LAW FIRM DIRECTORY

Dispute Resolution

An informal approach

Certain trends which emerged last year in judicial practices give us hope that courts will be more willing to delve into the essence of the cases under their review rather than rely on non-compliance with formalities

Considerable changes in Ukrainian society and civil awareness were bound to reflect on the country itself, although in the course of one year of intense political and geopolitical changes the state apparatus of Ukraine (including the court system) could have undergone more significant changes. But this did not happen. Reform in this area is just starting to be initiated. Thorough inspection of regular personnel has not been carried out which, consequently, affects the delivery of a verdict by judges. Of course, until the moment when clear lustration rules were revealed, many judges were exposed to the risk of being brought to criminal responsibility for both unlawful as well as fairly lawful rulings. Therefore, they had to look over their shoulders to see the reaction of officials in power, both previous and future ones.

Nevertheless, cases were reviewed, justice was administered, andlawyers have noticedcertainpositive trendsin the development ofjudicial practice.

GENERAL MATTERS OUTSIDE THE RULES

Anton Kuts, the Attorney, the Head of the Litigation andMediationpractice at Yuskutum Attorneys Group emphasizes that “by virtue of certain eventsthe litigation practice was not developing veryrapidlythis year.The system was burning withfeverfirstly through general protests, and now through pre-lustration and lustration procedures. Nevertheless, the courts have notstopped working and reviewing disputes”. At the same time, Mr. Kuts points out thatmany hidden negative tendencies that have existed fordecades have, unfortunately, not beeneradicated, but quitepredictablymanifested themselves. However,there have beenpositive trendsthat deserve special attention.

To such trends AntonKuts,in particular, relates wider application by the courts of the practices of the European Courtof Human Rights.Since the rulings adopted by the European Courtare thoroughly weighted,theycontain a well-draftedmotivational part and references to its practicessignificantly improvethe quality of judicial decisionsin whichsuch practice was applied.

Andrey Stelmashchuk, a partner at Vasil Kisil and Partners Law Firm, also points to the expansion of approaches that the courts apply. “First of all, I would like to note the change in the stance taken by the Supreme Court of Ukraine regarding the possibilities of judicial protection of violated civil rights and interests through methods not stipulated legislatively or contractually on the foundation of the general principles of protection of rights, freedoms and interests, as established by the Constitution of Ukraine and the Convention for the Protection of Human Rights and Fundamental Freedoms”, says Mr. Stelmashchuk. According to his opinion this progressive approach will allow the courts to depart from the previously applied formalistic conception of the judicial protection of the rights, when a claim was dismissed on the sole grounds that while bringing a claim to a court of law a defendant chose the method of protection not stipulated by law or contract. This will allow the making of a more flexible response to violations of civil rights and interests, as well as to apply methods of protection that most effectively protect and restore the rights of the injured party.

The Supreme Economic Courtof Ukraine calls for a comprehensive approach towardsreview of judicial disputes onto whose ruling AntonKutz draws attention: “The main tendency this year wasprogression towardsprecedent.The Supreme Economic Courtof Ukraineadopted a resolutionfor caseNo. 914/2873/13 to which there are noanalogues inUkrainian litigation practice. By overturning the decision ofthe first twoinstance courts, the Supreme Economic Court pointed to the needto pay attention toand analyzethe facts established bydecisionsinother court proceedings where the sameparties were involved. This resolutionis a prime exampleof a strategic decisionthatwill determinethe development oflitigation practice in years to come”.

Supporting the view that the hopes of the society and, in particular, lawyers for a speedy recovery in the judiciary and judicial practice did not materialize is Dmitry Ovsiy, a Partner at the Attorney’s Firm GORO LEGAL: “There have been no significant changes in judicial practice this year. It is still problematic to ensure that judges get into the individual features of particular cases and abstain from adopting a template decision on formal grounds. Certainly, the new Law ‘On Restoration of Confidence Towards Judicial Authorities’ is a positive step, but it does not apply to those judges who, for example, unlawfully deprived the defendants of their property rights, ‘assisted’ in organizing raider attacks, etc.” 

PRIVATE PRACTICE

In addition to the general tendencies created by individual court decisions, there are many rulings which will not influence the judicial review of judicial cases in general, but will influence the practice of addressing certain categories of disputes.

