COMPETENCE TO RECOGNIZE AND ENFORCE INTERNATIONAL ARBITRAL AWARDS IN RUSSIA AND UKRAINE
By Irina Paliashvili,
Russian-Ukrainian Legal Group, P.A.
May 14, 2001
Therefore, general courts and arbitrazh courts have their own separate substantive jurisdiction, or “competence”, i.e. each is competent to hear different kinds of disputes. Thus, the broader term "jurisdiction" encompasses two different matters: first “competence” (substantive jurisdiction), and second “territorial jurisdiction”. Once competence is determined, the relevant court inside the particular system must determine its territorial jurisdiction over the case. Indeed, in order for any court, either general, or arbitrazh, to accept a case, it must have competence, as well as jurisdiction over the case, with competence being the primary concern and jurisdiction being the secondary concern. If the answer to the competence question is negative, the court cannot accept the case and the question of jurisdiction becomes irrelevant. If the answer to the competence question is positive, but the answer to the jurisdiction question is negative, the court still cannot accept the case.
According to the Civil Procedural Codes of both Russia and Ukraine (Articles 25 and 24 respectively), the following general criteria, consisting of three elements applied simultaneously, must be present for a general court to have competence over a matter
(there are also exceptions to these general criteria, or “special criteria”, which are not reviewed in this paper):
(1) Existence of a dispute.
(2) Participation in the case of an individual (natural person), i.e. at least one party in the case must be an individual.
(3) Substance of the dispute, i.e. the disputes must be on civil law matters.
(1) Existence of a dispute.
(2) Participation in the case of legal entities and/or individuals engaged in entrepreneurial activity (registered as individual entrepreneurs), which means that an individual, who is not registered as an individual entrepreneur, generally may not participate in an arbitrazh case.
(3) Substance of the dispute, i.e. the disputes must be economic.
The competence of general courts and of arbitrazh courts is separated and a case cannot be heard by both, i.e. theoretically there should be no possibility for “double competence”. Usually, in cases when competence is unclear under the law, element (2) of the general criteria in both Civil Procedural Code and Arbitrazh Procedural Code, i.e. the composition of the participants in the dispute, decides the question of competence. This was confirmed, for example, by the joint official clarification letter of Supreme Court of Ukraine (which oversees general courts) and the Supreme Arbitrazh Court of Ukraine (which oversees arbitrazh courts) dated July 20, 1995. It stated that if the parties to the dispute are legal entities, the dispute is subject to resolution by arbitrazh court, with the exception of cases specified by law.
Despite these clarifications, in practice there are a number of examples when competence remains unclear, with one such example being recognition and enforcement of international arbitral awards, as reviewed below.
The question of which system’s courts - general or arbitrazh - are competent to hear claims on recognition and enforcement of international arbitral awards is an example of unclear competence. Both Russia’s and Ukraine’s Laws “On International Commercial Arbitration” (Article 35 in both Laws), for example, establish that international arbitral awards are recognised and enforced by a “competent court”. At the same time, the claims on recognition and enforcement of international arbitral awards do not clearly fall under general or specific criteria established by the Civil Procedural Code and Arbitrazh Procedural Code and, therefore, it is not possible to clearly understand which court is the “competent court”. In practice, the claims are filed with both, which creates unacceptable confusion and the risk that a recognition and enforcement claim could be either rejected by any court, or if it was accepted and decided, the respective decision could be challenged based on the lack of competence.
At present Russia’s State Duma is considering new Civil Procedural Code and amendments to the Arbitrazh Procedural Code, which presents an excellent opportunity to clarify the issue of competence to hear claims on recognition and enforcement of international arbitral awards. However, although all sides agree that the issue of competence must be clarified as soon as possible, the issue of which courts, general or arbitrazh, should be awarded competence is quite controversial, with two basic alternative solutions being offered.
(A) General Courts Solution
Under this solution it is proposed that all claims on recognition and enforcement of international arbitral awards be subject to the exclusive competence of general courts. The main argument in favour of this solution is that, since general courts do not specialize in commercial matters, they will be less inclined to attempt to review cases on the merits and will be more reserved in using the “public order” criteria in rejecting recognition and enforcement claims. There are a number of legal arguments offered to support this solution. This solution and supporting arguments were summarized in the draft Letter to the State Duma, prepared by Vladimir Khvalei of Baker & McKenzie and distributed to the members of the Working Group on March 19, 2001.
(B) Arbitrazh Court Solution
 The term “arbitrazh” is used instead of “arbitration” in order to distinguish the arbitrazh courts, which are state commercial courts, from “arbitration” which is understood in most countries as being part of the system of alternative dispute resolution.