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UKRAINE COMMERCIAL DISPUTE RESOLUTION STUDYResearching commercial disputes among Ukrainian companies
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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 STUDYResearching commercial disputes among Ukrainian companies
2006
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Uk ra ine commerc ia l d ispute resolut ion study
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
CONTENTS
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Uk ra ine commerc ia l d ispute resolut ion study
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.
1. INTRODUCTION
1. Introduction
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Uk ra ine commerc ia l d ispute resolut ion 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.
2. KEY TERMS DEFINED
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Uk ra ine commerc ia l d ispute resolut ion 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, has the largest concentration of businesses, and in the oblasts of Lviv and Dnipropetrovsk, reflecting significant business activities in diverse geographic locations. A total of 1,210 companies were included in the survey. For further information on the survey methodology please see Annex 1.
The following key survey results should be highlighted:
3. EXECUTIVE SUMMARY
On average businesses have 4 disputes per year mainly concerning
goods and services contracts with clients and suppliers
Disputes often trigger an end to business relationships
Small and medium-sized businesses suffer more from disputes while
large businesses use courts more frequently and win more often
Businesses are dissatisfied with the court system, particularly with
the enforcement of court judgments and a majority of businesses are
interested in trying Alternative Dispute Resolution (ADR)
Many businesses lack knowledge about arbitration and mediation, but
those businesses who have experience in arbitration are satisfied with
this procedure
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3. Executive summary
The survey found that businesses in Ukraine had approximately four disputes per business in the 12-month period preceding the survey. There was a direct correlation between the size of the business and the number of disputes: most small businesses had two disputes, medium-sized businesses – four, and large companies – ten. Most disputes concern conflicts with clients and suppliers regarding goods and services contracts, but also include financial matters (debts and loans).
Many survey respondents reported that their most recent dispute involved a significant contractual relationship with another party. Unfortunately, the survey also indicated that disputes often result in terminating business relationships, with 26 percent of small companies reporting they had terminated a business relationship as a result of their most recent dispute and 17 percent of medium and 7 percent of large companies reporting the same. Such a result is not helpful to business growth and development, particularly if the business relationship was an important one.
Generally, in their most recent dispute, larger companies were less affected and more successful in using the court system to resolve disputes. Smaller companies suffered a greater impact on their current activities and were less successful in using the court system as a dispute resolution method. Smaller companies stated they used the courts less frequently, and, when in court, they lost the dispute more often than not. Large companies report greater use of the courts and greater success, most likely because they frequently have in-house lawyers or legal departments, can afford to hire the best trial lawyers, can exert more influence, have greater access to the media, and are better able to manage the cost of the dispute. Smaller companies tend to try to resolve their disputes through negotiations rather than resort to the courts.
Businesses are generally dissatisfied with the court system as a mechanism for resolving disputes. Thirty-two percent of all businesses surveyed reported they were very dissatisfied with the lack of enforcement of court judgments and this may dissuade companies, especially smaller ones, from undertaking the effort and expense to pursue a dispute in court. Fifty percent of large businesses are able to effectively use the courts to obtain a decision in their favor, but even these users had problems enforcing decisions.
Although new legislation has recently improved the legal framework supporting arbitration in Ukraine, this form of dispute resolution is currently only used by approximately three percent of all companies regarding domestic arbitration and four percent of companies regarding international arbitration. It is noteworthy that 65 percent of respondents who have experience with arbitration are either completely or very satisfied with the effectiveness of this instrument as a means of dispute resolution.
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Uk ra ine commerc ia l d ispute resolut ion study
Mediation is essentially non-existent in Ukraine today. Seventy-seven percent of businesses currently solve their disputes through negotiation without third party involvement. When third parties are engaged to assist in negotiations, parties often feel they’ve been brought in to exert influence rather than to help the parties conciliate or find ways to compromise. Despite this impression of the role of third parties in dispute resolution, 56 percent of businesses indicated they would likely try mediation to resolve disputes if it were available. The low awareness among Ukrainian businesses of alternative dispute resolution procedures is accompanied by a great interest in obtaining more information about ADR and participating in training and seminars. There is a need to develop more effective dispute resolution in Ukraine, and it is hoped that the judicial system and business organisations will work to accommodate these needs. Increased awareness should lead to a wider inclusion of ADR in contractual dispute clauses and increase the application of ADR in commercial disputes. In particular, mediation as an interest-based consensual solution will increase the rate of compliance with such solutions and therefore, will also decrease the burden of enforcement of judicial decisions. One of the challenges in drafting the questions was determining the level of interest in and demand for mediation when few business people had any knowledge about or experience with mediation. Difficulties with terminology exacerbated this problem as there is no generally accepted equivalent term for mediation in Ukrainian and the word “mediatsiya” (mediation in Ukrainian) is not commonly used or understood. Therefore, it was very important to provide a clear definition of mediation when conducting the survey.
3. Executive summary
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Uk ra ine commerc ia l d ispute resolut ion study
4.1 INTRODUCTION
The results of the study provide unique insights into the nature of current commercial disputes in Ukraine and how businesses deal with and are affected by these disputes. While the survey found no statistically significant variation in the data between the three regions surveyed, there was a correlation, in many cases, between the size of the company and the responses to questions. The discussion of the results is presented in the following order: information about the frequency of disputes, the nature and impact of disputes, current methods for resolving disputes, awareness of and interest in the development of alternative dispute resolution mechanisms.
4.2 FREQUENCY OF DISPUTES
The survey found that businesses in Ukraine had approximately four disputes per business in the 12-month period preceding the survey. There was a direct correlation between the size of the business and the number of disputes: most small businesses had two disputes, medium-sized businesses – four, and large companies – 10. At the time of the survey twenty-eight percent of the respondents were involved in an ongoing business dispute. Less than 10 percent of all businesses surveyed had no disputes in the 12 months preceding the survey and nearly 30 percent of large businesses had more than 10 disputes.
4. THE RESULTS
Chart 1:
Average Number of Disputes for Ukrainian Businesses Per Year
SmallMedium All companies
6%
2%
0%
2%
4%4%
10%
Large
10%
8%
4%
4. The results
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Uk ra ine commerc ia l d ispute resolut ion study
4.3 NATURE OF DISPUTES
While there is some variance in the nature of business disputes in Ukraine, nearly all disputes have arisen regarding a contract with an important business partner. The majority of respondents indicated that they most often have disputes with companies they will have to do business with in the future. When asked to describe their most recent dispute 87 percent of all respondents, regardless of company size, reported that they had a signed contract with the opposing party, a figure which was slightly lower for smaller companies (84% for small companies, 89% for medium-sized and 90% for large companies). This is significant because it indicates that the parties have an established business relationship presumably intended to have long-term value and provide commercial benefit to both parties.
Fifty percent of all respondents noted that their most recent dispute was with clients and suppliers about goods or services. This is consistent with general international trends where these types of disputes are often the most commonly occurring in terms of the number of disputes registered at courts and arbitration institutes. Disputes concerning financial matters, particularly loans and debts, are also quite common in Ukraine: 36 percent of all most recent disputes were reported in this category. Less common were disputes involving property (8%), intellectual property rights (3%), and corporate relations (3%)1. However, it can also be noted that, internationally, disputes regarding the latter categories are on the rise and this trend is eventually likely to affect disputes in Ukraine as well. Smaller companies tend to have more disputes involving goods and services, while larger companies have slightly higher figures for financial disputes. However, there is not a substantial difference between the type of dispute and the size of the company as Chart 2 illustrates.
Chart 2:
Nature of Disputes
GOODS AND SERVICES DISPUTES
Small MediumAll companies
40%
20%
0%
49% 47%
55%50%
Large
60%
50%
30%
10%
FINANCIAL DISPUTES
Small MediumAll companies
20%
0%
38% 37%
32%
36%
Large
40%
30%
10%
4. The results
1 Disputes on corporate relations include disputes regarding ownership of the company (e.g. transaction disputes, shareholder related disputes) and other governance issues.
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Uk ra ine commerc ia l d ispute resolut ion study
Parties based their legal positions in their most recent disputes on interpreting and applying legislation (82%), rather than on industry practices (18%), common sense (16%) or customary practices accepted in a specific business relationship (9%). This is significant because the respondents indicated that they consider one of the most important factors in selecting a dispute resolution method to be obtaining the implementation of the “letter of the law” despite the fact that respondents frequently indicated that they find Ukrainian legislation related to business relationships to be inadequate, ambiguous, or in conflict with other legal provisions. This apparent contra-diction is not unusual for a country in transition such as Ukraine where the ambiguous nature of “the letter of the law” is often used by businesses to their advantage, where possible.
However, when unclear legislation is the basis of a dispute, it can be difficult to predict the outcome, which may increase legal costs and can lead to appeals. The time and expenses associated with such procedures are typically beyond the means of small businesses in Ukraine. This is borne out by the survey results which indicated that while all companies tended to rely upon legislation as their key argument in a dispute, small companies more often relied on common sense, customary practice with the business partner, and generally accepted industry practices than large companies did. Many respondents reported they were critical of Ukrainian legislation and this opinion was also supported by anecdotal evidence.
4. The results
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Uk ra ine commerc ia l d ispute resolut ion study
5.1 EFFECT ON CURRENT BUSINESS
Although all companies suffer negative consequences from their disputes to some degree, it comes as no surprise that smaller companies suffer greater impact from their disputes than larger ones. The actual impact of disputes can be difficult to measure as many companies appear to underestimate the impact and costs of their disputes by only focusing on legal fees and the amount of the dispute, and not quantifying the costs associated with employee time or opportunity costs.
The survey sought to identify some of the factors that could indicate how disputes may affect Ukrainian businesses, but did not attempt to exhaustively explore this area and did not quantify the impact. The survey focused on the factors which were of particular relevance for determining the suitability of introducing ADR methods. These factors included:
incidence of terminating business relationships because of a dispute;
the cost of the dispute in relation to the value of the matters in dispute;
the number of employees involved in dealing with the dispute;
the number of days needed to resolve the dispute; and
the degree of satisfaction with the outcome of the dispute.
The survey did not measure the level of businesses’ actual recovery from a dispute and also did not quantify the impact of negative media coverage, increased costs for doing business, or the loss of business opportunities, good-will or reputation, all of which can often be significant factors in the actual costs of a dispute. The degree of satisfaction with the outcome is discussed in connection with the assessment of particular dispute resolution procedures in section 6.
Large companies reported more frequently that their most recent dispute did not have a significant effect on their current activities; about 55 percent of large companies reported the dispute had no effect on the company’s on-going activities, while 36 percent indicated that the dispute had some but not significant effect on such activities; only 9 percent reported that the dispute completely or substantially adversely affected the company’s activities. About 59 percent of small companies reported that the most recent dispute had affected the current activities of the business.
