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World Bank Document 42705 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized RESOLUTION STUDY UKRAINE COMMERCIAL DISPUTE Researching commercial disputes amongUkrainian disputes companies commercial Researching The contents of this report are protected by copyright. Neither this report nor its parts may be reproduced, copied or distributed in any form without reference to the International Finance Corporation report “Ukraine Commercial Dispute Resolution Study. Researching Commercial Disputes among Ukrainian Companies”. This report is to be distributed under the condition that it will not (as the result of sale or otherwise) be loaned or resold, rented or distributed on any kind of commercial basis without prior consent from the International Finance Corporation (IFC). The materials contained in this report are presented as an overview of the results of a study that was conducted in May-June 2006 among Ukrainian companies by size – small, medium and large and by region – Kyiv, Lviv and Dnipropetrovsk. The study was funded jointly by IFC and the Swedish International Development Agency (SIDA). The information in this report is presented in good faith for general information purposes, and the Swedish International Development Agency (SIDA), the International Finance Corporation (IFC), the World Bank Group or PricewaterhouseCoopers (PwC) shall not be held liable for any of the information contained herein. This report does not claim to serve as an exhaustive presentation of the issues discussed herein. Although the Ukraine Commercial Dispute Resolution Study experts took a very thorough approach in preparing this report, it should not be used as a basis for making commercial decisions. Please approach independent legal experts for their expert recommendations on any legal issues. All information and materials used in preparing this report are the property of and archived by the International Finance Corporation (IFC). © 2007 International Finance Corporation This report was peer reviewed and edited by PwC UKRAINE COMMERCIAL DISPUTE RESOLUTION STUDY Researching commercial disputes among Ukrainian companies 2006 Ukraine commercial dispute resolution study CONTENTS 1. INTRODUCTION ................................................................................................. 4 2. KEY TERMS DEFINED ....................................................................................... 5 3. EXECUTIVE SUMMARY ..................................................................................... 6 4. THE RESULTS ...................................................................................................... 9 4.1 Introduction ..................................................................................................................................9 4.2 Frequency of Disputes ............................................................................................................9 4.3 Nature of Disputes ..................................................................................................................10 5. IMPACT OF DISPUTES ....................................................................................12 5.1 Effect on Current Business .................................................................................................12 5.2 Termination of Business Relationships ........................................................................13 5.3 Employees and Time Involved in Resolving the Dispute ..................................14 5.4 Financial Costs of the Dispute ..........................................................................................15 6. CURRENT USE OF DISPUTE RESOLUTION METHODS .................................18 6.1 Use of Dispute Resolution Methods in General .....................................................18 6.2 Negotiation .................................................................................................................................19 6.3 Court Proceedings ..................................................................................................................21 6.4 Arbitration ...................................................................................................................................22 6.5 Mediation ....................................................................................................................................24 7. AWARENESS OF ALTERNATIVE DISPUTE RESOLUTION ..............................25 8. CONCLUSION ...................................................................................................27 ANNEX 1. Survey Methodology ................................................................................................. 28 ANNEX 2. Survey Results by Company Size ....................................................................... 34 3 1. Introduction Ukraine commercial dispute resolution study 1. INTRODUCTION The International Finance Corporation (IFC), the private-sector arm of the World Bank Group, conducted a comprehensive survey of commercial disputes of businesses in Ukraine in 2006. This study, which was funded by SIDA, the Swedish International Development Cooperation Agency, is part of IFC’s work to improve business opportunities and the private sector environment in Ukraine. Consistent with these aims, IFC is interested in ensuring that business disputes can be efficiently resolved so that enterprises can devote their resources to doing business. IFC conducted the survey to gain an understanding of how business disputes are currently managed and resolved, the resources businesses devote to such disputes, the effectiveness of and satisfaction with current dispute resolution methods, the needs and priorities of businesses when resolving disputes, and the demand for alternative methods, particularly focusing on the potential for developing commercial mediation in Ukraine. The survey required executive level people to take time out of their busy schedules to share potentially sensitive information about company matters. IFC wants to thank all respondents for their time and efforts and also leading business organisations for their cooperation in order to help promote an interest in the survey. IFC also wants to thank Dr. Patricia Shaughnessy, University of Stockholm, Sweden, lead consultant to this survey for her professional guidance and analysis of the survey results and also Dr. Michael Hammes, Pricewater- houseCoopers, Frankfurt, Germany, for editing and providing a peer review of the survey report. 4 2. Key terms defined Ukraine commercial dispute resolution study 2. KEY TERMS DEFINED Alternative dispute resolution (ADR) refers to any process by which parties, either individuals or legal entities, can resolve disputes without entering the formal court system. The two main types of ADR are arbitration and mediation. Arbitration is a process whereby two parties come together before a neutral third party who is a trained arbitrator, who listens to both sides and then issues a decision which may be binding or non-binding, depending on what the parties have agreed to in advance (usually in a contract). In effect, arbitration creates a private court system. If one of the parties does not want to adhere to the terms of the decision, it might need to be enforced through the public courts. International arbitration is used when the parties or the subject of the dispute are based in different jurisdictions. Usually the parties have entered into an agreement which indicates to which international arbitration court the case should be referred. This type of arbitration is also used by governments to resolve international disputes. Domestic arbitration is used when the parties reside in or have a business registered in the same country and refer the dispute to an arbitration court in that country. Mediation is a process whereby two or more parties sit down with a neutral third party, usually a trained mediator, who facilitates a mutually acceptable agreement to resolve the dispute in question by focusing on interests rather than legal positions and contractual rights. Unlike litigation and arbitration, in mediation the parties come to an agreement themselves – the mediator does not make any decisions for them. 5 3. Executive summary Ukraine commercial dispute resolution study 3. EXECUTIVE SUMMARY In business, disputes are inevitable. Resolving them quickly while preserving important business relationships is a key priority in a modern commercial environment. In Ukraine today the main formal methods available to businesses for resolving disputes are the court system and arbitration. Informal methods include negotiations, out of court settlements and using the mass media to put pressure on other parties involved in the dispute. The survey gathered comprehensive information from businesses about their disputes, how disputes affect their business, and how they attempt to resolve them. The survey sought to gain insight into business disputes across Ukraine by looking at different regions and sizes of businesses. A commercial dispute was defined for the respondents as any disagreement between companies that required intervention by any method, including negotiation, some form of alternative dispute resolution, or initiating judicial proceedings. Disputes involving consumers or government bodies, such as tax disputes or other regulatory types of disputes, were excluded from consideration. The survey was conducted in the city of Kyiv which, as the capital,
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