In the course of drafting and negotiating a contract with a foreign party it is often a natural intention of one party to ensure that all disputes are resolved in their home country. The instrument used by lawyers in this case is a choice of court (prorogation) clause, which is included in a contract as part of a dispute resolution clause. For many companies, a prorogation clause is a part of the general terms and conditions which are a part of a contract with any foreign party by default.
However, a company wishing to enter into a contract with a Ukrainian party must be aware that their standard choice of court agreement is often not enforceable in Ukraine. Still, it would be untrue to say that the choice of court is not enforceable at all, as Ukrainian regulations on this issue are rather complicated. This article offers a brief look into the current state of choice of court clause regulations in Ukraine.
The general rule: choice of court in contracts between Ukrainian parties
Ukrainian procedural law is quite straightforward in regulating choice of court agreements between Ukrainian parties: it is not possible. The Parliament made that clear in 2010 when the legislators removed from the text of the Code of Civil Procedure the rule that enabled parties to enter into choice of court agreements. Subsequent case law supported and reinforced the Parliament’s move.
In contracts with non-Ukrainian parties, however, the regulation is different and more complicated.
Choice of court in contracts between a Ukrainian and a foreign (non-Ukrainian) party: national regime applies unless an exception is provided by law
The general rule of Ukrainian procedural law provides that, in cases involving non-Ukrainian parties, the competent court is defined under the jurisdiction rules laid down by Ukrainian procedural codes, unless otherwise provided for in another law of Ukraine or in a valid international treaty (Article 124 of the Code of Commercial Procedure, Article 414 of the Code of Civil Procedure).
Non-Ukrainian parties may agree to a Ukrainian court, but it does not work the other way round
The Law of Ukraine “On International Private Law” (the “IPL Law”), which is the basic act governing cross-border relations involving Ukrainian companies and private persons, determines that the parties to a contract may enter into a forum selection clause in favour of Ukrainian courts, except for those disputes over which Ukrainian courts have exclusive jurisdiction:
“Article 76. Grounds for establishing the jurisdiction of Ukrainian courts.
1. [Ukrainian] Courts may accept for consideration and may consider any and all cases with a foreign element in the following cases:
2. If the parties established, by their agreement, that the Ukrainian courts have jurisdiction over that case which has a foreign element, except for cases provided for in Article 77 of this Law [providing for exclusive jurisdiction of Ukrainian courts].”
The IPL Law is, however, silent with regard any situation where the parties choose a non-Ukrainian court. Hence, in the absence of a special rule, the general procedural rule applicable for national parties shall be applied to non-Ukrainian parties as well: choice of court agreements are not possible.
Accordingly, it may be concluded that Ukraine possesses an asymmetrical regulation for choice of law agreements in cross-border contracts: the parties may choose Ukrainian court, but may not choose a foreign (non-Ukrainian) court. This position had been confirmed by a number of court decisions during the last decade.
Further options: choice of court clauses available under bilateral and multiparty agreements
As cited above foreign parties may enter into prorogation agreements with Ukrainian parties if this, in addition to the special rules of Ukrainian statutory law, is allowed by a relevant international treaty. Ukraine is a party to 12 bilateral and 2 multiparty international agreements which cover this issue. By virtue of these agreements, prorogation agreements with a Ukrainian party are possible (with certain reservations) for parties registered in the following jurisdictions:
Bilateral treaties covering the following 12 jurisdictions:
- Cuba
- Cyprus
- Estonia
- Georgia
- Latvia
- Lithuania
- Moldova
- North Korea
- Poland
- Turkiye
- Uzbekistan
- Vietnam
The Agreement On Procedure for Settling Disputes with Regard to Carrying out Business Activities of March 20, 1992 (the Kyiv Convention), covers Ukraine and another 8 CIS member countries:
- Armenia
- Belarus
- Kazakhstan
- Kyrgyzstan
- Russia
- Tajikistan
- Turkmenistan
- Uzbekistan
The Convention on Legal Assistance and Legal Relations in Civil, Family and Criminal Matters of 22 January 1993 (the Minsk Agreement) covers the same 8 CIS member countries, with the addition of Georgia and Moldova. Note that in each case close attention should be paid to the difference between the “commercial” and “civil” cases subject to these regulations, in order to determine the applicable multiparty treaty.
In total, Ukraine’s international treaties make symmetrical prorogation clauses possible for contracting parties from 19 countries in the world.
A look into the future: accession to the Hague Convention on Choice of Court Agreements
Earlier this year, Ukraine signed the Hague Convention on Choice of Court Agreements, which is expected to be ratified by the Parliament of Ukraine in the next few months. Upon its ratification, prorogation clauses with Ukrainian parties will become possible for parties registered in the European Union (with the exception of Denmark), Mexico and Singapore.
Conclusion
As a matter of practice, foreign parties wishing to enter into a contract with a Ukrainian party (or who are considering litigation under the current contract) are advised to check their standard dispute resolution clauses and be aware of the risk that their choice of court (prorogation) clause may be unenforceable in Ukraine. That risk is removed, however, when one of two major exceptions apply:
- the parties have agreed to jurisdiction by a Ukrainian court pursuant to Article 76 of the Law on International Private Law; and
- when a foreign party is located in one of the 19 countries which Ukraine has entered into an international treaty with, thus allowing choice of court agreements.
In other cases, a party to a contract is advised to consult with a Ukrainian counsel in order to determine the applicable rules and to identify the dispute resolution options available in each particular case.
