Resolving M&A Disputes in Arbitration - Ukraine
June 26, 2012 By Avellum Partners
Traditionally M&A transactions involving Ukrainian targets are structured in a specific way in order to reflect peculiarities of the Ukrainian business environment. Enforcement of such structures requires deep knowledge and outstanding expertise in arbitration involving Ukrainian parties. Before drafting any dispute resolution clause, the following issues should be addressed.
As a rule, sellers of the Ukrainian target are “shelf companies”. The ultimate beneficiary of the Ukrainian target controls and directs the sellers. The ultimate beneficiary usually guarantees proper fulfillment of the sellers’ obligations either (i) directly under the Sale and Purchase Agreement or Shareholders Agreement or (ii) indirectly under a separate instrument (the Deed of Indemnity, Deed of Guarantee, etc).
Enforcement of such structures requires deep knowledge and outstanding expertise in arbitration involving Ukrainian parties. Before drafting any dispute resolution clause, the following issues should be addressed.
1. Enforceability of Jurisdiction Agreements vs. Enforceability of Arbitration Agreements
Ukrainian courts do not recognize agreements between parties to resolve their disputes in foreign courts (except for jurisdiction agreements between parties from CIS countries, which are enforceable under the Convention on legal assistance and legal relations in civil, family and criminal matters adopted in Minsk on 22 January 1993).
In contrast, Ukrainian courts do recognize and enforce arbitration agreements in accordance with the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 and the Law of Ukraine “On International Commercial Arbitration” (which is based on UNCITRAL Model Law On International Commercial Arbitration of 1985).
2. Institutional vs. Ad hoc Arbitration
When considering arbitration, there is a choice between an ad hoc tribunal, which may be created for the resolution of a particular dispute, and an arbitration institution, which is set up and operates under the auspices and within the framework of specialized organizations (for instance, the London Court of International Arbitration, the Arbitration Institute of the Stockholm Chamber of Commerce). Both institutional and ad hoc arbitration have advantages and disadvantages and these should be taken into account while drafting arbitration agreements or clauses.
3. Selection of Arbitration Forum
The law of the seat of arbitration plays an important role in the arbitration process. Proper selection of the arbitration forum will impact on the effectiveness of injunctions, fairness of arbitration, and enforceability of arbitral awards.
The London Court of International Arbitration is very popular for resolving M&A disputes involving Ukrainian parties, since such M&A transactions are governed by English law. The ICC International Court of Arbitration is also famous for its expertise in resolving complex M&A disputes.
4. Consolidation of Arbitral Proceedings
When the ultimate beneficiary guarantees proper fulfillment of the seller’s obligations through an indemnity agreement distinct from the underlying agreement (the Share Purchase Agreement or Shareholders Agreement), it makes sense to include within the arbitration agreement or arbitration clause a provision permitting consolidation of the arbitral proceedings.
5. Piercing the Corporate Veil (alter ego) Concept vs. Distinct Personality Concept
Ukrainian law does not recognize the doctrine of piercing the corporate veil (alter ego). Under Ukrainian law, a business entity is distinct from its shareholders. The shareholders are not bound by any instrument signed by such a business entity. Therefore, if the arbitral tribunal applies the doctrine of piercing the corporate veil and finds that the arbitration agreement or arbitration clause is binding upon the shareholders of a business entity, the award rendered by the tribunal on the basis of such an arbitration agreement or clause may not be enforceable in Ukraine.
ABOUT THE AUTHOR: Kostiantyn Likarchuk, Partner, and Mykyta Nota, Associate
Kostiantyn Likarchuk is a Partner at Avellum Partners with a major specialization in mergers and acquisitions, competition, and arbitration & commercial litigation. Kostiantyn also provides general corporate legal consultancy, advice on electric energy and heat generation and distribution, project finance and tax. He represents international and domestic sellers and buyers in major M&A and private equity transactions, as well as major foreign corporations on their investments in Ukraine and the CIS.
Mykyta Nota is an Associate with Avellum Partners with major focus on diverse aspects of mergers and acquisitions, antitrust law, capital markets, corporate restructuring, general corporate law and international commercial arbitration.
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More information about Avellum Partners
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
Enforcement of such structures requires deep knowledge and outstanding expertise in arbitration involving Ukrainian parties. Before drafting any dispute resolution clause, the following issues should be addressed.
1. Enforceability of Jurisdiction Agreements vs. Enforceability of Arbitration Agreements
Ukrainian courts do not recognize agreements between parties to resolve their disputes in foreign courts (except for jurisdiction agreements between parties from CIS countries, which are enforceable under the Convention on legal assistance and legal relations in civil, family and criminal matters adopted in Minsk on 22 January 1993).
In contrast, Ukrainian courts do recognize and enforce arbitration agreements in accordance with the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 and the Law of Ukraine “On International Commercial Arbitration” (which is based on UNCITRAL Model Law On International Commercial Arbitration of 1985).
2. Institutional vs. Ad hoc Arbitration
When considering arbitration, there is a choice between an ad hoc tribunal, which may be created for the resolution of a particular dispute, and an arbitration institution, which is set up and operates under the auspices and within the framework of specialized organizations (for instance, the London Court of International Arbitration, the Arbitration Institute of the Stockholm Chamber of Commerce). Both institutional and ad hoc arbitration have advantages and disadvantages and these should be taken into account while drafting arbitration agreements or clauses.
3. Selection of Arbitration Forum
The law of the seat of arbitration plays an important role in the arbitration process. Proper selection of the arbitration forum will impact on the effectiveness of injunctions, fairness of arbitration, and enforceability of arbitral awards.
The London Court of International Arbitration is very popular for resolving M&A disputes involving Ukrainian parties, since such M&A transactions are governed by English law. The ICC International Court of Arbitration is also famous for its expertise in resolving complex M&A disputes.
4. Consolidation of Arbitral Proceedings
When the ultimate beneficiary guarantees proper fulfillment of the seller’s obligations through an indemnity agreement distinct from the underlying agreement (the Share Purchase Agreement or Shareholders Agreement), it makes sense to include within the arbitration agreement or arbitration clause a provision permitting consolidation of the arbitral proceedings.
5. Piercing the Corporate Veil (alter ego) Concept vs. Distinct Personality Concept
Ukrainian law does not recognize the doctrine of piercing the corporate veil (alter ego). Under Ukrainian law, a business entity is distinct from its shareholders. The shareholders are not bound by any instrument signed by such a business entity. Therefore, if the arbitral tribunal applies the doctrine of piercing the corporate veil and finds that the arbitration agreement or arbitration clause is binding upon the shareholders of a business entity, the award rendered by the tribunal on the basis of such an arbitration agreement or clause may not be enforceable in Ukraine.
ABOUT THE AUTHOR: Kostiantyn Likarchuk, Partner, and Mykyta Nota, Associate
Kostiantyn Likarchuk is a Partner at Avellum Partners with a major specialization in mergers and acquisitions, competition, and arbitration & commercial litigation. Kostiantyn also provides general corporate legal consultancy, advice on electric energy and heat generation and distribution, project finance and tax. He represents international and domestic sellers and buyers in major M&A and private equity transactions, as well as major foreign corporations on their investments in Ukraine and the CIS.
Mykyta Nota is an Associate with Avellum Partners with major focus on diverse aspects of mergers and acquisitions, antitrust law, capital markets, corporate restructuring, general corporate law and international commercial arbitration.
Copyright Avellum Partners
More information about Avellum Partners
View all articles published by Avellum Partners
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
