The first half of 2018 was productive in formulating new positions by the Supreme Court. Let’s dwell on the TOP-5 decisions that we consider most interesting.
No. 1 A person may contest the results of an auction, even if he or she was not its participant. It’s enough to substantiate the existence of his or her property interest in the “property”.
The Supreme Court made such a conclusion during its consideration of Case No. 5/173/b. The plaintiff in the case asked for invalidation of the results of the re-auction because in the announcement about the first re-auction, in violation of requirements of the legislation, the marginal value of the property, which the auction could go down to, as well as the sale of the property, was in violation of Part 2 of Article 66 of the Law “On Bankruptcy”. In particular, the property was sold at 6.15% of the starting value at the re-auction, while a re-auction shall be carried out with the possibility of reducing the initial value, but not lower than the marginal value, which is 50% of the initial value indicated in the auction announcement.
The Supreme Court agreed with the complainant’s arguments that he had a property interest in the “property” in the meaning of Article 1 of the First Protocol to the Convention, and noted that he was entitled to his judicial protection, since the applicant, having appealed to court requesting invalidation of the results of the first re-auction, clearly indicated what his property interest was and also directly indicated the norms of the national legislation that were violated during the public tenders.
At the same time, investigating the issue of balancing interests of the liquidator, the trade organization and the plaintiff, the Supreme Court came to the conclusion that deliberate, gross violation of the auction order, which occurred in this case, harmed social relationship far more than the risks associated with resolving the issue of whether the plaintiff would have taken part in the second re-auction, which would potentially be held in such a case.
No. 2 Relationship between the parties to commercial contracts, in which one of the parties is a bank being withdrawn from the market, and on which behalf an authorized person of the Deposit Guarantee Fund or the Fund is acting, belongs to private law.
Hence, disputes concerning void deeds between business entities are considered commercial and should be considered by courts of commercial jurisdiction. In these legal relationships, the Fund or its authorized representative, acting on behalf of the Bank, has no authority over the other party to these deeds. Since an authorized person of the Fund does not act in this legal relationship as an independent entity, but acts on behalf of the Bank, the Bank itself is a proper defendant in the case.
In addition, an order (decision or other document) to declare deeds null and void issued on the basis of the verification provided for in Article 38 of the Law of Ukraine “On the system of guaranteeing deposits of individuals” is an internal regulatory document of the Bank as a business entity, issued by the Fund or an authorized person of the Fund as the Bank’s head within its powers. Such an order is not a unilateral deed. Orders (decisions) to declare deeds null and void may not establish obligations for third parties, in particular the Bank’s counterparties, therefore the fact of issuing an order to declare a deed null and void may not be considered a violation of the rights of the other party to the deed.
The abovementioned conclusions are formulated in the Resolution of the Supreme Court, dated 11 April 2018, in Case No. 910/12294/16. One of the issues being resolved by the Grand Chamber of the Supreme Court in the dispute was the issue of which jurisdiction extended to the legal relationship that had arisen, when an authorized person of the Deposit Guarantee Fund for implementating interim administration of the bank had issued an order to declare contracts null and void. The court resolution states that it is erroneous to extend the jurisdiction of administrative courts to all disputes, where one party is an authority, since in the process of resolving the issue of delimiting the competence of courts in considering administrative and commercial cases, it is not sufficient to apply an exclusively formal criterion – to determine the subject composition of disputed legal relationship (involvement in it of an authority), since the decisive element for the correct resolution of the dispute is the nature of the legal relationship, out of which the dispute has arisen.
The Supreme Court reported on the “dual” legal status of the Deposit Guarantee Fund, which in some cases may act as an authorized public administration entity and in others as a governing body of the bank. Also, the decision analyzes in detail the issue of the legal nature of orders of the Deposit Guarantee Fund to declare deeds as null and void. These orders are issued by the Fund on the basis of Law of Ukraine No. 4452-VI.
The Supreme Court noted that these orders were the result of an internal review of the Bank’s deeds and an internal document of the Bank binding on its employees, which does not give rise to obligations of the Bank’s counterparties, since the obligation to return property (funds) arises for counterparties not on the basis of an order to detect void deeds, but according to law (Part 2 of Article 215 of the Civil Code of Ukraine). Such property (funds) may be returned either voluntarily or compulsory, on the basis of a court decision.
Since the plaintiff appeals against the order to declare deeds null and void, issued by an authorized person of the Fund not as an authority but as a management body of the Bank, which carries out measures to ensure the preservation of its assets and to prevent the loss of property and funds, such a dispute does not belong to public law. In view of the above, the Grand Chamber of the Supreme Court dismissed the Bank’s argument that the dispute is of a public-law nature and should be dealt with by way of administrative proceedings.
At the same time, the Grand Chamber of the Supreme Court did not agree with the conclusions of the courts of previous instances that the dispute under consideration is subordinate to commercial courts, since the case concerns bankruptcy (Paragraph 2, Part 1, Article 12 of the Code of Civil Procedure of Ukraine). After all, disputes related to the procedure for withdrawal of an insolvent bank from the market (including through liquidation), are not identical to disputes in bankruptcy cases. Therefore, cases concerning appeals against decisions of the Fund made within the framework of procedures for the withdrawal of an insolvent bank from the market should not be equated with bankruptcy cases. Such disputes are subordinate to commercial courts not in accordance with Paragraph 2 of Part 1 of Article 12 of the Code of Civil Procedure of Ukraine (bankruptcy cases), but in accordance with Paragraph 1, Part 1 of the same Article, given the subject matter and content of legal relationship, as well as considering that it is related to the conclusion of a commercial contract.
