Human rights in Ukraine – 2006. XIII. Property rights

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1. Overview

The right to peaceful enjoyment of possessions is a crucial component of a law-based State and the development of democratic society. The right is enshrined in the Constitution of Ukraine which sets down the forms of ownership (articles 13, 41, 142 and 143), the equality of all holders of property rights (Articles 1 and 13), and guarantees of property rights and the duties of those possessing property (Articles 13 and 41).  In addition, Article 41 stipulates that “everyone has the right to own, use and dispose of his or her property, and the results of his or her intellectual and creative activity. … No one shall be unlawfully deprived of the right of property”.

It is stated that providing safeguards for the property rights enshrined in the Ukrainian Constitution, the European Convention on Human Rights and Fundamental Freedoms, and Article 1 of the First Protocol to the Convention and ensuring reliable protection of all forms of property are among the main priorities for Ukraine’s State policy[2].  This however sounds like yet more lofty phrases.

Unfortunately the level of protection of property rights in Ukraine remains low. This is confirmed by international studies. The International Property Rights Index (IPRI) published in early 2007, for example, placed Ukraine in fifty seventh place out of the 70 largest countries in the world.[3]

The rating was based on an overall assessment of the level of protection of property rights. A specific feature of the IPRI is that it incorporates data from different studies, surveys and indexes. These include the World Economic Forum Global Competitiveness Index; studies undertaken by the World Bank (on the investment climate, state management findings and how easy it is to do business), the Transparency International corruption perceptions index; reports from the World Trademark Association, and others.

  There is irony in the fact that Ukraine can boast of only one figure: gender equality in ensuring property rights. Ukraine got a rating of 9.3 out of 12 possible in this area, the same as the UK, USA and Japan. This, however, means only that in Ukraine men and women are equally unprotected as regards property rights.

The most serious problems over property rights involve the following:

- the expropriation of real estate (for example, in order to knock down a building or to construct a new one. This includes reconstructing old residential areas, compulsory purchase of land for public needs, compulsory eviction where a building has been declared uninhabitable, and so forth;

- restrictions on the sale of agricultural land;

- “corporate raids”, i.e. the unlawful or forced seizure of enterprises with the property then being formally transferred into the name of those seizing it;

- the failure to execute court rulings on payment or returning property, especially in cases where the debtor is a State body, State enterprise or institution.

2. The main problems in protecting property rights

Many of the problems connected with the right to peacefully enjoy ones possessions which were topical last year, the year before last and several years ago remain just as burning today. This demonstrates that the efforts of government bodies to rectify these problems are fairly ineffectual. In addition, a huge number of new challenges are appearing which present a difficult task for the government.

Failure to execute court rulings protecting property rights

There remains a problem with the inefficiency of the State Bailiffs’ Service which in many cases is unable to execute court rulings. This is despite the fact that the implementation of a ruling which has come into force is no less important than the handing down of such a ruling since the final and main outcome of any court proceedings should be the reinstatement of the rights and freedoms infringed or compensation for damages incurred. When only a fourth of all rulings are executed, it is difficult to speak of just satisfaction.

One consequence of the inefficient work of this Service is seen in the thousands of applications from Ukrainian nationals lodged with the European Court of Human Rights over the non-execution or lengthy delay in implementing rulings of national courts.  In the last year alone, the Court issued 172 judgments against Ukraine which have already come into force. A large number of these were connected with the failure to safeguard peaceful enjoyment of people’s possessions by not executing court rulings.[4]

To a large extent this problem is caused by legislation, for example, laws establishing special rules of procedure for forced sale of the property of State-owned enterprises. In the case of a significant number of enterprises there is a moratorium in force against such sales. The direct result of this can be seen in cases like that above in the European Court of Human Rights.

On 28 May 2003 the Krasnolutsky City Court in the Luhansk region found in favour of Mr Fedorov and ordered the State enterprise “Donbasantratsyt” to pay wages owed to the sum of 1,124.27 UAH. On 11 August 2003 the relevant office of the State Bailiffs’ Service began writ proceedings. In December 2005 the court ruling in favour of the claimant was fully executed. However this was after an application had already been lodged with the European Court of Human Rights. The Court in Strasbourg found that Ukraine had violated Article 6.1 of the European Convention on Human Rights and Fundamental Freedoms (the right to a fair trial), and Article 1 of the First Protocol to the Convention (the right to peaceful enjoyment of ones possessions) and ordered it to pay Mr Fedorov 50 Euros in pecuniary compensation and 500 Euros for moral damages..[6]

Restrictions on the sale of agricultural land

Protection of property rights involves acknowledging owners’ rights to carry out any operations with their possessions (to pawn or sell them, etc). International practice shows that economic growth and poverty reduction are best achieved where efficient producers and investors have free access to assets from means of production.

