Following an appeal of the Odessa Region Appeal Court decision in Euler Hermes Services Schweiz AG v OJSC Odessa Fat and Oil Plant, on April 8 2015 the High Specialised Court of Ukraine issued a decision which confirms that an application for recognition and enforcement of an arbitral award can be served only by the original claimant that took part in the arbitration proceedings.
This was the first case brought before the High Specialised Court regarding the specific right of an assignee – that is, a party which receives the benefit of an arbitral award by entering into an assignment agreement with the original claimant – to seek recognition and enforcement of the award in the Ukrainian territory.
A panel of High Specialised Court judges revisited the case three times. In 2013 and 2014 the court remanded it to the Odessa Region Appeal Court for a de novo review. As such, a nearly three-year legal battle has ended with a controversial decision.
The case arose from an application to the first-instance court in Odessa for recognition and enforcement of a 2011 Federation of Oils, Seeds and Fats Associations (FOSFA) arbitral award. Swiss insurer Euler Hermes Services Schweiz AG filed the application against OJSC Odessa Fat and Oil Plant (OMZhK), a Ukraine-based enterprise.
Euler Hermes had acquired the right to seek enforcement of the FOSFA arbitral award on the basis of an assignment agreement concluded with Pontus Trade SA, the original party to a sale contract (and arbitration agreement) signed with OMZhK. The assignment of claims from Pontus Trade SA to Euler Hermes occurred before commencement of the FOSFA arbitration in 2010.
The FOSFA tribunal was not notified of the change of parties to the sale contract and arbitration agreement. As a result, in 2011 Pontus Trade SA was awarded its claimed damages and losses in respect of OMZhK’s breach of contract.
In Ukrainian court proceedings, Euler Hermes asserted that the effect of the assignment extended to the FOSFA award. It further argued that Article 393(1) of the Civil Procedure Code allows a party other than the original claimant to apply for recognition and enforcement of a foreign arbitral award.
In turn, OMZhK contested that Article 393(1) allows only the original party to the arbitration clause to apply to the court for recognition and enforcement of the arbitral award in the Ukrainian territory. OMZhK also advanced certain ancillary arguments dealing with incorporation of a non-assignment clause into the sale contract and the alleged reorganisation and/or liquidation of Euler Hermes since conclusion of the assignment agreement in 2009.
Both the High Specialised Court and the Odessa Region Appeal Court agreed with OMZhK’s position, although applying different reasoning.
The December 24 2014 Odessa Region Appeal Court decision dismissed Euler Hermes’s request to allow recognition and enforcement of the FOSFA award in Ukraine on the basis of an alleged discrepancy in the company’s name, which appeared as ‘Euler Hermes Services AG’ in the assignment agreement, but as ‘Euler Hermes Services Schweiz AG’ in the application served before the first-instance court.
The court did not rule that Euler Hermes was not entitled to serve its application under Article 393(1)per se; rather, it indicated that since conclusion of the assignment agreement, Euler Hermes Services AG had been reorganised and no proof was submitted of any legal succession in favour of Euler Hermes Services Schweiz AG.
It appears from the reasoning given in the Odessa Region Appeal Court judgment that had there been no inconsistency in the names of the assignee and applicant in the submissions to the Ukrainian court, Article 393(1) would not have been a stumbling block for review of the application for recognition and enforcement of the arbitral award.
Nonetheless, in its April 8 2015 order the High Specialised Court found that under Ukrainian civil procedure law, only the original party in whose name the arbitral award was issued is legally entitled to apply for recognition and enforcement in Ukraine.
This decision raises highly contentious issues, given that in the High Specialised Court’s two previous judgments (in 2013 and 2014), it quashed the respective orders of the Odessa Region Appeal Court. In those prior decisions, the High Specialised Court confirmed the binding nature of international arbitral awards. It further ruled that under Article 393(1), an application for recognition and enforcement of a foreign court judgment or arbitral award should be submitted directly by the claimant (or its representative) or – in accordance with an international treaty ratified by Parliament – by another party (or its representative).
Thus, on its previous determination of this case, the High Specialised Court recognised – although not explicitly – that Article 393(1) provides for an alternative regime for service of an application for recognition and enforcement of an arbitral award: by either the original claimant or (as per the international treaty) another party (ie, other than the original claimant).
Recognition and enforcement application by assignee
The issue of which party may apply for recognition and enforcement of arbitral awards in Ukraine is governed by the New York Convention (as Ukraine is a party to the convention), Articles 390 to 398 of the Civil Procedure Code and Articles 35 and 36 of the Law on International Commercial Arbitration.
As explained above, Article 393(1) of the Civil Procedure Code allows for service of the application by either the original claimant (or its representative) or another party (or its representative) if this is provided for in the international treaty ratified by Parliament. Article IV(1) of the New York Convention refers only to a “party applying for recognition and enforcement” and draws no distinction between the rights of the original claimant and those of another party that has acquired the benefits of an arbitral award from the original claimant. Likewise, Article 35 of the Law on International Commercial Arbitration does not refer to the original claimant under the arbitral award, but rather uses the phrase“party who relies on arbitration award or seeks to enforce it“.
In a June 24 2015 order the Supreme Court dismissed an application for leave to appeal the judgment in question. Regrettably, it found no divergent application of law by the cassation court.
Ultimately, the practice of the Ukrainian courts in this regard remains inconsistent, as the parties may rely on any of the three conflicting judgments issued by the High Specialised Court. This may have serious consequences for parties engaged in restructuring loan portfolios, insurance and factoring companies, banks and companies trading in commodities. It is recommended that such parties seek specific professional legal advice before structuring transactions or taking steps to enforce them in Ukraine.