For example, in terms of tax disputes Andrey Stelmashchuk draws attention to the practice of the Supreme Administrative Court of Ukraine in disputes related to charging additional VAT liabilities with respect to an honest taxpayer. “The Supreme Administrative Court of Ukraine believes that inability to confirm the amounts of VAT displayed by counterparties as part of tax obligations under the inspection acts of other business entities, as well as initiation of a criminal case against an official of the company-contractor shall not constitute grounds for denying the taxpayer the right to form a VAT tax credit, since the failure to perform an obligation by one party of economic relations cannot be regarded as confirmation of the purpose of tax evasion and obtaining a tax benefit by the other party, if the taxpayer has fulfilled all the conditions stipulated by the law and has all the necessary documentary evidence of the size of the tax credit” Mr. Stelmashchuk says, giving an example.

A reminder that earlier courts often supported the decisions of tax authorities according to which responsibility for a contractor was assigned onto an honest taxpayer. Such approaches are still used by the courts, but the cited example of the decision encourages hopes that national practice will match logic, constitutional principles and the practices of the European Court, which as early as in 2009 (in the Bulves AD vs. Bulgaria case) established a violation of proprietary rights (Article 1 of the First Protocol of Convention for the Protection of Human Rights and Fundamental Freedoms) through violation of legitimate expectations of the taxpayer (who paid the amount of tax in question) that this fact will be taken into account in the tax credit.

Equally important and widespread this year are disputes regarding credit commitments: as between the borrower and the lender, as well as between the guarantor, the lender and the borrower. Given the fluctuations in the economy their number is likely to increase, and that is why decisions of courts which will clear many controversial issues are of great importance.

OlgaProsyanyuk, Managing Partner atAVER LEX,considersthe decisions of the SupremeCourt of Ukraine(cases No. 6-170цс13, 6-53цс14, 6-6цс14, 6-41цс14 and 6-28цс14) adopted in September2014 to be among the most significantcourt decisions in judicialpractice related to termination ofthe guarantee. “Prior to the adoption of theseregulationsjudicial practice was to ensurethat in the process of collection of indebtednessfrom the guarantorthe courts failed toexamine thequestion:what was the period of time between the origination of thecreditors’ rightto put forward a complaintand the actual moment of filing of such complaint?However, resolving the issue of terminationof guarantee the courts took into account thefact ofthe creditor lodging the application to the Surety within a six-month periodas specified in Paragraph4 of Article559of the Civil Codeof Ukraine”, saysthe lawyer.

As far as the mentioned Resolutions of the Supreme Court of Ukraine are concerned, Ms. Prosyanyuk specifies the legal position of the highest judicial body, according to which it is not sufficient to put forward a claim (complaint) to the guarantor within a six-month period; there is also the need to bring an action in a court of law. Failure to file a claim to a court of law against a corresponding guarantor within a specified period of time constitutes reason for dismissal of a claim in connection with the termination of the creditor’s right to satisfy its claims at the expense of the Surety. Thus, the Supreme Court of Ukraine has identified the concept of “claim” and “action”.

According to Olga Prosyanyuk, although this conclusion of the Supreme Court of Ukraine is mandatory for the courts in the process of resolving disputes related to suretyship, one cannot ignore the fact that in relation with these resolutions some judges of the Supreme Court of Ukraine provided their separate opinions, which shows the previously applied legal position coming down to a more broad interpretation of the term “claim”. But now the Supreme Court of Ukraine has brought this term (in the context of the six month-period following expiry of the basic obligation for bringing a claim against the surety) to the concept of an action. Lawyers are inclined to believe that the legal position set out in separate opinions of the judges is more logical since the claim is not always a claim, but the action is always a claim. “Logically, before addressing the issue for review by a court of law the creditor must file a claim against the surety, and the latter must receive it. After all, it is upon receipt of a claim by the surety when such surety can decide whether to fulfill the obligation secured by a guarantee, either voluntarily or ignore or challenge the claim of a creditor. In case of failure to perform obligations negative consequences may arise, right up to bringing an action in a court of law,” Olga Prosyanyuk says, arguing her position.

Dmitry Ovsiy also draws attention to the litigation practice related to disputes between banks and borrowers, citing the decision of the Court of Appeal in Dnipropetrovsk Region under case No. 214/4359/13-Ц which established the fact that a factoring transaction does not involve transfer of the ownership right as a security under loan.

“Factoring transactions are very popular among banks in the process of selling distressed loan portfolios. By entering into such factoring agreements the parties often committed a large number of violations, especially if such transactions were carried out between related parties, when, for example, the factoring company was owned by the bank” Mr. Ovsiy notes, explaining the importance of the mentioned decision.

The lawyer mentions that, under the Civil Code of Ukraine, the subject matter of a factoring agreement may be represented by a right of a monetary claim with a matured payment term (current claim), as well as the right of claim that will arise in the future (future claim): transfer of a monetary claim to a factor for money; assignment by the client for the benefit of the factor of its monetary claim as a way to enforce the obligations of the client towards the factor (for example, a loan agreement).

