30 October 2014
Arbitrating Crimea-related commercial disputes

The seizure of the Crimea by Russia in March 2014 led to tectonic changes in international relations and politics. However, it affected the private sphere and commercial relations even more significantly. Many countries recognising the Crimea as an integral part of Ukraine imposed a ban on dealings with certain Crimean individuals and entities, and introduced restrictions on trade with the peninsula and investments in it.

Nevertheless, cross-border commerce with the Crimea has not been totally frozen. Naturally, commercial turnover requires appropriate and effective dispute resolution mechanism; and here is where the law and legal tools of dispute resolution come into play. There is substantial controversy as to sovereignty over the peninsula, the legislation applied there and the status of state authorities functioning there, which is why finding a proper forum to resolve a dispute with a Crimean entity is not easy. However, with careful analysis, private parties may find an appropriate solution.   

The battle of jurisdictions

Until recently, jurisdiction over Crimea-related disputes was quite clearly governed by Ukrainian procedural law. Under the general rule, they were to be considered by the courts for the place of respondent or for the place of the disputed real estate (in the situation under discussion, before the courts in the Crimea).[1] Similar rules are envisaged in Russian procedural law, [2] which de facto now applies in the Crimea.

To address such an extraordinary situation when part of its territory was seized by another state, Ukraine has adopted the Law ‘On ensuring rights and freedoms of individuals and legal regime on temporary occupied territory’ (the Occupied Territory Law or OTL). Article 12 of the OTL introduces dramatically new rules regarding jurisdiction over Crimea-related disputes. In particular, all disputes that under regular Ukrainian procedural law were to be considered by the Crimean courts shall now be resolved by respective courts in Kiev, Ukrainian capital. The OTL goes further to provide that all state authorities established in the Crimea by Russia, including courts, shall be considered illegal and their decisions shall create no legal consequences.[3]

As shown above, Russian and Ukrainian procedural laws provide conflicting rules as to jurisdiction over Crimea-related commercial disputes. Thus, if someone wants to sue a Crimean respondent, it will apparently have to decide whether to follow the OTL and file the claim in Kiev, or ignore it and go to the court in Crimea, as the Russian procedural law provides for.

Why does this conflict matter?

When making the aforementioned choice, a potential claimant might wish to take into account many factors, such as the likely place of future enforcement (eg, Crimea, mainland Ukraine, Russia, a third state, etc), the scope of economic sanctions imposed in relation to Crimea and so on. As things stand, the chance to violate the imposed economic sanctions by ignoring rules on jurisdiction set forth in the OTL is quite low. However, the situation is progressing almost every day (although, mostly, not in the Crimea), and one cannot exclude the possibility of introducing even broader sanctions.

As regards the place of enforcement, this factor is much more complicated. Potential judgment may be necessary either in the Crimea (where de facto only Russian enforcement authorities function) or in mainland Ukraine, mainland Russia, or any third country. With this in mind, the claimant may file a lawsuit in the Crimea if it is going to enforce it there or in the mainland Russia. It may also file the lawsuit to the court in Kiev if it intends to use the judgment in mainland Ukraine. Finally, should enforcement take place in a third country, one must analyse what the chances are of recognition of Kiev or Crimean judgments in that country, respectively (there are quite few countries that recognise the Crimea as part of the Russian Federation).

Whatever choice the claimant makes, it will likely be a point of no return: the chances of the mutual recognition of the judgments rendered by Crimean (ie, Russian) and Kiev courts in mainland Ukraine and the Crimea/Russia, respectively, are low.

Ukraine and Russia have entered into a number of international treaties providing for the recognition and enforcement of foreign judgments. However, they will be of little assistance in the situation under discussion. For example, the 1993 Minsk Convention on Legal Aid and Legal relations in Civil, Family and Criminal cases (the 1993 Minsk Convention) provide for the parties’ obligation to recognise ‘decisions rendered in the territory of the other contracting parties’. [4] There can be little doubt that for a Ukrainian court a Crimean judgment shall not fall into this category. Another international treaty to which Ukraine and Russia are parties, the 1992 Kiev Agreement on Settlement of Commercial Disputes (the 1992 Kiev Agreement), provides for the recognition of judgments ‘rendered by the competent courts of the [other] contracting states’. [5] In this regard, Ukraine’s attitude to the courts now functioning in the Crimea is also clearly explained in the OTL: these authorities are not competent but illegal.[6]

In the Crimea and Russia, the recognition of judgments rendered by Kiev courts (instead of the Crimean ones) may theoretically have fewer obstacles. Still, we would not put much hope on this; for instance, the 1992 Kiev Agreement provides that the recognition of the foreign judgment may be refused if it was rendered in violation of the territorial jurisdiction rules set forth in that agreement.[7] Apparently, a Russian court (including one in the Crimea) would consider that, under the Kiev Agreement, Crimean disputes fall within jurisdiction of a Crimean (ie, Russian) court.

There are currently very few chances to reconcile Russia and Ukraine’s views as to jurisdiction over Crimea-related disputes through the mutual recognition of foreign judgments. In such circumstances, when choosing the jurisdiction for filing a lawsuit against a Crimean respondent, the party should bear in mind that the ultimate judgment will most probably be enforceable only in that state. In order to get a court decision effective in other countries, more creative approaches should be considered.

Choice of court

Parties may try to avoid the deadlock by agreeing on the court competent to consider their disputes. [8] For obvious reasons, it would be easier to do this in advance at the stage of contract conclusion, rather than subsequently struggle to agree on the competent court after the dispute will have arisen.

