Dispute Resolution

Setting the tone

The tone, set by the Supreme Court of Ukraine on court practice development in 2016 caused, in different ways, a great deal of discussion in legal circles. However, it is its legal positions, which will be determining after reform of the court itself


The most important event for the judiciary system of Ukraine and dawn of a new day in the reform of the judiciary is surely September 30, 2016 – the coming into legal force of constitutional amendments regarding justice and the new Law of Ukraine "On the Judicial System and Status of Judges".

The relevant law provides transition to a three-tier judicial system through the liquidation of the Supreme Court of Ukraine (SCU) and all superior specialized courts and creation on their material and technical basis of the new highest judicial body in the country – the Supreme Court (SC) as the court of cassation. The Supreme Court will consist of four cassation courts with different judge competency, as well as the Grand Chamber, which would act to provide uniform application of legal rules by the cassation courts and as an appeal court with regard to cases considered by the SC as the court of first instance. Creation of two superior specialized courts on issues of intellectual property and anti-corruption – courts of first instance in the corresponding categories of cases is also provided. However, there are few specifics on this subject in the new law or clarity in terms of the new procedural instruments of the SC: updated drafts amendments of the procedural codes have not been presented yet. The changes will affect the entire court system: creation of local district courts and courts of appeal in the appellate districts is provided. But all of that is in the long term and existing courts continue their work at the present time.

The mortgage conspiracy

In the current year, as well as in the previous one, the most common category of disputes are disputes concerning loan and mortgage agreements, disputes with the Deposit Insurance Fund and corporate disputes.

Usually, the guiding principles were set by the Supreme Court of Ukraine, towards which more and more complaints have been submitted lately. Thus, for example, the partner and the head of Kyiv office of the Dynasty  law firm, Antonina Selivanova, notes that the practice of the SCU up till 2010 was based on the position of the possibility of applying only the public bidding and sales procedures as the judicial procedures of foreclosure on mortgaged property. But in October 2010, the SCU changed the position, indicating the possibility of foreclosure on the mortgaged property through the acquisition of title to the mortgaged property under a court decision. Courts began en masse acknowledging the right on acquisition of title to the mortgaged property by mortgage holders under the court decision for the purpose of one of the possible remedies defined by the Law of Ukraine "On Mortgage" as non-judicial.

The next occasion in the court practice forming on such claims was, according to Mrs. Selivanova, the resolution of the Judicial Chamber on civil cases of the SCU dated March 30, 2016 with regard to case No. 6-1851цс15. The Supreme Court particularly resolved that the non-judicial remedy, according to the agreement for satisfaction of the mortgage holder's requirements or the relevant clause in the mortgage agreement, is implemented by transfer to the mortgage holder of title to the mortgaged property or by granting to the mortgage holder the right to sell the mortgaged property on its own behalf to any person under the purchase and sale agreement. The possibility of the emergence of title under the court decision is provided only in Articles 335 and 376 of the Civil Code (CC) of Ukraine.

After the rendering of this resolution, local courts have already taken more than 70 decisions on rejection of the claims on foreclosure of the mortgaged property by declaration of title due to the nonconformity of this claim to remedies for violated rights, as provided by Article 16 of the Civil Code of Ukraine, and reference to the SCU resolution. "The ambiguous position of the Supreme Court on this issue and its change in a relatively short period of time cast doubts on the observance of the principle of legal certainty by the executors of law", – the lawyer believes.

It should be noted that the SCU had already "specified" its position on this issue back in the autumn. In the resolution dated September 21 of this year with regard to case No. 6-1685цс16, it is noted that courts cannot recognize the mortgage holder's title, but the presence of the agreement or the mortgage clause on satisfaction of the creditor's requirements at the expense of the mortgaged property constitutes sufficient grounds for property registration by him. In fact, the court stimulates appeals primarily to registrars and only in the event of refusal – for the judicial protection of an unrecognized right.


Ekaterina Koval, lawyer at S&P Law Office, in her turn, draws attention to another decision of the SCU on mortgage – the resolution dated July 14, 2016 with regard to case No. ­21-41a16, whereby the SCU settled the issue on the jurisdiction of disputes, related to the contesting of the actions of state registrars for property registration for the purpose of mortgage to the mortgage holder, and determined that such cases are not subject to consideration by administrative courts, as their essence is implied from contractual relations (although the decision of the plenary assembly of the Supreme Arbitration Court of Ukraine No. 8 dated May 20, 2013 defined legal relations in the field of property registration as public).

