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THE 2017 JUDICAL REFORM:all we need to remember

Contents

  1. Subordination of Disputes in the Field of State Registration
  2. Recognition of Right of Ownership of the Mortgaged Property
  3. Expiry of the Limitation Period in Binding Relations
  4. Common Joint Property of Spouses
  5. CONCLUSION:

The legal society will remember the end of 2017, primarily because of the implementation of the next stage of the judicial reform: the enactment of new procedure codes and the start of work of the new Supreme Court.In this article, we suggest recalling the key accents and trends of the development of judicial practice in 2017.

Subordination of Disputes in the Field of State Registration

The judicial practice regarding the subordination of disputes in the field of state registration is known to everybody by its ambiguity and absence of clear criteria for subordination of such cases to administrative or general/commercial courts.

Let us recall that in due time, the Decision of June 14, 2016 in the case No. 21-41а16, which was adopted at a joint meeting of three judicial chambers of the Supreme Court of Ukraine (hereinafter referred to as “the SCU”) was a real revolution.

The SCU concluded that in the event the emergence of a dispute about the revocation of the state registrar’s decision on the registration of ownership of real estate is associated with non-fulfilment of the terms of the civil-law agreement, such a dispute is usually not a public-law one and has to be resolved in accordance with civil proceedings.

However, administrative courts, including the High Administrative Court of Ukraine, did not always adhere to the SCU’s position and continued to consider disputes in the field of state registration.

At the same time, in several decisions rendered in 2017, the SCU emphasised that such disputes should be considered in the administrative proceedings, if there is no dispute about the right of ownership, and that it is necessary to consider only decisions of authorities and management, as well as actions of the state registrar acting as a power entity within the contentious relations.

This position is set out, in particular, in the SCU’s Decision of April 25, 2017 in the case No. 816/1774/15. It should be noted that in the new procedure codes, the legislator stipulated that the consideration of disputes in the field of state registration would be held in civil or commercial proceedings, provided there is a dispute about the right.

Part 1 of Article 19 of the new Civil Procedure Code of Ukraine (hereinafter referred to as “the SPC of Ukraine”) provides that courts shall consider the requirements for the registration of property and rights to property, as well as other registration actions in public proceedings, if such requirements derive from a dispute concerning the right of ownership or property rights.

A similar norm is stipulated in Clause 6 of Part 1 of Article 20 of the new Commercial Procedure Code of Ukraine (hereinafter referred to as “the ComPC of Ukraine”). Thus, the jurisdiction of commercial courts includes cases on disputes concerning the right of ownership or other material right to property, registration, or taking into account of property rights, which (right to which) is the subject of the dispute.

Herewith, the new wording of Clause 1 of Part 1 of Article 19 of the Code of Administrative Procedure of Ukraine (hereinafter referred to as “the CAP of Ukraine”) provides that the jurisdiction of administrative courts shall extend to cases regarding disputes of individuals or legal persons with a power entity concerning the appeal against its decisions, actions, or omissions, except when the law defines other judicial proceedings for the consideration of such disputes.
We hope that the new Supreme Court will use the norms of the new procedure codes to clearly differentiate between the jurisdiction of courts in disputes in the field of state registration.

Recognition of Right of Ownership of the Mortgaged Property

The possibility of foreclosure through the recognition of right of ownership of the mortgaged property in judicial proceedings remains a controversial issue.
In 2017, when resolving such disputes, the SCU mainly expressed this legal position.

On the one hand, the SCU emphasised that transfer of ownership of the mortgaged property was an extrajudicial way of foreclosure and could not be used by courts.
In particular, the legislator identified three ways of protection to satisfy the creditor’s mortgage-backed claims by foreclosing a mortgaged property:

• Judicial way – on the basis of a court decision (in particular, through the sale of the subject of mortgage based on a court decision); and
• Two extrajudicial ways – on the basis of a notary’s writ of execution and according to the agreement on satisfaction of the mortgagee’s claims.
In turn, the extrajudicial way under an agreement on satisfaction of the mortgagee’s claims or relevant reservation in the mortgage agreement is implemented by transferring the right of ownership of the mortgaged property to the mortgagee, or granting the mortgagee the right to sell the mortgaged property on their own behalf to any person under a purchase and sale agreement.

On the other hand, the SCU emphasised that by rendering or upholding the decision on recognising the mortgagee’s right to the mortgaged property, the court of cassation misapplied the statutory provisions, but managed to correctly resolve the dispute on its merits by establishing the fact of the borrower’s non-fulfilment of their monetary obligations under the agreement and protecting the creditor’s violated rights to have the borrower fulfil their mortgage-backed monetary obligations.

Thus, the SCU concluded that the recognition of the right of ownership of the mortgaged property cannot be used by the court as a way of foreclosure and, and at the same time, made a stand for creditors, indicating the correctness of resolving disputes on their merits.

This position is set out in the following decisions of the Supreme Court of Ukraine: of April 27, 2017 in the case No. 756/16227/13-ц; of September 09, 2017 in the case No. 761/32495/15-ц; and of August 9, 2017 in the case No. 466/8679/13-ц.

