UKRAINE: The Problem of Creating an Enforceable Contract

Carrie Cecil, Pitt Law '10, files from Kiev:

In countries with stable legal systems, it would be nearly unthinkable to choose foreign law for a contract between two parties from the same country, but in Ukraine, this is common practice. Due to corruption in the court system and the instability of Ukrainian laws, attorneys are forced to seek other methods to make transactions secure for their clients. The resulting contracts always have provisions for dispute resolution to occur in the United Kingdom, Switzerland, or any other European country, as long as it is outside of Ukraine. Additionally, if all parties involved have assets located outside of Ukraine, contract will specify that another country's law will apply to the contract instead of Ukrainian law.

Ukrainian attorneys have to be creative in order to assure their clients that agreements will be enforceable. Using foreign law and including provisions for arbitration to occur in other jurisdictions are two examples of how the Ukrainian legal system is avoided. Unfortunately, these maneuvers are not always possible depending on the characteristics of individual transactions. The Ukrainian Parliament has adopted provisions requiring certain types of transactions or transactions between certain parties to be governed by Ukrainian law. In these transactions, the use of Ukrainian law is then unavoidable, but even in these situations, contracts will include a provision for arbitration in a jurisdiction outside of Ukraine.

A third issue for Ukrainian attorneys when drafting contracts is whether an arbitration decision will be enforceable. If a decision is rendered against a party that only has assets in Ukraine, there may be problems enforcing such a decision in Ukraine. The Ukrainian courts have refused to enforce some arbitration decisions made abroad, effectively making some contracts unenforceable. Additionally, some arbitration decisions end up in the Ukrainian court system for long periods of time awaiting a determination on whether they will be enforced in Ukraine. The best hope for a valid and enforceable contract exists when all parties involved have assets located outside of Ukraine.

The question becomes how to enforce a contract when the breaching party's assets are all located in Ukraine. This question is not yet resolved. For example, during a recent seminar, Ukrainian attorneys were explaining the use of confidentiality clauses in contracts, and they acknowledged that although confidentiality clauses are in contracts made here, they are nearly impossible to enforce. As a result, contracts produced in Ukraine include a plethora of provisions making all parties aware of the potential risks related to limitations on enforceability in Ukraine and limit attorney liability to clients on this issue.

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