On 21 March 2016, Ukraine signed the Hague Convention of 30 June 2005 on Choice of Court Agreements (“Convention”). This is a major step towards integration of Ukraine into European and global trade and investment environment. Availability of choice of court agreements in Ukraine will ensure yet another instrument of legal protection for businesses engaging in trade with Ukrainian parties or investing into the country.
Currently, under Ukrainian law, businesses in Ukraine can freely enter into arbitration agreements if they do not feel that Ukrainian courts are appropriate forum for resolution of commercial disputes. Arbitral awards are enforceable in Ukraine and globally. The parties’ rights to subject their disputes to jurisdiction of foreign courts, and enforceability of such courts’ judgments, however, are largely restricted to instances when relevant treaties that Ukraine has with a handful of other countries expressly permit it. The reciprocity principle similarly failed to provide a reliable basis for enforcement of foreign judgments in the 12 years since its introduction.
The Convention resolves this imbalance by introducing a mechanism that is similar to arbitration agreements for the purposes of the choice of court. Parties to a contract that has an international dimension will be able to conclude an agreement pre-determining the courts that will exclusively hear future disputes under the contract the parties can designate the courts of a certain country, or even a specific court. The courts not chosen contractually will generally be required to stay or terminate the proceedings and refer the dispute to a forum that was agreed between the parties.
Such exclusive choice of court agreements can be concluded in civil and commercial matters; however, the Convention does not cover consumer and employment contracts, family law, antitrust and insolvency matters, torts, validity of intellectual property rights and a range of other areas.
The Convention provides only for narrow exceptions when such an agreement can be disregarded – for instance, when it is null and void, the parties lacked capacity to conclude it, if it is unenforceable or violates public policy of a relevant state.
Importantly, the Convention also expressly facilitates enforcement of foreign judgments given by a court designated in such an exclusive choice of court agreement.
Currently, 27 states across Europe, as well as the European Union and Mexico are parties to the Convention. The United States of America and Singapore have signed, but not yet ratified it. If Ukraine ratifies the Convention, it will enter into force on the first day of the month following the expiration of three months after the deposit of its instrument of ratification.
A number of legal and practical adjustments will have to be undertaken in terms of legislation and court practice to ensure smooth application of the Convention in Ukraine, but it will bring benefit to the legal system from Day 1.
By Markiyan Kliuchkovskyi, Partner at Egorov Puginsky Afanasiev and Partners Ukraine; Marta Tsvengrosh, Associate at Egorov Puginsky Afanasiev and Partners Ukraine.