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Banking Disputes in Ukraine
The judicial system of Ukraine underwent one stage of its reform. Together with the coming into force of new procedural codes (New Civil Procedure Code, New Economic Procedure Code, New Administrative Procedure Code and changes to the Criminal Procedure Code) on 15 December 2017, a new high court, the Supreme Court of Ukraine, now consisting of the Administrative Court, Economic Court, Civil Court, Criminal Court of Cassation, and the Grand Chamber of the Supreme Court, also began its work.
One of the main purposes of the creation of a new Supreme Court was, inter alia, the very unification of judicial practice and the implementation of the principle of legal certainty. The main objective pursued by the principle of legal certainty is the application of identical provisions of the law to the same legal relations with identical factual circumstances; under such conditions, a person addressing the court may expect the same result in the event of his/her case being similar to ones already considered by the court in the past. Unfortunately, sometimes the previous High Court came to different conclusions regarding the application of the law under identical factual circumstances and failed to maintain the principle of legal certainty.
In 2018, the Grand Chamber of the Supreme Court adopted a number of resolutions unifying the application of the provisions of the law to a number of controversial issues, in which position of the previous high court differed. Let’s consider some of the main ones.
1. Resolution of the Grand Chamber of the Supreme Court of 28 March 2018, in case No. 444/9519/12 on the possibility to accrue interest for using a loan upon the expiry of the loan term determined by the loan agreement
By this decision the highest court quite radically changed the practice of the application of the provisions of the law on the possibility to accrue interest. Previously, the courts used to take the creditor’s side in their decisions on the issue of the recovery of overdue loan debt and came to the conclusion on the possibility to accrue interest even after the expiry of the loan term established by the loan agreement in the amount established by law. Namely, the courts applied the provisions of Article 1048 of the Civil Code of Ukraine and determined the amount of interest at the level of the discount rate of the National Bank of Ukraine.
However, the new position of the Supreme Court is more favorable for debtors. Having analyzed the provisions of the laws and the relations they are to regulate, the court came to the conclusion that the creditor is not entitled to accrue interest beyond the established loan term. Instead, to protect a creditor’s rights in the event of a failure to repay the money, it’s entitled to accrue 3% per annum on the entire loan amount and accrual of the inflation index. The court also confirmed the position that in the event of the establishment of the repayment of debt in installments, the limitation period shall be valid for each separate payment to be made by a debtor.
2. Resolution of the Grand Chamber of the Supreme Court of 21 March 2018, in case No. 760/14438/15-ц and of 21 March 2018, in case No. 235/3619/15-ц on the foreclosure of mortgaged property
By its decision in case No. 235/3619/15-ц the Supreme Court brought into accordance the court practice on the determination of the cost of the mortgaged property in a court decision. In the past, in case of application of a type of foreclosure on mortgaged property such as sale from a public auction, the highest courts used to dismiss the decisions of lower instances and remit the matter for a fresh trial to the court of first instance. The ground for this was a failure to determine the specific cost, at which the mortgaged property should be sold. The obligation to determine the cost in a court decision is stipulated by the Mortgage Law. The courts dismissed essentially the right decisions on this ground only. Investigating the legal relations in this field, the Supreme Court came to the conclusion that the price shall be determined either upon the consent of the mortgagor and the mortgagee or on the basis of appraisal (according to the provisions of the Enforcement Proceedings Law); which is why there are no grounds to dismiss essentially correct decisions.
Foreclosure on mortgaged property through the recognition of the Mortgagee’s title to such property in court was a widespread practice in Ukraine. Thus, the Mortgagee avoided the provisions of the Mortgage Law on the invalidity of all of its subsequent claims in the event of the foreclosure of mortgaged property out of court through transfer of the title. As for the invalidity of such claims, it should be noted separately that court practice on this issue is not unified. That is, courts come to opposite conclusions in the application of this provision of the law. The decision of the Grand Chamber of the Supreme Court on this issue has not been adopted yet; therefore, there is no unified practice.