The Supreme Court also noted that the Fund, its authorized person or the Bank are not authorized to declare or establish deeds null and void. The deed is null and void by law, not in accordance with the order of the Bank, signed by an authorized person of the Fund. Consequences of the void deed to the parties also arise in view of law. Orders (decisions) to declare deeds null and void may not establish obligations for third parties (in particular, the Bank’s counterparties). Therefore, the fact of issuing an order to declare the deed null and void may not be considered a violation of the rights of the other party to the deed.
If a party to the contract concluded with the bank does not agree with the bank’s legal assessment of the deed as null and void (in particular, refuses to return that it has received under the contract), the bank has the right to apply to court for the application of consequences of invalidity of the void deed. At the same time, the claim that the Bank has no right to take actions concerning the application of consequences of invalidity of the contracts classified as null and void is not subject to satisfaction.
No. 3 Lack of information on details of the foreign currency account, where a court fee in foreign currency was transferred to, as well as data on which claim is being paid for, is not a reason for the return of a claim.
Such a conclusion was given by the Supreme Court and fixed in the Resolution, dated 23 May 2018, in Case No. 909/1013/17. The court emphasized that references of the courts of previous instances to the impossibility of establishing details of the foreign currency account, where a court fee in foreign currency was transferred to, were unsubstantiated, since there was only one foreign currency account in Ukraine, where a court fee in foreign currency could have been paid to by non-residents.
In addition, lack of information on which claim is being paid for with a court fee is not a reason for the return of a claim, since a court independently checks the plaintiff’s payment of the due amount of a court fee.
No. 4 Cases in disputes concerning the protection of violated, unrecognized or disputed rights, freedoms or interests of individuals, which arise, in particular, out of civil relationship, are subject to consideration in accordance with rules of civil proceedings. The fact that a person, whose rights are subject to protection, has the status of an individual entrepreneur does not result in a change in jurisdiction for a commercial one.
The abovementioned conclusion was made by the Supreme Court and fixed in the Resolution, dated 06.06.2018, in Case No. 910/16713/15. The court emphasized that the credit agreement is concluded with the debtor as an individual, and the person’s legal status of individual entrepreneur at the time of the conclusion of the said agreement does not affect the civil nature of the relationship under this agreement. After all, every individual has the right to entrepreneurial activity, which is not prohibited by law (Article 42 of the Constitution of Ukraine). This right is also enshrined in Article 50 of the Civil Code of Ukraine, according to which a person with full civil capacity has the right to exercise entrepreneurial activity not prohibited by law.
That is, an individual, who wishes to exercise his or her constitutional right to entrepreneurial activity, after passing relevant registration and other procedures prescribed by law, under no circumstances loses and changes his or her status of an individual, which he or she has acquired from the moment of his or her birth, but only acquires a new additional attribute – of an entrepreneur. In this case, the legal status “individual entrepreneur” does not affect any powers of the individual, caused by his or her civil and legal capacity, and does not limit them.
During the proceedings, the Court drew attention to the fact that the parties to the Credit Agreement did not mention its commercial nature, according to which it should be concluded in compliance with the requirements of the Commercial Code of Ukraine concerning commercial contracts. According to the content of the Credit Agreement, among the borrower’s documents, provided by the latter for its conclusion, there are no copies of a certificate of state registration of the subject of entrepreneurial activity and extracts from the Unified State Register of Legal Entities and Individual Entrepreneurs.
In addition, the case file does not contain evidence of the use by the defendant of credit funds received from the creditor under the Credit Agreement for the conduct of business activity as an individual entrepreneur. Thus, since the subject matter of the claim in this case is the collection of debt under the credit agreement from the individual borrower, such a private legal dispute, according to its subject composition of the parties is subject to consideration by rules of civil proceedings.
No. 5 Jurisdiction of cases on the appeal of electronic tenders is determined by composition of the parties to the deed. If the acquirer (winner of the electronic tender) is an individual, the case is subject to consideration in the civil proceeding.
Such a conclusion was made by the Supreme Court as a result of consideration of Case No. 910/856/17. According to the theory, during the consideration of the case on the recognition of the electronic tender invalid, the court of first instance refused to satisfy the motion of the party to involve the co-defendant (winner of the electronic tender, who was an individual) and considered the case according to the rules of commercial legal proceedings. The Supreme Court ruled that in the case on the invalidation of a deed concluded following an electronic tender, all parties to the deed should be involved as defendents – the State Enforcement Service, the tender organizer and the winner. Since one of the parties to the case being considered was to be a winner-individual, the request to add whom as a party was unreasonably declined, the Supreme Court quashed the decisions of a court of the first instance and of an appellate court by closing the proceedings.
Of course, it is impossible in one article to cover all the interesting jurisprudence of the Supreme Court in commercial disputes. At the same time, it is possible to state the high quality of its decisions and the considerable value of the conclusions set out in the reasoning part not only for the formation of the practice of law enforcement, but also for the development of the entire legal opinion in Ukraine.