May 2013

Case Digest: High Courts Answer Complex Legal Questions

Land disputes: remedies for land owners (Supreme Court's judgment dated 31 October 2012 in case No. 6-53φρ12)

In Ukraine, an approval of state executive or municipal authority is a necessary prerequisite to obtain title to a land plot. On the basis of such decision a state act evidencing title is issued.

The Supreme Court held that the Land Code of Ukraine does not provide for annulment of state act as a remedy. Therefore, instead one should seek to abrogate the offending decision of state executive or municipal authorities.

Furthermore, vindication claim can only be bought if the requirements of the Civil Code are met, namely that the land plot ceased to be in the owner's possession without owner's consent.

Disputes on invalidation of unfair clauses in loan agreements (Supreme Court's judgment dated 12 September 2012 in case No. 6-80φρ12)

The Supreme Court reiterated that under civil law provisions that are unfair to a consumer, i.e. ones that entail sizable disproportion in reciprocal rights and obligations to the detriment of the consumer should not be included into the agreements.

If the court finds that a provision of an agreement is unfair, it may declare such a provision invalid ab initio.

These rules also apply to loan agreements. Thus, a provision that authorizes unilateral change of loan servicing charges or early repayment charges are considered to be unfair and can be declared invalid.

Abrogation of public bidding (public auction) act (Supreme Court's judgments dated 24 October 2012 in case No. 6-116φρ12 and 26 December 2012 No. 6-140φρ12)

The Court stated that an act on results of public bidding or public auction is a form of a sale-purchase contract. General rules of civil law concerning invalidation of contracts apply, one of which is that failure to comply with law's requirements in effect at the time the contract was concluded triggers the contract invalid. Therefore, auction sale can be invalidated because of breach of public auction rules.

At the same time, if an auction is held in the course of enforcement proceedings, violations committed by an officer of state enforcement agency (unlawful seizure, unfair appraisal of property) are not violations of public auction rules. The violations committed by an officer of state enforcement agency (bailiff) may be appealed as set forth in the Enforcement Procedure Law.

Consequently, violations committed by a bailiff are not grounds for invalidation of an auction sale.

A court judgment does not terminate debtor's obligations (Higher Commercial Court's resolution dated 01 November 2012 No. 5011-32/5219-2012)

Contractual obligations can be terminated by means of due performance, payment of compensation for termination of contract, etc. By contrast, a court judgment does not terminate a contractual obligation.

Therefore the court judgment satisfying the creditors' claims, which has not yet been executed by the debtor, does not terminate contractual relations between the parties and, accordingly, does not terminate debtor's liability for failure to perform monetary obligations.

The creditor's right to require payment of debt including the inflation adjustment indux and three percent statutory annual interest is a remedy available to the creditor to compensate for losses due to the fall in the value of money and for the debtor use of creditor's funds.

For this reason the established court practice is that where the judgment has been executed after a long period of time, the creditor can bring action seeking compensation of inflation adjustment index and statutory interest for the period from the date the court judgment became effective and until its actual execution.

A compensation of inflation index does not apply to foreign currency obligations (Higher Commercial Court's resolution dated 31 January 2012 No. 18/113-53/81)

The inflation adjustment which the Civil Code requires the debtor to pay on monetary obligations is compensation for the fall in the value of currency aimed to offset the creditor's losses. The State Statistics Committee of Ukraine calculates the reduction in the purchase power of Hryvnia (not foreign currencies) and presents it in the form of inflation index.

Therefore creditors in obligations denominated in foreign currencies cannot claim the inflation adjustment.

For further information please contact
senior associate Andriy Pozhidayev and associate Anna Kozhemyachenko

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