"The SCU through its actions, in fact, assumed the powers of the legislative body, since, contrary to the requirements of the Code of administrative court procedure of Ukraine, as well as well-established judicial practice, submitted to courts of general jurisdiction and economic courts the category of disputes with the power entity regarding its management functions, although by all standards the cases are subject to the jurisdiction of administrative courts," – Mrs. Koval considers. The lawyer notes that today decisions of courts of first instance are being canceled on a mass scale and judicial proceedings are closed in disputes with state registrars regarding the registration of title to mortgaged property: "Administrative courts are not even trying to come to grips with legal relations: whether they are of a civil law nature or whether, after all, there are procedural violations in the actions of officials."

However, change in the positions held by the SCU is a fully natural process due to the development of legal relations. Parties sometimes even wait for such changes. The judge of Berdychiv municipal and district court in Zhytomyr Region, Vladimir Korbut, draws attention to this, citing as an example the practice of the SCU on issues of eviction from a mortgaged residential property.

Thus, in 2015 the SCU noted the following with regard to case No. 6-447цс15: based on the content of Articles 39 and 40 of the Law of Ukraine "On Mortgage" and Article 109 of the Housing Code of the Ukrainian SSR, the persons who are evicted from a residential house (premises), which is the subject of a mortgage, due to foreclosure on the mortgaged property, shall be offered another permanent residence only when the mortgaged residence was not purchased out of the proceeds of the loan, secured by the mortgage of that residence. As an exception, the eviction of citizens without the provision of alternative housing is allowed, if the mortgaged property was purchased out of proceeds of the loan, the return of which is secured by the mortgage of the relevant residential premises.

"Unfortunately, neither the provisions of legislation of Ukraine taken as the basis of this position, nor the position give an answer to the question on the practical implementation of the procedure to provide other housing," – Mr. Korbut stated. The judge also described how this decision has affected the result of the case considered by him. The plaintiff, as the banking representative, making no secret of surprise, has expressed the hope that the SCU will change its position, otherwise negative consequences will appear for banking institutions (mortgage holders), which are practically unable to foreclose in view of the impossibility to sell the housing from which the previous owners have not been evicted. However, the legal position of the SCU has of late become stronger, especially in the resolutions dated February 10, 2016 in case No. 6-2830цс15 and July 6, 2016 in case No. 6-3173цс15. 

Bankruptcy ratios

Those lawyers practicing in the field of bankruptcy also point out the ambiguous practice of the SCU. According to Yulian Khorunzhy, partner at Ario JSC, the most resonant this year is the resolution of the SCU dated October 19, 2016 in case No. 3-1165гс16. The SCU recalled a decision of the Supreme Economic Court of Ukraine (SECU), which, in its turn, recalled decisions of the appeal court and the local economic court on refusal to grant approval of applications for cancellation of the results of an auction and sent the case back to the first instance for a retrial. This decision of the SCU is reasoned by the fact that the exhaustive list of decisions that may be appealed on cassation in bankruptcy proceedings is defined by Article 8 of the Law on bankruptcy, and the decision on the acceptance of the auction as failed is not included in this list.

"We could agree with this, but there is a slight problem. In accordance with Article 10 of the same law, the court, in which proceedings the case on bankruptcy finds itself, shall settle all property disputes with claims to the debtor. It means that in a bankruptcy case (at least judicial practice operates in this way), in fact, the judge considers the cases of action proceedings in accordance with the general principles of the economic procedure. It is quite logical that this category is not represented in Article 8, which contains a list of decisions taken precisely in bankruptcy proceedings. However, the SCU has literally interpreted the rule of Article 8 of the law and significantly limited the powers of the court of cassation and access to justice for the parties in the case," – Yulian Khorunzhy noted, stressing that by the same token appeal courts are determined as the highest court for review of the majority of court decisions on applications in bankruptcy cases.

Reference point

As the sale of seized property in Ukraine is carried out through electronic trading, then in this regard, the decision dated July 6, 2016 in case No. 6-3131цс15 is important, in which the SCU put an end to the discussion as to the moment from which the supplementary period should be counted for the holding of electronic trading. The SCU noted that in accordance with the Temporary procedure for sale of seized property through electronic trading, approved by the order of the Ministry of Justice of Ukraine No. 656/5 dated April 16, 2014, the total duration of electronic trading is nine hours – from 9:00:00 to 18:00:00, but trading may continue beyond out of basic time, and the total duration of additional trading time cannot exceed six hours. In such case the starting point of the additional time is the end of the basic time (namely – 18 hours 00 minutes 00 seconds), which cannot be interrupted by the additional time.

