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Human rights in Ukraine – 2008. 13. PROPERTY RIGHTS

27.06.2009

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1. Overview

Protection of property rights is a crucial task for the state since this right forms the basis for ensuring other socio-economic rights. In this realm there are no unimportant rights, since each of them reflects an essential aspect of our life which affects each of us.

This year was extremely difficult both from the point of view of ensuring safeguards of property rights, and as regards the behaviour of the authorities in restricting these rights.

Systemic and long-standing problems which had been put off indefinitely have become more acute. The lack of a single, effective system of registration of the right to immovable property has led to a serious weakening of safeguards of property rights and to heightened uncertainty among the public that their rights will be properly protected. That is understandable since without clarity as to who answers for this area of activity it will never be possible to establish such order. This also leads to considerable abuse in cases, for example, where two apparent owners emerge for the same flat or plot of land. This problem is felt particularly acutely in times of economic crisis when people see protection of their right to a home and land as paramount.

At the same time longstanding legislative flaws with regard to buying up land for public needs have led to a situation where at present the State effectively has no legal mechanism for legally ensuring the redemption of land which, for example, is needed for building work of importance to the country, including that required for the holding of EURO 2012. In carrying out measures needed for this major event a whole range of property rights violations are occurring. It should be noted that there are also considerable problems with removing land from owners using it not as intended.

The financial crisis which hit the banking system in 2008 has contributed to unwarranted interference by the State in the individual’s right to peacefully enjoy their property. In justifying the need to tackle the crisis, the government has initiated the preparation and adoption of a number of normative legal acts in contravention of current legislation which infringe customers’ rights. One can point, for example, to the moratorium on early release of bank deposits imposed by the National Bank of Ukraine (NBU, despite this being in breach of current Ukrainian legislation.

Cases have also become common where money in current accounts and deposits where the term has expired have not been returned by problem banks.

The old problems with enforcement of court rulings remain. Only 8% of court rulings as far as penalties involving property are enforced. With such statistical figures it would be difficult to speak of property rights being safeguarded. The situation is exacerbated by the moratorium on the sale of property of State enterprises, as well as by difficulties in selling the property of people with debts.

Most problems regarding property rights are systemic and continue year in year out. This indicates that they are not a consequence of the world financial crisis with the latter having only highlighted them. The problems require active government attention and a comprehensive approach in resolving them.

2. Safeguards of property rights

State registration of the right to real estate

One of the universally recognized safeguards of property rights is provided by a reliable, guaranteed and effective system of State registration of the right to real estate. In 2008 there was still no creation of such a system for protecting property rights based on a «one stop» registration of these rights. This means that one body would be responsible for registering all rights and penalties involving real estate, both plots of land and the buildings, etc, on them.

According to the Ministry of Justice, legislation regulating operations with real estate remains flawed[2] Gaps in legal regulation of such operations and of the activity of business enterprises on the property market are helping fraud and other violations of legislation to flourish. A substantial circle of people who lack sufficient legal knowledge and experience and need consultation, end up trusting various commercial structures and private individuals to their cost.

The existing model of registration of real estate property rights is flawed and inefficient due to its multi-level structure. For example:

-  the right to land plots and some penalties on these are registered in the State Land Register run by the State Committee for Land Resources;

-  the right of ownership to buildings, constructions, and flats is registered in the Bureau for Technical Inventory;

-  Information about the right of ownership to buildings, constructions, and flats can also, depending on the region be contained in the State Register of Property Rights on Real Estate, under the control of the Ministry of Justice;

-  Mortgages of real estate (including land, buildings, constructions, flats)are registered in the State Registry of Mortgages on Real Estate, under the control of the Ministry of Justice;

-  Information about other commitments on real estate may be registered and contained in the Single Register of Bans and Arrests on Appropriation of Real Estate, as well as in housing and communal services (ZHEK) office documents.

It should be noted that there are quite frequently concealed charges on real estate which can impede the exercise of property rights.

The main reasons for these problems are, firstly, a chaotic system of registration of charges on property in various registers, this making it extremely difficult to identify them all.

Nor does legislation make it mandatory to register all conceivable charges levied against real estate, for example, court rulings where property is levied, or apartment rent (lease) agreements.

The possibility of such concealed charges on property is the most serious risk connected with the existing system of State registration of real estate property rights. It is impossible to minimize this risk without a single register of real estate property rights based on a «one stop» principle.

After the Law «On State registration of material rights to real estate and limitations of these rights» came into force, the functioning of the present registration system came into conflict with this law however a new registration system has still not been created. As a result of this there is a risk that existing State registration of real estate property rights ceases to be legitimate.

