Recent Supreme Court developments
Author: Andriy Pozhidayev, Anna Tkachova
Source: International Law Office. – 2014. – 4 March

Minority versus majority shareholders

Ukrainian law provides that where a minority shareholder of a public joint stock company disagrees with certain decisions of the general shareholders' meeting, it may call for a mandatory buy-out procedure. Triggering decisions include a change of the entity's corporate form, a change in the charter capital and approval of major transactions.

If it is impossible to specify all elements or conditions of a major transaction at the general meeting, the meeting may give prior approval for a future major transaction. Such prior approval should establish the scope of the obligation, its nature and timeframe for conclusion. A previously approved major transaction requires no further approval of the general shareholders' meeting if it is concluded within the fixed terms.

The Supreme Court recently explained that the law differentiates between a 'major transaction' and 'prior approval of a major transaction'. 'Prior approval of a major transaction' cannot serve as grounds to initiate a mandatory buy-out procedure. The Supreme Court's decision in this regard is binding for courts in further analogous disputes.

The Supreme Court's opinion limits the possibility for minority shareholders to undertake a squeeze-out from the company. If the company is reluctant to be bound by the obligation to acquire minority shareholders' shares, it may simply give prior approval of a major transaction, rather than approve the transaction.

Anti-monopoly Committee ruling on commencement of investigations

The Supreme Court has clarified that the Anti-monopoly Committee of Ukraine (AMCU) is authorised to supervise legal entities' compliance with anti-monopoly regulations. In exercising its functions, the AMCU can initiate investigations and an AMCU ruling to commence an investigation will not violate the rights of targeted legal entities. Therefore, it is not an appropriate remedy to appeal an AMCU ruling to commence an investigation of a legal entity, as no penalties have been imposed on the legal entity at this stage.

Supreme Court revision

Ukrainian procedural law sets two grounds on which an application to revise a cassation court judgment can be submitted to the Supreme Court:

inconsistent application of material law which results in contradictory judgments; and an international judicial body's ruling that Ukraine has violated its international obligations in the course of considering a particular dispute.

The Supreme Court explained that the decision of the European Court of Human Rights to withdraw an application from the court registry based on the parties' declaration of friendly settlement should not be considered final by Ukrainian courts, since it was not a decision of a court chamber or the Grand Chamber of the European Court of Human Rights; nor was it based on the merits of the case (ie, it was not a decision establishing a violation of the European Convention on Human Rights which affected the applicant). In light of this, the ruling could not serve as appropriate grounds for the Supreme Court's revision of the Ukrainian court's final judgment.

Termination of guarantee obligations

Under Ukrainian civil law, a guarantor's obligations should be terminated if the guaranteed obligation has been changed without the guarantor's prior consent.

The Supreme Court has clarified that a guarantor's prior consent can be given for future changes to the main obligation. In this particular case, the contract of guarantee contained the following provision: "[b]y signing this contract the guarantor certifies that he has been familiarized with all substantial terms and conditions of the loan agreement (i.e. main obligation), inter alia, the guarantor hereby acknowledges that the main obligation amounts to USD 100 000, interest rates are subject to supplementary agreements for each of the trenches; loan maturity is set for August 15, 2014."

The Supreme Court held that since the guarantor agreed that interest rates would be set in supplementary agreements, such interest rate fixing should not be considered a unilateral change of the main obligation and, as such, could not serve as grounds on which to terminate the guarantor's obligations or the contract of guarantee.

Pledge agreements

Ukrainian civil law allows for parties to pledge agreement to negotiate dispute settlement mechanisms. A pledgeholder may choose the method of foreclosure of the pledged property at its own discretion. For example, a pledgeholder can dispose of pledged property by concluding a sale and purchase agreement with another individual or legal entity, or by selling the pledged property at auction.

However, when choosing judicial remedies, it is advisable to use the 'vice versa' approach: in order to enforce a court judgment, the choice of remedies should correspond to the instruments at the disposal of the state enforcement agency. State enforcement agencies' functions are governed by the Law on Enforcement Proceedings.

For example, where parties agree in a contract that the pledgeholder may foreclose the pledged property, it is appropriate to ask the court to foreclose the pledged property by seizing it from the debtor and transferring it to creditor.

Liability for violation of monetary obligations

The Supreme Court has clarified that Article 231 of the Commercial Code establishes liability for breach of certain monetary obligations through both fines and other penalties. Applicable cases include: l breach of commercial contracts to which at least one party is a public sector entity; l breach of state contracts; l state-financed contracts; and l state credit. For other violations of business obligations, the law imposes no restrictions on parties to stipulate liability in the contract through fines or other penalties. Such contractual provisions should comply with the principle of freedom of contracts enshrined in Article 627 of the Civil Code.

Responsibility of lessee for breach of lease agreement

The Supreme Court has provided guidelines on the applicable law for lease contracts. Lease contracts are regulated by the Civil Code provisions on leasing and tenancy and the Law on Financial Leasing. The Law on Financial Leasing is lex specialis (ie, specific in nature), whereas the Civil Code is lex generalis (ie, general law); therefore, the Civil Code provisions on the lessee's liability for non-return of the leased property do not apply to financial leasing contracts and the relevant provisions of the Law on Financial Leasing will prevail.

Where a lessee fails to return the object of a financial lease agreement, the lessor is entitled to compensation for damages (as provided in the Law on Financial Leasing), but cannot claim a double refinancing rate for the period of delay in returning the object of the lease (as provided in the Civil Code).

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