In this regard, international treaties concluded between Ukraine and Russia may be helpful. In particular, both the 1993 Minsk Convention and the 1992 Kiev Agreement allow the parties to agree on the competent court unless the dispute falls within the category of exclusive jurisdiction, such as real estate disputes. If the parties want to get a judgment enforceable in several jurisdictions, they should not choose courts in the Crimea. Another tip for the parties is to choose a specific court rather than a jurisdiction in general. This will help to avoid further difficulties, especially taking into account that on the national level Ukrainian procedural law does not allow choice of court by the parties. As an example, the parties may agree in their contract that their disputes shall be resolved by the Kiev Commercial Court.

For disputes involving parties from a third country, this option indeed may be a workable solution. However, as regards disputes between parties from Crimea and mainland Ukraine (eg, Ukrainian subsidiaries of international companies trading with the Crimea), a question may arise as to the existence of a foreign element. Neither the 1993 Minsk Convention nor the 1992 Kiev Agreement provide for such requirement, however, the national legislation does.[9] In this context, the current situation in the Crimea creates a lot of ambiguity. It is unlikely for a Ukrainian court to consider a Ukrainian national residing in the Crimea or a Crimean entity incorporated in the Crimea under the Ukrainian law as a foreign party; nor is it likely that a Russian court would consider a Russian citizen residing in the Crimea or a Crimean entity incorporated under the Russian law as foreign parties.

Arbitration as a way out

Given the above-discussed difficulties, a more viable alternative might be to refer the dispute to arbitration, rather than to a particular state court. For parties from a third country this seems to be the best solution to reduce both legal and political risks. Ukraine and Russia are parties to the New York Convention and, therefore, both courts in Ukraine and courts established by Russia in the Crimea will have to recognise a foreign arbitral award rendered in a third state. Furthermore, members of a neutral tribunal seating in a neutral jurisdiction are likely to be more impartial, fair-minded and, thus, authoritative compared to the state-appointed judges in the respective public courts.

As regards disputes between Crimean and Ukrainian entities, the situation is more complicated. In particular, at the recognition and enforcement stage of an arbitral award under the New York Convention, the question may arise as to the international character of such arbitration. Apparently, a Ukrainian court when considering an application for recognition of the arbitral award, might be inclined to consider a Crimean entity as a Ukrainian one. To avoid any doubts as to applicability of the New York Convention, the parties may choose a neutral jurisdiction (not Russia or Ukraine) as the seat of arbitration and lex arbitri. When making such choice, parties should make sure that this jurisdiction considers as international any arbitration where at least one party is foreign in relation to that jurisdiction.

Though we have not yet seen a practical application of this approach before the Ukrainian courts, we see no legal barrier for it. The scope of the New York Convention includes all arbitral awards made in the territory of a state other than the state where recognition and enforcement are sought. The criteria for the application of the New York Convention do not include the nationality of the parties at all. The only phrase in the Convention that may be relevant for this situation is second sentence of article 1.1, which provides that the Convention ‘shall also apply to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought’. However, it should not be an obstacle for the recognition of potential awards. First of all, the plain wording of article 1.1, as well as authoritative commentaries, suggest that the aforesaid sentence applies as an addition and not as a restriction. Furthermore, Ukrainian legislation in any event does not provide for any domestic arbitral awards made abroad.

Therefore, insofar as a dispute between Crimean and Ukrainian entities is resolved by international arbitration in a third neutral state, both Russian and Ukrainian courts will have to recognise and enforce the award in accordance with the New York Convention. The risk remains that the court would consider such ‘export’ of internal disputes as contradicting public policy and would refuse recognition and enforcement. Although Ukrainian courts tend to interpret this ground too broadly, in our view, in this particular case the risk is moderate.

In any event, the parties shall make sure that the subject of the dispute is arbitrable under all relevant laws (ie, lex arbitri and law for the likely place of future enforcement). In particular, one should bear in mind that corporate disputes and certain aspects of real estate disputes are not arbitrable under Ukrainian law.

To conclude, the situation in the Crimea sets unusual challenges for Ukrainian and international businesses. However, many of them can be resolved. As regards dispute resolution, international arbitration provides an almost unique possibility to get an award enforceable in the Crimea, mainland Ukraine, Russia and other third countries, to ensure that Ukrainian law is complied with and to minimise the chances of violating any economic sanctions imposed in relation to the Crimea. Even before the Crimean crisis, arbitration was a recommended way of dispute resolution in international commerce involving Ukrainian parties. Now it is even more strongly recommended to include arbitration agreements in all international transactions related to Crimea.


1 Articles 1 and 76 of the Law of Ukraine ‘On Private International Law’, Article 404 of the Code of Civil Procedure of the Russian Federation and Article 249 of the Code of Arbitrazh Procedure of the Russian Federation.

2 Article 51 of the 1993 Minsk Convention.

3 Article 7 of the 1992 Kiev Agreement.

4 Article 9 of the Occupied Territory Law.

5 Article 9 of the 1992 Kiev Agreement.

6 Article 21 of the 1993 Minsk Convention and Article 4 of the 1992 Kiev Agreement.

7 Chapter 3.1 of the Code of Civil Procedure of Ukraine and Chapter 3 of the Code of Commercial Procedure of Ukraine.

8 Chapter 1.3 of the Code of Civil Procedure of the Russian Federation and section 2 of chapter 1.4 of the Code of Arbitrazh Procedure of the Russian Federation.

9 Article 9 of the Occupied Territory Law.