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29.04.2011

UHHRU: No optimism over new draft Law on State Guarantees regarding Enforcement of Court Rulings

   

 

The Ukrainian Helsinki Human Rights Union has provided comments on the draft Law on State Guarantees regarding Enforcement of Court Rulings No. 7562 from 14.01.2011.

Ukraine’s failure to provide adequate enforcement of domestic court judgements has been recognized by the European Court of Human Rights as a violation of the European Convention on Human Rights.

The problem has been noted on many occasions by both Ukrainian and international organizations. On 15 October 2009 the European Court of Human Rights first applied pilot judgement procedure with the case of Yuriy Nikolayevich Ivanov v. Ukraine (application no. 40450/04).

 “The Court noted that the case concerned two recurring problems - the prolonged non-enforcement of final domestic decisions and the lack of an effective domestic remedy to deal with it.  These problems lay behind the most frequent violations of the Convention continuously found by the Court since 2004 in over 300 cases in respect of Ukraine. The present case demonstrated that these problems had remained without a solution despite the clear Court’s case law urging Ukraine to take appropriate measures to resolve those issues”. The systemic nature of the problem was demonstrated also in the fact that just at the beginning of 2010 there were approximately 1400 applications against Ukraine pending before the Court and concerning the same questions.   Ukraine is, according to official data, owing 130 billion UAH awarded in court judgements concerning infringements of human rights. It is clear that this figure is continuing to grow since official records suggest that around 60-70 % of domestic court judgements are not enforced.

In a Council of Europe Committee of Ministers Memorandum from 2007 entitled Non-enforcement of domestic judicial decisions in Ukraine: general measures to comply with the European Court’s judgements the following tasks were discussed:

Improvement of budgetary procedure and better implementation of budget decisions to ensure the existence of necessary funds;

Ensuring effective compensation for delays (indexation, default interest, specific damages, possibility of reinforcing the obligation to pay in case of delays);

Increased recourse to judicial remedies to solve disputes and to control bailiffs;
Ensuring effective liability of civil servants for non-enforcement;
Development of existing rules for compulsory execution, including improved procedures for seizure of state assets;
Increasing the efficiency of Bailiffs – sole responsible for execution.

The problems remain acute with the State proving incapable of providing adequate public funding for enforcement of domestic court judgements where the State is respondent. Up till now the State Budget has simply not allocated money for enforcement of domestic court rulings in such cases. Expenses for enforcing judgements handed down by the European Court of Human Rights are a separate item in the Budget (2009 – 20 million 406 thousand UAH; 2010 – 41 million 306 thousand UAH).

There is no effective procedure for enforcement of domestic court rulings where the State owes money. In such cases the State Bailiffs usually work on the principle that the State bodies are acting in accordance with the law and that the State Budget clearly sets out areas of spending which don’t include money for enforcing domestic court rulings.

Effective measures are lacking for countering long-standing non-enforcement of domestic court rulings, or for compensation in such cases.

There are also problems linked with the following:

a) the Moratorium on Compulsory Sale of Property from 28 December 2001 which prohibits the sale of property of an enterprise where 25% or more of the shares are owned by the State in order to pay off debt. The Moratorium was imposed in 2001 for an indefinite period.

b)  it is impossible to enforce court rulings regarding enterprises of the fuel and energy industry. According to current legislation (and specifically the Law on measures aimed at ensuring the stable functioning of enterprises of the fuel and energy industry, registration of a company in the special register kept by the Ministry for Fuel and Energy entitles the company to deferment of court rulings.

c) failings in the procedure for liquidation of an enterprise or declaring it bankrupt. In many cases this procedure effectively makes it impossible to retrieve wages arrears.

d) enforcement writs cannot be taken out on the property of enterprises at Chernobyl;

e) inefficient organization and management at many State enterprises as well as the lack of systematic and effective control by the State over the activities of such enterprises.

This situation clearly violates the standards for just court proceedings. When individuals owe money any property can be taken away in lieu.  When the debtor is a State-owned enterprise, it is virtually impossible to recoup any debt.