However, despite the ambiguous approach of the former Supreme Court of Ukraine, the tendency undoubtedly consists in that the recognition of the right of ownership of the mortgaged property is an extrajudicial way of foreclosure and cannot be used in judicial proceedings.

Expiry of the Limitation Period in Binding Relations

As a general rule, the obligation is terminated in part or in full on the grounds established by the agreement or the law. In this case, the termination of an obligation at the request of one of the parties is allowed only in cases established by the agreement or the law.

Article 256 of the Civil Code of Ukraine (hereinafter referred to as “the CCU”) provides that the limitation period is a term within which a person can apply to the court for the protection of their civil rights or interests. The limitation period is related to judicial protection of the person’s subjective right in the event of its violation, non-recognition, or disputing against it.

If during the period prescribed by the law a person fails to file the corresponding claim with the court, then, by this general rule, this person will lose the right to claim in the sense of the possibility to exercise their civil property right in court.

In binding relations (Article 509 of the CCU), the creditor’s subjective right is the right to have the debtor fulfil their obligation to transfer property, perform work, provide services, etc. When the limitation period in these relations expires, the creditor loses their ability to enforce the debtor to fulfil their obligation.

However, in the context of Article 267 of the CCU, expiry of the limitation period itself does not terminate the creditor’s subjective right, which consists in the possibility to make the debtor fulfil their obligation both in judicial proceedings and without the use of judicial coercion.

At the same time, the grounds for terminating the mortgage are separately specified in Article 17 of the Law of Ukraine “On Mortgage”.

Thus, according to the norm mentioned above, mortgage shall be terminated in the event of termination of the main obligation. Instead, expiry of the limitation period for the creditor’s main or additional claims under the main obligation is not provided as grounds for termination of the mortgage.

In 2017, the SCU repeatedly concluded that: unless otherwise provided by the agreement, the limitation period for the creditor’s main and additional claims on debt recovery under a credit agreement and on foreclosure of a mortgage (in particular, if there is a court decision to dismiss the claim because of expiry of the limitation period) does not itself terminate the main obligation under the credit agreement and, accordingly, cannot be considered a ground for termination of the mortgage under the second paragraph of Part 1 of Article 17 of the Law of Ukraine “On Mortgage”.

This position is put forward in the following SCU’s decisions: of July 5, 2017 in the case No. 6-1840цс16; and of May 15, 2017 in the case No. 6-786цс17.

Common Joint Property of Spouses

When considering the issue of common joint property of spouses in 2017, the SPU came to several interesting conclusions.
One of them concerns the need to take into account the participation of each spouse in the acquisition of joint property.
As you should know, Article 60 of the Family Code of Ukraine (hereinafter referred to as “the FCU”) stipulates that the property acquired by spouses during the marriage belongs to both the wife and the husband by right of common joint ownership, regardless of the fact that one of them had no independent earnings (income) for some valid reason (e.g., education, household care, child care, illness, etc.).
Quite often, courts take quite the one-sided approach to applying this norm.

However, in its Decision of April 5, 2017 in the case No. 6-399цс17, the SCU expressed the position according to which while resolving the issue of common joint property of spouses the courts should ascertain the origin of the funds for which the property was acquired.
Herewith, the SCU concluded that the attribution of the property to the common joint property of spouses shall be determined not only by the fact of its acquisition during the marriage, but also by the joint participation of spouses in the acquisition of property using both funds and labour.
When applying the provision of Article 60 of the FCU and recognising the right of spouses’ common joint ownership of the property, the court must establish not only the fact of property acquisition during the marriage, but also the fact that common joint funds or joint work of spouses were the source of this acquisition. That is, the status of common joint property is determined by such factors as the time of property acquisition and the funds for which such property was acquired (i.e., the source of acquisition).

Thus, in the event the property was acquired during the marriage, but at the expense of one of the spouses, this property cannot be considered the object of common joint ownership of both spouses, but is the personal private property of the spouse, for whose personal funds the property was acquired. Therefore, the mere fact of acquiring the disputed property during the marriage is not an unconditional ground for attributing such property to the objects of the common joint property of spouses.

CONCLUSION:

Thus, it follows from the abovementioned judicial practice that 2017 was quite productive with the SCU’s interesting legal positions regarding different categories of judicial cases. Herewith, in its opinions the SCU sometimes used the same rules of substantive law differently.
At the same time, the new Supreme Court started to work, combining all courts of cassation. One of the main tasks of the new Supreme Court is to ensure the uniformity and sustainability of judicial practice, as well as the uniform application of the same rules of substantive law.
We hope that in 2018 the new Supreme Court will manage to eliminate the existing discrepancies in law enforcement and answer the most controversial issues in different areas of law.

Kateryna Manoylenko

Kateryna Manoylenko

Partner, Head of Litigation and Dispute Resolution practice, Attorney at law

  • Recognitions
  • The Legal 500 EMEA 2020
  • Best Lawyers in Ukraine 2021
  • Who's Who Legal 2020
  • Ukrainian Law firms. A Handbook for Foreign Clients 2020
Kateryna Tsvetkova

Kateryna Tsvetkova

Counsel, Attorney at law

  • Recognitions
  • The Legal 500 EMEA 2020
  • Who's Who Legal 2020

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