Ilyashev & Partners Law Firm successfully represented a Ukrainian state exporter of military equipment,achieving an arbitral award for the collection of over EUR 20 million from a U.S. military equipment supplier. 

The Ukrainian state enterprise entered into a military equipment purchase and sale agreement with a foreign supplier to improve the defence capabilities of the Armed Forces of Ukraine. The Ukrainian state enterprise duly performed its contractual obligations and timely remitted an advance payment in full. However, the foreign supplier did not deliver the equipment within the contractual terms and refused to return the funds paid.

In order to protect the interests of the Ukrainian state company, Ilyashev & Partners Law Firm filed a statement of claim with the Vienna International Arbitration Centre (VIAC) to collect from the foreign supplier the costs paid by the Ukrainian state enterprise in advance in full, contractual penalties for failure to deliver the goods, restitutionary interest to the value of the advance payment, damages incurred in the form of penalties collected from the state enterprise by the Ministry of Defence of Ukraine, arbitration and legal costs.

In arbitration proceedings, the U.S. supplier resorted to various defence mechanisms to avoid responsibility. In particular, it claimed that the VIAC allegedly lacked jurisdiction to consider the dispute, and submitted a counterclaim seeking invalidation of the arbitration agreement or, alternatively, recognising it unenforceable. The foreign supplier alleged that the state enterprise supposedly had failed to comply with the contractual terms requiring pre-arbitration negotiations between the parties.

Ilyashev & Partners’ International Arbitration Team developed several alternative positions and successfully proved that the arbitration agreement is valid and that the parties’ agreement on friendly negotiations, which does not specify a procedure and a desired outcome of such negotiations, cannot hinder arbitration.

Since the contract did not provide for a contractual penalty, Ilyashev & Partners’ Team convinced the VIAC in one of its alternative legal positions to deviate from the general norm that the applicable law to a contract for the sale and purchase of goods shall be the law of the seller and take the side of the Ukrainian state enterprise in the issue of applying Ukrainian law to create preconditions for claiming a statutory penalty from the U.S. supplier.

As a result of successful case-management by Ilyashev & Partners’ International Arbitration Team, the VIAC agreed that the foreign supplier failed to fulfil its obligations to supply military equipment and rendered its award in favour of the Ukrainian state enterprise, ordering the foreign supplier to pay over EUR 20 million, including:

    • the full advance payment made by the Ukrainian state enterprise under the contract;
    • restitutionary interest for the value of the advance payment accrued until the Respondent’s failure to file a claim for the return of the advance payment;
    • a statutory penalty and fines for breaching a contractual obligation to deliver the goods on time under Article 231 of the Commercial Code;
    • reimbursement of arbitration costs incurred by the Ukrainian state enterprise, including 85% of the claimed expenses for legal representation by Ilyashev & Partners awarded to the extent of the overall success of the Ukrainian state enterprise in the case.

At the same time, VIAC fully rejected the foreign supplier’s claims for arbitration and legal costs reimbursement.

The case was handled by Roman Protsyshyn, Attorney at Law, Counsel at Ilyashev & Partners Law Firm, and Kateryna Solodovnyk, Lawyer.

 

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