Safeguarding ownership of corporate rights

Economic crisis deepens problems with safeguarding ownership of corporate rights, and an increase in the unlawful seizure of enterprises. The main factors at play here are failings in legislation and with the court system. According to estimates during 2008 there were more than 2, 500 businesses were seized in corporate raids.[3]

A draft law «On joint stock companies» which could remove a considerable number of the gaps in legislation regarding the activities of joint stock companies and related corporate issues. However it was only in September 2008 that the Verkhovna Rada managed to pass this act which was passed into law by the President at the end of October.

The urgent need to pass a special law regulating problems in the formation and activities of Ukrainian joint stock companies is explained by several important factors.

The Law «On economic companies» from 1991 did not ensure basic protection of property rights of either large or small-scale shareholders and failed to address many issues in managing joint stock companies. This led to numerous corporate conflicts which adversely affected the financial state and production capacity of the enterprise.

Flaws and gaps in current legislation have made it difficult for large investors to work normally, making them dependent on disruptions to general meets, judicial red tape and similar obstructions caused by other investors.[4] All of this has led to major corporate conflicts, including in large joint stock companies which determine the development of whole areas of industry.

One can cite the example of the longstanding conflict taking place in one of Ukraine’s biggest mobile operators – the company «Kyivstar GSM». To the present day there is no agreement between the main shareholders, this being seen in various scandals, accusations of spying, etc.[5]. Both parties use all the flaws in corporate legislation in order to achieve their own aims.[6] Furthermore, in view of the fact that the parties cannot resolve this dispute in Ukraine due to inadequate domestic corporate legislation, they are forced to turn to courts abroad.[7]

It should be noted that the law «On joint stock companies» now adopted regulates in detail the procedure for creating a joint stock company. However the construction regarding the need to dissolve joint stock companies if the size of clear assets does not meet the minimal size of the capital in the acts of association for 10 months remains contradictory. In conditions of world crisis, as well as instability of Ukraine’s economy, observance of this norm could lead to a considerable number of bankruptcies.[8]

A positive feature of the new law is the duty of joint stock companies to inform each creditor in writing of a decrease in the size of the founding capital, this, undoubtedly, helping to protect their property rights.

There is an important provision of the law which regulates the specific features of share sales which increases guarantees of shareholders’ rights and reduces the opportunities for corporate raiders. Article 26 which imposes liability of officials of the joint stock company where employee shareholders’ rights are infringed is also reasonably progressive, however it should be said that the lack of procedure for implementing this provision makes it impossible to apply in practice.

The new law also provides detailed procedure for general meetings (notification of them, the adoption of decisions, quorum, and so forth). Lack of regulation of these aspects had previously led to constant infringements of minority shareholders and corporate raids on enterprises. The new law, while not preventing machinations during general meetings, provides much more regulation of this procedure, creating the possibility for shareholders to lodge complaints where it is infringed.

There are however also negative elements. For example, at present there are duplications and incompatibility in the law passed as against Articles 1-49 of the Law «On economic companies». These can only be eliminated in two years since in accordance with the Final Provisions they cease to be valid only two years after the law on joint stock companies has come into force.

Furthermore, corruption in the court system makes it possible for «raiders’ to receive the ruling they want and gain ownership of any enterprise.[9]

In 2008 there were attempts to introduce criminal liability for direct seizure of buildings, institutions and organizations, however they were not successful. It should be noted that at one stage there was a real detective story over this norm. It was initially contained in the Law «On amendments to some laws on preventing seizure of businesses, institutions and organizations», passed by parliament on 18 September 2008. However in the final version of the document signed by the President, the norm, through a strange coincidence, proved to be missing.

The next attempt to introduce the norm was in the draft law «On amendments to some legislative acts regarding liability for infringements on the securities market» (draft law № 2614), adopted in December 2008 in its first reading. According to this, seizures of buildings and organizations would be punishable by deprivation or restriction of liberty for a period of up to two years. For the same acts, carried out through prior conspiracy or in a manner especially dangerous for those around, the punishment could be imprisonment for up to five years.

