Development of Alternative Methods of Dispute Settlement in Ukraine

By Dmytro SYMANOV
Lavrynovych & Partners

Due to the current state of the Ukrainian judicial system, the issue of speedy and fair dispute resolution is a concern for many people. Many of them are wary of the ability of the respective authorities to properly handle settlement of a dispute. Others are experiencing difficulties in obtaining protection of their rights and so are looking for new possibilities and systems that respond to their needs. Moreover, Ukrainian officials also share in this anxiety.

The President of Ukraine declared in the Concepts of Judicial System Enhancement for Strengthening a Fair Court in Ukraine in Accordance with the European Stan dards adopted by the Decree No.361/2006 of 10 May 2006 that “for the purpose of abatement of the courts workload, there is a need to improve alternative (out-of-court) methods of dispute resolution, as well as to develop conditions for stimulating less expensive and less formalized means of dispute resolution”.

This stance was also supported by the Council of Judges of Ukraine in the Announcement of 26 May 2006 on Conceptual Approaches to Further Performance of Judicial Reform in Ukraine.

Following widely accepted practice, we can determine that an alternative dispute settlement (resolution) (ADS) includes dispute resolution processes that fall beyond the judicial process. The rising popularity of ADS can be explained by the view that ADS imposes fewer costs than litigation, a preference for confidentiality, and the desire of some parties to have greater control over the selection of an individual or individuals who will decide or help to resolve their dispute.

The existing classifications of ADS are varied and sometimes ambiguous. However, the two most common forms of ADS can be distinguished as arbitration and mediation. They both offer a relatively flexible processes of reaching dispute solution.

Arbitration

Arbitration is a legal process which is held out of court, but still results in a final and legally binding decision, which is generally called an award. Parties agreeing to settlement by means of arbitration submit their case to a neutral arbitrator(s). The reasons for selecting arbitration vary from case to case. Arbitration is generally faster, less expensive and more informal than litigation.

For a quite long time Ukrainian lawmakers were reluctant to introduce clear and effective regulations of an arbitration procedure. However, finally, the On Courts of Arbitration in Ukraine Act of Ukraine (Arbitration Act) came into force in May 2004. This Act triggered the idea of non-government arbitrage, which has now taken root in Ukraine.

Under an arbitration agreement, parties may submit any dispute which has arisen from civil or economic relations, except for instances provided for by law, to a court of arbitration. The arbitration agreement shall comply with stipulations envisaged by the Arbitration Act and may appear in the form of either a separate agreement or an arbitration clause in agreement (contract).

The limitations on the jurisdiction of courts of arbitration indicated in Article 6 of the Arbitration Act relate to the following cases concerning: (1) invalidation of regulatory legal acts; (2) execution, amending, and performing economic agreements (contracts) connected to the state of government needs; (3) state secrets; (4) family law, except for disputes rooted in marriage contracts (agreements); (5) bankruptcy; (6) disputes to which one of the parties is a government body, agency, authority, body of local self-government, special government enterprise (kazenne pidpryemstvo); (7) other disputes falling within the remit of courts or the Constitutional Court of Ukraine according to the law; (8) disputes to which one of the parties is a non-resident of Ukraine.

Pursuant to provisions of Article 7 of the Arbitration Act, two types of courts of arbitration can be established: permanent and ad hoc. A permanent court of arbitration is subject to state registration held by the Ministry of Justice of Ukraine and its local branches.

The procedural aspects of the permanent court of arbitration activities are governed by a Statute and Regulations.

Parties to a dispute may freely select the court of arbitration as well as arbitrators. The arbitrators are prohibited from disclosing information or data which became available to them while conducting the arbitration process, without the consent of the parties or successors of the parties.

Arbitration proceedings are commenced after filing of a complaint with a court of arbitration. Having duly and thoroughly considered a case on merits, a court of arbitration makes a decision. The decision is made in writing and is enforceable under current Ukrainian legislation. Arbitration decisions are binding and are vacated only under limited circumstances, as outlined in Articles 51 and 56 of the Arbitration Act.

Mediation

The other type of ADS is mediation. Mediation seems to be an even less formal alternative to litigation than arbitration. It may be a very effective instrument that can be adopted to anticipate problems between parties before any conflict can even arise. Mediation is a voluntary process in which parties to a dispute work together with a neutral facilitator – the mediator – who helps them to reach a settlement.

The mediator does not decide the case. Mediation is a dispute resolution process that is generally considered to be confidential. The results of mediation are binding if and when the parties enter into a settlement agreement.

Parties who enter into mediation are not deprived of any legal rights or remedies. If there is no settlement during the mediation, each side can continue to enforce their rights through appropriate court procedures.

It is worth focusing on certain distinctive and significant features of mediation. Parties are directly engaged in the negotiation process. The mediator, as a neutral third party, can view the disputable points objectively and can assist the parties in exploring alternatives that they might not have considered on their own. Parties increase the possibility of continuing their business relationship compared with being involved in litigation. Mediation can be initiated at any time during a dispute, but the benefits of mediation are usually maximized if the process is introduced in the early stages of conflict resolution. As a voluntary process, mediation requires the parties to agree in writing to procedures that they will follow. In any event, mediation grants an ability to the parties to control the process of dispute settlement.

Unfortunately, at present Ukrainian entities are not fully exploiting the potential of mediation.

However, there is a conviction that both arbitration and mediation being time-tested, effective alternatives to litigation, will inevitably obtain their niches in the system of conflict resolution in Ukraine.