UPDATED: Ukraine’s Supreme Court ruled on enforceability of the first-ever emergency arbitral award in Ukraine

Ukraine
Back in September 2018, Ukraine’s Supreme Court ruled on recognition and enforcement of the emergency award (the “Emergency Award”) rendered in accordance with Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce (the “SCC Rules”) in JKX Oil & Gas plc et al v. Ukraine case. In particular, the recognition and enforcement of the Emergency Award was denied by the resolution of the Supreme Court dated 19 September 2018 (the “Resolution”). This Resolution is final and cannot be further challenged.

Denial of the Emergency Award enforcement is of interest for the global arbitration community from the procedural perspective, but has no impact upon the final award on merits rendered by the arbitral tribunal on 6 February 2017 (the “Final Award”). By the Final Award, the investors were awarded damages in the amount approximately USD 11.8 million plus interest and costs of USD 0.3 million. The Final Award is yet to be filed for recognition and enforcement in Ukraine.

The Emergency Award was rendered on 14 January 2015 by the arbitrator Rudolf Dolzer as an interim measure in an investment arbitration dispute against Ukraine commenced by JKX Oil & Gas plc and several other companies (the “JKX”) due to Ukraine’s 2014 decision to drastically increase rental fees for natural gas production from 28% to 55%. That is, the Emergency Award was not a final award and had no relevance to the settlement of the underlying investment arbitration dispute on merits. Instead, under the Emergency Award, Ukraine was ordered to refrain temporarily from applying the increased rate of rental fees for natural gas production (i.e., above 28%).

As a matter of the procedure, enforcement of the Emergency Award was protracted and complicated. After several rounds of consideration of the case by Ukrainian courts, the Supreme Court finally confirmed refusal to enforce the Emergency Award with reference to public policy violation and lack of proper Ukraine’s notification about the investment dispute.

In particular, the Supreme Court accepted Ukraine’s argument that enforcement of the Emergency Award would result in application of different tax rates to a particular person without amendment of relevant tax laws. The Supreme Court decided that this approach would contradict fundamental principles of Ukrainian tax legislation and accordingly would run contrary to Ukrainian public policy. The Supreme Court opined that any special treatment of taxpayers is possible only by amendment of relevant tax laws.

Further, the Supreme Court noted that JKX did not comply with the three-months cooling-off period in accordance with Article 26(2) of Energy Charter Treaty. JKX sent the notice of investment dispute to the Administration of the President of Ukraine, whereas the Supreme Court ruled that the notice should have been sent to the Ministry of Justice. The Supreme Court oddly treated that circumstance as a ground to refuse enforcement under Article V(1)(b) of New York Convention (i.e., Ukraine was not properly notified about arbitration).

At the same time, neither the Supreme Court nor the lower courts ruled out the possibility of the enforcement of emergency awards in Ukraine in principle. In particular, the Supreme Court did not opine on whether emergency awards can be enforced under New York Convention, but explicitly referred to Article V of New York Convention when citing legal grounds for refusal of the enforcement. Therefore, there is likelihood that Ukrainian courts will enforce emergency arbitral awards in other proceedings.

This alert has been updated on 26 November 2018.

For more information please contact authors of this publication.

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