Participation in international trade carries a number of risks, the main among which is to ensure the proper fulfillment by non-resident counterparties of their commitments.
Often, to resolve the dispute and protect their legitimate interests the creditors have to apply to international commercial arbitration or foreign court. However, even if the case is resolved in favor of the creditor, in reality the enforcement of the decision or an award may take thorny path, as often debtors ignore the binding character of the foreign court decision or arbitration award and evade voluntary compliance.
In that case the claimant is forced to initiate the recovery of sums at the place of the debtor’s registration or location of his assets.
Geographical search of assets and jurisdictions to provide effective recovery is wide enough. As evidenced by the court practice of recent years, Ukraine is one of the countries with favorable legal climate in terms of the recognition and enforcement of foreign judgments and arbitral awards on its territory.
This is facilitated by the fact that Ukraine is a party to the United Nations on the Recognition and Enforcement of Foreign Arbitral Awards Convention of 1958, as well as a party to a number of bilateral treaties on legal assistance in civil and / or criminal cases, signed with such states as Poland, Moldova, Bulgaria, Georgia, USA, China, Turkey, Italy, Greece, Lithuania, Latvia, Estonia, Cyprus, Panama, and others. In addition, the national provisions expressly provide for a right of the creditor to initiate a recognition and enforcement procedure of foreign judgments and international arbitration awards in Ukraine.
General procedure of recognition and enforcement of foreign court judgments and arbitral awards in Ukraine at location of the debtor’s property
The cases of the recognition and enforcement of foreign judgments and arbitral awards are considered in civil proceedings by the courts of general jurisdiction of Ukraine. In accordance with Art. 391 (1) of the Civil Procedural Code of Ukraine, the terms for presentation of a foreign court judgment or a tribunal award for recognition and enforcement is 3 years from the date when the decision came into force, and provided that it continues to be valid as of the date of initiation of the recognition and enforcement procedure in the territory of Ukraine.
Article 392 of the Civil Procedural Code of Ukraine, along with the possibility to initiate the appropriate procedures based on the location of the debtor, also provides for the right of the creditor to apply to the courts of Ukraine for the recognition and enforcement of foreign judgments and arbitral awards on the location of the debtor's property in the territory of Ukraine if the debtor is not located in Ukraine, i.e. is a non-resident.
As shown by practice, such property may include real estate, infrastructure objects, transport vehicles, including sea-going vessels, cargoes, raw materials and other assets. While in respect of the debtor’s immovable property the fact of its state registration should be certified, in respect of movable property even its temporary location at the territory of Ukraine is treated by courts as material grounds for taking into consideration the case upon recognition and enforcement of foreign court judgments and arbitration awards. The claimant’s principal task is to prove the fact of the debtor’s ownership regarding such property.
The arrest of the debtor's property as a tool of enforcement
As part of the recognition and enforcement of foreign judgments and arbitral awards in Ukraine, the debtor's property is used by creditors as the main tool to enforce. In accordance with Art. 394 (1) of the Civil Procedural Code of Ukraine, the court at the request of the person submitting an application for permission to enforce a foreign judgment may take action under this Code to ensure the claim. Securing a claim is allowed at any stage of such a request, if failure to take the requested action makes it difficult or impossible to execute the court decision.
In particular, according to Art. 152 (1) of the Civil Procedural Code of Ukraine the claim may be secured by seizure of property or money belonging to the defendant and held by him or other persons, the prohibition to perform certain actions.
In practice, when considering this kind of cases, the courts are guided by the Resolution of the Plenum of the Supreme Court of Ukraine ¹ 9 of 22 December 2006 "On the practice of courts’ implementation of civil procedural provisions in the consideration of applications for interim actions." According to the established rules of the Plenum, in the framework of the application for the arrest, as a measure to support his claim the applicant must:
• provide the court with evidence that the parties have a dispute, and indeed there is a real threat of failure or difficulty of execution of the final decision of the court or tribunal issued to resolve the dispute;
• provide the court with information about the actual debtor;
• confirm the proportionality of the requested collateral with the claim.
For its part, the court evaluates the evidence presented, takes into account the fact of any other property or open bank accounts of the debtor in the territory of Ukraine, and also takes into account the interests of third parties whose rights may be violated in connection with the application of interim measures. If, in the opinion of the court, the data submitted by the applicant is not sufficient, they are inappropriate or application for interim measures in the form of arrest would violate one of the above principles, the request will be denied.
What about peaceful settlement?
As the resent court practice shows, the arrest of the debtor's property and the prohibition of its alienation is actively applied by the courts as part of the recognition and enforcement of foreign judgments and arbitral awards in Ukraine. Ruling on the arrest is subject to immediate execution; an appeal does not stop execution of the same and does not preclude further consideration of the case by the court.
The use of this type of security measures in the first place will ensure that in case of further recognition, its actual performance will be greatly simplified for the account of the arrested property. Moreover, experience shows that the arrest of movable property of the foreign debtor in Ukraine serves as a catalyst to resolve the situation with non-payment. This is an effective way to impact the debtor and bring him to negotiations and settlement before the judicial recognition and enforcement.
We have a lot of practice on the recognition and enforcement of foreign judgments and arbitral awards in Ukraine. In one recent case, in the framework of the enforcement procedure the court had taken interim measures in the form of arrest of a foreign vessel.
The arrest of the vessel, as the debtor's property, was claimed by us on behalf of the client, one of the ship-repair enterprises of Ukraine, due to non-payment by the customer, a major shipowner, for repairs works. The works had been carried out on the ship and were accepted by the customer. However, the payment was not made, and the creditor applied to the Maritime Arbitration Commission at the Ukrainian Chamber of Commerce and Industry. The Arbitration acknowledged and satisfied the claim in full. The award of the international arbitration is final, has come into effect and is enforceable.
Despite the existence of a final award of the Maritime Arbitration Commission at the Ukrainian Chamber of Commerce and Industry, the customer for several years has been avoiding voluntary execution, and thus made the claimant to apply for the arrest of his ship. This is the arrest that made the debtor to negotiate and settle the dispute peacefully.
In other cases, when the debtor continues to evade the execution of the claim secured by attachment of property, recognition and enforcement procedure remains ongoing, and the seized property shall be sold under the terms of the Law of Ukraine "On Enforcement Proceedings" of 21.04.1999.
As a general rule, the arrest of the debtor's property at the stage of enforcement of court decisions or arbitration awards is the most effective means for satisfaction of the creditor's claim. Moreover, if the appropriate measures are timely taken to secure decisions of foreign court or arbitration award under the statutory procedure for recognition and enforcement in the territory of Ukraine - it does not exclude the possibility of an amicable settlement between the parties. Commonly security measures in the form of arrest persuade the most intractable debtors push them to negotiations and amicable settlement of the situation.
Published in Arbitration watch.