Date of publication: 31 March 2025
Mikhail Ilyashev, Attorney at Law, Managing Partner, Honored Lawyer of Ukraine
Source: EnergoBusiness
How energy companies can protect their rights in court and seek compensation for damages resulting from unlawful decisions of the National Energy and Utilities Regulatory Commission (NEURC): case law, the position of the Supreme Court, and international practice.
The existence of a right to compensation for damage caused to business entities as a result of violations of legal requirements by state authorities is essential to ensuring the rule of law. In this context, the energy sector is no exception.
The Role of NEURC in Regulating the Energy Market
Regulation and supervision of activities in the energy sector are carried out by the National Energy and Utilities Regulatory Commission (NEURC). Unlawful decisions, actions, or inaction of the NEURC often result in violations of the rights of companies engaged in the generation, transmission, distribution, supply, and trading of electricity.
The legislation provides for the right to seek judicial protection of corporate rights infringed by state authorities. In some cases, it is sufficient to obtain a judicial declaration of the unlawfulness of the decision, actions, or inaction of such authorities, or of a regulatory act.
However, pursuant to paragraph 5 of the Resolution of the Plenum of the Supreme Court of Ukraine “On the Application of the Constitution of Ukraine in the Administration of Justice” No. 9 of 1 November 1996, courts must proceed from the principle that regulatory acts of any state or other authority (acts of the President of Ukraine, resolutions of the Verkhovna Rada of Ukraine, resolutions and orders of the Cabinet of Ministers of Ukraine, regulatory acts of the Verkhovna Rada of the Autonomous Republic of Crimea or decisions of its Council of Ministers, acts of local self-government bodies, orders and instructions of ministries and agencies, orders of heads of enterprises, institutions, and organizations, etc.) are subject to review as to their compliance with both the Constitution and the law.
If, in the course of proceedings, it is established that a regulatory act to be applied does not comply with or contradict the law, the court is obliged to apply the law governing the legal relations in question.
In practice, however, it is often necessary to bring a separate claim requesting that the court declare unlawful and void the regulatory act that contradicts the law.
Judicial Remedies for Businesses Against NEURC Decisions
In September 2022, the Law firm Ilyashev & Partners, acting in the interests of its client, succeeded in convincing the court of the unlawfulness of the amendments approved by the NEURC Resolution No. 46 of 15 January 2021. These amendments effectively imposed on renewable energy producers operating under the “green” tariff the obligations to cover the losses of the state-owned enterprise Guaranteed Buyer, which arose from its inability to resell the electricity purchased from them.
Thanks to the professionalism of Ilyashev & Partners team, the proceedings resulted in the restoration of the infringed rights not only of a single enterprise but of all renewable energy producers.
Thus, in its judgment of 8 September 2022 in case No. 640/4069/21, the Supreme Court held the NEURC, by establishing conditions under which Guaranteed Buyer would, as of 16 January 2021, recover part of the cost of setting its electricity imbalance, had acted ultra vires and not in the manner prescribed by the Constitution and laws of Ukraine. The Court further held that the NEURC has acted unreasonably, in bad faith, without due care, in breach of the principle of equality before the law, and contrary to the prohibition of all forms of discrimination. Consequently, subparagraph 8, paragraph 1 of the Amendments to Resolution No. 641, as approved by Resolution No. 46, insofar as it restated paragraph 9.3 of Chapter 9 of the Procedure in a new version, was declared unlawful.
But what should be done if a company has already suffered losses due to the effect of an unlawful regulatory act?
In such a case, a mere judicial declaration of the unlawfulness of a regulatory act is insufficient. The Law of Ukraine “On the National Energy and Utilities Regulatory Commission” explicitly provides that losses incurred by a business entity operating in the energy and utilities sectors as a result of unlawful decisions, actions, or inaction of the Regulator (i.e., NEURC) are subject to compensation in accordance with the procedure established by law.
In our view, in such circumstances, civil liability for the actions of the NEURC as a state authority – regardless of the presence of fault – should be borne by the State, which is obliged to compensate the damage in accordance with Article 1175 of the Civil Code of Ukraine. This provision stipulates that damage caused to an individual or legal entity as a result of the adoption by a state authority or a local self-government body of a regulatory act that has been declared unlawful and annulled shall be compensated by the State or local self-government body, irrespective of the fault of the officials or employees of such bodies.