We thus need to fully resolve the issue of ownership of agricultural lands. Unfortunately, at the present time the Law “On amendments to the Land Code of Ukraine” (on prohibiting the sale of agricultural land until the passing of the relevant legislative acts) has been passed extending into 2007 the moratorium on sales of agricultural land. In order to pass this bill, the Verkhovna Rada actually overcame a Presidential veto. This is despite the fact that approximately 5.9 of the 6.8 million rural residents who have received free of charge certificates affirming their right to a piece of land (a share), have already received government acts confirming their ownership rights to the land.[7]

The delay with permission to freely sell land has a number of negative consequences:

- redistribution of land assets in favour of more efficient land users is limited;

- it prevents the introduction of mortgages which could be a means of attracting long-term funding for applying new technology and innovations;

-  owners[8] are unable to exercise their legitimate right to freely dispose of their property.

  According to estimates from the Institute of Agrarian Economics of the Ukrainian Academy of Agrarian Sciences, the overall value of available land in the country comes to 50 billion US dollars. The lack of a market for agricultural land makes it impossible to verify this estimate. The figure, however, is 17 times higher than the 3 million dollars which were invested in agricultural production between 2001 and 2006.

Supporters of the moratorium claim that people who have come into possession of land are still not ready to dispose of their land. They argue that they don’t know its value and will sell it for far less than the market value, and also there is as yet no normative base for avoiding such anomalies. Some of these assertions have truth to them: some important draft laws (for example, “On the land market”) have been awaiting consideration in the Verkhovna Rada for several years already. However it is of no less importance that the moratorium is not fully observed, this meaning that precisely those violations which it is supposed to avert are in fact taking place.

According to data from the State Committee of Ukraine on Land Resources, as of 2006 there were 95 thousand notarized agreements on the granting of land (shares). 2.5 thousand people exchanged their land for other assets and over 13 thousand sold their land. There were also a large number of cases where agreements were fixed for excessively long lease contracts. These overt infringements of the moratorium demonstrate the inexpediency of restraining market relations concerning land. Further procrastination in cancelling the moratorium will merely lead to an increase in the huge shadow land market. This will not be to the benefit of the original owners of the land – the rural people who work this land.[9]

The cancellation, as soon as feasible, of the moratorium together with the adoption of the relevant long-awaited laws, will bring a fair number of positive results. Firstly, successful agricultural goods producers will be able to rely less on the State budget as regards subsidies. Secondly, the introduction of security on agricultural land would help to lower the interest on loans and would make them more accessible for small and medium-size farms.  And finally, rural residents wishing to engage in other types of business, not agricultural production in the rural area, would be able to divide or mortgage their land, receiving in this way the initial capital to start their business.

Lack of proper protection by the government of property rights

Another problem which has remained unresolved for many years now is the widespread swindling and extortion involving private property practised by unscrupulous firms and individuals. This includes both real estate and company shares. These kinds of operations flourish as a result of the unreliable system of registration of property rights, inadequate regulation of corporate governance practices and a weak legislative base for matters pertaining to bankruptcy. All of these failings were made use of in 2006 to infringe property rights. The lack of proper mechanisms for protecting property is a problem in attracting domestic and foreign investment, and also prevents the use of the potential of the stock market for developing production[10]

It is worth noting in this context that the Verkhovna Rada has not managed since March 2003 to consider and adopt a new edition of the Law “On joint stock companies” aimed at providing comprehensive regulation for corporate governance, and at safeguarding the rights of all, but especially small-scale, shareholders. There has instead been a political struggle to lobby certain amendments to existing corporate legislation in order to resolve certain isolated issues. A good example of this was seen in the saga with the Law “On amendments to the Law of Ukraine “On economic associations” on reducing the quorum threshold for holding general meetings of an economic association” which has been repeatedly passed by the Verkhovna Rada and vetoed by the President. The draft law proposes amendments and supplements to Articles 41 and 60 of the Law “On economic associations” which envisage that if a general shareholders’ meeting has been unable to take place due to an insufficient number of shareholders present, then the next meeting will be considered to have a quorum if the number present have more than 50% of the votes.