5. IMPACT OF DISPUTES
5. Impact of disputes
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Uk ra ine commerc ia l d ispute resolut ion study
Chart 3:
Impact of Most Recent Dispute on Current Business Activities
Substantially slowed down current activities
41%
48%39%
36%
49%
9%
39%
55%
All companies
Small
Medium
Large
11%
11%
13% 43%
Slowed down current activities, but not substantially
Completely suspended current activities
Did not affect at all
Medium-sized companies fell between these figures, thus indicating that the perceived impact of a dispute on the activities of a company is related to the size of the company. Therefore, it can be concluded that the larger the company the less likely the company’s on-going activities will be affected by a dispute. This may be explained by the fact that larger companies may have more diversified activities and greater resources to withstand and compensate for the negative consequences of disputes.
5.2 TERMINATION OF BUSINESS RELATIONSHIPS
Relationships between business partners, suppliers and clients often play a key role in the success of a business, therefore ending a business relationship can be a decision with far-reaching ramifications. As reflected in Chart 4, more small and medium sized companies (47% each) than larger companies (35%) reported that they had used breach of business relationship as a dispute resolution method in their most recent dispute. When reporting the outcome of their company’s most recent dispute, 26 percent of small companies said the dispute resulted in the termination of the business relationship with the disputing party, compared to 17 percent of medium and 7 percent of large companies. Despite this relatively high rate of business relationship termination, approximately 34 percent of the responding companies indicated the disputing party was either a rather important or the most important business partner for the company. There were only marginal differences according to the size of the company on this last response.
Chart 4:
Incidence of Use of Terminating Business Relationship as a Dispute Resolution Method
Small MediumAll companies
30%
10%
0%
47%
35%
47%44%
Large
50%
40%
20%
5. Impact of disputes
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Uk ra ine commerc ia l d ispute resolut ion study
In cases where the business relationship was terminated 59 percent of companies suffered a financial loss. In 30 percent of these cases, the loss of the relationship was valued at more than half of the amount in dispute.
There were only slight differences in responses according to company size when reporting the length of time over which the parties had cooperated before their dispute arose. In about 75 percent of the responses, the disputing parties had cooperated for more than a year, and in over 40 percent of the disputes this cooperation existed for more than three years.
Despite the relatively long-term nature of the business relationships which formed a basis for the disputes, preservation of business relationships was ranked only fourth on the list of factors companies consider when selecting a method of resolving a dispute (see Chart 12). These responses would seem to indicate that many Ukrainian businesses either do not place significant value on preserving business relationships and may underestimate the cost of establishing new business partners, or can easily establish new partnerships. Other business dispute surveys have shown that companies that value long-term business relationships tend to have fewer disputes, use the courts less frequently, are more likely to resolve their disputes through negotiations, and more frequently base their position in a dispute on common sense rather than on legislation2. The results of the Ukraine ADR survey may be an indication that businesses, particularly small businesses, need more non-court dispute resolution methods and information about the negative impact ineffective dispute resolution can have on their companies.
5.3 EMPLOYEES AND TIME INVOLVED IN RESOLVING THE
DISPUTE
One of the important indicators of the impact of disputes is the amount of employee time which is devoted to dealing with a dispute. Human capital is a valuable resource for a company and dedicating employee time and attention to handling disputes does not usually contribute to the productivity
2 A survey “Dispute-Wise Business Management, Improving Economic and Non-Economic Outcomes in Managing Business Conflicts”, New York, 2003, conducted by the American Arbitration Association in the USA determined that so called “most dispute-wise companies” place a higher value on their business relationships with clients, suppliers and partners and thus being economically more successful than “least dispute-wise companies”.
Another study “Commercial Dispute Resolution – Konfliktbearbeitungsverfahren im Vergleich (A Comparative Study of Dispute Resolution Procedures)”, Frankfurt am Main, 2005, conducted by Price-waterhouseCoopers in cooperation with the European University Viadrina, Frankfurt/Oder also revealed that German companies regard the preservation of business relationships as one of the most important qualities of a dispute resolution mechanism.
5. Impact of disputes
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Uk ra ine commerc ia l d ispute resolut ion study
of the business or generally promote business development. It was not possible to actually measure the total amount of employee time dedicated to handling disputes, but respondents were asked to report the number of people within the company who were involved in handling the company’s most recent dispute. Medium-sized and large companies indicated their most recent disputes required the involvement of approximately 3 employees, while small companies reported a slightly lower figure of about 2.
As mentioned above, many companies fail to fully measure the financial impact of a business dispute because they do not quantify employee time devoted to resolving disputes, or the opportunity costs of employees involved in dispute resolution rather than their regular responsibilities. Taking these issues into account, it becomes obvious that the longer it takes to resolve a dispute the greater the costs may be for the company, therefore efficient dispute resolution capacity is a skill businesses may want to cultivate. Surprisingly, medium-sized companies reported the shortest number of days to resolve issues in dispute with a mean of about 225 days for settled issues and 318 for unresolved issues or cases ongoing as of the date of the interview. In contrast, large companies reported a mean of 240 days for resolved issues and 367 days for unresolved ones; and small companies reported 254 days and 437 days, respectively. These figures are in line with a 2008 World Bank and IFC study which found that resolving a collection dispute in Ukraine required an average of 30 procedures over the course of 354 days3.
5.4 FINANCIAL COSTS OF THE DISPUTE
One of the more obvious costs of a dispute is that of procuring legal services to handle the dispute. The frequency with which businesses referred their most recent dispute to outside legal counsel varied according to the size of the business. Smaller companies tended to refer their disputes to outside counsel more frequently, which is likely due to the fact that large and medium-sized companies often have in-house counsel.
5. Impact of disputes
3 World Bank publication: http://www.doingbusiness.org/ExploreTopics/EnforcingContracts/
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Chart 5:
Use of Lawyers in Business Disputes
Small MediumAll companies
40%
20%
0%
29%
11%
36%
26%
Large
50%
30%
10%
Use of External Lawyer
LEGAL DEPARTMENTIN-HOUSE LAWYER
Small MediumAll companies
40%
20%
0%
48%
59%
22%
42%
Large
60%
50%
30%
10%
Small MediumAll companies
40%
20%
0%
13%
33%
9%
17%
Large
60%
50%
30%
10%
Use of In-house Lawyer
As seen in Chart 5, over 90 percent of large companies have a legal department or at least an in-house lawyer, about 60 percent of medium-sized companies report having in-house legal services, and only about 30 percent of small companies have such services. Interestingly, regardless of the size of the company, those with legal departments have on average three lawyers employed in the legal department.
5. Impact of disputes
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During their most recent dispute only 11 percent of large companies turned to outside counsel, while 28 percent of medium-sized companies and 36 percent of small companies sought help from an external lawyer. Given the fact that twice as many medium-sized companies have in-house lawyers or legal departments as small companies, it might appear surprising that small companies do not refer more disputes to outside lawyers. This can probably be explained by the cost factor; small companies may have fewer resources available to devote to outside legal services. The disputes of the smaller companies may also involve lesser amounts, thus not justifying incurring legal expenses, and as discussed in this report, smaller companies report less success in court proceedings that may inhibit their willingness to pursue their disputes in court.
Large companies report that the cost of resolving disputes is less than five percent of the value of the dispute, while small companies estimate 10 percent, and medium-sized companies’ estimates fall between these figures. Companies may underestimate the impact and total actual cost of their disputes on the company’s resources because they often do not consider the lost opportunity costs, non-legal personnel costs and resources devoted to dealing with the dispute, tied-up capital, insurance and other measures to avoid or minimize disputes, using legal services to deal with disputes, and most importantly, the cost of ending business relationships. These costs can particularly affect small and medium-sized businesses which typically have fewer resources to spare.
Apart from the costs to individual companies, there are also significant costs to society both in terms of providing judicial and enforcement services, businesses transferring the costs of disputes through higher costs for goods and services, and reduced investment and capital flow as a result of the losses connected with the risks of disputes.
5. Impact of disputes
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6.1 USE OF DISPUTE RESOLUTION METHODS IN GENERAL
The most commonly used method for resolving disputes in Ukraine today is to try to negotiate a settlement with the opposing party. The survey indicated that negotiation without third party involvement was used by 77 percent of all businesses in their most recent dispute, 73 percent of all companies formally settled their dispute prior to filing a claim, and 67 percent filed a claim with the commercial court. Less than seven percent of all disputes are resolved by arbitration, either international or domestic. Commercial mediation was not indicated as a dispute mechanism by any of the respondents and is essentially non-existent in Ukraine today4. This general determination is also reflected in Chart 6 which indicates the respondents’ preferences of dispute resolution procedures for their most recent disputes.
It is possible, and indeed likely, that parties use more than one type of dispute resolution method to attempt to resolve a dispute. For example, a party may seek to negotiate and, if not successful, may file a claim with the court. A party may continue to negotiate after a claim is filed and may also seek to use the media or exert influence through other channels. Some parties report termination of the relationship as a final dispute resolution method. Interestingly, when asked to describe their most recent dispute, most companies reported that they were the party initiating the dispute (76%).
6. CURRENT USE OF DISPUTE RESOLUTION METHODS
Chart 6:
Dispute Resolution Methods Used Today
77%Negotiations without third party
involvement
Formal settlement prior to filing a claim
Claim/response at the commercial court of Ukraine
Breach of relationship with the disputing company
Negotiations through the third party, unrelated to either company
Acted via mass media
Claim/response in domestic arbitration
Claim/response in international arbitration
73%
67%
44%
13%
3%
2%
1%
4 This pattern can also be observed in other countries which a much longer tradition of civil law, e.g. Germany or Austria. The survey “Commercial Dispute Resolution – A Comparative Study of Dispute Resolution Procedures in Germany” conducted by PricewaterhouseCoopers in 2005 also shows this ranking in a similar extent.
6. Current use of dispute resolution methods
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Uk ra ine commerc ia l d ispute resolut ion study
6.2 NEGOTIATION
Although negotiations are frequently used by Ukrainian businesses to resolve disputes the survey indicates that many businesses may not be employing the most effective negotiation methods. Almost 60 percent of all businesses say they strive to find common interests and solutions that satisfy both parties in a dispute. However, the survey also shows that the main reason parties believe business dispute negotiations fail is the dishonesty of the other party, followed by incomplete information, reluctance to make concessions, lack of negotiating skills, and lastly, emotions. This contradiction between businesses’ intentions and their perceptions about the other party and the negotiation process is surely a barrier to effective dispute resolution.
Negotiations can take a variety of forms in Ukraine, but most often occur without any third-party involvement. Only 13 percent of all companies relied upon a “third party” to assist them in negotiations to settle their most recent dispute. When small and medium-sized companies did engage a third party, the majority of them (as reflected in Chart 7) relied on external lawyers, while large companies reported that they most frequently engaged a government official as their third party which likely reflects the political clout of larger companies in Ukraine. In fact, large companies reported using government officials as the third party in 43 percent of cases and lawyers in only 21 percent of cases. Small and medium-sized companies reported quite the opposite, using government officials in only 18 percent and 22 percent of their cases respectively, and external lawyers in 60 percent and 57 percent.
