The law “On Amending Certain Laws of Ukraine in Connection with the Ratification of the Convention on Choice of Court Agreements” (the “Law”) came into effect on October 15, 2022. In 2021, the Ukrainian Parliament had made this Law a condition for the ratification of the Hague Convention of June 30, 2005 on the Choice of Court Agreements (the “Convention”).

The Convention is an international instrument strengthening the effectiveness of forum selection agreements and the enforcement of foreign court judgments in the member countries to the Convention (the “Contracting State”).

So far, the Convention has been ratified by the EU, Denmark, Mexico, Montenegro, Singapore, and the UK, making it a strong international tool for resolving disputes related to cross-border commercial and financial transactions.

The Convention is not yet operational for Ukraine. It will come into force three months after Ukraine submits the instrument of ratification to the Ministry of Foreign Affairs of the Netherlands. So far, there is no publicly available time estimate as to when this may happen. However, the changes envisaged by the Law have already come into force.

Choice-of-court agreement under the Law

Previously, there was ambiguity under Ukrainian law about whether parties to cross-border contracts may opt for foreign court jurisdiction. This created uncertainty, in particular, as to whether Ukrainian courts should enforce such intention of the parties and Ukrainian court practice varied in this respect.

The Law finally resolves that ambiguity, by introducing "choice-of-court agreements" (in Ukrainian – ugoda pro vybir sudu) whereby parties to the contract with a foreign element (i.e. a contract between Ukrainian and foreign parties) may subject their dispute to one or several foreign courts ("chosen court(s)"). Such an agreement must be made in writing.

Can the parties choose any foreign court for dispute resolution?

The Law permits parties to opt for litigation in courts of any state, and is not limited to those of the Contracting States.

At the same time, under the Law:

• Parties may not subject their disputes to the foreign courts’ jurisdiction in cases where Ukrainian law provides for the exclusive jurisdiction of Ukrainian courts (e.g., disputes in respect of real estate located in Ukraine, disputes in respect of registration/liquidation of legal entities registered in Ukraine, bankruptcy cases, etc.).
• If a party to the choice-of-court agreement is trying to initiate court proceedings in Ukraine, the Ukrainian court will leave the claim without review if the choice-of-court agreement is not void, terminated, or can be performed or does not violate Ukrainian law or any international treaty to which Ukraine is a party. No specific guidance is provided in this respect.

What are the rules for the enforcement of foreign court judgments in Ukraine?

The Law does not address matters of recognition and enforcement of foreign court judgments, so the general rules apply. Namely, the recognition and enforcement of foreign court judgments will be possible in cases based on international treaties in which Ukraine is a part, or based on the reciprocity principle. It is noteworthy that Ukraine has very few relevant bilateral treaties with foreign states. However, there is an established court practice in Ukraine with regard to the recognition and enforcement of foreign court decisions based on the reciprocity principle.

Grounds for the refusal of recognition and enforcement of the foreign court judgment are provided in the Civil Procedural Code and slightly differ from those established by the Convention.

Exclusive choice of court agreement under the Convention

Upon becoming enforceable in Ukraine, the provisions of the Convention will apply as follows:

Requirements for applicability of the Convention

The Convention introduces the concept of “exclusive choice of court agreement" (similar to the concept provided by the Law) whereby parties may subject their disputes to the jurisdiction of the courts of one or more Contracting States and exclude the jurisdiction of any other court. The exclusive choice of court agreement much be made in writing.

The "exclusivity" of the chosen court is presumed unless the parties have expressly provided otherwise in the agreement. Thus, should the parties provide a non-exclusive jurisdiction of a chosen court, the Convention will not apply.

The Convention provides a list of cases that may not be subject to exclusive choice of court agreement, covering employment contracts, status and legal capacity of natural persons, family law matters, wills and succession, insolvency, anti-trust competition, real estate disputes, disputes in respect of the functioning of public registers, claims for personal injury or property damage that do not arise from a contractual relationship, and others.

What if the party initiates the legal proceeding in a court other than the court provided by the exclusive choice of court agreement?

If a party to the exclusive choice of court agreement initiates court proceedings in a court, other than the chosen court (i.e. the court of the requested state), that court should suspend or dismiss the proceedings unless:

1. The exclusive choice of court agreement is null and void under the law of the state of the chosen court;
2. A party lacked the capacity to conclude the the exclusive choice of court agreement under the law of the state of the court seized;
3. Giving effect to the agreement would lead to a manifest injustice or would be manifestly contrary to the public policy of the state of the court seized;
4. For exceptional reasons beyond the control of the parties, the agreement cannot reasonably be performed; or
5. The chosen court has decided not to hear the case.