At the same time, the Law of Ukraine “On Mortgage” establishes that a mortgage is an instrument meant to ensure fulfillment of the obligation and secured by the collateral which remains in the possession and use of the mortgagor and giving the mortgagee the right to obtain satisfaction of its claims at the expense of the mortgaged property. That is, this kind of security will not assume the arising of a monetary obligation and, therefore, cannot be the subject of factoring.

The Court developed this situation and concluded that "the claims against the debtor related to obtaining any work, services or other benefits in kind, cannot be the subject matter of a factoring agreement."

"Taking into consideration disputes arising from such agreements, courts would in most cases follow the pattern: regardless of violations in the process of transferring the rights of demand, they did not question the right of the stronger party (bank, factoring company) to lay a claim over both the debt and the collateral or the mortgaged property. Therein lies the uniqueness of the ruling adopted by the court: it actually made a legitimate decision by taking the side of the borrower. At the same time, a dangerous precedent for creditors was created, and for that reason the banking lobby is actively working towards cancellation of the decision. And it is far too early to draw the line in this case", says Mr. Ovsiy.

Of equal importance is the decision of the Supreme Court of Ukraine in case No. 6-125цс13 regarding the recognition of obligations under a mortgage agreement to be terminated due to the fact that the borrower, who is a natural person and an entrepreneur, closed his business.

The Supreme Court of Ukraine drew the following legal conclusion: in the event of termination of a business entity that is an individual (followed by removal of the record on such business entity from the registry), its obligations under concluded contracts do not terminate, but become the obligations now of an individual, since that individual does not cease to exist. An individual entrepreneur is responsible for failing to fulfill obligations related to business activities with all his property, and as long as the principal obligation under the credit agreement is not terminated there is, therefore, is no reason to terminate the mortgage either.

The lawyer explains that in accordance with Article 173 of the Commercial Code of Ukraine a liability is recognized to be of an economic nature if it arises between a business entity and other participant (s) in the sphere of economic relations on the basis stipulated by the current Code, pursuant to which one entity (the debtor) is obliged to take a certain action of an economic, or managerial and economic nature for the benefit of another entity (perform works, transfer property, pay money, provide information, etc.) or to refrain from taking such, and another entity (the creditor) has the right to demand performance of such obligation.

A citizen is recognized to be a business entity if he exercises business activities providing he completed state registration as an entrepreneur without obtaining the status of a legal entity, meaning he can be a business entity only if he is registered as an entrepreneur. Pursuant to Part 3 of Article 205 of the Commercial Code of Ukraine, a business obligation is terminated due to the inability to perform it in the event of liquidation of a business entity unless legal succession of this obligation is permitted. According to the logic of the Commercial Code, in the event of termination of entrepreneurial activity, the economic obligations of an individual entrepreneur are terminated. However, the Supreme Court of Ukraine has established complete legal succession of an individual for all the entrepreneur’s obligations. 

CIVIL CASE

Although much is being said about the absence of obvious reforms in judicial practice, there is actually one: the Supreme Economic Court of Ukraine began to permit that many more decisions can be revised by the Supreme Court of Ukraine on the basis of unequal application of substantive law, thereby generating unambiguous legal conclusions that courts are required to follow.

Among legal conclusions worth noting are those in cases arising out of corporate relations, according to which alienation of the property of a business entity is not related to a mandatory resolution of the general meeting regarding reduction of its authorized capital (case No. 913/1365/13), or failure to notify a company’s participant of the general meeting to be called and held, during which the participant is excluded from the company’s participants, is an absolute violation of the rights of such participant and leads to recognition of resolution of such general meeting as unlawful (No. 5017/1221/2012).

The following legal conclusions of the Supreme Court of Ukraine are also worth noting: the first one reads that monetary assets that were transferred by a payer by mistake become the property of the beneficiary from the moment they are credited to the account of the beneficiary, and the bank only services the client’s bank account and is not the recipient of such assets and, therefore, there are no legal grounds to sustain a claim regarding recovery from the bank of mistakenly credited monetary assets; the second one states that a dispute about replacing the claimant at the stage of the enforcement proceedings cannot be attributed to civil relations, therefore, issues arising in this regard need to be settled pursuant to the Law of Ukraine “On Enforcement Proceedings” and the Economic Procedural Code of Ukraine.

It is also important to highlight the legal position of the Supreme Court of Ukraine, according to which a specific feature of novation lies not in a change of part of the primary obligation, but in the conclusion between the same parties of a new obligation. This standpoint of the highest judicial body was reflected immediately in five lawsuits in September 2014.