All companies
Small
Medium
Large
Other
Law firm, external lawyers
Other professional or industry associations
Professional mediator
Government officials (excl. court officials)
Representatives of other companies
A person, who has personal relations with
the other party of the dispute
5%6%6%
0%
8%8%8%
14%
22%18%
22%43%
2%3%
0%7%
7%5%
6%21%
55%60%
57%21%
2%2%2%
0%
Chart 7:
Third-Parties Assisting with Negotiating Disputes
6. Current use of dispute resolution methods
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The survey results indicate that these third parties are almost never a trained mediator and often (37% of all cases) their main role was to exert influence on the other party. However, large companies reported that they most often used the third party to provide legal advice (38%) or reveal the interests of the other party (38%), as compared to small companies which reported that the third party was mostly used to exert influence (40%), and to help establish proper communication (35%). Based on this information, it appears that third parties currently assisting in negotiating disputes are not used in the most effective manner. These figures are illustrated in Chart 8.
Influencing theparties
Establishing proper communication
Revealing the interests of the parties
Other (mainly legal advice)
22%22%
17%22%
23%18%
26%38%
30%35%
29%15%
37%40%
38%23%
Chart 8:
Role of the Third Party Assisting in Negotiations
LargeMediumSmallAll companies
Chart 9:
Use of Third Party Negotiations and Formal Settlement prior to Filing a Claim
FORMAL SETTLEMENT PRIOR TO FILING A CLAIM
Small MediumAll companies
60%
0%
75%80%
66%73%
Large
100%
80%
40%
NEGOTIATIONS THROUGH A THIRD PARTY
Small MediumAll companies
10%
0%
12%
8%
18%
13%
Large
20%
15%
5%20%
6. Current use of dispute resolution methods
21
Uk ra ine commerc ia l d ispute resolut ion study
5 These figures also include arbitration proceedings. Since arbitration is virtually not used by Ukrainian companies the above statement can be attributed to court proceedings without restriction.
Though current negotiation methods may not be completely effective, the survey does indicate that negotiation is more effective than other methods in terms of compliance with the outcome. When a dispute is settled through negotiation, the rate of compliance with the agreement is higher than the rate of adherence to court decisions: reportedly about 68 percent full compliance with a negotiated settlement versus about 45 percent complete adherence to a court decision. Parties also frequently use “claim settlement” to attempt to resolve disputes, which is a more formal type of negotiated settlement. There is also a significant difference in the usage of extrajudicial claim settlement procedures by companies according to their size: nearly 80 percent of large companies have used this method in their most recent dispute in comparison to 66 percent of small companies.
6.3 COURT PROCEEDINGS
Large companies litigate disputes in commercial courts much more often than medium or small-sized companies: 86 percent of large companies have resolved disputes in court as compared to 72 percent of medium-sized companies, and only 46 percent of small companies. The rate of success in court proceedings also varied greatly, correlating to the size of the company. Large companies frequently prevailed in court, while small companies usually lost. The rate for having the case decided in the company’s favor was: 58 percent for large companies, 40 percent for medium-sized companies, and 24 percent for small companies5. Given the statistics, it is not surprising that small companies use the court system less often.
Around 79 percent of the companies that prevailed in court reported that the court has completely restored their rights. When asked to rank the most important attributes of an effective court system, companies stated that the most important factors were the competence of judges, fairness of the decision, and independence of judges, while efficiency and enforcement were rated low, and surprisingly, cost was the least important. It might appear contradictory that enforcement was rated low, but this is likely because enforcement in Ukraine is beyond the power of the courts. When selecting dispute resolution methods respondents indicated ability to enforce the agreed to resolution as the most important factor (see Chart 12). The survey results confirmed anecdotal evidence that court decision enforcement mechanisms are inefficient and ineffective. In relation to their last dispute companies reported that the court decision was completely enforced in only about 45 percent of the cases, with about 37 percent not being enforced and the remaining cases partially enforced. Thus, while the respondents may have reported that their rights had been restored, it did not mean that their actual losses were fully compensated. The rate of adherence to a settled agreement is significantly higher when there is a negotiated settlement.
6. Current use of dispute resolution methods
22
Uk ra ine commerc ia l d ispute resolut ion study
INTERNATIONAL COMMERCIAL ARBITRATION
Small MediumAll companies
30%
0%
26%
40%
21%
28%
Large
50%
40%
20%
DOMESTIC ARBITRATION
Small MediumAll companies
20%
10%
0%
16% 17%
23%
19%
Large
30%
25%
15%
5%10%
Use of Arbitration
Chart 10:
Use of Arbitration and Arbitration Clauses
INTERNATIONAL COMMERCIAL ARBITRATION
Small MediumAll companies
6%
0%
4%
9%
2%
5%
Large
10%
8%
4%
DOMESTIC ARBITRATION
Small MediumAll companies
6%
2%
0%
2%
4%
1%
2%
Large
10%
8%
4%
2%
Use of Arbitration Clauses in Contracts
6.4 ARBITRATION
Although relatively new, arbitration legislation has encouraged a growing interest in this method of dispute resolution. Arbitration remains underdeve-loped and is rarely used to resolve commercial disputes between Ukrainian companies, accounting for only about seven percent of total dispute resolution in Ukraine. Of the companies surveyed, only 24 percent had ever been a party to domestic arbitration. The survey made a distinction between domestic arbitration and international commercial arbitration as these are subject to differing legal frameworks and different court jurisdiction.
Some companies, primarily large ones, resolve international disputes at either the International Arbitration Court at the Ukrainian Chamber of Commerce and Industry, or through an arbitration proceeding abroad; five percent of medium-sized and nine percent of large companies surveyed indicated they have been a party to an international arbitration, while only two percent and four percent respectively have been involved in domestic arbitration. This can be compared to small companies, which are even less experienced with international (2%) and domestic (1%) arbitration.
6. Current use of dispute resolution methods
23
Uk ra ine commerc ia l d ispute resolut ion study
Currently, large companies use clauses providing for international commercial arbitration in nearly 40 percent of their contracts and domestic arbitration clauses in approximately 17 percent of their contracts. Medium-sized companies and small companies report significantly less use of such clauses. However, arbitration may become more common as companies and courts become more familiar with the idea and increasingly use arbitration clauses in contracts.
Chart 11:
Factors Hindering the Use of Arbitration for Dispute Resolution in Ukraine
46%Difficulty in enforcing decisions
High costs
Lack of information
Too time consuming
Other
Partiality of arbitrator
Unprofessional arbitrators
Nothing
41%
29%
24%
7%
6%
5%
3%
International arbitration
46%Lack of information
Deficiencies in arbitration law
Difficulty in enforcing decisions
High costs
Partiality of arbitrator
Unprofessional arbitrators
Too time consuming
Other
38%
27%
18%
18%
12%
8%
8%
Domestic arbitration
Users of both international and domestic arbitration tend to be satisfied with this dispute resolution method, with 40 percent completely satisfied and 36 percent rather satisfied with international arbitration. This can be compared with domestic arbitration where 50 percent reported being completely satisfied and 15 percent reported being rather satisfied. Only a relatively small percentage was rather dissatisfied or completely dissatisfied (2% and 4% for international and 8% and 12% for domestic arbitration).
6. Current use of dispute resolution methods
24
Uk ra ine commerc ia l d ispute resolut ion study
6.5 MEDIATION
Mediation is a process where a neutral third party assists the parties in amicably resolving their dispute without judicial involvement by helping them to identify their interests and find a consensual solution. It is based upon the agreement of the parties to refer their dispute to an alternative form of resolution. Unlike litigation and arbitration, mediation is not a determination based on legal and contractual rights and obligations. Increasingly businesses worldwide are relying upon mediation as a means for resolving disputes. However this methodology, and knowledge of it, is essentially non-existent in Ukraine today. The survey reflects the extremely low levels of mediation use in Ukraine as none of the respondents indicated they had ever used mediation as a dispute resolution mechanism.
6. Current use of dispute resolution methods
25
Uk ra ine commerc ia l d ispute resolut ion study
One of the primary objectives of the survey was to determine the interests and needs of Ukrainian businesses in developing alternative methods for resolving commercial disputes. As noted above, there is currently little use of arbitration or mediation in Ukraine, yet there is a need for developing more effective and efficient methods for resolving disputes.
Through the survey companies assessed their level of knowledge about mediation as very low with 66 percent of companies indicating they know nothing about mediation and 29 percent indicating they know very little. Only around four percent of respondents reported that they are fully aware of mediation.
The survey sought to evaluate the potential demand for mediation services among companies. While it is difficult to accurately determine whether companies will use a dispute resolution process that they know nothing or very little about, a majority of companies indicated that they would certainly (16%) or most likely (40%) use meditation if it were available, while approximately 25 percent indicated that they would probably not use it.
Surprisingly, many companies thought that mediation was most suited for large and medium-sized companies, when in fact the results of the survey seem to indicate that small and medium companies may benefit most from using mediation as they suffer the greatest impact from their disputes and are less successful in bringing claims to a successful conclusion in court. Companies believe that mediation may be most appropriate for disputes in-volving customers and suppliers (50%), financial issues (49%), corporate rela-tionships (41%), intellectual property (39%) and company property (31%).
It is noteworthy that 73 percent of the surveyed companies are interested in obtaining information or participating in trainings and seminars on ADR. It is somewhat surprising that large companies show a much higher interest (82%) in this regard than small companies (65%). To assess the needs and demands of businesses for dispute resolution services, the survey requested respondents to record the factors that were most important to them in resolving disputes. The respondents were given a number of factors to select from and Chart 12 indicates the responses and demonstrates that the most important factor was obtaining an outcome that could be enforced, followed by an outcome that conformed to the applicable law. Obtaining complete recovery (satisfaction of interests) was
7. AWARENESS OF ALTERNATIVE DISPUTE RESOLUTION
7. Awareness of alternative dispute resolution
26
Uk ra ine commerc ia l d ispute resolut ion study
Chart 12:
Ranking of Factors Considered Important When Selecting Dispute Resolution Methods
58%Guaranteed decision enforcement
Execution of the letter of the law
Satisfaction of interests
Preservation of business relationships
Possibility to affect the result
Possibility to control the process
Preservation of confidentiality
Possibility to appeal the decision
Saving money
Saving time
Neutrality and independence of the third party
Informality of the process
55%
50%
46%
45%
44%
41%
41%
40%
38%
37%
35%
Chart 13:
Important Factors for Assessing Court Proceedings
29%Competence of judges
Fairness of decision
Independence of judges
Time from filing a claim to court decision
Decision enforcement
Cost of proceedings
24%
20%
12%
9%
6%
It is also noteworthy that businesses in Ukraine appear to be less concerned with the cost of proceedings or the time involved in obtaining a final, enforceable outcome than with other factors including adherence to the “letter of the law”6. This may be in part due to a desire for predictability in the legal system and a response to the perception that legislation is often unclear and conflicting. Ukraine has undergone significant legislative reform in recent years and there may be a wish to ensure the rule of law. Businesses need to be able to resolve their disputes not only in a predictable manner but also efficiently in order to use their resources to do businesses rather than to battle over legal positions.
ranked third and preservation of the business relationship was ranked fourth followed by the possibilities to affect and control the process. This ranking of factors can be contrasted with the factors which were deemed important when considering dispute resolution in courts as presented in Chart 13.
