Nina Kucheruk,
Leading researcher of the Department of
Scientific and methodological support of the
High Qualification Commission of Judges
National School of Judges of Ukraine
UDS 346.91
Topical issues of recognizing an agreement as null and void on commercial court initiative
This article is devoted to the topic of court's initiative in invalidation of agreements, also the term for applying the provisions of para. 1, part 1, Article 83 of the Economic Procedural Code of Ukraine (hereafter the EPC of Ukraine) and their reference with other legal provisions, have been studied herewith.
Keywords: Recognition of agreement null and void, the initiative of the court, the matter in dispute, the right to trial, legislative non-compliance.
Although the issue of invalidity of agreements has been attracting attention of scientists since the time of Roman law, it remain relevant even today. This is, particularly due the fact that a significant number of cases coming before the court are cases about recognizing agreement as null and void.
Issues relating to the invalidity of agreements have been studied in the works of scholars and practitioners, such as O.A. Belyanevych [1, p.200-207], V.V. Dzhun [2 p.165-167], O.O. Kot [3 p.95-101], L.L. Paustovskaya [4 p.419-427], S.A. Podolyak [5 p.426-431], S.S. Potopalsky [6 p.38-41], N.V. Rabinovych [7 p.8-130], I.V. Spasibo-Fateeva [8 p.29-34], D.L. Tuzov [9], D.E. Fedorchuk [10 p.97-103], V.P. Shakhmatov [11 p.93-98], G.V. Yampolskyi [12, p.113-116], others. However, only in few scientific works of these authors, the problem of invalidation of agreements on court own initiative, have been considered. On the other hand, many problematic issues on this theme occur in judicial practice. So, today there is no uniqueness regarding, if the recognition of agreement as null and void on the basis of Art. 83 of the EPC of Ukraine, is a right or an obligation of court and whether such agreements could be recognized as null and void by courts of appeal. In addition, there is no single approach in the determination of necessary compliance with terms for a contract invalidating procedure.
The purpose of this paper is the study of terms for application of Art. 83 of the EPC of Ukraine, on the recognizing agreement as null and void on the court own initiative and their reference with other legal provisions, as well as definition of the powers of court of first instance and court of appeal in recognizing agreements as null and void on their own initiative.
Commercial court rights in case consideration according to the Article 83 of the EPC of Ukraine. Thus, in accordance with paragraph 1 of part 1 of the above mentioned Article, court during a case consideration, has the right to annul in whole or in part the subject of the agreement dispute, contrary to the law [13, Article 83].
According to the content provided by the legal norm, the application of this Article by commercial court in case consideration is possible, if the following conditions simultaneously present: the dependency of the contested contract to dispute and discrepancy (contradictions) of the agreement to the law.
In this case, the procedural act does not reveal the contents of the specified conditions. At the same time, we believe that the connectedness of disputed agreement can occur, particularly in the case of settlement of such agreement or separate parts of legal disputes. Under inconsistency of an agreement to the law, it should be understood the discrepancy of the mentioned agreement not only to the laws of Ukraine, but also to the current international treaties of Ukraine, ratified by the Verkhovna Rada of Ukraine, as well decrees of the Verkhovna Rada of Ukraine, of the President of Ukraine, decrees and resolutions of the Cabinet of Ministers of Ukraine, adopted within its authority and in accordance with the Constitution and laws of Ukraine. The above, is consistent with Article 9 of the Constitution of Ukraine, Article 19 of the Law of Ukraine "On International Treaties of Ukraine" and decision of the Constitutional Court of Ukraine in case № 17 / 81-97 dated 9 July 1998 on the constitutional appeal of Kyiv city council labor unions for the official interpretation of Article 21 of the Labour Code of Ukraine (case on interpretation of the term "legislation"), which defines the term "legislation" [14].
Thus, Article 83 of the EPC of Ukraine provides to commercial court the right to invalidate an agreement not only for its inconsistency to Civil (as stated in Articles 203, 215 of the Civil Code (CC) of the Ukraine), but also other types of legislation.
It should be noted, that the scope of the paragraph 1, part 1, Article 83 of the EPC of Ukraine is only limited by agreements, and does not apply to other treaties and acts of State and other bodies. According to the 2 part of Article 202 of the CC of Ukraine, contracts may be unilateral, bilateral or multilateral (agreements) [15, p. 202], thus we can conclude that the powers of the court did not recognize the right to void on their own initiative the unilateral transactions (power of attorney, announcement by co-owner to other co-owners about the sale of own share in the common property, etc.). However, the abovementioned does not apply in case, if there a request of one of the parties is present, since according to paragraph 2, part 1 of Article 83 of the EPC of Ukraine, the Commercial Court of Ukraine during case consideration has the right to go beyond the frameworks of a claim, if it is necessary to protect rights and legitimate interests of plaintiff or third parties, with independent requirements on the subject of the dispute and presence of the interested party claim [13, p.83].