The coming year is expected to bring extensive judicial reform. But changes in rules, structure and personnel will not change the essence of the decisions taken by the courts; therefore the trends revealed this year will influence it in the future as well. We cannot but hope that courts will still follow positive developments, abandon formalism and notice the individual aspects of disputes that at first sight seem typical.

Practice Leaders. Criminal Law/Business Crime

NOTABLE PRACTITIONERS*
Andriy FEDUR
(Ageyev & Fedur)
Igor FOMIN
(private practice)
Sergiy GREBENYUK
(Egorov Puginsky Afanasiev & Partners)
Vitalii KASKO
(Prosecutor General’s Office of Ukraine, previously with Arzinger)
Alexander MININ
(WTS Consulting)
Oleksandr PLAKHOTNYUK
(DiFa)
Olga PROSYANYUK
(AVER LEX Attorneys at law)
Inna RAFALSKA
(private practice)
Vitaliy SERDYUK
(AVER LEX Attorneys at law)
Mykola SIRYY
(S.T. Partners)
Angelika SITSKO
(Gvozdiy & Oberkovych)
Evgeniy SOLODKO
(Solodko & Partners)
Olena SOTNYK
(People's Deputy of Ukraine, previously with Solodko & Partners)
Svitlana TROFYMCHUK
(S.T. Partners)

* — Listed in alphabetical order.

Practice Leaders (by Ukrainian Law Firms 2014)

Practice Leaders. Litigation

Authorities
Vadym BELYANEVYCH
(Vasil Kisil & Partners)
Oleg MAKAROV
(Vasil Kisil & Partners)
Oleksii REZNIKOV
(Egorov Puginsky Afanasiev & Partners)
Leading FIRMS
1 Vasil Kisil & Partners
2 Ilyashev & Partners
3 LCF Law Group
4 Egorov Puginsky Afanasiev & Partners
5 Arzinger
Leading INDIVIDUALS
1 Mikhail ILYASHEV
(Ilyashev & Partners)
2 Oleksiy FILATOV
(Vasil Kisil & Partners)
3 Roman MARCHENKO
(Ilyashev & Partners)
4 Anna OGRENCHUK
(LCF Law Group)
5 Sergiy SHKLYAR
(Arzinger)
OTHER NOTABLE PRACTITIONERS*
Sergey ALEKSEEV
(Alekseev, Boyarchukov & Partners)
Oleh BEKETOV
(AstapovLawyers International Law Group)
Vyacheslav KORCHEV
(Integrites)
Andrey KUZNETSOV
(ANTIKA Law Firm)
Denys MYRGORODSKY
(Law Firm Dynasty)
Irina NAZAROVA
(ENGARDE)
Oleksandra PAVLENKO
(Pavlenko & Poberezhnyuk)
Sergey POGREBNOY
(Sayenko Kharenko)
Andriy POZHIDAYEV
(Asters)
Olga PROSYANYUK
(AVER LEX Attorneys at law)
Stanislav SKRYPNYCK
(Lavrynovych & Partners)
Andriy STELMASHCHUK
(Vasil Kisil & Partners)

* — Listed in alphabetical order.

Practice Leaders (by Ukrainian Law Firms 2014)

Practice Leaders. International Arbitration

Leading FIRMS
1 Egorov Puginsky Afanasiev & Partners
2 Sayenko Kharenko
3 AstapovLawyers
4 Vasil Kisil & Partners
5 Arzinger
Leading INDIVIDUALS
1 Tatyana SLIPACHUK
(Sayenko Kharenko)
2 Sergei VOITOVICH
(Grischenko & Partners)
3 Serhii SVIRIBA
(Egorov Puginsky Afanasiev & Partners)
4 Markian MALSKYY
(Arzinger)
5 Yuliya CHERNYKH
(ARBITRADE)
OTHER NOTABLE PRACTITIONERS*
Oleh BEKETOV
(AstapovLawyers International Law Group)
Eugene BLINOV
(AstapovLawyers International Law Group)
Oleksiy FILATOV
(Vasil Kisil & Partners)
Markiyan KLIUCHKOVSKYI
(Egorov Puginsky Afanasiev & Partners)
Kostiantyn LIKARCHUK
(Avellum Partners)
Olexander MARTINENKO
(CMS Cameron McKenna)
Irina NAZAROVA
(ENGARDE)
Olena PEREPELYNSKA
(Sayenko Kharenko)
Dmytro SHEMELIN
(Ilyashev & Partners)
Ihor SIUSEL
(Baker & McKenzie-CIS, Limited)
Aminat SULEYMANOVA
(AGA Partners)
Vsevolod VOLKOV
(Integrites)

* — Listed in alphabetical order.

Practice Leaders (by Ukrainian Law Firms 2014)