6 The 2005 PricewaterhouseCoopers study for Germany (refer to footnote 4) also determined that time and cost are not considered as decisive factors by the surveyed companies when assessing dispute resolution procedures. Time and cost issues as the main driver of ADR are primarily referred to in surveys conducted in Common Law countries, particularly the USA, where the legal system is much more adversarial and includes instruments of discovery.
7. Awareness of alternative dispute resolution
27
Uk ra ine commerc ia l d ispute resolut ion study
The findings of the survey indicate that Ukrainian businesses are regularly involved in disputes, often with companies with which they have a contractual relationship. As a result, dispute resolution is an important issue for the Ukrainian private sector. Dissatisfaction with the court system and the inability to effectively enforce court judgments related to business disputes mean that many companies currently engage in negotiation to solve their disputes but mediation is not widely used in Ukraine.
The survey shows that companies in Ukraine would benefit from and are interested in having access to alternative methods for efficiently resolving their disputes. Particularly small and medium-sized businesses have a need for dispute resolution methods which would allow them to promptly and effectively resolve disputes at a reasonable cost in order to preserve important business relationships.
8. CONCLUSION
8. Conclusion
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Uk ra ine commerc ia l d ispute resolut ion study
1. INTRODUCTION
The business survey was a key component of the overall CDR study. Therefore, the methodology of the survey was designed to best achieve the aims of assessing the needs and interests of the Ukrainian business community for developing alternative methods of dispute resolution. Importantly, the survey needed to be designed and implemented in a manner that ensured that the resulting data were statistically reliable and accurately represented the views of the full range of business entities in Ukraine. It was essential that the data could be collected with a low risk for error.
Achieving these aims required careful preparation and implementation of the survey. In order to help promote an interest in the survey and to obtain cooperation, leading business organisations were contacted and provided with information about the survey and its aims. Some of these organisations kindly contacted their member companies and encouraged them to cooperate with the survey. Some business organisations included a notice about the survey in their member’s newsletters and magazine, encouraging cooperation with the IFC study. This cooperation was key to the success of the survey.
2. SELECTING A PROFESSIONAL RESEARCH COMPANY
In order to select an appropriate professional research company, a short-list of three leading international firms with wide experience in conducting customised market research in the Ukrainian business community was prepared. These three firms were provided with information about the assignment and were invited to meet with the IFC consultant team (“the team”) to further discuss the assignment. Following meetings with representatives from the three firms, each was invited to submit written proposals for the assignment based upon developed guidelines. These guidelines included the budget for the work, the number of interviews to conduct, the time period when the work should be carried out, and other relevant information and instructions. Two of the firms submitted written bids for the assignment. Following a review of the proposals, GfK, Kyiv, was selected to perform the survey.
ANNEX 1. SURVEY METHODOLOGY
Annex 1. Survey methodology
29
Uk ra ine commerc ia l d ispute resolut ion study
3. SELECTING REGIONS TO SURVEY
The aim of the survey was to assess the business community’s impressions, experiences and perceived needs regarding commercial dispute resolution across all areas of Ukraine, in all sectors, and in all sizes of business. It was not possible to conduct the survey in every oblast in Ukraine as this would have required considerably more resources and time than was available to the project. However, in order to ensure that the survey did not reflect potentially unique impressions or experiences peculiar to a particular region, it was necessary to conduct the survey in more than one city or region. Ukraine is a large country and potentially there could be significant geographical variation in responses to the questions. Furthermore, while businesses based in Kyiv should be included in the survey, there was a risk that if the survey was confined to Kyiv-based businesses, the results may have been less credible when applied to other businesses in other regions. Based on the amount of the budget and the limited time available for conducting the survey, it was decided to conduct the survey in three regions.
Surveying businesses in three diverse regions provided sufficient variation to ensure statistically accurate information which could be extrapolated to other regions in Ukraine with sufficient reliability. In selecting the regions a number of factors were considered: diverse geographic locations, existence of significant business activity, existence and activity of business organisations, degree of potential or existing investment activity, number of commercial court judges and caseload levels, existence and activity of alternative dispute resolution such as arbitration and mediation, and existence of law and business academic institutions. Notably, the surveyed regions should be potential candidates for possible follow-up activities such as a pilot mediation project for resolving commercial disputes.
The city of Kyiv was a natural choice for one of the three venues for conducting the survey. As the capital city it is also the primary centre for many businesses; it has nearly double the annual tax revenues from business than any other region. Kyiv is the centre for judicial and other institutions and organisations. Consequently, it is also the most likely venue for launching a pilot project to promote commercial mediation. Other regions which were considered included many of the 27 regions (25 oblasts and 2 cities) which comprise Ukraine. After considering the above-noted factors, it was decided to conduct the survey in the oblasts of Lviv and Dnipropetrovsk.
Annex 1. Survey methodology
30
Uk ra ine commerc ia l d ispute resolut ion study
4. SELECTING THE RESPONDENTS
The survey sought to gain insight into business disputes across Ukraine and in every major business sector and size of business. A statistically reliable method of selecting respondents was devised to ensure that the responses of the surveyed companies represented all Ukrainian businesses. To achieve statistical reliability and in order to comply with international best practices, it was necessary to interview a minimum of 400 small, medium-sized, and large companies in each of the three regions. The definition of the size of a business was determined by the number of employees: small – less than 50 employees, medium – 51 to 199 employees, and large – over 200 employees.
A total of 1,210 companies were included in the survey. The companies were randomly selected by tax records. The maximum statistical error for each group by size is 5.5%. It can be noted that Lviv had significantly fewer large companies than the other regions; however, there were sufficient companies to ensure the statistical reliability of the collected data.
5. SELECTING THE APPROPRIATE INTERVIEWEE
To obtain the desired information, questions had to be posed to someone within the company who possessed relevant information about the company’s disputes, the manner in which the disputes were handled, and how the disputes impacted the company. The person who possessed this information varied according to the company’s size, organisation, and procedures. When arranging the interview, the interviewer requested to speak with someone who possessed the requested information and the position of the person was recorded. In large companies the best suited respondent was an in-house lawyer (73%), while in small companies it was the chief executive officer (CEO) or owner of the company (52%). In medium-sized companies it was usually a lawyer (43%), the CEO (25%) or the Deputy CEO (11%). Generally, the most frequently interviewed person was a lawyer for the company, followed by the CEO.
If a company had not had a commercial dispute within the past 3 years then the interview could not be conducted. In such cases the interview was immediately terminated, did not count as a completed interview and was not included in the data. A commercial dispute was defined for the respondents as any disagreement between companies that required intervention with any method: negotiations, some form of alternative dispute resolution, or with judicial proceedings initiated. Disputes involving consumers or government bodies were excluded from consideration, which included tax disputes and other regulatory types of disputes. This definition was important for determining whether a company “qualified“ to be included in the survey.
Annex 1. Survey methodology
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Uk ra ine commerc ia l d ispute resolut ion study
Consequently, only companies which had had a commercial dispute within the past 3 years were included in the 1,210 interviews which formed the basis for the survey.
6. DEVELOPING THE SURVEY QUESTIONS
The questions for the survey were given considerable attention and were carefully developed in close cooperation with GfK. The aim of the questions was to acquire as much information as possible about commercial disputes in Ukraine and the needs and demands of businesses. The questions were designed to maximise the collected data’s usefulness and also to limit the length of the interview to approximately 30 minutes.
The team designed the questions to avoid suggesting any particular response and to allow for a range of answers. To obtain statistically reliable information which conformed to international best practices, it was necessary that the survey consisted of closed questions which did not allow for the interviewer to interpret or affect the answers. It was also important that the questions did not suggest possible answers or implicitly impose values on certain answers. In order to allow the respondents to select answers that were more nuanced some questions provided opportunities to select differing degrees of agreement to a certain statement or proposition or to select a set answer that best represented their impression or opinion.
The survey attempted to differentiate the overall perceptions of the respondents with their actual practice, although there are inherent difficulties in making this distinction in practice. Therefore, the survey asked questions about the handling of disputes in general and also included a special series of questions that asked the respondent to answer questions specifically relating to the most recent dispute of the company.
One of the challenges in drafting the questions was determining the level of interest in and demand for mediation when few business people had any knowledge of or experience with mediation. Difficulties with terminology exacerbated this problem as there is no generally accepted equivalent term for mediation in Ukrainian. There are several terms which relate to different types of settlement and thus it was necessary to use terms which could be readily understood.
It is difficult to assess the interest and demand for mediation when the respondents do not understand the concept, are unfamiliar with the process, and unaware of the advantages and disadvantages. In order to maintain the integrity of the study, mediation could not be presented and explained in a favourable light. Difficulties with terminology exacerbated this problem as
Annex 1. Survey methodology
32
Uk ra ine commerc ia l d ispute resolut ion study
there is no generally accepted equivalent term for mediation in Ukrainian and the word “mediatsiya” (mediation in Ukrainian) is not commonly used or understood. Therefore, it was very important to provide a clear definition of mediation when conducting the survey. To overcome these difficulties, the questions were designed to identify the interests and demands of the respondents generally in the context of dispute resolution. Thus, respondents were asked to choose between different items, to rank different factors, to select from a number of possible answers, or asked to indicate a high or low degree of agreement with certain statements.
As part of the development of the questions, business representatives were interviewed to better understand how the desired information could best be obtained through a survey. Before finalising the survey questions, the questions were posed to some business representatives for testing and necessary adjustments were made to the questions. Following training sessions with the interviewers, some further minor adjustments were made to the questions. The preliminary survey was then completed and subject to a pilot test. Following the pilot test, there were a few minor revisions to the questions before the survey was conducted.
7. METHOD OF CONDUCTING THE SURVEY
The survey was conducted by telephone interviews, each interview taking about 30 minutes. The team considered having the survey conducted in face-to-face interviews, but after discussions with GfK, it was decided to use a telephone call center rather than to send out teams of interviewers to conduct the interviews at the respondents’ business premises. This decision was not based upon cost considerations as the cost difference between these two types of methods was negligible. Telephone interviews provided the opportunity to monitor the calls, to quickly make adjustments to the questions if necessary, to immediately record responses on a computer which facilitated the use of advanced technology for tabulating some responses, and to conduct the survey in a short period of time. GfK tabulated all of the data and analysed the results to ensure statistical reliability and to identify statistically significant findings.
