Arbitration and litigation in Ukraine with participation of foreign citizens and corporate entities

Arbitration and litigation in Ukraine with participation of foreign citizens and corporate entities is rather important issue, which has its special features. Before year 2005 procedural and material legal regulations in Ukraine as regarding the judicial procedures with participation of foreign citizens and foreign corporate entities as well as rules of application of the material legal acts of Ukraine were spread in numerous Codes of Ukraine, other laws of Ukraine and Ukrainian bylaws from the one hand, and from the other hand such provisions were rather often in contradiction and conflict with each other and there was no complex legal provisions as concerning this issue, therefore it was rather difficult to apply such contradicting and partial legal regulations in order to protect rights of foreign citizens and foreign corporate entities in Ukraine.

Starting from year 2005 the situation has been changed cardinally for the better as far as Ukrainian Parliament has adopted the Law of Ukraine "On Private International Law", which is effective as of September 01, 2005. This Law of Ukraine has provided rather complex and well-formed material, procedural and conflict rules for legal relations with participation of the foreign element in Ukraine excluding the same partial legal norms from a lot of other legal acts of Ukraine. Therefore at the moment we have rather well-formed and workable legal instrument in this regard, which allows to develop good collaboration and integration of Ukraine with other developed countries of the World.

However, from one hand all Ukrainian procedures provide foreign citizens and foreign corporate entities in Ukraine with the same procedural rights as provided for Ukrainian citizens and corporate entities. But from the other hand there are two important aspects in this regard: 1) the procedural aspects; 2) the material aspects.

1) The procedural aspects include some additional arrangements, which are required to be made by so called "foreign element" in order to have the equal procedural rights with Ukrainian citizens and Ukrainian corporate entities. From one hand such requirements may seem discriminative, but from the legal point of view are rather logical and necessary.

Foreign citizens, persons destitute of nationality, foreign corporate entities, foreign states (including their entities and officials) and international organizations are entitled to refer to the Ukrainian courts to protect their rights, freedoms and interests. Special treatment for diplomatic agents, the personnel of international organizations and other parties may be introduced by international treaties and national laws of Ukraine. The procedural capacity of foreign persons in Ukraine is governed by Ukrainian laws and Codes.

Foreign citizens, persons destitute of nationality and foreign corporate entities act in the same capacity as Ukrainian natural persons and corporate entities in civil, commercial and administrative proceedings unless otherwise specified by legislation.

In criminal proceedings against them, foreigners and persons destitute of nationality act in the same capacity as Ukrainian nationals. However, those with diplomatic immunity are exempt from criminal jurisdiction. Responsibility of persons covered by diplomatic immunity for administrative violations is determined through diplomatic channels.

Therewith the court can require (and usually do require!!!) foreign citizens, persons destitute of nationality, foreign corporate entities to provide the same with a valid document, which confirms the legal capacity of such foreign persons and entities (e.g. articles of incorporation or an extract from the trade register, etc.).

The second important issue in this regard is that in order a Ukrainian representative (attorney at law, a Ukrainian law firm, etc.) could duly represent a foreign citizen, a person destitute of nationality, a foreign corporate entity in Ukrainian courts and other Ukrainian authorities (tax inspections, police, procurator's office, etc.), such Ukrainian representative is required to have a valid power of attorney to do so. In its turn there are two possibilities to issue such power of attorney: to issue the same abroad at the place of residence of a "foreign element" with notarization or to issue the same within territory of Ukraine with notarization.

The first option requires also that such power of attorney to be duly legalized for use in Ukraine. This means that the power of attorney is to be duly legalized using the consular procedure or through placing the appostille stamp on the same. Documents for non-commercial purposes allow both of the above options, but commercial affairs require the power of attorney with consular legalization to be valid and used in Ukraine. The consular legalization is more comprehensive and expensive then the procedure of placing the appostille stamp on the same using the Hague Convention Abolishing the Requirement for Legalisation for Foreign Public Documents. Also should be mentioned, that the documents legalized using the consular procedures are valid only at the state, for which the same was legalized, whilst documents with appostille stamp are valid for a large number of countries, which have signed the above Convention, without additional procedural requirements.