Another important condition for the application of paragraph 1, part 1, Article 83 of the EPC of Ukraine is the observance of "time requirements" specified in application of the legal norm. Thus, commercial court may recognize an agreement null and void on its own initiative only at the stage of decision making, ie simultaneously with the decision on the stated claim.
In this context it should be noted, that the possibility of recognizing an agreement as null and void on courts initiative on the stage of appellate review of the court decision (decision of the court of appeal). Thus, in accordance with parts 1, 2 of the Article 101 of the EPC of Ukraine, during the retrial of a case by the Commercial Court of Appeal, or in case of newly revealed circumstances, the court conducts the re-consideration of case. Commercial Court of Appeal is not bound by the arguments of appeal claim and verifies the validity of the decision of the local commercial court in full scope [13, Article 101].
According to Article 99 of the EPC of Ukraine, reclaiming petitions should be reviewed by the same rules of the first instance with the specifications provided in this section. Commercial court of appeal during reconsidering of a case in appeal order, shall enjoy the rights granted to the court of first instance [13, Art. 99].
Analysis of these legal norms provides certain grounds for concluding that Commercial Court of Appeal re-considers a case, according to the rules of this case in the court of first instance, using rights granted to the court of first instance, including the right to recognition agreement as null and void on its own initiative. Agreeing with the position of the Supreme Court of Ukraine, concerning the provisions of part 3, Article 101 of the EPC of Ukraine which stipulates, that in appeal procedures the demands that have not been the subject of matter in the court of the first instance should not be accepted and considered by court; it should not be understood as Court of Appeal is denied in rights, as it prescribed by the first paragraph of the Article 83 of the EPC of Ukraine on canceling the first instance court decision [16].
An important issue that arises in practice is the question of the possibility of applying to p. 1, part 1 of the Article 83 of the EPC of Ukraine, if the subject composition of dispute is not in the line with parties of agreement. Thus, in case № 5015/4515/12 as of 4 February 2013, in resolution concerning debt recovery Lviv Commercial Court of Appeal pointed out the impossibility of solving the issue of invalidity of the credit agreement on the grounds that, such a contract has been concluded between the plaintiff and the individual, having status of third party, but not the side of the case [17].
The content of p. 1, part 1 of the Article 83 of the EPC of Ukraine prescribes, that the indicated regulation does not contain conditions of its application, related with full identification of the subject composition of the parties with the parties of the disputed agreement. We believe that for these reasons commercial court may recognize as null and void an agreement, related to dispute, regardless of parties of this agreement (natural or legal persons) and irrespective of whether those parties are the parties of the certain dispute. However, it is necessary to attract party of the contract (if it is not a party of legal proceedings) to participate in the proceedings, as a third party on the basis of Article 27 of the EPC of Ukraine, since the court's decision directly affects their rights and/or obligations.
It should be noted, that in scientific literature and judicial practice there is no consensus, as to recognition of an agreement as null and void, on the basis of paragraph 1, p. 1, of the Article 83 of the EPC of Ukraine, is a right or an obligation of a court. Thus, M. Belkin points out that, although paragraph 1, part 1 of Article 83 of the EPC of Ukraine, provides exactly the right of commercial court to recognize agreements as null and void on its own initiative, in reality this legal norm factually transforms into obligation [18]. Herewith, the author notes that firstly, the judgment has to be legal and valid, and then the court should evaluate the legality of such an agreement and, if appropriate to recognize it as null and void; secondly, if the right provided by paragraph 1, part 1, of Article 83 of the EPC of Ukraine was not exercised by the court of first instance, then the advantage of realization of this right goes to the higher-instance court [18]. According to O. Kharitonova, if during consideration of the dispute it will be found that the content of an agreement contradicts the current legislation, a court shall recognize such an agreement as null and void on its own initiative [19, p.155]. According to V. Dzhun, when the parties of a dispute refer to negligible agreements in reasoning of their claims and objections, and if the wrongful side of the dispute does not question the validity of these agreements, commercial court follows paragraph 1, part 1, of Article 83 of the EPC of Ukraine, if it contradicts the law [20, p. 166]. Another position is presented by B. Belyanevych, who believes that this legal provision provides the right of commercial court to annul in whole, or in part an agreement linked to the subject of dispute contrary to the legislation [21, p.601].
This issue is being solved uncertainly at the level of judicial decisions and clarifications of the higher instance courts. Thus, the Plenum of the Supreme Commercial Court of Ukraine in section 2.3 of Resolution № 11 as of 29 May 2013, "On some issues of recognition agreements (business contracts) null and void" explained that, if during a commercial dispute consideration, a court determines that the content of an agreement related to the subject of a dispute contradicts the law in force at the time of agreement conclusion, a court in accordance with paragraph 1, part 1, of Article 83 of the EPC of Ukraine, has a right on its own initiative to recognize an agreement as null and void in whole or in part, with consequences of recognition of an agreement as null and void [22 p.2.3].