Annex 1. Survey methodology
33
Uk ra ine commerc ia l d ispute resolut ion study
Using telephone interviews was more efficient than using interviewers who would travel to the place of business of the targeted company to conduct the interview in person. Unlike face-to-face interviews, it was usually not necessary to first call the targeted company to set up an appointment for interview. If it were necessary to pre-arrange a time for the telephone interview with a particular respondent, an interview time could easily be set up or changed to suit the needs of the respondent. The interviewer could then proceed to the next call, thus making effective use of the interviewers’ time. It may also have been easier to obtain the cooperation of busy executives who may have been reluctant to arrange a personal interview in their offices. Using telephone interviews may have increased the risk that the designated respondent was not the most appropriate person to respond to the questions, but this risk exists even in face-to-face interviews. It may be possible to establish greater rapport with the respondent in face-to-face interviews, but it may also be more difficult to obtain answers to sensitive information in such interviews.
With any survey, it is necessary to ensure that the recorded interviews actually took place as recorded by the interviewer. In Ukraine, the practice is to follow-up a survey with random calls to respondents to confirm the interview, with a typical follow-up rate of 20% to 25% of the total number of interviews. With a telephone survey, this follow-up check can occur simultaneously with the actual interviews as a supervisor continuously monitors the on-going calls on a random basis.
The telephone interviews were conducted between May 17, 2006 and June 15, 2006 by approximately 25 specially trained interviewers from the GfK call centre. The team gave the interviewers a special training session to ensure that they had a basic understanding of the purpose of the survey, the terminology used, and the matters which were being discussed in the survey. The interviewers were prepared to respond to anticipated questions and given standardised responses for requests for clarification. When conducting the interviews, the interviewers recorded the responses directly on computers, which allowed the responses to be regularly tabulated and monitored.
Annex 1. Survey methodology
Annex 2. Survey results by company sizeUk ra ine commerc ia l d ispute resolut ion study
34
Yes, it has a full-time lawyer
NeitherYes, it has a legal department with a few persons
All companies
Small
Medium
Large
42% 17%
69%9%22%
48% 13% 39%
33% 8%59%
41%2. Does your company have a lawyer or legal department?
(% respondents, N = 1210)
Chief executive officer (CEO)
Deputy CEO
Head of a legal department
Lawyer
Chief financial officer/ commercial
manager
Chief accountant, accountant
Other
3%2%
4%2%
6%8%
7%2%
6%7%7%
1%
43%19%
43%73%
5%2%
4%11%
9%10%
11%6%
29%52%
25%5%
1. What position do you occupy in your company?
(% respondents, N = 1210)
All companies
Small
Medium
Large
INFORMATION ABOUT RESPONDENT AND COMPANY
ANNEX 2. SURVEY RESULTS BY COMPANY SIZE
Annex 2. Survey results by company sizeUk ra ine commerc ia l d ispute resolut ion study
35
5. Which dispute resolution methods has your company used in the last 12 months?
(% respondents, N = 793)
Negotiations without third party
involvement
80%80%81%
78%
Formal settlement prior to filing a claim
Negotiations through a third party, unrelated
to either company
Claim/ response at the commercial court of
Ukraine
International arbitration
claim/ response
Breach of relationship with the disputing
company
Acted via mass media
Other2%2%
1%2%
6%4%
6%7%
55%56%
54%56%
4%2%
4%5%
3%3%4%
3%
76%55%
77%93%
16%20%
17%10%
80%69%
79%90%
All companies
Small
Medium
Large
Domestic arbitration claim/ response
3. How many lawyers are employed in the legal department of your company?
(Number of respondents, N = 173)
Number of lawyers in company’s legal department
1. All companies 3
2. Small 3
3. Medium 3
4. Large 3
Median, persons
4. How many business disputes with other companies (i.e. disagreements resolved by talks, extrajudicial methods) has your company had during the last 12 months (since May 2005)?
(Number of respondents, N = 1210)
Number of disputes
1. All companies 4
2. Small 2
3. Medium 4
4. Large 10
Median, disputes
DISPUTES
Annex 2. Survey results by company sizeUk ra ine commerc ia l d ispute resolut ion study
36
7. Is your most recent dispute ongoing or has it been settled?
(% respondents, N = 1210)
LARGE
ALL COMPANIES
MEDIUMSMALL
29%
71%
Settled disputes
Ongoing disputes
28%
72%
30%
70%
25%
75%
Mean, disputes
Breach of relationship with the other company
International arbitration claim/ response
Domestic arbitration claim/ response
Claim/response at the commercial court of Ukraine
Negotiations through a third party, unrelated
to either company
Formal settlement prior to filing a claim
Negotiations without third party
involvement
Acted via mass media
533
8
127
823
115
719
44
38
966
13
22
12
21
23
64
67
6. Of your company’s disputes during the last 12 months, how many were settled at each of the following stages:
(Number of disputes, N = 485)
All companies
Small
Medium
Large
INFORMATION ABOUT MOST RECENT DISPUTE
Annex 2. Survey results by company sizeUk ra ine commerc ia l d ispute resolut ion study
37
8. This dispute concerned the following:
(% respondents, N = 1188)
Other
Relations concerning intellectual property
rights
Relations concerning financial loans and
debts
Relations concerning corporate property
Corporate relations (concerning ownership
of the company)
Relations with clients/ suppliers
50%55%
49%47%
3%3%
2%3%
8%7%
8%10%
36%32%
38%37%
3%3%3%3%
1%1%
1%
All companies
Small
Medium
Large
Initiator of a dispute Was the third partyResponded to the claim of other party
9. Did your company initiate this dispute or respond to a complaint of the other party?
(% respondents, N = 1188)
All companies
Small
Medium
Large
76%
24%75%
77% 22%
26%73%
24%
Annex 2. Survey results by company sizeUk ra ine commerc ia l d ispute resolut ion study
38
10. Did you have an existing written agreement (contract) with the other company?
(% respondents, N = 1188)
LARGE
ALL COMPANIES
MEDIUMSMALL
10%
90%
Yes
No
13%
87%
11%
89%
16%
84%
11. Describe the company that you have/had a dispute with.
(% respondents, N = 1188)
A company partly owned by the state
A company fully owned by the stateA private company
Other
All companies
Small
Medium
Large
68%
71%
65% 14%
68%
4%
13%
6%16%
13%
14% 14%
14% 15%
12. How long had you been working with this company before the dispute arose?
(% respondents, N = 1073)
Three to seven years
One to three years
Seven years or more
Three to twelve months
Large Medium Small All companies
20%
Less than three months
16% 13% 16%
21% 27%25%
25%
36% 32%34%
34%
13% 17%16%
15%
10% 9% 12% 10%
Annex 2. Survey results by company sizeUk ra ine commerc ia l d ispute resolut ion study
39
ALL COMPANIES LARGE
MEDIUM
2 3 41– “not
important”
5– “most
important”
30%
25%
20%
15%
10%
5%
0%
2 3 41– “not
important”
5– “most
important”
30%
25%
20%
15%
10%
5%
0%
SMALL
2 3 41– “not
important”
5– “most
important”
30%
25%
20%
15%
10%
5%
0%
2 3 41– “not
important”
5– “most
important”
30%
25%
20%
15%
10%
5%
0%
13. How important is this business partner to your company? (Estimate using a scale of 1 to 5, where 1 – “not important”, 5 – “most important”)
(% respondents, N=1125)
14. How long did it take to settle the dispute from the day it arose to its final settlement, and how many employees were involved?
Mean number of days, employees
Dispute settlement indicators All companies Large Medium Small
1. Number of days it took to settle the dispute, for resolved disputes, (N = 824)
239 240 225 254
2. Number of days it took to settle the dispute, for pending disputes, (N = 327)
371 367 318 437
3. Number of employees who were involved in the dispute settlement (N = 1180)
3 3 3 2
Annex 2. Survey results by company sizeUk ra ine commerc ia l d ispute resolut ion study
40
15. Did you appeal to external lawyers or legal advisors in the settlement of this dispute?
(% respondents, N = 1182)
LARGE
ALL COMPANIES
MEDIUMSMALL
36%
64%
Yes
No26%
74%
28%
72%
11%
89%
Dispute was of moderate complexity and required certain effort
Dispute was resolved quite easily
Dispute was of high complexity and required a lot of effort
All companies
Small
Medium
Large
20% 59%
24%55%21%
20% 61% 19%
60% 21%19%
21%17. Please evaluate the level of effort required in the settlement of this dispute.
(% respondents, N = 1188)
16. How did the dispute affect the current activities of your company?
(% respondents, N = 1188)
Substantially slowed down current activities
Slowed down current activities, but not substantially
Completely suspended current activities
Did not affect at all
41%
48%39%
36%
49%
9%
39%
55%
All companies
Small
Medium
Large
11%
11%
13% 43%
Annex 2. Survey results by company sizeUk ra ine commerc ia l d ispute resolut ion study
41
18. Your legal position in this dispute was based principally on the following:
(% respondents, N = 1175)
Business practice accepted in relations between you and the other company
Generally accepted business practice in your
industry
Legislation
Common sense
16%23%
15%10%
82%69%
86%92%
18%25%
15%15%
9%11%
7%9%
All companies
Small
Medium
Large
19. Which of the following methods did you use in settling the dispute:
(% respondents, N = 1175)
Acted via mass media
Negotiations without third party
involvement
Formal settlement prior to filing a claim
Negotiations through a third party, unrelated
to either company
Claim/response at the commercial court of
Ukraine
Domestic arbitration claim/ response
International arbitration claim/ response
Breach of relationship with the disputing
company
44%47%47%
Other
1%2%
0%0%
35%
1%1%2%
1%
2%2%
1%2%
67%46%
72%86%
13%18%
12%8%
73%66%
75%80%
77%78%
75%77%
3%4%
3%1%
All companies
Small
Medium
Large
METHOD OF RESOLVING MOST RECENT DISPUTE
Annex 2. Survey results by company sizeUk ra ine commerc ia l d ispute resolut ion study
42
All companies
Small
Medium
Large
23%15%
38%38%
38%29%
26%17%
40%35%
18%22%
37%30%
23%22%
21. Please describe the role of the third party in the dispute settlement process.
(% respondents, N = 115)
Exerting influence
Establishing proper communication
Revealing the interests of the parties
Other
Other
Law firm, external lawyers
Other professional or industry associations
Professional mediator
Government officials (excl. court officials)