However the prospect of this norm being approved has concerned many human rights defenders since there are numerous and varied situation which could be qualified as seizure, for example, basic eviction on legal grounds. Therefore criminal liability creates the possibility for conflicts at corporate level to end up with the police or prosecutor. And success in such cases will therefore be dependent on who manages to gain the support of the enforcement bodies.[10]

Non-enforcement of court rulings protecting property rights

To understand the situation with enforcement of court rulings, it is useful to begin with some figures. As regards court rulings where property was levied as a penalty, according to the Minister of Justice, Mykola Onishchuk, only 8% of such rulings are implemented (the total level of enforcement of court rulings is around 32.5%).[11]

One of the reasons for this situation lies in laws from the 1990s on so-called moratoriums. These include a moratorium on the compulsory sale of property of State enterprises, those of the fuel and energy industry, pipeline transportation, enterprises of Ukrrudprom [Ukrainian mining and metallurgy industry], shipbuilding. Thus, of 32 billion UAH which were to be redeemed in accordance with court rulings, 18 billion constituted money and property which have immunity, being protected by moratoriums, including immunity from enforcing documents to levy penalties in favour of people owed wages.

By providing immunity from enforcement of court rulings to those involved in business activities in these fields, the legislators have thus placed them in a privileged position over businesses in other fields. It should be pointed out that the laws imposing moratoriums are unconstitutional. After all, the provision of any privileges to particular owners or concessionary regimes of economic activity are a direct contravention of Article 13 of the Constitution. This assessment is shared by the Ministry of Justice.[12]

Certainly at the time these moratoriums were introduced, the situation in the country was difficult and there was a risk that the State could be deprived of the property through corrupt dealings. However a number of years have passed since then, during which the majority of enterprises of the fuel and energy industry and other fields mentioned have been privatized and fairly profitable, with a high level of viability, and yet the moratorium on compulsory enforcement of court rulings remains intact.

The relevant draft laws on cancelling these anomalies have, in fact, been prepared, however at the present time the moratoriums remain in force. Obviously questions will arise regarding the retention of certain restrictions regarding pipeline transportation, train, ammonium and gas pipes. However it is specific property which needs to be protected and not particular enterprises, etc.

The problem of non-enforcement of court rulings is exacerbated by the fact that traditionally, dating from Soviet times, the entire system of enforcement was structured by the State in such a fashion that the debtor remained the privileged party. They needed to be warned, given time for voluntary enforcement, handed a formal order, and they could appeal on the grounds of their own subordinate position against any actions by the State bailiffs. The system of administration in the State Bailiffs’ Service is no less bureaucratic. The debtors also have a wide arsenal of means enabling them to avoid enforcing the court ruling.

The procedure for sale of the property of debtors seized during enforcement proceedings remains inadequate and complicated The State Bailiffs are effectively deprived of any control of this stage of the proceedings. As a result of this, the sale of seized property is often carried out with infringements of the law which drags out the time periods for enforcement; the property’s value is reassessed, and its market value often underestimated. There have been cases where the money from the sale of property has not been transferred by specialized organizations.

The European Court of Human Rights can also not stand aloof from these infringements and more and more often passes judgments finding violations by Ukraine of Article 1 of the First Protocol to the European Convention on Human Rights. The case of Pashuk (from Chernihiv)is a good example.

 

Case of Pashuk v. Ukraine(application № 34103/05) [13]

In January 2003 Ms Pashuk who has over 30 years teaching experience, and has worked all her life in Chernihiv Specialized Secondary School No. 1 with intensive study of foreign languages (specialist of higher education), lodged a civil suit with the Desnyansky District Court in Chernihiv asking that the Department of Education of the Chernihiv City Council be forced to pay her supplementary payment for number of years served, as well as pay 4, 500 as assistance towards health restoration. The court granted 4, 865 UAH and 14 kopecks.

However this court ruling was not executed. Moreover, the state bodies which carry out enforcement of court rulings refused to enforce it at all, and on 28 December 2004, closed enforcement proceedings and returned the writ of execution due to the lack of money on the account of the debtor (the State) which could be extracted.

On 13 April 2005 the Chernihiv Regional Department of Justice sent Ms Pashuk a response to her application in which it informed her that due to non-financing in the Budget of payments which were due her, such payments are determined by creditor debt of the State Budget of Ukraine (reference is made to the Law «On restructuring of debt on payments envisaged by Article 57 of the Law of Ukraine «On education» to educational, academic-educational and other categories of employees in educational institutions»). Pashuk was also informed that payment of this creditor debt of the State Budget was mandatory, and was paid back over five years in equal parts through inclusion of payments through the relevant laws on the State Budget of Ukraine, starting from 2005. The notification also states that according to information from the Department of the State Treasury for Chernihiv, at the present time planned figures for payments on repaying wages arrears for previous years have not been carried out, calculations under the given types of payments have not been made. That is, enforcement of this ruling was not planned.

