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Focus on: Dispute Resolution in Ukraine

Date of publication: 1 August 2023

Roman Marchenko, Attorney at Law, Senior Partner, Honored Lawyer of Ukraine

Source: The Legal 500

Despite the unprovoked war launched by the Russian Federation against Ukraine in 2022, the Ukrainian courts have adapted to the administration of independent justice even in the face of air bombardments and relentless air raid alerts.

Under the circumstances, the top priorities for the legal business were to maintain timely and stable communication with clients and keep control over legal processes, some of which were temporarily stopped or put on hold, and some continued despite the surrounding conditions. After May 2022, business activities in Ukraine began to recover and legal processes began to intensify, taking into account the requirements and challenges of martial law in Ukraine.

Although the Ukrainian legislation provides that the introduction of martial law in the country or in its separate territories does not affect the process of administration of justice, however, in fact, with the beginning of a full-scale war the judicial system was in a state of adaptation to wartime conditions and continues to improve the relevant processes nowadays.

According to the orders of the Chairman of the Supreme Court “On Changing the Territorial Jurisdiction of Court Cases Under Martial Law” the territorial jurisdiction of cases for some courts in Ukraine has changed due to the impossibility of administration of justice by them for objective reasons during the period of effective martial law or for emergency reasons. Thus, the consideration of certain proceedings has started from scratch.

In general, it can be noted that the judicial system of Ukraine has adequately responded to challenges and conditions that resulted from the outbreak of an unprovoked war. Many court proceedings switched to online regime, participation in court hearings has increasingly moved to the format of video conferences between the parties, and many procedural aspects have started to be solved online, even compared to the quarantine period of 2020-2021.

The judicial system of Ukraine reacted very quickly to the ongoing war situation and adopted several quite noteworthy court decisions, which should be described in more detail.

As pointed out by the Supreme Court in its Resolution of 14 April 2022, in case No. 308/9708/19, as a result of commitment of an unprovoked and full-scale act of armed aggression against the Ukrainian state, as well as numerous acts of genocide of the Ukrainian people, the Russian Federation is not entitled to further invoke its judicial immunity, thereby denying the jurisdiction of the courts of Ukraine to consider and decide cases on compensation for damage caused by such acts. Thus, the Supreme Court confirmed that the aggressor country does not have any legal right to use its judicial immunity in cases related to recovery of damages.

Subsequently, the Supreme Court only supplemented its vision of the legal situation with the judicial immunity of the aggressor state and indicated that the judicial immunity of the Russian Federation is not applicable due to the violation by it of the state sovereignty of Ukraine, and therefore, the Russian Federation cannot exercise its sovereign rights protected by judicial immunity. Thus, Russia has no reason to invoke immunity to avoid liability for damage to property. This legal opinion was set forth by the Supreme Court in its Resolution dated 18 May 2022, in case No. 760/17232/20-c.

As follows from the above decisions of the highest court of Ukraine, court cases for the recovery of damages caused by illegal military aggression of the Russian army can be considered by the courts of Ukraine and claims under such cases are not limited by any legal restrictions.

But the Supreme Court was not only concerned with cases that focused on compensation for damages caused by the military aggression. The Supreme Court also paid attention to issues related to corporate disputes, namely the determination of the fair price of shares of a joint-stock company during the squeeze-out procedure.

The Chamber of the Court for Consideration of Corporate Disputes has reached a conclusion on what can still be considered a fair value of a share during a mandatory acquisition procedure. The term “fair value” does not mean a certain particular amount of money, but the observance by the issuer (supervisory board) of the statutory procedure for determining the market value of shares, which provides for the need to select the highest value if the market value can be calculated using different approaches and methods, in the absence the decisive influence of the majority shareholder on the decision of the supervisory board, which elects the subject of appraisal activity and approves the market value of the shares determined by such subject. In case of a squeeze-out, the share value should not be the average market (exchange) value, but the highest value that exists on the market and is determined by an expert using various methods, and this is the value that should be considered fair. This legal conclusion was set out by the court in a Resolution dated 15 June 2022, in case No. 905/671/19.

In addition to the circumstances of martial law, the consequences of the quarantine imposed by the government of Ukraine, which was introduced in response to the Covid-19 epidemic in 2020, are also reflected in judicial practice. The Supreme Court considered a dispute that was directly related to the introduced anti-quarantine measures and the ban on business inspections by the tax authorities.

As the Supreme Court indicated in its resolution the moratorium on conducting tax audits during the quarantine period, expressly stipulated by paragraph 52-2 of subsection 10 of section XX of the Transitional Provisions of the Tax Code of Ukraine, and the specified norm regarding restrictions on scheduled audits, was in force, and its validity has not been canceled. In case audit was carried out contrary to the legislative prohibition, such circumstances entail the unlawfulness of tax notices-decisions adopted as a result of such an audit. This legal conclusion was set out by the court in a Resolution dated 01 September 2022, in case No. 640/16093/21.

It must be pointed out that the provisions of paragraph 52-2 of subsection 10 of section XX of the Transitional Provisions of the Tax Code of Ukraine have been suspended for the period of martial law in Ukraine.

It is worth paying attention to the court practice that was formed with the participation of attorneys of Ilyashev & Partners Law Firm, which relates to the eligibility of considering a dispute under a sale and purchase agreement in ad hoc arbitration.

As the Supreme Court noted the current legislation of Ukraine does not contain an imperative prohibition (does not limit the subjective limits of arbitrability) regarding the possibility of transferring, by agreement of the parties, to the consideration of an international commercial arbitration dispute arising from sales contracts the parties to which are an individual persons and a non-resident legal entity, a dispute arising between a legal entity and a citizen of Ukraine from the contract of sale, taking into account the agreement reached between the parties, could be referred to the ad hoc arbitration court. This resolution of the Supreme Court was adopted on 12 January 2023, in case No. 824/83/22.

Ilyashev and Partners Law Firm once again managed to prove the legitimacy of the consideration of such disputes by the arbitration court, and properly secure the interests of the client.