Overview of the innovations in the draft Law

Draft Law on State Guarantees regarding Enforcement of Court Rulings No. 7562 envisages special procedure for enforcement of domestic court judgements. It also distributes authority between branches of power in the sphere of compulsory sale of property owned by legal entities. It proposes to cancel the moratoriums on compulsory sale of property owned by State enterprises and enterprises of the fuel and energy industry.

This would entail amendments to the Laws on the Police; on the Prosecutor’s Office, ;  on the Status and Social Protection of those who suffered as a result of the Chernobyl Disaster; on the Status of War Veterans and Guarantees for their Social Protection; on the Fundamental Principles of Social Protection of Veterans of Labour and Other Elderly People in Ukraine; On Fire Safety; On the Protection of Plants; On Victims of Nazi Persecution; On the Social Protection of Children of the War; On Pipe Transportation; On the Foundations of Ukraine’s Legislation on Culture; the Mining Law.  These are aimed not at bringing in effective mechanisms for funding of socio-economic rights, but an attempt to reduce such guarantees.

These amendments entail cancellation of specified scope of social rights and guarantees set out in special laws (concessions for housing and communal services; the size of remuneration; supplements to pensions, etc) to staff of the police, prosecutor’s office, State Fire Service; medical personnel and cultural workers; miners; victims of the Chernobyl Disaster; war or labour veterans, children of the War; victims of Nazi persecution and others).

This means that such guarantees could in principle not be established at all in future.

No sanctions for the total lack of guarantees are envisaged.

Certain procedure is also introduced which establishes liability of the State for non-enforcement of domestic court judgements.

Specific procedure for enforcement of domestic court judgements

The draft Law contains provisions on establishing special procedure for enforcement of domestic court judgements by retrieving money from a State body, State enterprise or legal entity where compulsory sale of property is prohibited by present legislation.

It should be noted that the establishing of this procedure is one of the important steps towards improving enforcement of court rulings and implements one of the recommendations of the Council of Europe Committee of Ministers.

At the same time, the authors of the draft Law have failed to take into account several important aspects:

1. According to Article 2 of the draft Law, the ban of compulsory sale of property making it possible to apply this Law to legal entities, is a ban on the appropriation of items of real estate and other main means of production which legal entities use to carry out their production-based activities, as well as shares belonging to the State and added to their statutory fund  These legal entities thus retain other items of property which cannot be used to enforce court rulings, even where the debt has not been paid in full.

2.  Article 3 of the draft Law places responsibility for enforcement of court writs against a State body on the State Treasury Service. It does not however stipulate the order for enforcing court rulings, nor what to do when the court ruling is not enforced in the three-month period set out in paragraph 4 of this Article. Thus a situation where the Treasury states that there is no money in the Budget remains the unresolved problem of the debtor.

3. With regard to stipulating the size of unpaid monies according to court rulings handed down before the Law came into force (Section II Item 4), the short periods for new presentation of writs of execution and recognition of such documents not submitted within these timeframes could lead to the non-enforcement in practice of a considerable number of court rulings meaning the effective violation of Article 124 of the Constitution regarding enforcement of court rulings being mandatory throughout Ukraine.

Furthermore, the European Court of Human Rights stresses that the failure to seek enforcement of a court ruling cannot cancel the court ruling itself. In one of the cases against Ukraine a commercial firm could not obtain the proper enforcement of a court ruling with the State as respondent because their requests to the Bailiffs’ Service constantly met with formal excuses for not enforcing the ruling. The Court in this case also found that Ukraine had violated the right to a fair trial (Article 6 § 1 of the Convention).

It would be logical to stipulate that the writ remains in force until the debt has been repaid or the obligations removed in some other manner. At present however, the State Bailiffs close proceedings if there is no money forcing the creditor to apply to the Bailiffs many times over one and the same court ruling. In view of the above a refusal to enforce a domestic court ruling on the grounds that the new time limit for presenting the writ documents could be found by the European Court to be a violation by Ukraine of the right to a fair trial.