The draft law resolves the problems experienced by owners of individual enterprises, but does absolutely nothing for solving the overall problem. The issue is indeed extremely difficult since at present there is extremely weak protection for shareholders’ rights in Ukraine. Legislation does not impose additional requirements on joint stock companies or on their boards in cases involving a merger, nor supplementary mechanisms and means of protection of the rights of the shareholders in the company being merged. In Ukraine there is no right stipulated for a shareholder to object where a merger decision has been taken, nor is there a legal framework for operations involving the use of insider information[11]

The following examples indicate the problems faced in protecting the rights of small-scale shareholders.

In 2006 small-scale shareholders in the local metallurgic giants – the Nikopol Ferroalloy Plant and the Nikopol Pipe-making works [Nikopolsky Pivdennotrubny zavod] fought to assert their rights.  On 28 August 2006 near the city museum, a meeting was held of the “Union of small-scale shareholders in Nikopol enterprises”. Those present spoke of their headaches traipsing around the authorities trying to establish the truth and receive the dividends on their shares from the real owners of the enterprises. The main aim of these small-scale shareholders is to have the Law “On the protection of small-scale owners” passed. They have approached all five factions who entered the Verkhovna Rada after the 2006 elections on two occasions. However no political faction, other than the Bloc of Yulia Tymoshenko [BYuT] has responded to their appeal. The shareholders are also disturbed by the fact that of the billions in profits received by these metallurgic giants, virtually nothing reaches the local State budgets, and nothing is left over for dividends. The shareholders’ meetings planned for 5, and then 12 September, .failed to take place because the representatives of the State Property Fund were not ready.

The first case Ukraine lost in the European Court of Human Rights (Sovtransavto Holdings v. Ukraine) also related to the problem of minority shareholders’ rights.  Following a decision by the major shareholders, the share capital of the company was increased, this automatically leading to a reduction in the share of minority shareholders in the company’s property. The lack of legislative regulation protecting minority shareholders was found to have infringed the European Convention on Human Rights. This European Court judgment regarding general measures for resolving the problem remain unimplemented to the present day.

Shareholders’ rights in Ukraine are defended largely through the courts in accordance with Article 124 of the Constitution. An analysis of case law shows that most suits are connected with declaring invalid the decisions passed by general meetings or with the payment of dividends. Such claims are lodged by individual shareholders against the joint stock company. The mechanism for filing “collective suits” devised in the legislation of other countries, for example, USA, has not been allowed for in Ukrainian corporative legislation, nor in fact is the right of shareholders to file such claims established. Many gaps also emerge when bringing to answer people who have caused material damage to shareholders, etc. A resolution to these problems in defending shareholders’ rights can only be achieved through the adoption of a comprehensive law providing vital safeguards for property rights.

Nor can we leave aside the problem of “corporate raids” in Ukraine which has become particularly acute over recent years and which was described by the Prime Minister in February 2007 as a “nationwide problem”[12]  The Ukrainian Trade Union of Industrialists and Entrepreneurs assert, for example, that over the last two years over 2 thousand businesses have faced “corporate raids”.  According to other estimates, more than 3 thousand items of property have been seized by corporate raiders. . Such corporate raiders have already been divided into “white”, “grey”, “black” and “wild”, and the so-called experts have determined the biggest and most successful.[13]

Since the scenarios and methods for takeovers are fairly standard, some are staggered by the helplessness of the legal system, insist on government intervention and create inter-departmental groups to fight the phenomenon. Others, however, view this with scepticism and assert that the creation of such a body under the control of bureaucrats has only made the situation more complicated. While some fight for reforms to legislation and even for a special law to be passed, others say that there is no need for this.

In 2006 the Verkhovna Rada was actively engaged in efforts to reform the legislative base with regard to corporate raids.  These included the adoption of a Law “On amendments to some legislative acts of Ukraine (regarding the delineation of cases for examination in economic courts and in general courts)”.  The Law introduced amendments to the Economic Procedure Code,  the Civil Procedure Code, the Code of Administrative Justice, as well as to the Law “On privatization of State property” on a clearly demarcation between disputes regarding privatization and corporate rights which need to be examined in economic, administrative or general jurisdiction courts. This law alone is, however, unable to overcome the problem of corporate raids.

In the media corporate takeovers are, as a rule, presented as reflecting the ineffective methods used by the law enforcement agencies to combat corporate raids. The suggestion being that it would be sufficient to merely counter a forced takeover by means of an effective government security structure, and the success rate for such seizures would be minimized. The idea remains current that it is due to the lack of professional guards that raiders succeed in getting into an enterprise and consequently seizing the necessary documentation.

In fact the problem is much deeper than the commentaries of law enforcement staff and the professional assumptions of interested parties would suggest.  Corporate raiding requires legal analysis and a clear understanding of the sources of the conflict since forced takeovers are generally the “epilogue” to the actual violation of the rights of minority shareholders. Corporate raiding is not an independent or separate process, but simply the result of legislative gaps in safeguarding the rights of small-scale shareholders.