In case No. 760/14438/15-ц the Supreme Court came to a conclusion that the Mortgage Law does not provide for a court remedy of rights such as recognition of the title to the mortgaged property. Such remedy is out of court only; therefore, it cannot be applied by courts.
3. Resolution of the Grand Chamber of the Supreme Court of 11 September 2018, in case No. 909/968/16 on the assignment of a claim under loan agreements
The issue of the forms of claim assignment agreements in the banking sector was quite widespread, and court practice rather sparse.
By this Resolution the Supreme Court determined express criteria inherent in factoring agreements such as the parties, the subject matter — monetary claim, the purpose of the agreement — the receipt of funds from the assignment of the claim, the claim is assigned for a fee only, the price of the agreement to be determined by the size of the factor’s fee.
That is, all agreements characterized by all or part of the criteria determined by the court are factoring agreements as of their legal nature, and violations of the requirements to the form, content thereof and parties thereto causes invalidity thereof.
Instead, agreements with no such signs are claim assignment agreements.
4. Resolution of the Grand Chamber of the Supreme Court of 11 April 2018, in case No. 910/12294/16 on disputes on the decisions of the authorized person of the Deposit Guarantee Fund
In this court decision the Supreme Court came to the conclusion on the recognition of the decisions of the authorized person of the Deposit Guarantee Fund on the temporary administration/liquidation of a Bank and recognition of juridical acts in the manner of Law of Ukraine No. 4452-IV On the System of Guaranteeing the Deposits of Natural Persons as null and void are private legal disputes to be considered by courts of economic or civil jurisdiction, depending on the parties. The court also determined that such decisions shall apply to the Bank only, and shall not apply to other parties of such juridical acts since they are instituted by an authorized person of the Deposit Guarantee Fund acting as an officer of the Bank. Instead, for such decisions to take effect, the Bank shall file relevant claims to courts of economic or civil jurisdiction.
In the past courts maintained a position proceeding from the fact that the powers of an authorized person are granted by the Deposit Guarantee Fund being a person of public law as of its legal nature, thus taking decisions on the invalidity of juridical acts in accordance with the provisions of the Law of Ukraine No. 4452-IV On the System of Guaranteeing the Deposits of Natural Persons; therefore, such disputes were deemed public and considered by courts of administrative jurisdiction.
5. Resolution of the Grand Chamber of the Supreme Court No. 823/2042/16 of 4 September 2018, on disputes in the field of state registration of real rights to immovable property or encumbrances
Issuing its conclusion on the application of provisions of the law, the court stated that disputes where the subject matter is cancellation of a record on state registration of rights to immovable property or encumbrances thereof in the name of another person with the State Register of Real Rights to Immovable Property are civil, and shall be resolved according to the rules of the civil or economic court procedure, depending on the parties to the dispute. And a proper defendant in such disputes shall be a person who has registered the right or encumbrance. This decision was made due to the legal nature of such disputes, since first and foremost all those are disputes between the parties on the existence of the very title itself.
Such changes are rather radical, since such disputes used to be considered by courts of administrative jurisdiction, and the respondent therein was the authority which performed state registration. Although courts of administrative jurisdiction should assess only the procedure and law on state registration, they often assessed all evidence as a whole, including documents submitted by the applicant for state registration. This need was related to the observance of the rule of law and guaranteeing efficient protection of rights. But in fact, courts of administrative jurisdiction were not (supposed) to consider such claims.
The new Supreme Court consists of both judges and lawyers. Their vision of the application of the law often differs from the vision of previous judges. One of the trends started by the Supreme Court is broader application of the case law of the European Court of Human Rights in its decisions, which certainly affects application of the provisions of the law.
By adoption of all of its new decisions, the Supreme Court attempts to dot all the “i”s and bring court practice into accordance, performing its main task of forming unity in court practice and observing the principles of rule of law and legal certainty.
Certainly some of the court’s decisions and reasoning shook the country’s legal community and caused unexpected consequences for the parties. Though some cases were closed in administrative court disputes its decisions have ensured unity of the court practice today.