Refusing to accept these arguments, Pashuk, with the assistance of UHHRU lawyer Ivan Tkach, approached the European Court of Human Rights. In her application, she complained on the longstanding failure to enforce a court ruling against the State and a violation of her property rights. One of her arguments was that the State could not independently, even by means of legislation, in breach of a court order, determine the restructuring of payments awarded by the court. Furthermore, lack of money in the Budget did not constitute sufficient grounds for violating her property rights.

On 12 June 2008 the European Court of Human Rights agreed with the applicant’s arguments and found that there had been a violation of her property rights. The Court thus effectively found that the law on restructuring the debt violated the right to a fair trial and the property rights of the applicant.

 

 

In this and many other similar cases which the European Court of Human Rights examined in 2008 infringements were found of the right to peacefully enjoy ones property due to the existence of various restrictions, moratoriums on enforcement of rulings by domestic courts, or due to the inaction of the Bailiffs’ Service.

 

Safeguards of rights to mortgaged property

For safeguarding property rights to housing which is mortgaged, it is important to ensure that there is a court mechanism for repossession of such property. Yet on 25 December 2008 the Verkhovna Rada passed amendments to the Law «On mortgages», where one of the provisions allows for repossession of mortgaged property on the basis of the contract between the parties, without a court order.

These amendments were introduced through the Law «On averting the influencing of the world financial crisis on the development of the building industry and residential construction».

Thus, at the present time banks are entitled to repossess mortgaged flats where the conditions of the mortgage agreement have not been met, for example, where the borrower has fallen behind in repayments.

However the Ukrainian Constitution stipulates that no one may be forcibly deprived of their home except on the basis of the law and in accordance with a court ruling. One can thus expect that where banks resort to extra-judicial mechanisms for repossessing flats, there will be court appeals lodged. Provisions of analogous content are found in norms of the Housing Code of the Ukrainian SSR. For example, paragraphs one and two of Article 109 state that eviction from residential premises is permitted on those grounds established by law. Eviction is carried out voluntarily or in accordance with a court ruling.

The Ministry of Justice also points to the fact that for the practical implementation of the new mechanism of extra-judicial repossession, amendments are needed to a number of other Ukrainian laws, including «On mortgages», «On the notary service» and «On State registration of material rights to real estate and limitations of these rights».

In any case deprivation of flat owners of their property without a court order could significantly weaken the protection of the right to peaceful enjoyment of ones property as set down in the European Convention on Human Rights.

Safeguarding the property rights of investors in the area of construction

There remain serious problems with ensuring property rights in the construction sphere, and this is leading to widespread infringements on this market. Very little was done to address this problem in 2008. The Minister for Regional Development and Construction Vasyl Kuybida acknowledges that there is insufficient liability for violations in the building sphere. In 2008 50% of the construction items checked «proved unlawful».[14]

The number of financial building frauds over recent years has reached disturbing proportions. Thousands of Ukrainians have already fallen victim to fraudulent deals involving residential construction. Experts believe that such frauds have become possible due to failings in the procedure for land distribution, the choice of builders, registration of the right to real estate and its restrictions, as well as because of the lack in legislation of norms regarding the ways and mechanisms for ensuring enforcement of contracts in the area of residential construction.

At the same time, a number of measures aimed at fighting these problems effectively remain unimplemented. These include:

- improvement in the norms of current legislation regulating urban construction work, for example, the creation of mechanisms by which a specific investment project for potential construction is put to auction or tender. Only those economic players who have the relevant financial, technical and production capacity for its implementation would be able to bid to be chosen as builder or subcontractor;

- envisaging in legislation mechanisms for ensuring enforcement of the contractual conditions for the construction of a multi-apartment building via mortgage of the land site granted in ownership or use to the builder, or guarantees from solvent members of the market;

- ensuring proper monitoring in the construction area, increasing liability of the local authorities though the obligation to keep a register of investment contracts and agreements on construction of multi-apartment buildings;

- the introduction of registers for builders and building objects where private investors are involved;

- mandatory reporting by construction firms and investment funds on money obtained from individuals during the implementation of the construction or assembly work;

- carrying out a thorough analysis of money obtained in the regions from members of the public for the construction of housing and observance by builders (developers) and investment funds of the conditions of their agreements;

- where circumstances arise to institute bankruptcy proceedings against a builder, only procedure for readjustment of a debtor should be applied, for example, through the participation of individual investors or local authorities;