Representatives of other companies
Person who has personal relations with
the other party
Unofficial group
2%2%2%
0%
5%6%6%
0%
8%8%8%
14%
22%18%
22%43%
2%3%
0%7%
7%5%
6%21%
55%60%
57%21%
2%2%2%
All companies
Small
Medium
Large0%
20. Please describe the third party you engaged in the settlement of the dispute.
(% respondents, N = 130)
Annex 2. Survey results by company sizeUk ra ine commerc ia l d ispute resolut ion study
43
22. What was the result of the dispute?
(% respondents, N = 826)
Agreement was reached, but parties ceased cooperation
Large
Medium
Small
All companies
15% 58%
7%40%23%
34% 24% 24%
40% 6%25%
8%5% 9%
15% 9%
9% 4%
15% 5% 7%
Negotiations began, parties didn’t reach an agreement
Agreement was reached, parties continued cooperation
The commercial court/ court of arbitration ruled in our favor
The commercial court/ court of arbitration ruled in favor of the other party
Parties terminated relationship without negotiations
Other
Amicable agreement was reached and approved by the court
23. Did the parties adhere to the agreement?
(% respondents, N = 318)
LARGE
ALL COMPANIES
MEDIUMSMALL
25%
Yes, completely
Yes, partially
6%
26%
30%59%
18%
No
68%
3% 11% 3%
72% 80%
24. Was the court decision adhered to?
(% respondents, N = 364)
LARGE
ALL COMPANIES
MEDIUMSMALL
21%
54%
Yes, completely
Yes, partially37%
18%
16%
45%
17%
41%
No 45%
25%
38%42%
Annex 2. Survey results by company sizeUk ra ine commerc ia l d ispute resolut ion study
44
25. In the course of the last dispute, did you or other parties appeal the decision in a higher court?
(% respondents, N = 790
LARGE
ALL COMPANIES
MEDIUMSMALL
63%
37%
Yes
No
67%
70%
30%
66%
34%
33%
27. To what extent did the agreement reached satisfy your initial demands?
(% respondents, N = 352)
48%39%
36%
49%
9%
39%
4%
11%
11%
13% 43%
All companies
Small
Medium
Large 27%65%
56% 19% 17%
4%
13%61%
59% 13%21%
21%
5%
Completely satisfied
Less than by half
By half
More than by half
Did not satisfy at all
28. What were the costs incurred as a result of ceasing to cooperate relative to the initial amount of the agreement?
(% respondents, N = 49) More than initial amount
More than half the initial amount
Same as initial amount
Half
No losses at all
Less than half
Large
Medium
Small
All companies 27% 41%8% 14%8%
14% 14% 25% 32%11% 4%
19% 50%31%
60%20%20%
26. Please estimate your expenses for the settlement of your last dispute.
Expenses%
All companies Large Medium Small
1. % of the incurred costs. Mean, (N = 676) 19 13 14 27
2. % of the amount of the suit. Mean, (N = 450) 17 19 14 21
Annex 2. Survey results by company sizeUk ra ine commerc ia l d ispute resolut ion study
45
LARGE
SMALL MEDIUM
2 3 4
40%
30%
20%
10%
0%
ALL COMPANIES
2 3 41 – “Poor”
5 – “Excellent”
40%
30%
20%
10%
0%
1 – “Poor”
5 – “Excellent”
2 3 4
40%
30%
20%
10%
0%1 –
“Poor”5 –
“Excellent”
2 3 4
40%
30%
20%
10%
0%1 –
“Poor”5 –
“Excellent”
30. Please evaluate the quality of legislation in each of the following fields related to business partnerships:
A) Customer and supplier relations
(% respondents, N = 1084)
CURRENT COMMERCIAL LEGISLATION
29. To what extent did the court restore your rights?
(% respondents, N = 355)
48%39%
36%9%
39%
11%
11%
13% 43%
All companies
Small
Medium
Large 65%
74%
78%
79% 6%
9%
7%
86% 4%
10%
10%
12%
7%
Completely satisfied
Less than by half
By half
More than by half
Did not restore at all
Annex 2. Survey results by company sizeUk ra ine commerc ia l d ispute resolut ion study
46
B) Corporate relations
(% respondents, N = 921)
ALL COMPANIES
2
SMALL
LARGE
MEDIUM
2 3 4
40%
30%
20%
10%
0%1–
“Poor”5 –
“Excellent”
2 3 4
40%
30%
20%
10%
0%1–
“Poor”5 –
“Excellent”
2 3 4
40%
30%
20%
10%
0%1–
“Poor”5 –
“Excellent”
3 41– “Poor”
5 – “Excellent”
40%
30%
20%
10%
0%
C) Relationships concerning company property
(% respondents, N=1016)
ALL COMPANIES
2
SMALL
2 3 4
50%
40%
30%
20%
10%
0%1–
“Poor”5 –
“Excellent”
MEDIUM
2 3 4
50%
40%
30%
20%
10%
0%1–
“Poor”5 –
“Excellent”
3 41– “Poor”
5 – “Excellent”
50%
40%
30%
20%
10%
0%
LARGE
2 3 4
50%
40%
30%
20%
10%
0%1–
“Poor”5 –
“Excellent”
Annex 2. Survey results by company sizeUk ra ine commerc ia l d ispute resolut ion study
47
D) Relationships concerning financial loans and debts
(% respondents, N=1018)
E) Relationships concerning intellectual property
(% respondents, N=810)
MEDIUMSMALL
2 3 4
40%
30%
20%
10%
0%2 3 4
40%
30%
20%
10%
0%
LARGE
2 3 4
50%
40%
30%
20%
10%
0%
ALL COMPANIES
2 3 4
50%
40%
30%
20%
10%
0%1–
“Poor”5 –
“Excellent”1–
“Poor”5 –
“Excellent”
1– “Poor”
5 – “Excellent”
1– “Poor”
5 – “Excellent”
LARGE
2 3 4
50%
40%
30%
20%
10%
0%1–
“Poor”5 –
“Excellent”
SMALL
2 3 4
50%
40%
30%
20%
10%
0%1–
“Poor”5 –
“Excellent”
MEDIUM
2 3 4
50%
40%
30%
20%
10%
0%1–
“Poor”5 –
“Excellent”
ALL COMPANIES
2 3 4
50%
40%
30%
20%
10%
0%1–
“Poor”5 –
“Excellent”
Annex 2. Survey results by company sizeUk ra ine commerc ia l d ispute resolut ion study
48
31. Please estimate to what extent you are satisfied with the following aspects of the performance of commercial courts of Ukraine:
A) Competence of judges
(% respondents, N = 1014)
8%
2 3 41 –“Completely dissatisfied”
40%
30%
20%
10%
0%5 –
“Completely satisfied”
4% 6%
34%
41%
14%
50%
LARGE
2 3 41 –“Completely dissatisfied”
40%
30%
20%
10%
0%5 –
“Completely satisfied”
9%
33% 34%
16%
ALL COMPANIES
2 3 41 –“Completely dissatisfied”
40%
30%
20%
10%
0%5 –
“Completely satisfied”
34%
25%
15%
SMALL
11%15%
2 3 41 –“Completely dissatisfied’”
40%
30%
20%
10%
0%5 –
“Completely satisfied”
5% 9%
32% 35%
19%
MEDIUM
B) Independence of judges
(% respondents, N = 1013)
2 3 41 –“Completely dissatisfied”
40%
30%
20%
10%
0%5 –
“Completely satisfied”
26%
15% 14%17%
29%
SMALL
2 3 41 –“Completely dissatisfied”
40%
30%
20%
10%
0%5 –
“Completely satisfied”
33%
23%
13%16%15%
MEDIUM
2 2 3 41 –“Completely dissatisfied”
40%
30%
20%
10%
0%5 –
“Completely satisfied”
35%
27%
9%
14%14%
LARGE
3 41 –“Completely dissatisfied”
40%
30%
20%
10%
0%5 –
“Completely satisfied”
31%
22%
12%16%
19%
ALL COMPANIES
COMMERCIAL COURTS
Annex 2. Survey results by company sizeUk ra ine commerc ia l d ispute resolut ion study
49
D) Time from judicial recourse to the decision settlement
(% respondents, N = 1050)
2 3 41 –“Completely dissatisfied”
40%
30%
20%
10%
0%5 –
“Completely satisfied”
18%
30%
22%18%
13%
ALL COMPANIES
2 3 41 –“Completely dissatisfied”
40%
30%
20%
10%
0%5 –
“Completely satisfied”
16%
28%
22%
13% 13%
LARGE
30%
2 3 41 –“Completely dissatisfied”
40%
30%
20%
10%
0%5 –
“Completely satisfied”
18%
30%
21%
16% 15%
MEDIUM
2 3 41 –“Completely dissatisfied”
40%
30%
20%
10%
0%5 –
“Completely satisfied”
19%
30%
15%
25%
11%
SMALL
C) Cost of judicial proceedings
(% respondents, N = 1035)
2 3 41 –“Completely dissatisfied”
40%
30%
20%
10%
0%5 –
“Completely satisfied”
8%
27%
33%
9%
MEDIUM
23%
2 3 41 –“Completely dissatisfied”
5 –“Completely
satisfied”
17%
2 3 41 –“Completely dissatisfied”
40%
30%
20%
10%
0%5 –
“Completely satisfied”
11%
24%
32%
10%
LARGE
40%
30%
20%
10%
0%
14%
26%
13%
SMALL
31%
22%
2 3 41 –“Completely dissatisfied”
40%
30%
20%
10%
0%5 –
“Completely satisfied”
11%
27%31%
21%
ALL COMPANIES
10%
Annex 2. Survey results by company sizeUk ra ine commerc ia l d ispute resolut ion study
50
F) Fairness of judgment
(% respondents, N = 1053)
2 3 41 –“Completely dissatisfied”
40%
30%
20%
10%
0%5 –
“Completely satisfied”
6%
25%
34%
12% 12%
17%
MEDIUM
2 3 41 –“Completely dissatisfied”
40%
30%
20%
10%
0%5 –
“Completely satisfied”
9%
21%
13%9%
20%
29%
SMALL
18%15%
18%
2 3 41 –“Completely dissatisfied”
40%
30%
20%
10%
0%5 –
“Completely satisfied”
9%6%
14%
33%37%
LARGE
2 3 41 –“Completely dissatisfied”
40%
30%
20%
10%
0%5 –
“Completely satisfied”
12%12%16%
26%
34%
ALL COMPANIES
E) Effectiveness of decision enforcement
(% respondents, N = 1061)
2 3 41 –“Completely dissatisfied’
40%
30%
20%
10%
0%5 –
“Completely satisfied’
18%21%
13%16%
9%
30%
24%
MEDIUM
24%
2 3 41 –“Completely dissatisfied”
40%
30%
20%
10%
0%5 –
“Completely satisfied’
18%21%
13%16%
8%
34%
24%
SMALL
2 3 41 –“Completely dissatisfied”
40%
30%
20%
10%
0%5 –
“Completely satisfied”
18%
24%
13%16%
5%
32%
26%
LARGE
2 3 41 –“Completely dissatisfied”
40%
30%
20%
10%
0%5 –
“Completely satisfied”
18%
23%
13%16%
8%
ALL COMPANIES
32%
24%
Annex 2. Survey results by company sizeUk ra ine commerc ia l d ispute resolut ion study
51
32. Overall, please estimate to what extent you are satisfied with the performance of commercial courts of Ukraine:
(% respondents, N = 1063)
2 3 41 –“Completely dissatisfied”
40%
30%
20%
10%
0%5 –
“Completely satisfied”
7%12%
44%
28%
50%
9%
MEDIUM
2 3 41 –“Completely dissatisfied”
40%
30%
20%
10%
0%5 –
“Completely satisfied”
14% 12%
44%
25%
50%
5%
SMALL
2 3 41 –“Completely dissatisfied”
40%
30%
20%
10%
0%5 –
“Completely satisfied”
4% 6%
48%
36%
50%
LARGE
7%
2 3 41 –“Completely dissatisfied”
40%
30%
20%
10%
0%5 –
“Completely satisfied”
8% 10%
45%
29%
7%
50%
ALL COMPANIES
Prevents a little Greatly preventsDoes not prevent at all
All companies
Small
Medium
Large
14% 35%
55%29%16%
14% 36% 50%
40% 47%13%
51% 33. Please assess to what extent the following factors prevent the success of negotiations:
A) Lack of negotiation skills
(% respondents, N = 1142)
All companies
Small
Medium
Large
9% 35%
59%32%9%
9% 39% 52%
34% 56%10%
55%
Prevents a little Greatly preventsDoes not prevent at all
B) Other party’s reluctance to make concessions
(% respondents, N = 1137)
NEGOTIATION
Annex 2. Survey results by company sizeUk ra ine commerc ia l d ispute resolut ion study
52
E) Other party’s overestimation of his probability of winning in court
(% respondents, N = 1077)
Prevents a little
All companies
Small
Medium
Large
27% 40%
34%44%23%
33%
38% 30%32%
32%
28% 40%
Greatly preventsDoes not prevent at all
D) Incomplete information
(% respondents, N = 1134)
Prevents a little
All companies
Small
Medium
Large
9% 29%
61%29%10%
64%
31% 60%9%
62%
8% 28%
Greatly preventsDoes not prevent at all
Prevents a little
All companies
Small
Medium
Large
20% 33%
46%37%17%
22% 30% 47%
33% 46%21%
46%
Greatly preventsDoes not prevent at all
C) Inequality of parties
(% respondents, N = 1112)
F) Dishonesty of the other party
(% respondents, N = 1154)
All companies
Small
Medium
Large
6% 23%
71%23%6%
69%
22% 70%7%
70%
7% 24%
Prevents a little Greatly preventsDoes not prevent at all
Annex 2. Survey results by company sizeUk ra ine commerc ia l d ispute resolut ion study
53
Prevents a little Greatly preventsDoes not prevent at all
G) Emotions, mutual accusations
(% respondents, N = 1153)
