviolability, basic constitutional rights, freedoms, guarantees” etc of Ukraine.
Arbitral Awards
Prior to Act No.1837 Section VIII referred only to the enforcement of foreign court judgments. No mention was made of foreign arbitral awards. This meant that such awards were only enforceable under the analogy principle. However, Act No. 1837 expanded Section VIII expressly to cover foreign arbitral tribunals. Ukraine is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Award, 1958 as (of course) is the United Kingdom. Therefore, enforcement of an English arbitral award (now) falls within the scope of Article 390 (1) of the CPCU.
➤➤ The role of the Bailiff s/SES officers
After a Ukrainian court grants an enforcement order it must issue a writ of execution (Article 398 of the CPCU). This is the final stage of enforcement but one that can present a number of challenges often connected with actions by the debtor aimed at delaying enforcement. A feature of the enforcement process that is distinct from its English counterpart is the requirement that all enforcement actions (including the arrest of assets, bank accounts) be undertaken only by and through the state execution (enforcement) service (“the SES”). This places significant power in the hands of the SES which is diffi cult to control effectively because of gaps that exist in the Act of Ukraine “On Execution Proceedings” (the “Execution Proceedings Act”).
Article 18 of the Act requires a bailiff from the SES to commence execution (inter alia):
“1 Upon the application of the claimant …;…
2(1) If a writ of execution has been submitted by a court on the basis of its ruling on granting enforcement of a foreign judgment … “ However, it is not clear whether a writ can be issued by the court and sent to the SES on its own motion or whether a writ should be issued to the creditor, who must then submit it along with an application for commencement of the execution process. In practice, this can cause problems if the court decides to issue a writ and send it to the SES without notifying the creditor (which occurs) because some bailiff s (adopting a formalistic approach) will refuse to take enforcement steps unless it receives a motion from the creditor to do so (as required the Execution Proceedings Act). Needless to say, a creditor who is not aware that the SES has received a writ of execution from the court is in no position to fi le the relevant motion! In such cases the only recourse is for the creditor to appeal the SES decision to the court or to re-fi le the writ personally accompanied by the relevant motion. Naturally, this involves additional time and costs. In practice, to avoid these problems, it is advisable for the creditor to apply for a writ of execution (rather than relying on the court to issue one unilaterally) and then fi le the relevant motion for execution with the SES.
It should be noted that debtors often employ a variety of tactics to avoid enforcement (e.g. appealing the SES’ decision to initiate execution proceedings and applying to the court to reschedule the payment due under a foreign judgment or postpone its execution). The SES often operates in a formalistic manner which can allow debtors to delay enforcement. It is not uncommon at the end of a protracted enforcement process for the SES to find itself unable to identify any relevant assets and therefore having to terminate enforcement action.
Summary
Notwithstanding the difficulties referred to above, Act No.1837 represents a welcome improvement in the enforcement process as it affects English judgments, which are now (at least in principle) enforceable for the first time under the expanded concept of reciprocity. There are cautious grounds for hoping that this is part of a general direction of travel aimed at making the Ukrainian legal system more user-friendly for foreign parties.
Pavlo I. Byelousov, Attorney at law (Vasil Kisil & Partners, Kyiv) and Rupert D’Cruz (Littleton Chambers)