- prohibition of advertising and announcements about the sale of flats by builders (developers) before building permits have been obtained;

- the creation of proper conditions for carrying out effective public control over developers and investment funds.[15]

 

Punishment of those infringing property rights

Nothing has changed as regards lack of protection of owners in the case of petty theft This was even noted by the Minister of Internal Affairs Yury Lutsenko who spoke of the need to cancel the norms of the law which stipulate that a person who has committed a theft worth less than the minimum wage shall not be held criminally liable. «They steal a cow from an old lady and there’s no criminal file, they steal a young girl’s bike – no criminal file, a young lad’s mobile telephone and no criminal file. People get the impression that the police deliberately don’t want to initiate them», Lutsenko stated. There is a particularly difficult situation in rural areas where petty crimes have become very widespread.[16]

It should be noted that up till the present time all legislative initiatives in this sphere have remained on paper.

 

3. Behaviour of the authorities in restricting property rights

Purchase of privately owned land for public needs

The problem has recently become more pressing of appropriation by the State of privately owned land for State needs. This is due to the expanding boundaries of cities and also the need for new buildings, etc, in connection with Euro-2012.

Furthermore, via court orders the State also takes land away from owners not using it according to its designated purpose. This court practice became entrenched quite recently and raises many questions regarding its compliance with universal principles of the inviolability and protection of private property.

Compulsory appropriation of privately held land is, according to Ukraine’s Constitution, an exceptional measure, while pursuant to Article 78 of the Land Code a private owner has the exclusive right to own, use or dispose of land.

Bearing this in mind, the application of compulsory appropriation of land is quite unlawful. According to the Constitution it can be applied, as an exception, for reasons of public need, on the grounds and subject to prior full compensation of its value. Compulsory appropriation of such sites with subsequent full compensation of their value is permitted only in a state of war or emergency. Thus the right to own land is guaranteed and nobody can be unlawfully deprived of this right.

On the other hand, the Land Code is not so categorical on this subject. It states that compulsory termination of the right to a piece of land is carried out through the courts in some cases, among them: the use of the land not as it was intended; redemption (appropriation) of land due to the public need, requirements and confiscation of the land site. o

In order to build any constructions of State or local importance, such as a new ring road, a new stadium for Euro-2012 or other elements of infrastructure, the owners of the land on which the building work is planned, need to be moved.

And this is where the first problems immediately arise. According to information from the Accounting Chamber of Ukraine, there has still been no resolution of organizational, including land, issues with regard to the reconstruction of the main stadium – the National Olympiysky Sports Complex. For over two years the issue of carrying out design work for this reconstruction has been at decision stage, while the reconstruction of the stadium is being carried out in the absence of approved design documentation. The status of some land sites adjoining «Olimpiysky’ also remains unregulated.[17]

Yet another example is the fact that the Kyiv Regional Council has recommended that the Regional State Administration draw up an action plan for appropriating pieces of land in order to build a new ring road. The Head of the Kyiv Regional State Administration Vera Ulyanchenko informed a district administration «of the undesirability of land sale and purchase operations in districts marked for the construction of the circle road (plus or minus 250 metres from the road).

It is known that the instructions have been taken literally in district administrations which have stopped issuing documents certifying the lack of prohibitions on the appropriation of problematical sites and other law-establishing documents without which notaries do not register land sale and purchase agreements. In addition, district departments of architectural and construction as well controlling bodies are dragging their feet over issuing permits to commence construction work. Effectively owners of sites at issue are confronted with the choice: take the authorities who are hindering them from exercising their right of ownership to court now, or wait for the compensation promised by the Head of the Regional State Administration.[18]

Clearly conflict with owners is inevitable. At the same time it should be noted that property rights are not absolute, and are restricted by public and State interests. Regardless of this, however, the owner’s interests must be protected, and such appropriation should take place with the minimum expense for him or her.

In reality, unfortunately, we have problems. The Land Code sets down the main principles for compulsory redemption of land sites and their compulsory appropriation for public needs, or for motives of public necessity. The State authorities and bodies of local self-government are given fairly broad powers to appropriate privately owned land. It is interesting that the valuation of the land is carrying out using methodology approved by the Cabinet of Ministers and does not reflect the real market value of the land. However the norms of the Land Code are of a general nature and do not regulate the grounds and procedure for such appropriation, but envisage the adoption of a special law which would regulate appropriation procedure.

At present the Verkhovna Rada is considering a draft law «On the redemption of privately owned land for public needs and for reasons of public necessity» (draft law № 0861), which has on several occasions been rejected by the President with the explanation that it does not comply with the Constitution.