Furthermore, Article 56 of the Constitution of Ukraine guarantees to everyone the right to compensation, at the expense of the State or local self-government bodies, for material and moral damages caused by unlawful decisions, actions, or inaction of state authorities, local self-government bodies, or their officials and employees in the exercise of their powers.
Compensation for Losses: Supreme Court Practice
In recent years, however, the position of the Supreme Court has been evolving. For instance, in 2021, when reviewing the case No. 920/1236/19 (judgment of 9 November 2021) concerning compensation for damage caused by an unlawful regulatory act of the Sumy City Council, the Supreme Court upheld the decisions of the lower courts, which had held that the judicial declaration of unlawfulness and invalidity of Decision No. 3577-MР of the Sumy City Council of 20 June 2018 rendered its application in the calculation of real estate tax rates impossible from the moment of its adoption. According to the legal position of the Supreme Court, the application of unlawful regulatory acts to individuals/legal entities is illegal in any case, and the damage suffered by a person in connection with the adoption and application of an unlawful regulatory act must be compensated in accordance with Article 1175 of the Civil Code of Ukraine.
In 2024, the Supreme Court, when reviewing case No. 910/9184/23 (judgment of 16 September 2024) concerning compensation for damages caused by the NEURC as a result of adopting an unlawful resolution annulled by the court in the above-mentioned case No. 640/4069/21, dismissed the claim of the business entity – a renewable energy producer – and upheld the lower courts’ decisions refusing compensation.
Of particular interest for legal analysis is the ground for rejecting the claim: the impossibility of applying a regulatory act that is unlawful from the moment of its adoption also means that payments made to another party pursuant to such an act cannot be regarded as damages caused by the authority that adopted the unlawful act. This, in turn, excludes a key element of legal liability – namely, the existence of confirmed actual damage.
In case No. 910/9184/23, Ukrainian courts effectively suggested an alternative approach for renewable energy producers: instead of claiming damages from the State, they may seek recovery under Article 1212 of the Civil Code of Ukraine from the entity that had received and unjustifiably retained the funds under a regulatory act later declared unlawful – i.e., the state-owned enterprise Guaranteed Buyer.
The Impact of the War on Compensation for Losses in the Energy Sector and the EU Experience
Following the onset of the full-scale invasion and attacks on Ukraine’s energy infrastructure, the energy market has found itself in a critical situation. Under these conditions, energy companies – which should have been supported by the State – continued to face unlawful actions by the NEURC and, as a result, suffered losses.
Thus, since 24 February 2022, nine cases have been brought by private companies against the NEURC, with a total claim value exceeding UAH 8 million. The individual claims ranged from UAH 33,757.39 to UAH 3,261,575.00, with most of them concerning the calculation and approval of the “green” tariff as well as the procedures for the purchase and sale of electricity under that tariff.
As in Ukraine, litigation in the energy sector remains relatively uncommon in the EU. According to the 2023 Annual Report published by the Court of Justice of the European Union, in 2023 the Court initiated only eight new cases involving actions or appeals related to energy sector disputes (out of 821 cases in total). For comparison, seven similar cases were initiated in 2022, three in 2021, seven in 2020, and six in 2019. At the same time, nine such cases were completed in 2022-2023.
Recommendations for Businesses
In conclusion, it should be emphasised that the current legislation of Ukraine provides for the right and regulates the procedure for compensation of damages caused by unlawful decisions, actions, or inaction of the NEURC to private companies operating in the energy sector.
At the same time, statistics show that the granting of claims in such cases remains the exception rather than the rule. It should be stressed that achieving a positive outcome and securing compensation requires a comprehensive approach to the case – one that includes defining a strategy, collecting evidence, developing a legal position, and preparing procedural documents with properly placed emphasis.
Most importantly, however, judges must reassess their role in society. Serving as judges in a state court, they should not transform into advocates of the State authority, but must instead act as guarantors of the rights and freedoms of citizens and businesses. Instead of “creatively stretching” arguments to shield the State from liability for damages caused by the unlawful actions of its authorities, they must ensure protection of the rights of those who have suffered from such actions.