Current legislation does not regulate the status of such minority shareholders. This results in endless court disputes between majority and minority shareholders. This takes place under conditions, for example, when just before a general meeting of the company, a minority shareholder lodges a claim with the court against the company alleging infringement of his/her rights as a shareholder, and asking that the company’s securities be frozen and the general meeting be stopped. As a result, the general meeting which takes place without the minority shareholder changes the managerial bodies and the business has a new management. However, while the dispute regarding the legitimacy of the general meeting’s decision is being considered by the court, the functioning of the business is totally paralyzed.

  In order to avoid the phenomenon of corporate raids, the rights of “small” shareholders must be established to ensure that they can uphold their interests with the authorities and bodies of local self-government by means of uniting in unions of minority shareholders. A minority shareholder must be entitled to demand that a joint stock company redeems his/her shares if he or she voted against a decision taken by the general meeting to reorganize the company. In the event of extra emissions, the market value of the shares must be entirely paid up to the moment that the right of ownership to these was registered.[14]

Problems in registering rights to real estate and their restriction

It is worth also considering the problems that arise when registering ones right to real estate and limitations on such rights. Although the Law “On State registration of material rights to real estate and limitations of these rights” was passed back in 2004, a fully-fledged system has yet to be created. This gives crooks ample opportunity to make use of shortcomings in legislation. This is compounded by the fact that the State Committee on Land Resources which has been vested with the responsibility to register rights to real estate was not ready to carry out these functions and the register has yet to begin functioning properly.

In 2006 State registration of real estate was made the responsibility of the Ministry of Justice. This was on the basis of a decision by the Cabinet of Ministers however in the absence of amendments to the base law doubts arose as to the legitimacy of transferring these functions. There is thus a lack of legal clarity which makes it impossible to be certain of the guaranteed protection of people’s right to their own possessions. Only at the end of 2006 was a draft law tabled in the Verkhovna Rada which was aimed at introducing amendments to the Law “On State registration of material rights to real estate and limitations of these rights” which should finally resolve this problem.[15]

As well as protecting the right to own immovable property, the State must also safeguard property rights to other possessions, including vehicles. Here problems also arise.

One can cite as an example the situation with the towing away of cars in Kyiv. The State authorities explain the need for such forced removals as being the huge number of illegally parked cars cluttering the streets. The capital’s leaders are particularly disturbed by the narrow streets adjacent to Khreshchatyk which are virtually impassable with cars parked in several rows and on the pavement. However the legality of such actions would not appear to bother them. The formal grounds for removal are the “Rules for improvement of the territory, the parking of vehicles, peace and quiet in public places and vending at markets in the city of Kyiv”, passed by the Kyiv City State Administration on 26 September 2002.  These state that the removal of cars which infringed parking rulings is permissible however only in cases where the car “poses a danger to traffic or pedestrians, or where it hampers work on maintaining roads, planting greenery or obstructs buildings and constructions near the road.”  In practice, employees of “Kyivparkservice” most often take away those cars which are technically easiest to load onto the tow truck, rather than those which block a pedestrian crossing or could get in the way of an ambulance.

  This ruling by the Kyiv City State Administration in fact runs counter to current legislation. A car is a form of private property and is, in accordance with the Constitution, inviolable. Article 92 of the Constitution states that the legal regime of property (including the possibility of limiting property rights) can only be defined by law, that is, by a normative act passed by the Verkhovna Rada. The Kyiv City State Administration [KCSA] is not a legislative body, yet it has imposed restrictions on the right of property to the vehicles removed (since they cannot be used until a fine is paid).  The appropriate legal status is vested in the Code of Administrative Offences which stipulates liability for infringements of the Rode Code. According to the Code, a fine is envisaged for stopping and parking offences of between 3.4 and 8.5 UAH (with the decision to fine being taken by a court), but certainly not forced removal. The fact that the ruling of the KCSA from 2002 is unlawful is confirmed also by the fact that in 2005 the Shevchenkivsky District Court, and soon after that the Kyiv Court of Appeal revoked the ruling as regards towing away vehicles. Given the above arguments, there are grounds for classifying forced removal as no less than the “unlawful seizure of a vehicle, regardless of the purpose, by an organized group”. And this is already the definition of the crime set down in the Ukrainian Criminal Code (Article 289 § 3) which envisages for its perpetrators from10-15 years imprisonment with confiscation of property[16]