Violation of the principle of division of powers in distribution among branches of power of authority regarding compulsory sale of the property of legal entities

1)  The draft Law passes authority for establishing the size of socio-economic guarantees to the Cabinet of Ministers  which will at its own discretion and from the point of view of the State’s financial possibilities, stipulate who is worthy of such guarantees and to what extent. According to Article 92 § 1.1 and 1.6 of the Constitution “human and civil rights and freedoms, the guarantees of these rights and freedoms, the main duties of the citizen, the foundations of social project …” are determined solely by Ukrainian laws. These powers therefore belong to the Verkhovna Rada.

The Cabinet of Ministers is authorized to take measures to ensure civil and human rights and freedoms and the fulfilment of policy in the sphere of social protection (Article 116 Items 2 and 3 of the Constitution). The Cabinet of Ministers is not entrusted with the power to establish the size of social benefits and standards.  However the draft law “legalizes” interference by the Cabinet of Ministers in a sphere which is exclusively the domain of parliament, this being in breach of Articles 6 § 2; 8 § 2; 19 § 2; 85 § 1.3; 92 § 1.6 of the Constitution.

Thus whereas the procedure for providing social guarantees and benefits falls within the competence of the Cabinet of Ministers which it exercises through subordinate legislation, however the rights to social benefits and their size must be determined solely by law, that is, by parliament.

2) It is proposed through amendments to Article 20 of the Law on the Cabinet of Ministers to provide the latter with the authority to prohibit the compulsory sale of the property of legal entities. From the text it is not clear for what purpose, in what cases and with regard to which legal entities this authority would be given to the Cabinet of Ministers.

Articles 113 and 117 of the Constitution state that the Cabinet of Ministers is guided in its activity by the Constitution and the laws of Ukraine, as well as by the acts of the President of Ukraine and issues resolutions and instructions solely within the framework of its competence. The Cabinet of Ministers exercises its authority through issuing normative acts (in the form of resolutions) as well as actions on organizational and other ongoing issues (in the form of instructions). Should the new change to the powers of the Cabinet of Ministers be introduced, bans on the compulsory sale of the property of legal entities will be at by-law level.

It would be advisable to consult the legal position of the Constitutional Court as seen in its judgements. The Constitutional Court, for example, has found that in accordance with the Constitution, the State in equal measure protects all forms of property, and each of them can have their specific features linked with the legally stipulated conditions and grounds for property rights arising or being terminated.  This legal position from the Constitutional Court is based on the fact that it is solely through Ukraine’s laws that the legal property regime is set out with this based on the constitutional provisions specified in laws which can also contain certain specific features of the legal regime of this or that form of property. One of such specific features of the legal regime of State property is the moratorium on compulsory appropriation of an enterprise’s property.

The proposal therefore to legislate the right of the Cabinet of Ministers  to prohibit the compulsory sale of the property of legal entities clashes with the constitutional precept that the legal regime of ownership is determined exclusively by the laws of Ukraine which also establish specific features (Article 92 § 1.7 of the Constitution). Having received this power, the Cabinet of Ministers will exercise it at a by-law level which is not in keeping with the principle of the priority position of laws in the system of normative legal acts, nor with the principle of division of powers and the requirement on State bodies to act only on the grounds, within the limits of authority, and in the manner envisaged by the Constitution and the laws of Ukraine. (Article 6 § 2 and 19 of the Constitution).

3)  The proposal is also not in line with the constitutional right to court defence (Article 55 of the Constitution). The European Court of Human Rights has stressed that the right to a fair trial would be illusory if a country’s legal system allowed a final, mandatory court ruling to remain unenforced to the detriment of one of the parties; enforcement of a ruling handed down by any court must be viewed as an inalienable part of a “fair trial”.

Furthermore, according to the Convention on Human Rights, the right to a fair trial contains both institutional elements (requirements regarding the court as an institution – independent, impartial, created on the basis of the law), and procedural elements – minimum requirements regarding court examination (open to the public; ensuring the rights of parties to the court hearing as determined by procedural laws – adversarial procedure; reasonable timeframe; enforcement of the final court ruling, etc).

