The main purpose of the international arbitration proceedings is to deliver an enforceable arbitral award. To achieve this in practice, it is not enough that the arbitral award meets all formal and substantive requirements established by the lex arbitri. There should also exist sufficient assets out of which the arbitral award could be satisfied.
Traditionally, the risk of dissipation of assets in the course of arbitration has been dealt with through the mechanism of interim measures, which are sought either from the local courts at the place of arbitration or at the place where the respondent holds its assets or from the arbitral tribunals.
The above traditional mechanism for obtaining interim measures has recently become complemented by emergency arbitration.
Legal nature of the decision on interim measures granted by the arbitral tribunals and emergency arbitrators
A decision on interim measures issued by the arbitral tribunal, even in a form of an arbitral award, has several distinctive features in comparison with a final arbitral award on the merits of the dispute.
Most importantly, a decision on interim measures is effective only for a certain limited period of time. This is inherent in the nature of interim measures.
Emergency measures, which are interim measures granted by an emergency arbitrator, are also effective only for a limited period of time.
In essence, emergency arbitrator mechanism provides a party with a possibility to swiftly obtain an interim measure in support of the arbitration proceedings, which have not yet been formally initiated. The main reason for seeking such measures before initiation of the arbitration proceedings is that the time might be of the essence and the claimant cannot wait for the constitution of the arbitral tribunal. In fact, waiting for the constitution of the arbitral tribunal, which usually takes more than a month and may be delayed by the respondent, and dealing by the newly constituted arbitral tribunal with the request for granting the interim measures may be too long to prevent a respondent that has already become aware of the claim filed in the arbitration proceedings from dissipating its assets or taking other steps that would complicate enforcement of a future arbitral award.
According to the widely used arbitration rules, such as the ICC Rules, SCC Rules and LCIA Rules, interim measures granted by an emergency arbitrator may be varied, discharged or revoked, in whole or in part, by the arbitral tribunal which is finally constituted to hear the dispute.
The general approach to the period of effectiveness of the interim measures granted by the arbitral tribunals and by the emergency arbitrators is that the interim measures cease to be effective once the final arbitral award is rendered by the arbitral tribunal. The claimant is therefore required to seek further interim measures in the course of the recognition and enforcement of the final arbitral award.
Application of the New York Convention to the awards on interim measures
The principal international instrument that governs the recognition and enforcement of the foreign arbitral awards is the 1958 New York Convention on Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). In Ukraine, the detailed procedure for recognition and enforcement of the foreign arbitral awards is additionally set out in Section VIII of the Civil Procedure Code of Ukraine.
The New York Convention does not directly refer to arbitral awards (decisions, orders) on granting interim measures. This has led to the extensive debate in the legal community on whether or not the awards on interim measures shall be recognised and enforced pursuant to the regime established by the New York Convention.
One of the main grounds for disputing application of the New York Convention to the awards on interim measures is the nature of such awards, i.e. that they are effective only for a limited period of time and, therefore, may not be regarded as “final” in a way that the arbitral awards on the merits of the dispute are. Although some of the language versions the New York Convention do not even contain an express requirement that arbitral award shall be “final” or “effective” instead requiring that the arbitral award shall be “binding”, the position that the New York Convention shall not apply to the awards granting interim measures and that the New York Convention shall be amended to extend its regime to the awards granting interim measures is widely supported.
However, since the New York Convention does not provide a definite answer to this question, the issue of enforcement of arbitral awards on interim measures is a matter of interpretation of the New York Convention by local courts in each particular jurisdiction.
Approach of the Ukrainian courts to the recognition and enforcement of awards on interim measures under the New York Convention
The Ukrainian courts have not finally formed their approach to the recognition and enforcement of the awards on interim measures under the New York Convention. There have been several cases considered by the Ukrainian courts where the issue of recognition and enforcement of interim measures granted by the arbitral tribunals and the emergency arbitrators was raised. However, such cases are either still pending or do not expressly resolve the matter of application of the New York Convention to the awards on interim measures.