Interestingly, at the end of 2005 another point regarding unlawful limitations on property rights with regard to cars from the same ruling of the KCSA was revoked. This concerned the clamping of illegally parked cars. The legal suit was filed by the present Mayor of Kyiv Leonid Chernovetsky who in 2005 was only standing for office. Yet by the summer of 2006 at his initiative the tow trucks once again appeared on the streets. The legal grounds for this were quickly “readjusted” with the Kyiv Prosecutor’s Office withdrawing its application to the Shevchenkivsky District Court against the Kyiv City State Administration from 30 August 2005, according to which the removal of cars had been declared unlawful. The provisions on forced removal of vehicles passed by the Kyiv City State Administration in 2002 have thus once again come into effect. At the beginning of summer, the tow trucks did not impound the cars, but simply moved them to another place, thus freeing the way for traffic. However, by 4 July the capital’s Administration had approved a range of tariffs for tow-away” services. If a year ago, a car owner whose car got impounded had to pay 100 – 125 UAH, now the fines are much higher. They now depend on the age of the car towed away, and the size of its engine. For example, the owner of a top-class foreign make (on the road for less than 5 years) has to pay for these imposed services from 700 to 1,100 or more UAH (depending how long it was impounded and the distance from the parking place). On an average day, around 50 cars are impounded in this way (the number cannot go higher since there aren’t enough tow trucks which the Kyiv authorities are presently actively buying). It is not difficult to estimate that as a result, the city’s revenue is supplemented by at least 35 thousand UAH per day (or more than one million per month). The situation with tow trucks is yet one more example of where filling the State coffers is considered more important than observing the human right to freely enjoy one’s possessions.

3.  Problems linked with removing property rights

Many problems in Ukraine are connected with the government safeguarding legality when depriving people of the right to peacefully enjoy their possessions.  In connection with this, one can also point out problems over privatization, over the expropriation of property in the public interest, over unilateral failure by the authorities to honour contracts, over deprivation of property as the result of certain corporate raiding actions, etc. These problems seriously hinder the government from safeguarding property rights.

The long-term lack of transparency, as well as serious irregularities, over privatization has resulted in a huge number of disputes over privatized property. The main problem is that there is no actual owner capable of dragging the business out of the crisis it finds itself in. The most burning issue therefore in 2006 was to ensure open privatization which fully complied with legislation and did not arouse doubts in any of the parties.  A large number of challenges remain as far as privatization is concerned since the government continues to own a considerable amount of property in many major industrial complexes with their related infrastructure. However any approach to privatization in the future will need to take past mistakes into consideration.  In those sectors where enterprises have a legally established monopoly, the normative base and authorized regulatory bodies will need to be totally prepared to begin privatizing their plants. Companies from all other sectors, conceivably with the exception of strategically important State enterprises must be privatized, and it is crucial that the privatization process be transparent. As well as a considerable increase in revenue, this approach will allow for corporate governance of the part played by the State in these companies. Under such conditions, possession of shares often leads to accusations of corruption and to unequal conditions of competition for companies working in Ukraine.  And finally, the practice must be stopped of establishing excessively short periods for tenders (as compared to those set down in legislation), and of infringements in transparency of both the tender process and the strategy for preparing plants, etc for privatization.

Government authorities and institutions still fail to meet their agreed commitments this leading to people losing their possessions. Courts in such situations usually take the side of the government.  There remains then no other alternative but to approach the European Court of Human Rights.

Another extremely important issue is sufficient guarantees from the government when people’s right to property is forcibly removed.

In this context we must mention the Law “On comprehensive reconstruction of residential areas (micro-districts) from the obsolete housing fund”, adopted by the Verkhovna Rada and signed by the President. At the end of 2006 the Ukrainian Helsinki Human Rights Union called on the President to use his power of veto, stating that the law which the President had previously vetoed was better than its predecessor, but that it nonetheless seriously undermined the protection of property rights.

UHHRU is convinced that the law fails to provide sufficient guarantees for citizens’ rights to property and housing, and it also has a number of shortcomings which will make it difficult to apply.

It is also a framework law without sufficient attention having been given to procedure and details which will need to be drawn up as subordinate legislation. On the one hand this can be justified by the huge volume of legal regulation. On the other hand, however, the procedure in such a law is the foundation for any guarantees against arbitrary eviction of people from their homes or the forced removal of other possessions.

