The first thing a Westerner entering Urkaine’s byzantine commercial court system must do is abandon, if not hope, then at least his quaint notion that a deal is a deal. Myron Rabij, an attorney for Salans, Hertzfeld and Heilbrownn in Kyiv, notes that unlike their Western counterparts, Ukrainian arbitration courts are not primarily interested in enforcing the terms of valid contracts.
‘The main goal of the Ukrainian arbitration court is to help parties come to a settlement,’ says Rabij. A plaintiff, no matter how justified, must produce evidence of an attempt to settle out of court. If the court considers that evidence inadequate, it is likely to reject the claim.
The plaintiff must also furnish proof that the defendant was notified about a pending claim 30 days in advance. This early warning system might seem fair, but it provides plenty of time for a small business to disappear or at least shed its assets, says Anna Tsyrat of the Ukrainian law firm Jurvneshservice.
And the bigger the claim, the more the case will cost: the court filing fee is 5 percent of the sum of the lawsuit. It matters, too, whether the defendant is a business entity or an individual. Ukraine’s two-tier court system consigns legal disputes between organizations to arbitration courts, while sending cases involving individuals before a common court judge.
There are currently about 1,500 arbitration court judges, against 5,000 in general jurisdiction courts. The low number reflects the arbitration courts’ low prestige and their largely unreformed rules of procedure. ‘It’s still a fairly socialist concept,’ says Tsyrat. ‘The rules for commercial litigation are literally half as long as for [common] litigation,’ says Rabij. ‘It becomes woolly at times.’
Judges have no brief to produce precedents by using cases before them to broadly interpret the underlying legislation. And their verdicts are less the product of an independent search for equity than an attempt to split the difference between rival claims.
Litigants even have to produce their own court records. With no system of court reporting in place, judges often base their rulings on their own hastily scribbled notes. The scant report summarizing the hearing does not even list litigants’ arguments, making it difficult to appeal a judge’s ruling.
Such peculiarities have rendered Ukrainian arbitration courts less than popular with foreign businesses. According to Halyna Freeland of the Ukrainian Legal Foundation, foreigners indeed have reason to be wary of the system. ‘By all accounts, it is fairly corrupt and it’s very difficult to obtain a fair decision from them,’ she says. Rabij says those clients who are reluctant to specify binding arbitration in a tribunal outside Ukraine are entrusting their contracts to the judgment of the Kyiv Court of International Commercial Arbitration. Unlike the national arbitration courts, this is an independent, ad-hoc tribunal closely based on a United Nations model. Ukrainian commercial law suffers from the curse of too many cooks: the president, the Cabinet of Ministers and Parliament are all at the moment able to initiate changes. The new laws and decrees they produce are added piecemeal to the 1964 Soviet civil code that still shapes Ukrainian legal thinking.
Lawyers slogging through the legislative morass say that new laws are most desperately needed in the areas of franchising, distribution, leasing, licensing and anti-trust regulation, all areas crucial to foreign investors. ‘We need them madly right now,’ says Tsyrat. Hopes for more coherent legislation rest with a new draft civil code, which includes swathes of commercial law. It is now awaiting parliamentary approval after earning a preliminary Okay from the outgoing Rada.
However, this version, drafted with international technical assistance, faces a rival draft commercial code less accommodating of international norms. Freeland says the alternative plan, far from promoting laws suited to free markets, actually represents ‘an attempt to legislate for a planned economy.’
The last Parliament rejected this outdated text during the winter. However, that was before Communists and their allies gained more seats during the March 29 parliamentary elections. If the incoming Rada revisits the controversy, foreign investors and local entrepreneurs may yet look back on existing business laws with nostalgia.