Therewith the second option is the best for Ukraine as far as such document is issued in Ukrainian language and requires no further legalization and translation and easily recognized by Ukrainian courts and all the other numerous state authorities of Ukraine. Therewith the procedure of issuing the power of attorney by foreign citizens, persons destitute of nationality and foreign corporate entities directly in Ukraine is also not too simple (if the same is made in Ukraine for the first time). The fact is that such power of attorney is required to be issued with notarization, which in its turn requires from a foreign citizen or a person destitute of nationality to have the Ukrainian tax payer number and a foreign corporate entity has to provide its duly legalized statutory documents, including articles of incorporation, an extract from the trade register, etc. (for these documents both consular and apostillation procedures of legalization are allowed). The only exclusion from the above rules is that foreign citizens and person destitute of nationality allowed to issue the power of attorney in Ukraine with notarization without an Ukrainian tax number for obtaining of such tax number in Ukraine by an Ukrainian representative for and on behalf of them.

And the third important aspect, which can be included into the procedural issues, is that in order to notarize a contract or agreement or other document as well as in order to incorporate a company in Ukraine a non-resident natural (private) person is to have the personal Ukrainian tax number. This tax number has every Ukrainian citizen of the full age and the number is used to tax income, which is collected in Ukraine. Therefore if it is planed to make in Ukraine a contract or agreement, which requires notarization and state registration in Ukraine either to incorporate a company in Ukraine, a person (mostly non-residents of Ukraine) have to take care in advance of getting such tax number in Ukraine. Our Law Firm can get this tax number for you in advance. Whole procedure takes 2 to 3 weeks.

2) The material aspects include the collision norms, i.e. which law and how is to be implemented and considered for legal relations of foreign citizens, persons destitute of nationality, foreign corporate entities with Ukrainian citizens and corporate entities (i.e. Ukrainian legal norms or foreign legal norms and if the foreign – how it should be implemented in Ukraine).

Clause 1 of the Law of Ukraine "On Private International Law" provides, that the legal relations contain the "foreign element" if:

- at least one of the parties of the legal relations in question is a foreign citizen, a person destitute of nationality, a foreign corporate entity;

- the legal relations are based on an object located in a foreign state;

- a legal fact, which influents commencement, alteration or termination of legal relations occurs or occurred in a foreign state.

Foreign states and their representatives enjoy special legal treatment under international treaties of Ukraine. Ukraine participates to numerous diplomatic and consular bilateral agreements with a number of states, as well as to the Vienna Conventions on Diplomatic and Consular Relations of 1961 and 1963. As the member state of numerous international organizations, including the United Nations and the Council of Europe, Ukraine recognizes privileges and immunities of their personnel. Ukraine also has signed the Convention on the Privileges and Immunities of the United Nations 1946, Convention on the Privileges and Immunities of the Specialized Agencies, the European Convention on State Immunity 1972.

If the property or a representative of Ukraine in a foreign state is not granted jurisdictional immunity, the government may apply such measures as are allowed by international law if diplomatic measures are insufficient to settle the consequences of such a violation.

Unless Ukrainian law or an international treaty provides otherwise, the consent of the competent authorities of the relevant foreign state is necessary in claims involving a foreign state in which (i) the person or entity is a plaintiff or is engaged as a defendant or third party, or (ii) its property in Ukraine is involved in the case or subject to injunction or attachment.

Subsequently the Law of Ukraine "On Private International Law" provided two types of collision norms: 1) collision norms as regarding the applicable law (Ukrainian or foreign); 2) collision norms as regarding the conflicts of jurisdictions.