The law does not clearly set out the overall order of activities during reconstruction. It lacks, for example, a scheme of work and conditions for the removal of property in connection with reconstruction and the relocation of owners and tenants. However the main problem is that the law does not envisage mechanisms for overseeing the fulfilment of commitments by both investors and public authorities or bodies of local self-government. Nor does it set out liability for breaching these commitments, including cases where these breaches are by officials of the said bodies. Clearly these issues cannot be resolved at the level of subordinate legislation.  Yet without the appropriate level of control, the given law could become a mechanism enabling large construction companies to deprive individuals not well-versed in legal questions of their property.

According to the First Protocol to the European Convention on Human Rights, when removing property in the public interest, the State is responsible for observing a person’s entitlement to peaceful enjoyment of his or her possessions. Regardless, therefore, of whether by law the State has transferred its problems to commercial enterprises, it is the State itself which will be respondent in the European Court of Human Rights. The State has effectively passed to businesses its role in protecting property rights in such instances.

While undoubtedly some efforts have been made in Article 12 to regulate and guarantee the rights of those who are being re-housed in connection with major reconstruction, the guarantees are not clear, and, as mentioned, there are no control mechanisms or punishment of those guilty of violations. Still less regulated are the rights of the owners (tenants) of non-residential premises, country residential buildings and sites falling into reconstruction zones.

From the point of view of protection of the right to housing and to own, use and dispose of ones possessions as foreseen in the Constitution, as well as the right to peacefully enjoy ones possessions as set out in the First Protocol to the European Convention on Human Rights and Fundamental Freedoms, the following must be provided when evicting people:

• A mechanism for eviction, expropriation of property and objects of other material rights;
• Procedure for preliminary compensation (defining the area and number of rooms which is provided as compensation; the state in which the property is handed over, the location of this property, or the procedure for determining and paying out pecuniary compensation). In this procedure there should first be a definition and provision of compensation, and only then can the expropriation of property take place;
• Valuation of the property in the case of pecuniary compensation, as well as the issue of payment of taxes and fees thereby arising;
• The legal regulation of the transfer and obtaining of rights to the new property;
• A control mechanism over carrying out the compensation procedure;
• Forced eviction and the observance of the rights of owners (tenants) in the course of the eviction;
• Liability for violation of the procedure for providing compensation and control over this.

It must be emphasized that the State is effectively distancing itself from this area of relations, confining itself only to establishing a model contract between builder and owner of the flat when removing the property in the public interest. Yet, as we have mentioned, it will be the State which answers for the actions of private individuals in such cases before the European Court of Human Rights. UHHRU considers that the role defined in the law is clearly not sufficient. The State must ensure effective control against abuse in this area since otherwise this could serve as yet another method for cheating people[18]  On the other hand, such actions by the State lead to expenditure from public funds given the need to pay out compensation for the forced removal of property and inadequate actions of private commercial organizations.

The President, nonetheless, signed the law, stating that this was justified by the “inadmissibility of further procrastination with reconstruction, and also taking into account the need to create new mechanisms for stimulating the development of residential construction work and attracting investors”[19]

The President did, admittedly, send letters to the Verkhovna Rada and the Cabinet of Ministers with a considerable list of comments and the request to further improve legislative regulation in this area.

His letters point to a number of failings in the law passed which require swift regulation. These include the provisions on bodies of local self-government themselves determining the procedure and time periods for resettling residents, the vacating of residential and non-residential buildings (Article 7), as well as the provisions on prohibiting, after state registration of a ruling to classify property as part of the obsolete housing fund, any actions aimed at changing the owner of these buildings or broaden their rights on resettlement (Article 16). The latter could in practice lead, for example, to it being impossible for parents to register their new-born babies at their place of residence which would immediately impinge upon their constitutionally guaranteed rights. It remains unclear, however, whether the President’s instructions will be implemented, and if so, when. Many other such instructions have remained on paper.

Meanwhile the law, which presents a serious threat to Ukrainians’ property rights, has already come into force. One must expect an increase in the number of conflicts in this area and a rise in the number of Ukrainians made homeless.

Another fundamental attack on the right to freely enjoys ones possessions came with the draft law “On the organizational and legal principles for expropriating (redeeming) privately-owned land”[20], which has already been accepted in its first reading. .

The Verkhovna Rada Scientific Expert Assessment Department in its assessment of the draft law states that the concept “the public interest” is not clearly defined in the document, with it being used variously in different articles. It also points out that a refusal by the owner of land to be bought out could lead to forced expropriation on the grounds of the public interest, whereas according to Article 41 of the Constitution, this is only possible as an exception. Such exceptional cases for the expropriation of land in the public interest must be directly specified in the draft law.  Furthermore, the definition of exceptional circumstances must apply not only to expropriation of land under normal conditions, but also under martial law or a state of emergency. It is also important that such forced land expropriation in the public interest during martial law or a state of emergency be defined in very general terms, without stipulating detailed procedure. For example, the draft law should not only cover the suspension of the right of ownership to property (a residential building, other buildings, constructions or planted areas on the land which is being expropriated under Article 26), but also the return of the property once martial law  or a state of emergency has been cancelled. In addition, the draft law does not envisage the possibility for the former owners of land to receive compensation for the value of the property even before the revoking of martial law or the state of emergency[21]

Ukraine already has a huge number of victims of machinations with real estate.