Insured accidents

The practice of the SCU will be remembered by the insurers and consumers of insurance services for the decision regarding the filling of a claim directly to the person who caused the damage. Judge Vladimir Korbut draws attention to the legal conclusion stated in the resolution of the SCU dated January 20, 2016 in case No. 6-2808цс15: "The aggrieved person's right to compensation of damage by the person who caused damage is in rem, and a court has no right to deny such a claim on the grounds that the civil responsibility of the person who caused the damage is insured. In case of satisfaction of such claim, the person who caused the damage is not prevented from the opportunity to submit recovery claims against the insurance company, with which he signed a compulsory insurance agreement of civil liability".

The SCU also stood for protecting the rights of aggrieved persons in disputes on compensation for property damage with insurance companies in case No. 6­927цс16, which was considered on June 1, 2016. At the jo­int meeting of the Chambers on civil and commercial cases judges reasoned that in case of delay in payment of compensation, an aggrieved person who has suffered financial damage is entitled to demand accrual of penalties and inflationary losses. The same conclusion was reached by the Chamber on commercial cases in the resolution issued on the same date with regard to case No. 3­295гс16, settling the dispute between two insurance companies for the collection of funds by way of recourse. The SCU noted that the legal relations on compensation by way of recourse, established between the parties in the case, are also monetary obligations, therefore, the sanctions envisaged by part 2 of Article 625 of the Civil Code of Ukraine, are subject to application.

Force majeure

At the same time the head of the department of legal support for corporate and employment relations at PJSC Ukrtelecom, Roman Vysotsky, draws attention to the problem of unequal enforcement by the Supreme specialized court of Ukraine for civil criminal cases (SSCU) in settling disputes for collecting average earnings for late payment upon dismissal with employees of the economically autonomous structural subdivision of Ukrainian enterprises located in the occupied territory of the AR of Crimea. Thus, in the ruling dated July 13, 2016 in case No. 761/27321/15-ц, the SSCU agreed with the conclusion of the appeal court that the non-payment of salaries that has arisen as a result of force majeure circumstances related to the temporary occupation of the territory of Ukraine in Crimea, suggestive of the absence of employer's fault, and pursuant to special legislative acts, that are subject to application in legal relations between an employee and employer within the territory of the AR of Crimea, the latter bear no legal responsibility, including through payment of average earnings for the payment delay upon dismissal.

"In another ruling dated July 13, 2016 in case No. 761/17666/15-ц, the SSCU recalled the decision of the appeal court, whereby the plaintiff was denied in collecting average earnings for payment delay upon dismissal from the Crimean branch of PJSC Ukrtelecom on  grounds similar to the grounds in case No. 761/27321/15-ц. The SSCU reasoned this decision by the fact that despite regulation of legal relations to the extent of the employer's liability release for late payment of salary within the occupied territory of the AR of Crimea by special provisions of the laws of Ukraine, in deciding on the collection of average earnings for the payment delay upon dismissal, the court shall establish the presence of the defendant’s fault, depending on the general requirements of Article 117 of the Labor Code of Ukraine," – the representative of PJSC Ukrtelecom notes.

According to Mr. Vysotsky, the court of cassation wrongly ignored that with the adoption of special provisions of law the country’s legislative body established a special legal regime on the economic activity of both individuals and legal entities, including a special procedure for the application of the legislation of Ukraine within the territory of the AR of Crimea, in connection with which special rules of the law should be applied to the legal relations that arise in that territory.

Another conclusion of the SCU is also important, under which a company may be released from payment of average earnings for the payment delay with an employee due to force majeure circumstances, set out in the resolution dated November 11, 2015 with regard to case No. 6-2159цс15.

Limits of research

The director of the department of regulatory support of PJSC Ukrtelecom, Andrey Kalensky, believes that the decisions of economic courts, accepted with regard to the case, wherein the decision of one of the bodies of the Anti-Monopoly Committee of Ukraine was disputed, as a type of judicial breakthrough for the telecommunications and energy sectors. In particular, the courts found that a regional territorial branch, in making its decision, failed to take into consideration the fact that the activities of a telecommunications operator on the issuance of specifications for access to the cable-conduit system of telecommunications is not an independent service, that forms an individual market, but only an intermediate (initial) link of the procedure of access to the cable-conduit system of telecommunications, consisting of a number of separate, but interconnected operations, one of which is the issuing of specifications to the customer.

 "I would like to believe that in the near future the Supreme Economic Court of Ukraine will support this position, after all, it is completely logical and reasonable. And the importance of the decision lies in the fact that the AMCU’s bodies will be forced to revise their approaches to the definition of trade limits of markets researched by them, and consequently this should have a significant effect on changing their attitude to the question of  the definition of commodity groups (substitute goods), and therefore the services market investigated by bodies of the AMCU," – Mr. Kalensky notes.