The President’s proposals state that the Law cannot be signed since it does not safeguard the constitutionally guaranteed inviolability of the right of private ownership, is conceptually flawed, does not establish a clear mechanism for redemption and compulsory appropriation of land for public needs. Furthermore, the draft law, whether deliberately or by accident, does not differentiate between the concepts of «redemption» and «compulsory appropriation of the right of private ownership of a land site», or between «public needs» and «public necessity».

The point is that according to the Constitution and the Land Code redemption is a voluntary procedure and takes place with the consent of the owner for public needs, while compulsory appropriation is without such consent, however only for reasons of public necessity. However the law provides no clear definition of the concepts «public needs» and «public necessity», noting only that public necessity arises in the case of the imposition of a state of war or emergency.

This puts in question whether there is public necessity for the construction of a stadium for the World Football Championship or a petrol station on a motorway and the compulsory appropriation of land for such objects. Will such appropriation be an exceptional measure for the sake of which the right of private ownership is infringed? This question remains without legislative regulation.

Furthermore, the draft law stipulates that where the former owner renounces his right to reinstated ownership of the land or a part of it, the State authorities or bodies of local self-government can at their discretion take the decision to hand the land, or a part of it, in ownership or use to another interested party. There is no procedure for confirming the rejection of the former owner of his right to the return of the land, and this could encourage the relevant bodies to unwarranted and uncontrolled appropriation of the land from one private owner to another, creating conditions for abuse in the buying up of land sites.[19]

According to the draft law the redemption price is fixed and the owner notified a year before the purchase, however given the changing prices of land sites, it is certain that by the time of the actual purchase the redemption price could be significantly different.

Thus, if the Verkhovna Rada overcomes the President’s veto and passes the draft law in its present form, this will create the opportunity for abuse when deciding issues of redemption (compulsory appropriation) of privately owned land, and property rights guaranteed by the Constitution will be infringed.

There is also the issue of termination of ownership rights via the court where the land is not being used as intended. Let’s assume that on his piece of land for building or servicing a residential building, the owner «accidentally» built an office. Perhaps in the future he plans to change the designated purpose of the land site, however may not have time since according to the Land Code, compulsory appropriation of the right to a land site is carried out via the court where the land is not used in accordance with its designated purpose.

Decisions passed by the courts to deprive property rights due to the fact that a piece of land is not being used in accordance with its designated purpose, although this is envisaged by the Land Code, is also not unequivocal and may contravene the Constitution. It would be more logical in this case to take a decision on removing the infringement, specifically on demolishing the unlawful building or other means.[20]

One can thus conclude that compulsory termination of ownership rights can take place only in cases clearly set out in law, and only by court order. In order that property rights are observed and the Constitution not breached, a special law should be passed which would regulate the rules of procedure for appropriation. Until such measures are taken, decisions on compulsory appropriation of land sites can be appealed in court as violating the right of private ownership guaranteed by the Constitution.

Thus, at present, legislation is unclear and unforeseeable in issues regarding the grounds and procedure for compulsory appropriation of privately owned land.

 

Moratorium on the sale of agricultural land

It should be noted that in 2008 the State failed to overcome legislative problems in regulating the land market. During the year the moratorium on the sale of land designated for agricultural purposes remained in force. The problems which determined the introduction of this moratorium remain unresolved to this day. No law on a land cadastre was passed and there remains no single State system of notification and documents containing data on land sites, their legal status, qualitative and quantitative characteristics, valuation, as well as on the distribution of land between owners and users, including those renting the land. One of the consequences of these problems was the increased number of corporate raid seizures of farmers’ land during this year.

At the same time the Verkhovna Rada at the end of 2008 voted to continue the moratorium on sale of agricultural land until 2010. It should be noted that the President used his veto against this since the moratorium is causing people to effectively be deprived of the right to land and dispose of it by bureaucrats. As the President stated, in the Kyiv region alone the moratorium is meaning that 50-60 thousand agricultural areas are being lost.[21] Yet at the beginning of 2009 the Deputies once again supported the moratorium which provides yet more confirmation of the State’s inability to protect the right of ownership of land.

Non-return of deposits

The financial crisis has hit many people very hard. It has also, however, promoted unwarranted intrusion by the State in people’s right to peaceful enjoyment of their possessions. For example, citing the need to fight the crisis, the State initiated the preparation and adoption of a number of normative legal acts which contravene current legislation and violate ownership rights of people with money in the bank.