The above rule will not apply if proceedings were initiated in a court of a state that is not party to the Convention. Thus, local procedural rules of the courts seized need to be checked to assess whether courts may disregard the exclusive choice of court agreement provisions and consider the case on the merits.

How the recognition and enforcement of judgments under the Convention work

A court judgment issued by the chosen court under an exclusive choice of court agreement shall be recognized and enforced in other Contracting States, unless one of the following grounds for refusal set out by the Convention applies:

1. The judgment is not enforceable in the state of the chosen court;
2. The exclusive choice of court agreement was null and void under the law of the State of the chosen court, unless the chosen court has determined that the agreement is valid;
3. A party lacked the capacity to conclude the exclusive choice of court agreement;
4. There was no due service of process on the defendant;
5. The judgment was obtained by fraud in connection with a matter of procedure;
6. Recognition or enforcement would be manifestly incompatible with the public policy of the requested state, including situations where the specific proceedings leading to the judgment were incompatible with fundamental principles of procedural fairness of that state; or
7. The judgment is inconsistent with an existing judgment in a dispute between the same parties and regarding the same cause of action, provided that such existing judgment may be recognised in the Contracting State, where enforcement is sought.

The Convention establishes the exhaustive list of documents to be submitted for recognition and enforcement of the court judgment, namely:

1. The full-text of the judgment;
2. The full text of the exclusive choice of court agreement; and
3. Documents confirming that the judgment is final and enforceable in the state of origin.

These rules, however, will not apply in cases when an exequatur is sought in states, which are not parties to the Convention. Thus, local law requirements will need to be checked on a case-by-case basis.

Impact of the Convention and the Law on Ukrainian and German businesses

For business between German and Ukrainian companies, the ratification of the Convention is a step in the right direction towards more legal certainty. Germany, one of Ukraine's most significant business partners, is bound by the Convention as a member state of the European Union.

In most cases involving cross-border business relationships, the companies tend to opt for arbitration clauses in their contracts. Arbitration has become an essential tool in international dispute resolution. One of the reasons for the success of international arbitration is the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”) encompassing 172 contracting states as of today. The New York Convention facilitates the enforcement in foreign states making arbitration the preferred option in international business. Due to the success of the New York Convention, it was used as the model for the Choice of Court Convention.

However, the Convention can be considered a strong instrument in international dispute resolution. Litigation before state courts can be the right choice depending on a number of circumstances. For example, arbitration proceedings can be expensive. If the amount in dispute is small, litigation before state courts can be a more cost-effective alternative. Therefore, some German courts have introduced “Chambers for International Commercial Disputes” in Frankfurt, Hamburg, Mannheim and Stuttgart. At these specially established chambers, the hearings are held in English before three judges, with the presiding judge being highly experienced in corporate law. The other judges (at least at the Frankfurt court) are business professionals appointed on the recommendation of the German Chamber of Industry and Commerce for a term of five years. The Joint Commercial Court of Stuttgart and Mannheim even offers a possibility of appeal which is a direct advantage in comparison to arbitration proceedings. As for the costs, there are no additional fees for these special chambers.

The establishment of the commercial chambers was part of the courts’ own initiative to adopt the German court system to international disputes. Meanwhile, German parliament introduced a draft legislation in March 2022 which aims at establishing more of those commercial chambers by law.

The next step that Ukraine has taken towards implementing the Choice of Courts Convention with the Law could be an opportunity for cost-effective dispute resolution between Ukrainian and German companies before the Commercial Courts in Frankfurt or Stuttgart in the future.

Outlook

It is worth mentioning that both Ukraine and the EU have joined not only the Convention but also the Convention of July 2, 2019, on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (“Judgments Convention”). The Judgements Convention will enter into force on September 1, 2023. Compared to the Convention, the scope of the Judgments Convention is broader since it is not confined solely to exclusive choice of court agreements. It remains to be seen what impact the Judgments Convention will have and how it will coexist with the Convention. It is certain, however, that both Conventions will considerably facilitate international dispute resolution outside the field of arbitration.As of now, parties should carefully consider in advance whether the chosen court should have either exclusive or non-exclusive jurisdiction. Last, but not least, it is advisable to accurately draft the choice of court agreement (similar to the arbitration agreement) to ensure its validity and enforceability.

Source: Law of Ukraine "On ratification of the Convention on choice of court agreements " dated 15 June 2021 No. 1544-IX, Law of Ukraine “On amendments to certain legislative acts of Ukraine due to ratification of the Convention on choice of court agreements" dated 21 September 2022 No. 2627-IX.