These are, for example, the people who lost their property because of the construction holding company “Elite-Centre”. That company took money, supposedly for building nine residential blocks in Kyiv: two on Schmidt St, two on the Heroes of Stalingrad St (Obolon region), two on Petro Zaporozhyts St, and Kurnatovsky St (both the latter in Voskresenka), one on Builders’ St (Darnytsa) and the biggest on Laboratorna St in the district of Palats “Ukraina”. In reality the only construction work was at the site on Schmidt St, although in actual fact what was being built there was not the promised residential block, but a shopping and office centre. The criminal investigation established that there had been double and even triple contracts agreed for the same flats. When the law enforcement agencies got involved, the owners of the holding company, together with the money, disappeared. 898 victims of the fraud have given statements to the police. At the beginning of February, the committee of investors in the construction investment group “Elite-Centre”. stated that the management of the company had stolen around 100 million dollars invested. The police estimate that around 1.5 thousand people will have suffered as a result of the crime.^[22]  It should be noted that the investigation established that some officials from the Kyiv City State Administration had not exercised proper control over the use of land designated for residential and office complexes and had also not given timely consideration to applications for building permits. This behaviour by the authorities had contributed to the swindle having taken place.

This type of fraud has been practised, particularly in the regions, by some other construction companies. For example, Lviv residents were conned out of more than one million UAH by construction crooks.  Over two years the latter had concluded agreements with clients for a part share in financing the construction of residential accommodation, without having any of the necessary permits for this. Staff of this organization acquired premises on a Lviv street for the purpose of restoring old buildings and building a residential and office complex. After this, during 2005 and 2006, they took money from people wanting to get flats, without having the necessary construction documentation. During that time Lviv residents paid the crooks over a million UAH.[23]

At the beginning of February the President signed a new version of the Law “On planning and carrying out construction work” which intensifies control over the obtaining of building permits. According to the new law, it will now be necessary not only to provide the executive bodies of the relevant councils or the Kyiv and Sevastopol City State Administrations with the documents listed in Article 24 of the Law “On planning and carrying out construction work” but to also submit the financial reports of the relevant legal entity, copies of their licences for carrying out construction work, as well as for providing financial services. It is envisaged that failure to provide these documents in full, the lack of them or an adverse overall assessment following their review will be grounds for turning down the application for a building permit. The President vetoed the previous version of this law from 12 December 2006 over restrictions in competition through the law.

There are other problems connected with land ownership rights. We could mention among them the conflict over land rights between members of the Crimean Tatar community and local businesspeople. These disputes often result in clashes between the opposing sides, as was the case recently in Simferopol. The dispute was between Crimean Tatars and a construction company with the former asserting that the construction work was illegal since the land should be designated for housing for Crimean Tatars. The other party, in turn, having armed themselves with a court ruling regarding the legality of the construction on the site, attempted to drive the Crimean Tatars away, which lead to clashes.[24]  In August 2006 a conflict over land arose in Bakchysaraj where members of the Crimean Tatar community protested at the extension of the city market because this was on land which was once a Muslim burial ground. This conflict also ended in clashes[25]

There are many such cases in the Crimea, with virtually all of them caused by the fact that the State has still not taken a clear position on the right of ownership of the land which returning Crimean Tatars occupied. This in turn leads to inter-ethnic tension in the region.

4. Recommendations

1)  Pay particular attention to the enforcement of court rulings regarding property rights, for example, where these award amounts of money, order that possessions be returned, or that actions damaging or seizing the possessions be halted;

2)  Formalize property rights on particular types of property, for example, introduce documents which confirm ownership of certain items (for example, shares, etc);

3)  Improve the mechanisms for registration of land ownership rights  and for restrictions of such rights;

4)  Ensure clear legal regulation and just procedure where real estate is forcibly bought out in the public interest, for example, residential blocks and flats, land, etc. Here it is necessary to ensure the individual’s right to commensurate and fair compensation for the property expropriated. The designation and provision of such compensation should precede the actual expropriation. The valuation of the property involved must be made on the basis of the current prices;