All companies
Small
Medium
Large
23% 37%
44%37%19%
36%
36% 41%23%
40%
28% 36%
34. Are you satisfied with the effectiveness of negotiations as a means of dispute resolution?
(% respondents, N = 1170)
2 3 41 –“Completely dissatisfied”
40%
30%
20%
10%
0%5 –
“Completely satisfied”
9%
32%33%
7%
18%
MEDIUM
2 3 41 –“Completely dissatisfied”
40%
30%
20%
10%
0%5 –
“Completely satisfied”
6%
33%29%
8%
23%
SMALL
2 3 41 –“Completely dissatisfied”
40%
30%
20%
10%
0%5 –
“Completely satisfied”
7%
33%
40%
8%
13%
LARGE
2 3 41 –“Completely dissatisfied”
40%
30%
20%
10%
0%5 –
“Completely satisfied”
8%
33%33%
8%
18%
ALL COMPANIES
Annex 2. Survey results by company sizeUk ra ine commerc ia l d ispute resolut ion study
54
37. Has your company ever been a party to domestic arbitration?
(% respondents, N = 117)
LARGE
ALL COMPANIES
MEDIUMSMALL
15%
85%
Yes
No
76%
24%
22%
78%
34%
66%
36. Does your company’s typical contract with residents of Ukraine contain a clause on dispute resolution in arbitration court?
(% respondents, N = 1168)
LARGE
ALL COMPANIES
MEDIUMSMALL
23%
77%
Yes
No
81%
19%
16%
84%
17%
83%
35. Please estimate your level of knowledge about arbitration as a means of dispute settlement.
(% respondents, N = 1210)
LARGE
ALL COMPANIES
MEDIUMSMALL
60%
32%
I know nothing
I know a little
10%
66%
66%
25%12%
76%
I am greatly aware of this method
24%
9% 10% 12%
DOMESTIC ARBITRATION
Annex 2. Survey results by company sizeUk ra ine commerc ia l d ispute resolut ion study
55
38. Are you satisfied with the effectiveness of the arbitration court as a mean of dispute resolution?
(% respondents, N = 26)
2 3 41 –“Completely dissatisfied”
60%
20%
10%
0%5 –
“Completely satisfied”
12%15%15%
8%
50%50%
30%
40%
ALL COMPANIES
39. What factors, in your opinion, hinder the use of arbitration courts for dispute settlement in Ukraine?
(% respondents, N = 120)
Other
Lack of information
Dificiencies in arbitration law
Unprofessional arbitrators
Partiality of arbitrator
High costs
Too time consuming
Difficulty inenforcing decisions
27%29%
26%26%
8%15%
6%5%
18%15%15%
26%
18%24%
9%23%
12%15%
11%10%
38%38%
43%33%
46%47%
40%51%
8%6%
13%3%
All companies
Small
Medium
Large
Annex 2. Survey results by company sizeUk ra ine commerc ia l d ispute resolut ion study
56
42. Has your company ever been a party to international commercial arbitration (i.e. due to disputes with non-residents)?
(% respondents, N = 111)
LARGE
ALL COMPANIES
MEDIUMSMALL
35%
65%
Yes
No
50%50%
59%
41%
50%50%
41. Does your company’s typical contract with non-residents of Ukraine contain a clause for settling disputes in international arbitration court?
(% respondents, N = 1177) LARGE
ALL COMPANIES
MEDIUMSMALL
17%
63%
17%
55%
52%
26%13%
48%
28%
21% 21%
40%
Yes
No
No contracts with non-residents
40. Please evaluate your level of knowledge of international commercial arbitration as a means of dispute resolution.
(% respondents, N = 1210)
LARGE
ALL COMPANIES
MEDIUMSMALL
47%
47%
10%
54%
56%
37%
19%
61%
36%
6% 7%20%
I know nothing
I know a little
I am greatly aware of this
INTERNATIONAL COMMERCIAL ARBITRATION
Annex 2. Survey results by company sizeUk ra ine commerc ia l d ispute resolut ion study
57
44. To what extent are you satisfied with the effectiveness of international arbitration in Ukraine as a means of dispute settlement?
(% respondents, N = 50)2 3 41 –“Completely dissatisfied
5 –“Completely
satisfied
40%
30%
20%
10%
0%
4% 2%
18%
50%
40%36%
45. What factors, in your opinion, hinder the use of the International Commercial Arbitration Court (ICAS) at the Chamber of Commerce and Industry in Ukraine?
(% respondents, N = 111)
Nothing
Lack of information
Unprofessional arbitrators
Partiality of arbitrator
High costs
Too time consuming
Difficulty in enforcing decisions
Other
7%9%
3%9%
46%17%
65%47%
24%26%
23%25%
41%39%
45%39%
6%0%
6%9%
5%4%
6%4%
29%39%
19%30%
3%0%0%
5%
All companies
Small
Medium
Large
43. Which arbitration bodies were involved in the settlement of your disputes?
(% respondents, N = 54)
International commercial arbitrage at the Chamber of Commerce and Industry of Ukraine
Arbitration court of the International Chamber of Commerce in Paris
Stockholm Arbitrage
International Arbitration Court of London
Other
96%
7%
4%
2%
15%
Annex 2. Survey results by company sizeUk ra ine commerc ia l d ispute resolut ion study
58
47. Has your company ever considered using mediation to resolve a dispute (i.e. involvement of an independent mediator)?
(% respondents, N = 49)
LARGE
ALL COMPANIES
MEDIUMSMALL
17%
83%
Yes
No39%
61%
64%
36% 41%
59%
46. Please estimate your level of knowledge about mediation as a means of dispute resolution.
(% respondents, N = 1210)
LARGE
ALL COMPANIES
MEDIUMSMALL
27%
68%
I know nothing
I know a little
4%
29%
31%
66%
29%
65%
I am greatly aware of this method
66%
5% 3% 6%
MEDIATION
Annex 2. Survey results by company sizeUk ra ine commerc ia l d ispute resolut ion study
59
50. Mediation would be the best method for resolving the following types of disputes:
(% respondents, N = 966)
Relations concerning intellectual property
Relations concerning financial loans and
debts
Relations concerning Company property
Corporate relations
Customer and supplier relations
50%50%50%
49%
41%44%
37%42%
31%30%30%
32%
49%50%50%
45%
39%39%
38%41%
LargeMediumSmallAll companies
48. “Mediation is negotiation, with the involvement of an independent third party, which does not make the decision, but helps the parties voluntarily reach an agreement on the basis of common interest.” Based on this definition, would you use mediation as a method of dispute resolution?
(% respondents, N = 1085)
Rather Not
Large Medium Small All companies
19% 22%16%
40%
8%
22%25%
16%
38%
42%
31%
16%
40%
25%
19%
22%
Rather Yes
Absolutely Not
Yes, Absolutely
49. Which types of companies, in your opinion, would be most interested in mediation services?
(% respondents, N = 979)
Large
Medium
Small
59%
51%
42%
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60
51. Which organizations, in your opinion, would best provide mediation services?
(% respondents, N = 991)
Other
Individuals
Non-governmental organizations
Organizations affliated with commercial
courts
Government bodies
13%12%
13%13%
25%22%
24%30%
45%42%
46%48%
40%43%
39%39%
1%2%
1%0%
LargeMediumSmallAll companies
SELECTION OF DISPUTE RESOLUTION METHOD
52. When selecting a dispute resolution method what are the most important considerations for your company?
(% respondents, N = 1210)
58%Guaranteed decision enforcement
Execution of the letter of the law
Satisfaction of interests
Preservation of business relationships
Possibility to affect the result
Possibility to control the process
Preservation of confidentiality
Possibility to appeal the decision
Cost
Length of process
Neutrality and independence of the third party
Informality of the process
55%
50%
46%
45%
44%
41%
41%
40%
38%
37%
35%
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53. Please evaluate to what extent you agree with the following statements:
A) Going to court is the best way to ensure commitments by the other party are carried out.
(% respondents, N = 1173)
B) We have adopted procedures and rules for most of the areas of our company’s daily activities.
