Some of the measures suggested by the Government to help alleviate this lack of transparency, placed new economic burdens on the gas exploration business. For example, in the third quarter of 2014, the Ukrainian Parliament nearly doubled royalties on natural gas production. This and other regulatory measures have already led to arbitration proceedings against Ukraine and further proceedings   seem likely to follow. 

 

As a consequence of these proceedings, the Ukrainian courts are facing new issues in relation to recognition and enforcement of arbitral decisions. Whilst Ukraine may be regarded as moderately pro-arbitration, the procedure of recognition and enforcement still can present challenges for an award creditor.

 

Recently, a district court, and afterwards, the Appellate Court in Kyiv considered an application for the recognition and enforcement of an emergency arbitrator’s award in an energy-related case which raised novel issues for the Ukrainian judicial system and is discussed below. 

 

 

In early 2015, JKX Oil & Gas plc, an LSE-listed oil and gas operator in Eastern and Central Europe, as well as its Ukrainian and Dutch subsidiaries (collectively, “JKX”) initiated 3 arbitration proceedings against Ukraine under (і) the Energy Charter Treaty (the “ECT”) in the SCC, (іі) the Bilateral Investment Treaty between the United Kingdom and Ukraine in ad hoc arbitration under UNCITRAL Rules and (ііі) the Bilateral Investment Treaty between the Netherlands and Ukraine at ICSID, alleging, inter alia, that Ukraine had failed to treat JKX’s investments in a “fair and equitable” manner.

 

In the SCC proceeding, on 14 January 2015 (during the holiday period in the Eastern Orthodox countries) an emergency arbitrator rendered a decision ordering Ukraine to refrain from imposing royalties on JKX’s Ukrainian subsidiary in excess of the rate of 28% (as the Tax Code of Ukraine provided for until the reform in July 2014) (the “Decision”).