The same legal position is set out in the Resolution of the Supreme Court of Ukraine in case № 32/206 as of 9 December 2003, according to which a court, if finding that the content of a contract contradicts the legislation in force, guided by paragraph 1, part 1, of the Article 83 of the EPC of Ukraine, may on its own initiative recognize such an agreement, as null and void in whole or in part. [23]
Instead, in p. 7 of the newsletter № 01-8/1270 dated 14 July 2004 "On some issues raised in the memorandums concerning the work of commercial courts of Ukraine in 2003, on the application of the provisions of the Commercial Procedure Code of Ukraine", the Supreme Commercial Court of Ukraine presented the opposite legal position and noted that according to the requirements of paragraph1, part 1, of Article 83 of the EPC of Ukraine, if in consideration of a dispute it was established that the content of the contract contradicts the legislation, a commercial court shall on its own initiative recognize such an agreement as null and void in whole or in part [24, p.7]. Court duty to recognize agreements null and void is also mentioned in the Resolution № 10 as of 29 May 2013, of the Plenum of the Supreme Commercial Court of Ukraine "On some issues of practical application of statutes of limitation in solving commercial disputes". Thus, in p. 3.3 of this resolution is noted that the second part of Article 259 of the Civil Code of Ukraine prohibits the reduction of the statutory limitation period. Therefore, an agreement (stipulations) to reduce the mentioned period shall be recognized by commercial court as invalid, including by a court initiative (paragraph. 1 Article 83 of the Civil Code of Ukraine) [25, s 3.3].
Based on the content of Article 83 of EPC of Ukraine "Rights of the commercial court for a decision", we believe that commercial court has exactly the right, but not the obligation to recognize agreements, or their parts as null and void on the basis of paragraph 1, part 1, of Article 83 of the EPC of Ukraine.
Along with this, judicial practice formed such a position, according to which Article 83 of the EPC of Ukraine regarding invalidation of contracts on the initiative of the court could not be applied. Thus, in resolution of the Supreme Court of Ukraine as of 19 November 2002, it is noted that the recognition of agreements as null and void on court's own initiative out of the frameworks of plaintiff claim stated, conflicts with the constitutional principle of discretionary litigants, and therefore paragraph 1, part 1, of Article 83 of the EPC of Ukraine on the basis of Article 8 of the Constitution of Ukraine could not be applied [26].
We believe that for these reasons a court is not deprived of the ability to apply Article 83 of the EPC Code of Ukraine, as according to Article 147 of the Constitution of Ukraine, the conformity of laws with the Constitution of Ukraine decides the only body of constitutional jurisdiction - The Constitutional Court of Ukraine [27, Article 147]. However, currently there are no decisions of the Constitutional Court of Ukraine available concerning compliance of paragraph 1, part 1, of Article 83 of the EPC of Ukraine with the Fundamental Law of Ukraine.
At the same time, we agree that the recognition of an agreement as null and void by a court's initiative is a violation of rights of a trial participants and adversarial system of justice, one of the basic principles of justice provided by p. 4 section 3 of Article 129 of the Constitution of Ukraine and section 1 Article 3 of the EPC of Ukraine. Examples of such violations are depriving parties of the right to declare the application of limitation, prior to a court judgment in the case, because according to s.3 of Article 267 of the CC of Ukraine, the statute of limitations applied by a court only at the request of the parties to the dispute, and should be made prior the judgment announcement.
In this context, it is necessary to pay attention to the clarification contained in s.2.1 of aforementioned Resolution № 10 as of 29 May 2013, of the Plenum of the Supreme Commercial Court of Ukraine, according to which a party to dispute can declare expired limitation period to the court of appeal, which proves the impossibility of submitting of such application to the first instance court [25, p.2.1].
Thus, recognizing an agreement as null and void by a court of first instance initiative, a party may exercise own right to submit an application for the statute of limitation. However, we believe that in such case, when the statute of limitations and in this regard, the need to denial of a claim is engaged, the appellate authority shall cancel a decision of local commercial court if there are no grounds, provided by Article 104 of EPC of Ukraine for such a cancellation.
With that, a party is deprived the right to declare expiration of statute of limitations in case of invalidation of an agreement by an initiative of a court of appeal, in fact within the meaning of s. 2.1 of the same resolution on a party reference the expiration of the statute of limitations in the cassation process of judicial review is not consideredm as such a statement [25 s. 2.1].
Summing up, we can conclude that the recognition of agreement as null and void on the initiative of commercial court is the right of the judicial authority. Herewith, realization of this right may be exercised only at the stage of judicial decisionmaking and in case of such conditions as connectivity of disputed contract with the subject of a dispute and inconsistency (contradiction) of a contract to the legislation. At the same time, despite the fact that the establishment of the order of invalidation of contracts is aimed to eliminate violations of the law in judicial trials, such an order is not entirely consistent with the constitutional principle of the adversarial.
References:
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