When a breach of substantive and procedural law constitutes a ground for setting aside an ICAC award - Opinion of the Civil Cassation Court of the Supreme Court

Ukrainian legislation incorporates the principle of limited interference by national courts with arbitral awards when considering applications to set them aside, which is generally accepted in pro-arbitration jurisdictions.

According to this principle, the court cannot review the correctness of the arbitral tribunal's application of substantive law, but only determines whether there are grounds for setting aside the arbitral award provided for by law (an exhaustive list of such grounds is provided in part 2, Article 34 of the Law of Ukraine "On International Commercial Arbitration" and part 2, Article 459 of the Civil Procedure Code of Ukraine). Otherwise it would be an abuse of power on the part of the national court.

The Civil Cassation Court of the Supreme Court reached this conclusion in the case brought by a Polish company to set aside the decision of the International Commercial Arbitration Court (ICAC) at the Ukrainian Chamber of Commerce and Industry (CCI).

In accordance with the circumstances of the case, the disputed award of the ICAC at the Ukrainian CCI recovered from the Polish company a penalty for breach of the product delivery deadline and reimbursement of the arbitration fee in favour of the SOE.

In his appeal to the Supreme Court, the plaintiff argued that the arbitration court had failed to apply (violated) the substantive law of Ukraine and had violated the principles of procedural law that are part of the public order of Ukraine, namely the principles of equality of parties, legality and competitiveness of the judicial process. This resulted in a violation of public order in Ukraine.

The Supreme Court rejected the plaintiff's claims, pointing out that there is an exhaustive list of grounds on which an arbitral award can be set aside. Moreover, the court cannot review the international arbitration award on the merits of the dispute.

In dismissing the application to set aside the award of the ICAC at the UCCI, the appellate court, as the court of first instance, reasonably relied on the fact that the plaintiff had not submitted the grounds for setting aside the award provided for in Article 459 of the Civil Procedure Code of Ukraine. The Supreme Court noted that all the arguments of the appeal, as well as the arguments of the application for setting aside the relevant award, are limited to disagreement with the award of the international arbitration court on the merits of the dispute, its incorrect application of substantive law and violation of procedural law in the course of the proceedings.

According to the Supreme Court, in view of the interpretation of Section VIII of the Civil Procedure Code of Ukraine and Section VII of the Law of Ukraine "On International Commercial Arbitration", during the consideration of a case on setting aside an international commercial arbitration award, the powers of the national court are limited, since the national court does not have the authority to review the international commercial arbitration award on the merits of the dispute, and cannot resort to its full review or reassessment.

The Supreme Court rejected the arguments of the appeal that the arbitration court had violated the basic principles of justice, such as the competitiveness of the process, equality of the parties, lack of motivation for the award and reasonableness of the parties' arguments, citing the arbitration court's violation of Art. 6 of the Convention for the Protection of Human Rights and Fundamental Freedoms regarding fair trial, noting that the basic principles and rules of evidence in arbitration are set out in Article 52 of the ICAC Rules, which were not violated by the arbitration court due to the high level of discretion of the arbitration court in accepting, considering and evaluating evidence.

This demonstrates the groundlessness of the appeal's arguments about the violation of equal treatment of the parties by the arbitration court: the failure to satisfy the motions of a certain party to the arbitration process does not indicate a violation of a certain principle of the process, since there are also principles of efficiency of the evidence process, namely proportionality and procedural economy (Article 2 of the ICAC Rules, Article 9.2 of the IBA Rules on Taking Evidence in International Arbitration 2020).

In other words, international standards of evidence in commercial arbitration provide for the arbitrators' obligation to ensure adversarial proceedings in terms of the right to present evidence, the right to examine the other party, the right to participate in hearings, and not as an opportunity for the parties to oppose the arbitration court in its assessment of evidence and application of law.

The Supreme Court emphasised that international commercial arbitration, as an alternative method of resolving disputes based on the voluntary agreement of the parties, does not operate in the realities of a formalised judicial approach to dispute resolution similar to the state court system, and is a more flexible, efficient and adaptable tool. This understanding recognises the principles of arbitration and underpins the pro-arbitration approach of state courts to setting aside arbitral awards.

The Supreme Court agrees with the applicant's arguments that an obvious misapplication by the arbitration court of fundamental rules of national substantive law or a gross violation of procedural law may lead to a violation of the public policy of Ukraine and is subject to assessment by the national court when challenging the arbitral award. At the same time, the decisions of international commercial arbitration courts, which have resolved the dispute of private economic relations by determining the circumstances of the procedure of performance of obligations arising between the parties, do not contradict the public policy of Ukraine.

In this case, the arbitration court resolved such a dispute.

The SC noted that the finality of arbitral awards in international commercial arbitration must be respected, except in extraordinary circumstances (International Law Association Recommendations on Public Policy, adopted in New Delhi in 2002). The applicant did not demonstrate such exceptional circumstances (paragraph 1(d) of the Recommendations).

In view of the above, the Supreme Court agrees with the conclusions of the appellate court as the court of first instance that the said award of the ICAC at the Ukrainian CCI does not contradict the public policy of Ukraine.

The Resolution of the Supreme Court of 21 December 2023 in case No. 824/83/23 (proceedings No. 61-15524ав23) - https://reyestr.court.gov.ua/Review/115860517.

This and other legal positions of the Supreme Court can be found in the Database of Legal Positions of the Supreme Court - https://lpd.court.gov.ua.