Imported funds

For enterprises dealing with importing products,  the resolution of the Supreme Administrative Court of Ukraine dated August 17, 2016 in case No. 804/19555/14 is definitely significant, wherein the court of cassation indicated that the formally lower level of the customs value of goods, imported by the enterprise in comparison with the level of the customs value of another customs clearance, cannot be treated as an undervaluation of the customs value, is not a barrier for application of the first method of determining the customs value of the goods and cannot serve as sufficient grounds for refusal to carry out customs clearance of the goods by using the first method of determining its customs value.

The decision of the SCU in case No. 21-1820a16 will also be important for importers, because in the resolution thereunder the court found that VAT paid by the importer upon import of equipment under leasing terms cannot be included in a tax credit. According to the court, such transactions do not refer to transactions related to the acquisition.

Share equalization

With regard to corporate disputes, the judge of Lviv district administrative court, Vladimir Kravchuk believes that 2016 will go down in history of the corporate law of Ukraine as the year of significant changes of judicial practice, and refers this to the adoption of resolution No. 4 "On certain matters in the practice of disputes settlement, arising from corporate relations" on February 25 of this year by the plenum of the SECU. As noted by the judge, the last such acts in terms of their weightiness were adopted in 2007 and 2008. Certainly, trends in changes were noticeable earlier, but in the resolution they have acquired a complete form. Although, according to Mr. Kravchuk, approaches to separate key issues are wrong. These include the SECU's position that the capital contribution for a LLC does not influence the size of the participant's share and, correspondingly, the number of votes. "Equalization of the responsible participants making timely contributions and in full with unscrupulous participants, who have failed to fulfill their obligations with respect to contributions, but who have the same rights, is unfair," – Mr. Kravchuk believes. According to him, the SECU did not develop in the right direction the position of the Constitutional Court of Ukraine, expressed in decision No. 1-рп/2013 dated February 5, 2013 and has, in fact, become protection for persons who violate corporate liabilities.

Vladimir Kravchuk also notes that the problem of acquisition of corporate rights from the moment of sale of a share of LLC charter capital remains unresolved. The SECU (clause 2.6) and the SCU (clause 31 of resolution No. 13 dated October 24, 2008) adhere to different positions.

The SECU makes a distinction between the acquisition of title to the participatory share and participation rights in a LLC: acquisition of the right arises from the moment of the agreement’s conclusion, unless otherwise agreed by the parties, and gives to the third party the right of entry into a LLC, and the participation right is a personal non-property right, and automatic acquisition of participant status due to the acquisition of title to the participatory share does not take place. The third party acquires the right of direct participation in a LLC only from the moment of entry into the company, which should be confirmed by the relevant decision of the general meeting. The SECU, however, did not explain what to do, if a LLC refuses to accept a shareholder who has the right to vote: a shareholder or a seller who has already withdrawn. "In fact, there is a situation where title to the share and the participation right in a LLC are owned by different persons," – Mr. Kravchuk says. According to him, to resolve disputed issues it is necessary to promote reform of corporate law, in particular, a new law on limited liability companies should be adopted.


Sergey POPOV,

partner, head of the legal and tax consulting department of KPMG Ukraine

On February 16, 2016, the Supreme Court of Ukraine, during the joint meeting of administrative and economic courts, made legal findings according to which the jurisdiction of administrative courts should not apply to disputes arising at the stage of liquidation (bankruptcy) of a bank (case No. 21-4846а15).

In view of this, I should like to recall the provisions of Article 1 of the Constitution of Ukraine and the most important principle of legal certainty, to which both the European Court of Human Rights and Constitutional Court of Ukraine are referred. This principle is as follows: when making a decision to take one or other action, the person should understand that the consequences for such actions are provided for by the law. This provision to the full extent concerns issues of applying to courts.

Unfortunately, the situation is as follows: thousands of people who filed actions to court against DGF, received judgments and then, the Supreme Court of Ukraine, "with the stroke of a pen" interpreted the law in such a way that all these judgments became illegal because the cases were considered by the wrong court.

From our point of view, such a situation is unacceptable, because it discredits the very possibility to protect the rights by bringing a matter before the court, which clearly contradicts the definition of a state governed by law.

In this case, it is not important whether the disputes with the Fund will be considered in the courts of one or two jurisdictions. It is important that the legislative and judicial branches of power clearly provided to which court a claim in a particular situation should be filed.



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