1) Clauses 16 and 25 of the Law of Ukraine "On Private International Law" provide that the personal law of natural person is the law of the state of his/her citizenship, the personal law of a corporate entity is the law of its registered address. Accordingly the legal capacity of natural persons and corporate entities is determined by the personal law of such person or entity.

Clauses 5 and 44 of the Law of Ukraine "On Private International Law" provide that the parties in certain circumstances are free to choose the law, which is applicable to their legal relations (rights, obligations, etc.), i.e. Ukrainian or foreign or international law. However if there are no special agreement by the parties about the applicable law and no imperative provisions of laws, which prescribe application of certain law, clause 44 of the Law of Ukraine "On Private International Law" provides the rules, which are to be used to identify the applicable law of obligations, which is to be identified proceeding from the personal law of the party, whose performance has the most significant importance for appropriate obligation.

The Law of Ukraine "On Private International Law" also prescribes the rules (and possible options as well) for choosing the applicable law, which applies to family, heritance relations, non-contractual relations of the parties, labor relations, property relations of the parties, etc.

2) Clause 76 of the Law of Ukraine "On Private International Law" provides that Ukrainian courts can try cases with foreign element if:

- the parties have previously agreed that the Ukrainian court is competent to try the case (except for circumstances where rules of exclusive jurisdiction apply);

- the defendant is domiciled in Ukraine, owns movable or immovable property on Ukrainian territory or, in the case of a corporate entity, has the branch or agency on the territory of Ukraine;

- the indemnification case involves damages caused in Ukraine, a plaintiff who is the natural person domiciled in Ukraine or a defendant who is the corporate entity with registered address in Ukraine;

- the maintenance or affiliation case involves the plaintiff domiciled in Ukraine;

- the inheritance case involves ancestor, who was either citizen of Ukraine or domiciled in Ukraine at the moment of death;

- the action or event, which is the grounds for judicial proceeding, happened in Ukraine;

- the last known domicile of the person, who is to be declared missing or deceased, was in Ukraine;

- the court has to try the case using the special procedures provided by Ukrainian Codes, which is connected with personal status or legal capacity of Ukrainian citizen;

- the proceeding is against a Ukrainian citizen, who acts as the diplomatic agent abroad or otherwise enjoys immunity from the foreign jurisdiction.

Clause 77 of the Law of Ukraine "On Private International Law" provides that Ukrainian courts are exclusively competent to try the following cases with foreign element:

- if the disputed immovable property is located in Ukraine;

- disputes between children and parents if both are domiciled in Ukraine;

- cases about succession if the ancestor is Ukrainian and his last domicile was in Ukraine;

- disputes arising from registration of the intellectual property rights, which require registration or issuance of appropriate certificate (patent) in Ukraine;

- disputes arising from registration or termination of foreign corporate entities on the territory of Ukraine and the same concerning the private entrepreneurs – foreign natural persons;

- if the dispute relates to the validity of entries in the public registry or land registry of Ukraine;

- insolvency proceedings if the debtor was incorporated under Ukrainian laws;

- if the dispute relates to the issuance or annulment of securities issued in Ukraine;

- disputes concerning adoption of a child in Ukraine.

International organizations, diplomatic agents of foreign states recognized by Ukraine and other persons identified in laws of Ukraine and international treaties of Ukraine fall within the jurisdiction of Ukrainian courts in civil cases only insofar as the jurisdiction conforms to the principles and norms of international law and international treaties in force in Ukraine.

The above information is provided herein in educational and informative purposes only. It is provided that you have to get appropriate legal advice as regarding the legal and other issues of your interest in Ukraine in order to have the exact, extensive and up-to-date legal and other related information.

Do not hesitate to contact us if you have any questions or issues of legal nature, our Law Firm is working for you and our experienced legal specialists are always ready to help providing the client with appropriate legal consultations, legal reports and summaries, reasonable legal advices and all the other required legal support, assistance, coverage and protection.

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