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Choice of court agreements in contracts with Ukrainian parties: a legislative riddle under consideration by the courts

05/09/2016

As described in our previous post, choice of court (prorogation) agreements are typically not enforceable in Ukraine. There are, however, two major exceptions to that rule:

  • A prorogation agreement is possible if the parties have agreed to jurisdiction by a Ukrainian court (Article 76 of the Law on International Private Law);
  • A prorogation agreement is possible 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 (a list of countries is available here).

Of course, certain restrictions and reservations apply in all cases.

The first exception, as laid out in Article 76 of the Law on International Private Law, has always puzzled academics and practitioners due to its asymmetric nature. Some commentators tried to establish that Ukrainian law allows parties to also choose foreign courts, based either on the implied symmetry/reciprocity of the rule of Article 76, on the general principle of party autonomy or on other grounds. These attempts were, however, not supported by case law; the courts usually took the most narrow and restrictive approach possible to the case.

The recent case law, however, suggests that Ukrainian courts may be drifting to a more liberal interpretation of the parties’ right in their cross-border contracts to choose a court.

The established case law

For many years, Ukrainian courts supported a restrictive interpretation of the prorogation clause regulation, as explained above.

In particular, on one occasion a Ukrainian high court specified that a party could not rely on foreign law (usually the law of its home country) allowing it to enter into choice of court agreement. The court stated that “…according to the rules of international private law and universally accepted rules of international civil procedure, the Ukrainian state court has no right to use the procedural law of a foreign country, including the rules allowing parties to enter into a prorogation agreement” (Letter of the Highest Commercial Court of Ukraine “On Summary of Commercial Courts’, Case Law in Certain Cases Involving Non-Resident Parties”, 2009).

On another occasion, the same court declared that Ukrainian procedural law does not allow Ukrainian courts to terminate proceedings on the ground that a forum selection agreement is in place between the parties which provides for resolution of disputes by a foreign state court (Article 1 of Clarifications On Certain Issues of Case Law in Cases Involving Foreign Enterprises and Organisations, approved by the Presidium of the Highest Commercial Court of Ukraine on 31 May 2002, amended as of 2009).

The above position seemed to be very solid and well-established. However, it now appears to be under consideration, as recent case law demonstrates.

The recent court practice: lost in interpretation

A Ukrainian court decided, in an example from one recent case, to terminate proceedings because it found it did not have jurisdiction to consider the case, as the parties agreed that the competent court was a foreign one. The court cited, in particular, Article 76 of the Law on International Private Law and interpreted it in a way which allowed the parties to enter into a prorogation agreement referring the case to a court outside of Ukraine for litigation (in this case it was the district court of Amsterdam, Netherlands). The curious part of this case was that it was a foreign party, a Czech company, who filed the lawsuit to the Ukrainian court, while the defending Ukrainian party opposed the Ukrainian court’s jurisdiction (See Highest Commercial Court of Ukraine decision in the case TNT Express Worldwide Spol. S.R.O. v. Limited Liability Company “Aero-Express”, dated 15 September 2015, case No. 911/539/15).

In a few months, however, and upon consideration of a similar case, the same court returned to its previous long-established position. In a decision dated February 2016, the Highest Commercial Court of Ukraine stated that a Ukrainian court may accept jurisdiction over the case, despite the forum selection clause in the contract, because said clause does not deprive Ukrainian courts of the right to consider cases brought by the claimant. (See Highest Commercial Court of Ukraine decision in the case UNIMATIK KFT v. Limited Liability Company “Konservnyi zavod “Univer” and Limited Liability Company “SNK-group”, dated 17 February 2016, case No. 907/598/15).

The third case is particularly illuminative as to the Ukrainian courts’ intricate treatment of forum selection clauses. In this case, the Ukrainian court accepted jurisdiction despite the existence of a prorogation clause referring parties to the seller’s place of registration (Nyíregyháza, Hungary). When the case was appealed to the Highest Commercial Court of Ukraine, it confirmed that the Ukrainian court had rightfully assumed jurisdiction over the matter: “… Chapter XII of the Law of Ukraine 'On International Private Law' does not, in cases with a foreign element and where a prorogation agreement exists which provides for consideration of the case in a foreign state court, establish a prohibition on Ukrainian state courts assuming jurisdiction. <…> Concerning the reference to Article 10.3 of the Contract No. 2011/08/03 of 10/08/2011, by which the parties agreed to … resolve disputes … in a court at the place of the seller’s registration, which, according to the case materials, is Hungary, … the court of cassation instance notes that Article 10.3 of the Contract … does not contain the specific name of the court that was to consider the dispute nor does it contain a prohibition on asking another competent court for protection with regards one’s infringed rights; therefore, the wording indicated in the contract nullifies the choice of exclusive jurisdiction by the relevant court of that country in legal relations between the parties, which otherwise could provide for the primacy of such [prorogation] agreement in the meaning of part 1 Article 76 of the Law of Ukraine 'On International Private Law'”. (See Highest Commercial Court of Ukraine decision in the case UNIMATIK KFT v. Private Enterprise “APK Unicor” and Limited Liability Company “SNK-group”, dated 27 April 2016, case No. 907/606/15)

The concluding part of the court’s reasoning may be interpreted in a way indicating that, despite an anti-prorogation decision in this particular case, the high court concedes that it is still possible for parties to choose a foreign court for resolution of their dispute. It is clear, however, that such an indirect assumption cannot be used as guidance for further cases, especially given the corpus of restrictive case law accrued over the previous decade.

Practical implications and conclusions

The above analysis demonstrates that, until recently, Ukrainian law did not allow parties to a commercial contract to freely enter into choice of court agreements. The exceptions were when the parties agreed to a Ukrainian court, and when the prorogation clause was allowed by an international treaty. The recent court practice suggests, however, that sometimes a prorogation clause which is not directly allowed by Ukrainian law may be confirmed and enforced by a Ukrainian court. The court practice cited is, however, still indecisive and controversial.

Accordingly, 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, unless direct permission is given by Ukrainian law.

A party to a contract with Ukrainian company is always and in every case advised to consult with a Ukrainian counsel in order to determine the rules applicable and to identify the dispute resolution options available in each particular case.