Among such measures one can certainly put the prohibition of early termination of fixed deposit agreements established by the Resolution of the National Bank of Ukraine [NBU] № 319 «On additional measures on banking activities». Although this resolution was revoked on 4 December 2008, in its place came NBU Resolution № 413 «On particular issues of banking activities» and its explanation by the Bank, which effectively continued the moratorium on early removal of deposits.

Clearly the government needed to pass a number of very specific measures to prevent a mass exodus of capital from the banks since if everybody had approached them for their money, few would have received it (since the banks don’t in fact have that much money available). However it was difficult to carry out such measures within the framework of legislation since otherwise their legality is placed in doubt and the possibility of applying them.

However, as is often the case, good intentions here bring about serious problems. It turns out, for example, that the above-mentioned NBU Resolutions contravene Article 1060 of the Civil Code which states that «according to an agreement on a bank deposit, regardless of its type, the bank is obliged to hand over the deposit or a part of it at the first request of the depositor, with the exception of deposits made by legal entities on other conditions of return which are stated in the agreement.»

Furthermore, any normative or other restrictions on the rights of depositors with regard to early termination of a contract are unacceptable in accordance with Articles 1058 and 1075 of the Civil Code, Articles 66 and 67 of the Law «On banks and banking activities» which the NBU refers to in its Resolutions do not envisage the right of this body to impose the said restrictions.

However all of this is the dry language of legal documents which in fact means the violation of the rights of each client of the bank who was not given his deposit on demand, with this being explained by the National Bank’s Resolutions. They now have the right through the courts to demand reinstatement of their violated rights, as well as compensation for material and moral damages incurred.[22]

In addition, at the end of 2008 – beginning of 2009 a wave began of failures by «problem» banks to return deposits the term of which had ended, as well as money on current accounts. For example, a lot of publicity was given to the non-return in full of deposits of the commercial banks «Nadra» and «Kyiv». As a result of this in February 2009 the National Bank imposed a moratorium on meeting the demands of creditors of «Nadra» and «Kyiv» for six months in order to create favourable conditions making it possible to restore the financial condition of the banks.

It should be noted that according to information from the Chair of the Council of the National Bank Petro Poroshenko, in the country 15 banks have suspended payments and repayments of deposits, including even those where a temporary administration was not introduced.[23]

 

Restrictions on the use of property rights of vehicles

In 2008 there was a real problem in large cities due to the unlawful use of tow trucks to remove vehicles, this violating the right to peacefully enjoy ones property. It should be mentioned that the use of these means should take place in strict compliance with the law, but unfortunately this year there were several glaring examples of legislation in this sphere being ignored.

For example, in Kyiv in July 2008 the towing away of cars was restarted since rules of cooperation between the Kyiv Central Department of the Ministry of Internal Affairs and the Central Transport Department of the Kyiv Regional State Administration, which is the executive body of the Kyiv City Council were in force to stop administrative offences involving parking regulations. This procedure does not comply with current legislation, in particular Article 265² of the Code of Administrative Offence which states that the procedure for temporary detention and holding of vehicles in special impoundment areas is determined by the Cabinet of Ministers. Therefore the use of provisions of an unlawful normative act has led to violations of the ownership rights of many vehicle owners.

It was only on 13 February 2009 that an Order from the Central Transport Department of the Kyiv Regional State Administration ceased to be in force. However the private company which does the towing away is continuing to do so regardless of this.

There were similar problems in Lviv. There the local Prosecutor appealed to the court to revoke unlawful decisions by the Lviv City Council and used his powers against the unlawful use of tow trucks in the city. For example, as well as applying to the court, the Prosecutor’s Office directed a protest and submission to the Lviv City Council. Admittedly the protest against the decision of the executive committee which stipulated the procedure for carrying out compulsory towing away of vehicles to the penalty compound in Lviv was rejected and the Prosecutor has twice appealed against the decision in court, however thus far without successful.[24]

 

Recommendations

1) Create a transparent and efficient system of State registration for real estate property rights;

2) Improve safeguards of the ownership rights of land shares, create mechanisms for combating forced seizure of this land, pass legislative acts to regulate the fundamental aspects of the functioning of the land market;

3) Ensure guarantees that people’s right of ownership of housing may only be removed by court order;

4) Carry out reform of the Bailiffs’ Service to ensure unfailing fulfilment of all its functions, including judicial control over the enforcement of court rulings, and also lift the moratorium on compulsory sale of property from State enterprises to retrieve money owed.

5) Make amendments to legislation aimed at strengthening protection against petty theft.