5)  Cancel the moratorium on compulsory sale of State property;

6)  Cancel the moratorium on buying and selling land in order to develop rural areas, attract investment in agricultural production; put an end also to the shadow means of selling land which are presently used;

7)  Ensure the implementation of legislative provisions guaranteeing supplementary payment to certain groups of people, for example, teachers, those deported, their children and families in returning to Ukraine, military servicemen and others;

8)  Debate on a wide scale and pass a Law “On joint stock companies” stipulating the main rules for corporate governance, as well as safeguarding the ownership rights of all, but especially small-scale shareholders;

9)  Continue refining the legislative base on preventive corporate raid seizures of enterprises, by paying attention in the first instance to regulating the rights of minority shareholders since it is the violation of these rights which in many cases leads to corporate raiding;

10)  Ensure openness and transparency in privatization, as well as resolving issues linked with the fulfilment by owners of privatized enterprises of their investment obligations;

11)  Ensure control over investment in construction of residential accommodation in order to prevent fraud and abuse.

[1]  Prepared by Maxim Shcherbatyuk, UHHRU

[2]  Presidential Decrees “On the resolution of the Council of National Security and Defence of Ukraine” from 29.06.2005, “On measures for improving Ukraine’s investment climate” and from 28.10.2005 “On measures to affirm safeguards and raise the effectiveness of property rights protection in Ukraine”

[3]  Study carried out by the Property Rights Alliance: http://internationalpropertyrightsindex.org/index.php?content=cdata&country=Ukraine

[4]  Ukraine carries out European Court judgments  // Yurydycheskaya praktyka. – 2007. – 30 January – № 5(475).

[5]  The newspaper “Vhoru”  www.vgoru.org.

[6]  Judgment of the European Court of Human Rights in the Case of Fedorov v. Ukraine (No. 43121/04) from 9 November 2006 року.

[7]  “The State and the Citizen: Delivering on Promises”, Analysis of socio-economic policy carried out by the Blue Ribbon Commission in 2006.

[8]  In what follows, we are avoiding the word “landowner” as having specific connotations.  The land owned here was that which in Soviet times remained the possession of the State (translator)

[9]  [9]  “The State and the Citizen: Delivering on Promises”, Analysis of socio-economic policy carried out by the Blue Ribbon Commission in 2006

[10] Ibid.

[11]  N.S. Kuznetsova: “Corporate governance in Ukraine”.

[12]  Information from the Internet publication “Forum” ua.for-ua.com/ukraine/2007/02/02/084823.html

[13] V. Piskovy: Corporate raids: the reality of the myth. // Dzerkalo tyzhnya – 2006. – 23-29 December – №49 (628). www.zn.kiev.ua/nn/show/628/55441/

[14] «Justus – information bulletin» 19 October 2006.

[15] The Government suggests giving the Ministry of Justice the authority for registering ownership rights to real estate. www.kmu.gov.ua/control/publish/article?art_id=55891095

[16] P. Khodovy. Nowhere to park – pay for being towed away // Dzerkalo tyznya. – 2006. – 7–13 October. – № 38 (617). www.zn.kiev.ua/nn/show/617/54728/

[17] Judgment of the European Court of Human Rights in the Case of Fedorenko v. Ukraine, 1 June 2006 (No. 25921/02) (the transliteration used is that of the ECHR judgment).

[18] UHHRU call for the President’s veto on a law which could endanger property rights. See the full text in English at: http://helsinki.org.ua/en/index.php?id=1167312324 .

[19] The President ignores UHHRU call to veto law jeopardizing property rights http://helsinki.org.ua/en/index.php?id=1168604880.

[20] Draft law “On the organizational and legal principles for expropriating (redeeming) privately-owned land”. gska2.rada.gov.ua/pls/zweb_n/webproc4_1?id=&pf3511=27993

[21] The opinion given by the Verkhovna Rada Scientific Expert Assessment Department on the draft law “On the organizational and legal principles for expropriating (redeeming) privately-owned land”: www.rada.gov.ua.

[22] Investors in “Elite-Centre” have begun receiving rooms in hostels. // The Internet publication “Korespondent” ua.korrespondent.net/main/52487

[23] Financial-Construction pyramid uncovered in the capital of Halychyna. // The newspaper “Ukraina moloda”, www.umoloda.kiev.ua/number/838/116/30523

[24] Based on information from TV Channel 5: 5tv.com.ua/rus/newsline/232/0/35874/

[25]  “Crimean fountain of tears”  // The newspaper “Stolichniye novosti”  – 2006. – 15–21 August . – №31 (418).