(% respondents, N = 1169)
SMALL MEDIUM
2 3 4
50%
40%
30%
20%
10%
0%2 3 4
60%
50%
40%
20%
10%
0%
30%
LARGE
2 3 4
60%
50%
40%
20%
10%
0%
30%
ALL COMPANIES
2 3 4
60%
50%
40%
20%
10%
0%
30%
1– “Completely
disagree”
5 –“Completely
agree”
1– “Completely
disagree”
5 –“Completely
agree”
1– “Completely
disagree”
5 –“Completely
agree”
1– “Completely
disagree”
5 –“Completely
agree”
MEDIUM
ALL COMPANIES LARGE
SMALL
2 3 4
40%
30%
20%
10%
0%
2 3 4
40%
30%
20%
10%
0%2 3 4
40%
30%
20%
10%
0%
2 3 4
40%
30%
20%
10%
0%
1– “Completely
disagree”
5 –“Completely
agree”
1– “Completely
disagree”
5 –“Completely
agree”
1– “Completely
disagree”
5 –“Completely
agree”
1– “Completely
disagree”
5 –“Completely
agree”
ATTITUDES TOWARD DISPUTE RESOLUTION METHODS
Annex 2. Survey results by company sizeUk ra ine commerc ia l d ispute resolut ion study
62
2 3
2 3 4
40%
30%
20%
10%
0%
MEDIUM
2 3 4
40%
30%
20%
10%
0%
4
40%
30%
20%
10%
0%2 3 4
40%
30%
20%
10%
0%
C) Settlement of a dispute is more effective if a company assumes responsibility for dispute resolution without appealing to the court.
(% respondents, N = 1169)
LARGEALL COMPANIES
SMALL
1– “Completely
disagree”
5 –“Completely
agree”
1– “Completely
disagree”
5 –“Completely
agree”
1– “Completely
disagree”
5 –“Completely
agree”
1– “Completely
disagree”
5 –“Completely
agree”
2 3 4
60%
50%
40%
20%
10%
0%
30%
2 3 4
60%
50%
40%
20%
10%
0%
30%
2 3 4
60%
50%
40%
20%
10%
0%
30%
2 3 4
60%
50%
40%
20%
10%
0%
30%
MEDIUMSMALL
LARGEALL COMPANIESD) In the case of a dispute, we strive to find common interests and solutions that satisfy both parties.
(% respondents, N = 1173)
1– “Completely
disagree”
5 –“Completely
agree”
1– “Completely
disagree”
5 –“Completely
agree”
1– “Completely
disagree”
5 –“Completely
agree”
1– “Completely
disagree”
5 –“Completely
agree”
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63
E) Our company most often has disputes with companies we will have to do business with in the future.
(% respondents, N = 1158)
2 3 4
40%
30%
20%
10%
0%
ALL COMPANIES
2 3 4
40%
30%
20%
10%
0%
LARGE
2 2 3 4
40%
30%
20%
10%
0%
MEDIUM
3 4
40%
30%
20%
10%
0%
SMALL
1– “Completely
disagree”
5 –“Completely
agree”
1– “Completely
disagree”
5 –“Completely
agree”
1– “Completely
disagree”
5 –“Completely
agree”
1– “Completely
disagree”
5 –“Completely
agree”
ALL COMPANIES
2 3 4
50%
40%
30%
20%
10%
0%
LARGE
2 3 4
50%
40%
30%
20%
10%
0%
SMALL
2 3 4
50%
40%
30%
20%
10%
0%
MEDIUM
2 3 4
50%
40%
30%
20%
10%
0%
F) Improvement and dissemination of extra-judicial methods for resolving disputes in Ukraine will benefit companies such as ours.
(% respondents, N = 1136)
1– “Completely
disagree”
5 –“Completely
agree”
1– “Completely
disagree”
5 –“Completely
agree”
1– “Completely
disagree”
5 –“Completely
agree”
1– “Completely
disagree”
5 –“Completely
agree”
Annex 2. Survey results by company sizeUk ra ine commerc ia l d ispute resolut ion study
64
2 3 4
70%
50%
40%
20%
10%
0%
30%
60%
2 3 4
70%
50%
40%
20%
10%
0%
30%
60%
2 3 4
70%
50%
40%
20%
10%
0%
30%
60%
ALL COMPANIES
2 3 4
70%
50%
40%
20%
10%
0%
30%
60%
LARGE
SMALL MEDIUM
H) We strive to put all details of our cooperation with partners in writing.
(% respondents, N = 1184)
1– “Completely
disagree”
5 –“Completely
agree”
1– “Completely
disagree”
5 –“Completely
agree”
1– “Completely
disagree”
5 –“Completely
agree”
1– “Completely
disagree”
5 –“Completely
agree”
G) For enforcement of a decision or agreement reached after a dispute, intervention of government bodies is needed.
(% respondents, N = 1158)
2 3 4
40%
30%
20%
10%
0%2 3 4
40%
30%
20%
10%
0%
2 3 4
40%
30%
20%
10%
0%2 3 4
40%
30%
20%
10%
0%
MEDIUMSMALL
LARGEALL COMPANIES
1– “Completely
disagree”
5 –“Completely
agree”
1– “Completely
disagree”
5 –“Completely
agree”
1– “Completely
disagree”
5 –“Completely
agree”
1– “Completely
disagree”
5 –“Completely
agree”
Annex 2. Survey results by company sizeUk ra ine commerc ia l d ispute resolut ion study
65
I) Everything in our country is resolved through personal relations and bribes.
(% respondents, N=1161)
LARGE
2 3 4
50%
40%
30%
20%
10%
0%
ALL COMPANIES
2 3 4
50%
40%
30%
20%
10%
0%
MEDIUM
2 3 4
50%
40%
30%
20%
10%
0%
SMALL
2 3 4
50%
40%
30%
20%
10%
0%
1– “Completely
disagree”
5 –“Completely
agree”
1– “Completely
disagree”
5 –“Completely
agree”
1– “Completely
disagree”
5 –“Completely
agree”
1– “Completely
disagree”
5 –“Completely
agree”
Court
34%27%
33%44%
54. Which methods of dispute settlement are most commonly used in your industry?
(% respondents, N = 1170)
All companies
Small
Medium
Large
Commercial court
Negotiations
Arbitrage court
Agreements and contracts
Claims
Pre-court settlement
Other
2%3%
1%1%
1%1%1%1%
7%4%
8%9%
6%10%
5%3%
1%1%1%
0%
57%61%
58%52%
4%4%4%
5%
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66
55. Does your company carry out export-import operations?
(% respondents, N = 1149)
LARGE
ALL COMPANIES
MEDIUMSMALL
71%
29%
Yes
No
62%
38%
63%
37%
47%53%
Owners do not take part in daily management, only make strategic decisions
All companies
Small
Medium
Large
46% 48%
39%58%
6%
61% 9%30%
6%
45% 49%
Owners do not participate in company management at all
Owners run in daily management of the company
57. Which of the following statements about the participation of your company owner in company management best fits your company?
(% respondents, N = 1098)
Large Medium Small All companies
56. Who is the owner or the largest shareholder of your company?
(% respondents, N = 1087)
Foreign individual/ entity
Employees
Ukranian individual/ entity
Central government bodies
Local government bodies
51%62%
83%
7%24%
7%
4% 11%
13% 12% 7%8%
6%
6%
12%
7% 6%
67%
Other
COMPANY INFORMATION
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67
Closed joint-stock company Neither
All companies
Small
Medium
Large
11%18%
7%6%
6%
14% 52%34%
71%
17% 70%
87%
13%
Open joint-stock company
58. Is your company a joint-stock company?
(% respondents, N = 1181)
60. Is there a shareholder with a share of 50% or more?
(% respondents, N = 216)
LARGE
ALL COMPANIES
MEDIUMSMALL
45%
55%
Yes
No44%
56%
49% 51%
39%
61%
59. What is the total number of shareholders for your company?
(N = 187)
Number of shareholders in the company
1. All companies 505
2. Small 78
3. Medium 413
4. Large 869
Mean, persons
61. What is the total number of shareholders with more than 10% of shares?
(N = 129)
Number of shareholders in the company
1. All companies 6
2. Small 6
3. Medium 5
4. Large 7
Mean, persons
SHAREHOLDER INFORMATION
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64. Which of the following rules of Corporate Governance are provided by constitutive documents or internal regulations of your company?
A) Ability to vote at the general meeting by mail or by show of hands.
(% respondents, N = 249)
All companies
Small
Medium
Large
40% 60%
46%54%
63%37%
38% 63%
Yes
No
63. Does your company have an Audit Committee?
(% respondents, N = 285)
LARGE
ALL COMPANIES
MEDIUMSMALL
34%
66%
Yes
No
15%
85%
18%
82%
4%
96%
62. Does your company have a Board of Directors?
(% respondents, N = 287)
LARGE
ALL COMPANIES
MEDIUMSMALL
36%
64%
Yes
No
17%
83%
24%
76%
4%
96%
CORPORATE GOVERNANCE INFORMATION
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B) Shareholders are obliged to vote in person at the shareholder meeting.
(% respondents, N = 252)
All companies
Small
Medium
Large
85% 15%
29%71%
16%84%
91% 9%
Yes
No
C) Cumulative voting for members of the board of directors.
(% respondents, N = 185)
All companies
Small
Medium
Large
32% 68%
69%31%
73 %27%
37% 63%
Yes
No
D) Minority shareholders may designate the number of directors proportional to their share.
(% respondents, N = 198)
All companies
Small
Medium
Large
34% 66%
54%46%
68%32%
30% 70%
Yes
No
All companies
Small
Medium
Large
23% 77%
58%42%
82%18%
18% 82%
E) Obligation to buy out shares of minority shareholders if they do not agree with key decisions of the board of directors.
(% respondents, N = 195)
Yes
No
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F) Obligatory payment of dividends at the end of the year if company made a profit.
(% respondents, N = 345)
All companies
Small
Medium
Large
42% 25%
30%44%
32%
23% 36%40%
33%
42% 26%
26%
Hard to sayNoYes
65. Would you be interested in obtaining information or participating in trainings and seminars on ADR?
(% respondents, N = 1122)
LARGE
ALL COMPANIES
MEDIUMSMALL
35%
65%
Yes
No27%
73%
27%
73%
18%
82%
G) Directors’ remuneration directly dependent on company performance.
(% respondents, N = 210)
All companies
Small
Medium
Large 46% 54%
44%56%
56 %44%
43% 57%
Yes
No
INTEREST IN COOPERATION WITH IFC
71
Uk ra ine commerc ia l d ispute resolut ion study
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Uk ra ine commerc ia l d ispute resolut ion study
Motria Onyschuk-Morozov
Senior Operations Manager
Corporate Governance
Central and Eastern Europe Department
30A, Spaska Str., Podil Plaza
block 2, 6-th floor
Kyiv, 04070 Ukraine
Tel.: +38 044 490 64 00
Fax: +38 044 490 64 20
E-mail: [email protected]