6) Regulate appropriation of land and accommodation on the grounds of public necessity in clear compliance with the Constitution and Ukraine’s international commitments.

7) Carry out measures to safeguard the return by banks of clients’ deposits, including their early return;

8) Improve regulation of issues linked with restricting ownership rights to particular types of possessions, including restrictions on the rights of vehicle owners.



[1] Prepared by Maxim Shcherbatyuk, UHHRU

[2] I. Zahalna. Safeguarding property rights in Ukraine: legislation and mechanisms // Key ideas of reports from the International Theoretical and Practical Conference “Issues involved with safeguarding human rights in Ukraine in the light of the Universal Declaration of Human Rights”. 10 November 2008.

[3] S. Pyshchyk. “In 2008 there were more than 2, 500 corporate raids” // 16.03.2009 http://intermedia.org.ua/ua/news/48203.

[4] M. Libanov, “Who needs the Law “On joint stock companies” and why” // “Dzerkalo tyzhnya”, No. 29 708), 9-15 August 2008, http://dt.ua/2000/2020/63685/

[5] “The owners of Kyivstar are playing spies” // Khreshchatyk №206 (3422) 14 November 2008 http://kreschatic.kiev.ua/ua/3422/art/1226610056.html

[6] “American court demands Kyivstar shares belonging to “Alpha”/ http://biz.liga.net/news/E0902887.html

[7] Telenor: New York court did not hand Kyivstar over to the Russians // Internet publication “Economychna Pravda” http://epravda.com.ua/news/478e6d49f1020/

[8] Commentary to the Law “On joint stock companies” http://consultants.kiev.ua/article/komentar-do-zakonu-pro-akts%D1%96onern%D1%96-tovaristva

[9] K. Venhrynyak, “The law is provoking corporate raids” // Yurydychna gazeta”, №18 (153) from 13 May 2008, http://yur-gazeta.com/article/1565/

[10] O. Hrybanovsky, “Corporate raiders again face prison”, http://news.finance.ua/ua/~/2/130/all/2008/12/27/147627

[11] “Mykola Onishchuk: Only 8% of court rulings where property is levied as a penalty are implemented” // The newspaper “Holos Ukrainy’ [“Voice of Ukraine’], № 70 (4320), 11 April 2008, http://golos.com.ua/article/1207828613.html

[12] Ibid.

[13] The case was supported by the UHHRU Strategic Litigations Fund, http://helsinki.org.ua/index.php?id=1154532718

[14] “Mizhregionbud” supports the imposition of strict liability for violations in the area of construction”// The newspaper “Khreshchatyk”, №226 (3442) from 23.12.2008, http://kreschatic.kiev.ua/ua/3442/news/1235474215.html

[15] “Yushchenko has sent Tymoshenko reeling with construction machinations” // the Internet publication “Glavred”, http://ua.glavred.info/archive/2008/03/03/131529-6.html

[16] “Lutsenko proposes imprisonment for stolen whitewashing” // the Internet site „proUA.com”, http://ua.proua.com/news/2008/09/22/180556.html

[17] “The economic effect of Euro-2012 is not defined” // The Accounting Chamber of Ukraine http://ac-rada.gov.ua/achamber/control/uk/publish/article/main?art_id=1334977

[18] V. Darpinyants “Picnic on the side of the road” // “Halychan contracts”, № 05 from 04.02.2008, http://kontrakty.com.ua/show/ukr/article/34/0520089979.html

[19] O. Inyutina, “О. Інютіна, “Forced cessation of property rights to real estate” // Yurydychna gazeta, №7 (142), 19 February 2008 http://yur-gazeta.com/article/1512/

[20] “Forced cessation of property rights to real estate” // Land Herald of Ukraine, 16 June 2008, http://zemlia.ucoz.ua/news/2008-06-16-9

[21] “Yushchenko is in favour of revoking the moratorium on selling land” // The Internet publication “Economichna Pravda” http://epravda.com.ua/news/499eb75fd4ebc/

[22] “Worth knowing: what to do in order to defend yourself against banks’ arbitrary behaviour” // http://helsinki.org.ua/index.php?id=1228398145

[23] “Poroshenko: 15 banks delay payments and returning fixed deposits” // the Internet publication “Glavred”, http://ua.glavred.info/archive/2009/02/10/185540-8.html

[24] “The Lviv Prosecutor is continuing to appeal against the actions of tow-away operators” // The Internet publication Zakhid.net http://zaxid.net/newsua/2008/11/12/173645/

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