Supreme Court upholds arbitration agreement despite discrepancies between English and Ukrainian text

It is a common practice for foreign companies doing business with Ukrainian counterparties to record the parties’ obligations in bi-lingual form by setting out the contract’s provisions simultaneously in English and Ukrainian. In order to avoid potential confusion with the contract’s interpretation it is a good practice to specify in the contract which language shall have the priority in case of discrepancies. However, if the above recommendation is not followed, the discrepancies between the English and Ukrainian versions may generate serious problems in the course of contract’s enforcement, especially if they are found in the key provisions of the contract, such as the dispute resolution clause.

In one of its recent cases Ukraine’s Supreme Court considered whether discrepancies between different language versions of an arbitration agreement could defeat the enforceability of the arbitral award rendered on the basis of that arbitration agreement.

The case concerned an application by an Austrian company to recognise and enforce in Ukraine an arbitral award against a Ukrainian company rendered by the Arbitral Tribunal of the Stock Exchange for Agricultural Products in Vienna. The award obliged the Ukrainian company to pay the Austrian company the debt under a sales contract. The English and Ukrainian versions of the underlying contract contained different dispute resolution provisions. The English version provided that disputes should be handled by the Arbitral Tribunal of the Stock Exchange for Agricultural Products in Vienna (“Institution”) whereas the Ukrainian version provided that the disputes were to be settled by “arbitration court at the location of the defendant” (i.e., Ukraine) without mentioning any arbitral institution or arbitration rules. That mismatch was aggravated by the fact the contract failed to specify which language version should prevail in case of discrepancies.

In the arbitration the arbitral tribunal did not seem concerned with the way the Ukrainian version of the arbitration clause was drafted and proceeded to render the arbitral award on the merits of the dispute. However, when the award creditor filed an application to have the arbitral award recognised and enforced in Ukraine the debtor objected to the application arguing that the lack of any mention of the Institution in the Ukrainian version of the arbitration clause suggested absence of the parties’ agreement on the competent arbitral institution. That, in the debtor’s view, effectively defeated the entire arbitration clause and made the arbitral award rendered on its basis unenforceable.

Initially, the first instance court rejected the debtor’s arguments and recognised and enforced the arbitral award in Ukraine. However, on appeal, the appellate court refused to recognise and enforce the award, accepting the debtor’s arguments. The appellate court stated that the parties failed to properly agree on relevant arbitral institution in the arbitration clause due to the inconsistency between the English and the Ukrainian versions of the clause. That failure, in the appellate court’s view mandated the rejection of the application for recognition and enforcement of the award on the basis of Article V(1)(d) of the New York Convention.

Apparently, the appellate court interpreted the wording “arbitral procedure was not in accordance with the agreement of the parties” in Article V(1)(d) of the New York Convention as encompassing parties’ agreement (or for that matter, lack of agreement) on arbitral institution. The appellate court’s reference to this provision of the New York Convention seems rather questionable in light of the circumstances of the case. It also raises concerns about the comprehensiveness of the appellate court’s review, since in absence of the parties’ agreement over “arbitral procedure” (which was the conclusion reached by the court) Article V(1)(d) requires the award debtor to prove that the “arbitral procedure” was contrary to the lex arbitri (I.e., Austrian law). However, the award debtor made no submissions in that respect and the court did not offer any analysis of this issue either.

Unsurprisingly, the award creditor filed a cassation complaint against the appellate court’s judgement with Ukraine’s Supreme Court. The Supreme Court reversed the appellate court’s judgement and upheld the recognition and enforcement of the arbitral award. The Supreme Court regarded the English version of the arbitration clause as sufficient proof that the parties reached agreement over the relevant arbitral institution. Absence of the same wording in the Ukrainian version of the contract in Supreme Court’s view was not per se sufficient to render the arbitral award unenforceable.

In line with several its previous judgements, the Supreme Court reiterated that Ukrainian courts should interpret vague or inconsistent arbitration agreements in a liberal manner so as to uphold the operation of such agreements. Further, the Supreme Court characterised the debtor’s objections to recognition and enforcement of the arbitral award as made in bad faith because the debtor raised no objections to the arbitral tribunal’s jurisdiction in the arbitration.

The above case constitutes a vivid example of the pro-arbitration approach in the practice of Ukraine’s Supreme Court with respect to the interpretation of so-called “pathological” arbitration agreements (i.e., agreements having deficiencies that can potentially obstruct/disrupt arbitration proceedings or enforcement of arbitral award).

Still, even though in this particular case Ukrainian courts ultimately demonstrated certain leniency towards enforcement of pathological arbitration agreements, this approach has its limits and cannot be relied on as a magic wand for reviving poorly drafted arbitration agreements. For that reason, the parties should always carefully draft dispute resolution provisions in their contracts to avoid any potential risks for the contract’s enforceability. Parties should also ensure the consistency between different language versions of the contract and specify mechanisms for resolving potential language discrepancies.