Jurisdiction Test: Choosing the Right Court

By Andriy Stelmashchuk and Oleksiy Filatov
Vasil Kisil & Partners

Avoiding litigation is a vital part of the risk management skills necessary for any businessmen. However, taking into account the fact that alternative dispute resolution and arbitration are not that popular in Ukraine, no other legal means are often available to resolve a dispute but to apply to a court. In its turn, the right to seek protection of infringed rights or interests in courts is not worth anything unless there are clear rules for choosing the right court to apply for.

Foreign investors and businessmen acting in Ukraine might not consider as important the changes which have taken place in Ukrainian procedural law over the last few years. Although they may seem insignificant at first glance, these changes may have a great influence on one’s impression from the picture of Ukrainian dispute resolution procedure.

It may be worth mentioning that business-related disputes in Ukraine should now be considered not only by commercial courts and courts of general jurisdiction, but also by administrative courts, which are relatively new in the Ukrainian judicial system.

Courts of general jurisdiction consider civil cases pursuant to the rules of the Civil Procedural Code of Ukraine. Commercial cases fall within the merit of Commercial Courts and are considered under the rules of the Commercial Procedural Code of Ukraine.

Administrative courts (as well as courts of general jurisdiction when acting as administrative courts) consider cases in which at least one party, either a claimant or a defendant, is a government or self-government authority or their official or any other person performing public functions pursuant to the law. Cases of this type are considered under the Administrative Proceedings Code of Ukraine. The above paragraphs may confuse a businessman or even a foreign lawyer facing a litigation case in Ukraine for the first time. So, if you cannot avoid litigation, how do you choose the right court to apply for?

Public or Private?

As follows from the definition of the case of administrative jurisdiction, disputes involving public interest shall be considered under the rules of administrative proceedings. Accordingly, all private disputes fall within the merit of civil and commercial litigations.

There are no statutory but only doctrinal definitions and criteria for differentiation of public and private disputes. As mentioned above, the peculiarity of the public disputes is that at least one of the parties involved should be a government or self-government authority or an official thereof. However, these criteria only are not enough to undoubtedly determine the dispute as being a public one. What should also be taken into account is the essence of the dispute and the relations from which the dispute arises.

According to the practice of the High Commercial Court of Ukraine, the dispute is considered as private if it arises from relations regulated by civil and commercial laws, in particular, by the Civil Code of Ukraine and Commercial Code of Ukraine. Following this, e.g. intellectual property disputes arising from relations between private entities, should be considered under commercial proceedings rules, even if one of the formal defendants is the State Intellectual Property Department.

Summing up the above, the very first questions to be answered before applying to the court for judicial protection are: (1) who/what are the parties involved in the dispute and (2) what is the essence and nature of the dispute? If one of the parties is a government or self-government authority or official thereof and the dispute is, at the same time, one of public concern, then such a dispute should be resolved under the rules of administrative proceedings. If one of these criteria is missing, then the dispute shall be considered under the rules of civil or commercial proceedings.

Civil or Commercial?

If one of the parties in the dispute, either a claimant or a defendant, is an individual (except for a private entrepreneur), such a dispute shall be considered in accordance with the rules of civil proceedings. Disputes between legal entities, as well as those involving individuals as private entrepreneurs, shall be considered within the commercial jurisdiction.

Unlike in administrative proceedings, the distinction between the civil and commercial proceedings seems to be plain and clear. Having separated disputes of public concern, the only thing necessary to choose between the civil and commercial jurisdiction is to analyze the status of the parties involved in the dispute. However, this seemingly simple task is not so simple.

Specific Features?

The above criteria for differentiation of jurisdictions are not always enough to make the right choice. Ukrainian procedural laws provide for some exceptions, which, as the saying goes, only prove these rules.

Corporate disputes. In the last few years corporate disputes, and particularly, hostile takeover cases, also known in Ukraine as “raiding”, have taken the lion’s share of public concern in Ukraine.

Unfortunately, in the field of corporate relations, the instruments of procedural law are often used not only to protect one’s rights but also to influence the business of opponents. One such widely used instrument is artificial engagement in the dispute of a party located within the jurisdiction of a “friendly” court and, accordingly, consideration of the “dispute” beyond the legally appropriate jurisdiction.

Taking into account that a “friendly” court may be often one-party-minded, the other party would neither receive the writs or summons for court hearings, nor suspect that such proceedings have been initiated. And one fine sunny day the unaware party may be forced to meet its new top management introduced by state enforcement officers and policemen and that its office has been closed. So as to somehow counter such malpractice, in December 2006 the Ukrainian Parliament adopted a law that submitted all corporate disputes to commercial courts. Therefore, notwithstanding the fact that commercial courts consider disputes involving only legal entities and private entrepreneurs, corporate disputes, regardless of the status of the parties involved, now fall within merits of commercial litigation.

Bankruptcy proceedings. Pursuant to On Debtor’s Insolvency Recovery or Declaring them Bankrupt Act of Ukraine, bankruptcy proceedings against Ukrainian companies or individuals registered as private entrepreneurs in Ukraine are subject to consideration by the Commercial Court at the place of their location. These disputes are also considered by commercial courts regardless of the status of the creditors involved.

Antitrust disputes. The Antimonopoly Committee of Ukraine is a government authority with special status. For this reason, disputes regarding decisions made by the latter should come within the remit of administrative litigation. However, disputes arising from decisions adopted by the Antimonopoly Committee of Ukraine taken pursuant to the On Protection of Economic Competition Act of Ukraine and the On Prevention of Unfair Competition Act of Ukraine are considered by commercial courts with regard to a special provision which has existed historically in the law. The claims of the Antimonopoly Committee of Ukraine regar ding recovery of penalties for violations of competition law are also subject to consideration by commercial courts.

We have mentioned only a few tips that may help you to find the path to Ukrainian courts. These tips are not intended for lawyers but rather for businessmen who should have at least a general impression of the system they may face to resolve a commercial dispute. After all, the only way to feel safe in the jungle of Ukrainian procedural laws is to keep abreast of changes in legislation and keep practicing every day.