Attachment of assets of non-residents during the enforcement of decisions and awards in Ukraine

• International Trade
• Litigation & arbitration

Active participation in international trade envisages a variety of risks, on the most essential of which is the likelihood of non-performance of the contract by foreign counteragent. International arbitration is an effective method of resolution of disputes arising in international business; however, even if the claimant succeeds in arbitration, he still has before him a long and thorny way of implementation of the award. In practice, creditors are often facing the difficulties when the debtors refuse to voluntarily comply with the award of a foreign arbitration institution. As a result, in many cases the creditor has no other option then to initiate the process of enforcement of the award at the debtor’s domicile or at the place where the debtor’s assets may be traced.

The recent court practice shows that Ukraine is a country with a quite favorable legal climate for the recognition and enforcement of foreign arbitration awards. Ukraine is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, as well as a party to a number of bilateral international treaties. In addition, the rules of national legislation directly provide for the creditor's right to initiate a procedure for the recognition and enforcement of decisions of foreign judicial or arbitral bodies.

In Ukraine, the matters on the recognition and enforcement of foreign court decisions and arbitration awards are being considered by first instance courts within the framework of civil procedure. The time bar for the respective application is three years from the date when the decision or award came into force, provided that it remains in force as of the date of the initiation of recognition and enforcement proceedings. Apart from the possibility of enforcement at the debtor’s domicile, Ukrainian legislation provides for the creditor's right to apply for the recognition and enforcement of foreign arbitration award at any place where the debtor's assets are located on the territory of Ukraine, even if the debtor is not a Ukrainian resident. Such assets may include real estate, vehicles (including vessels), goods, raw materials etc. From this point of view, there is no difference between residents and non-residents of Ukraine.

While in regard to the debtor's immovable property the evidence of the state registration of such property is required, in relation to the movable property even its temporary presence on the territory of Ukraine may be treated by the courts as sufficient ground for the adoption of a case on the recognition and enforcement of the award. The main task of the applicant shall be to demonstrate that such movable property is owned by the debtor.

Within the frames of recognition and enforcement cases, the threat of attachment of debtor's property may be used by creditors as the main instrument of influence. Ukrainian courts, upon the application of a person who has a right to request the enforcement of a foreign court decision or arbitral award, may impose precautionary measures to secure a claim. These precautionary measures may include attachment or seizure of the property or funds owned by the defendant and held by him or by other persons on his behalf, or a prohibition of certain actions (disposal of property etc).

In the course of consideration of similar cases, courts are guided by the generalized clarifications of the Supreme Court of Ukraine. In accordance with the rules established by the Supreme Court, the applicant must:

- evidence to the court that there is a real dispute between the parties and there is a real threat of non-fulfillment of the final court decision or arbitration award;

- provide the court with information regarding the actual debtor;

- evidence the adequacy of his claims to the desired precautionary measure (attachment of debtor's property).

The court shall evaluate the evidences presented, consider the possibility of the presence of any other property or bank accounts of the debtor on the territory of Ukraine, and take into account the interests of any third parties whose rights may be affected by precautionary measures. If, in the opinion of the court, the information or evidences provided by the applicant are insufficient or inappropriate, the court may reject application.

According to the court practice of the recent years, the instruments of attachment of the debtor's property and prohibition of its alienation are fairly actively used during the recognition and enforcement of foreign court decisions and arbitration awards in Ukraine. An arrest warrant is immediately enforceable, and, while it may be appealed, this fact does not suspend the enforcement of the warrant and does not preclude further consideration of the case by the court.

The use of the precautionary measures ensures that further recognition of the award will be substantially simplified, as it will be carried out against the attached property. Moreover, in practice the arrest of movable property of a non-resident debtor on the territory of Ukraine is an effective catalyst for the settlement of debt before the actual enforcement of an award in Ukraine. Precautionary measures in the form of attachment of property demonstrate the seriousness of intentions of the creditor, which may encourage even the most reluctant debtor to negotiate and settle the issue commercially. At the same time, should the precautionary measures be granted, this in no way precludes the possibility of conclusion of a settlement agreement between the parties.

Published in IBA Newsletter, July

Arthur Nitsevych

nitsevych@interlegal.com.ua