One of the most reported cases deals with the recognition and enforcement in Ukraine of the emergency award rendered by an emergency arbitrator on 14 January 2015 in the investment case JKX Oil & Gas plc, Poltava Gas B.V. and Poltava Petroleum Company JV v. Ukraine. The emergency arbitrator acting under the SCC Rules ordered Ukraine to refrain from applying rates of the gas extraction royalties from Poltava Petroleum Company JV exceeding the 28 per cent fee applicable prior to 31 July 2014.
This emergency award was initially recognised in Ukraine by the first instance court on 8 June 2015 but then, after several rounds of review, the court of appeal on 21 December 2016 refused recognition and enforcement of this award. The court proceedings in this case are still pending.
Decisions of the Ukrainian courts to refuse recognition and enforcement of the JKX emergency arbitrator’s award were primarily based on the grounds of public policy (Article V(2)(b) of the New York Convention) but the courts did not directly address the applicability of the New York Convention.
At the same time, given that the Ukrainian courts refused recognition and enforcement in this case, inter alia, on the grounds provided in the New York Convention, this may be construed as an indirect confirmation that the Ukrainian courts in general support application of the New York Convention to the awards on interim measures.
In a different case initiated by PJSC “Bank National Credit” against Mriya Agro Holding Public Limited, the Ukrainian courts expressly examined the issue of finality in respect of the injunctions granted by the Cypriot courts in support of the LCIA arbitration proceedings in London. But that case was decided pursuant to the Agreement on Mutual Legal Assistance in Civil and Commercial Matters between Ukraine and the Republic of Cyprus (the Agreement) and not the New York Convention.
The Ukrainian courts in this case came to the conclusion that injunctions issued by the Cypriot court were not “final” as required by the Treaty and, therefore, they were not subject to recognition and enforcement under the terms of the Treaty. However, the Treaty, unlike the New York Convention in some of the versions, contains an express requirement of finality of court judgments.
There is one additional case, which although does not explicitly confirm the application of the New York Convention to the recognition and enforcement of the awards on interim measures in Ukraine, still demonstrates a very favourable approach accorded by the Ukrainian courts to such type of awards.
The case concerned recognition and enforcement of interim measures granted by the Arbitration Court of the Chamber of Commerce and Industry of Heilbronn-Franken and DIS against a Ukrainian company, LLC “Bruma”. While the recognition and enforcement was eventually refused on the ground that the parties did not enter into a valid arbitration agreement, the Ukrainian courts granted to the applicant their own interim measures in support of the request for recognition and enforcement of the tribunal-granted interim measures.
The courts used their general powers to grant interim measures in support of the requests for recognition and enforcement of the foreign arbitral awards and court judgments under Article 394(1) of the Civil Procedure Code of Ukraine. Such own interim measures are typically granted by the Ukrainian courts to secure future enforcement of the final foreign arbitral awards and court judgments.
In Bruma case, the Ukrainian courts used these powers in support of the request for recognition and enforcement of the award on interim measures granted by the arbitral tribunal and mirrored the interim measures whose recognition and enforcement was sought in Ukraine.
Instead of conclusions
The analysed court cases show that Ukrainian courts still remain in the process of establishing their final position on the matter of recognition and enforcement of arbitral awards on interim measures, which entails risks for prospective claimants seeking to obtain interim measures from the arbitral tribunals and emergency arbitrators and then recognise and enforce them in Ukraine.
In this connection, the power of the Ukrainian courts to directly grant interim measures in support of the pending arbitration proceedings, which is contemplated in the draft of the new Civil Procedure Code of Ukraine and the Draft Law on Introduction of Amendments to Certain Legislative Acts of Ukraine on the Matter of Court Supervision and Assistance to International Commercial Arbitration, could provide much more certainty and yield more effective results for the parties to arbitration.