The powers which the draft Law proposes to give the Cabinet of Ministers on prohibiting the compulsory sale of the property of legal entities (Item 3.16 of Section II Final and Transitional Provisions) can be seen as legislative permission for the executive to interfere in the sphere of the judiciary which runs counter to the nature and tasks of the executive branch of power (organization of enforcement of laws and not control over the correctness of court rulings). Particularly since the said court rulings will obviously largely concern State-owned property and in these cases the Cabinet of Ministers will be an interested party.

Removal of the moratorium on the compulsory sale of property

The draft Law proposes to declare void the Law on Imposing a Moratorium on Compulsory Sale of Property. It would also make amendments to the Law on Measures aimed at Ensuring the Permanent Functioning of Enterprises of the Fuel and Energy Industry.  These would exclude the provisions enabling such enterprises from getting compulsory writ executions stopped.

These measures are vital in resolving another systemic and long-standing problem with respect to non-enforcement of domestic court judgements.

The lack of the necessary funding for enforcement of court rulings

One of the biggest problems is the State’s lack of financial resources to enforce rulings where the State is respondent. This systemic problem is closely linked with the complicated system of benefits and social payments.

Together with support for the most socially vulnerable groups, the system of social protection and social security envisages a considerable number of benefits and social guarantees on professional grounds. According to current legislation there are presently around 120 categories of people receiving benefits with only 45 categories having the right to benefits on social grounds, with 57 work or profession-based.

The introduction of benefits, social and compensatory payments in a number of cases goes beyond the framework of the constitutional standards for ensuring socio-economic rights since at the level of laws, the list of categories of those receiving various forms of social protection is considerably broadened.  This leads to a diluting of the State’s social function and loss of targeted social protection as set out at the level of the Constitution.

Around 15 million Ukrainian citizens are, according to current legislation, entitled to some form of benefit.  Various estimates put the cost of benefits as declared in current legislation at between 3.8 and 5.8 billion USD per year, although only a small part of this amount is actually financed.  This results in a situation where benefits and social guarantees are declared, but not financed, and a huge number of court rulings regarding non-enforcement by the State of its obligations. These numerous rulings are not enforced since the State does not allocate money for their enforcement in the annual budget.  

Due to this situation remaining unresolved, the debt arrears are mounting year by year. On the other hand, such a situation is economically convenient for the State. With several billion dollars underpaid every year, only a small number of the people affected will turn to the courts to get their payments. An even smaller number will go through all the court levels and then insist on enforcement of the ruling. In fact, by way of the State’s official debt, this is less than 20% of the amount which it would have paid had all payments stipulated by legislation been honoured. The State thus saves on over 80% of such expenses. If one bears in mind that up till recently, the State did not show great will to enforce court rulings, the actual expenses incurred by the State were minimal although that violated citizens’ socio-economic rights.

Division of State expenditure on ensuring socio-economic rights and privileges

There is no division in Ukrainian legislation into those which ensure certain socio-economic rights guaranteed by the Constitution, and those which provide certain privileges linked with particular merits or position, which are not guaranteed by the Constitution.

This explains the complicated and uncoordinated nature of State regulation regarding provision or cancellation of certain privileges, while at the same time carrying the threat of restriction or reduction of the actual scope of socio-economic rights which is prohibited by the Constitution.

Draft Law No. 7562 provides a vivid example of how the above-mentioned failings in legal regulation of social rights and privileges determine the difficulties in resolving the problem of a lack of funding to enforce court rulings where the State is respondent.

To resolve the problem, the draft Law proposes making amendments to the Laws on the Police; on the Prosecutor’s Office, ;  on the Status and Social Protection of those who suffered as a result of the Chernobyl Disaster; on the Status of War Veterans and Guarantees for their Social Protection; on the Fundamental Principles of Social Protection of Veterans of Labour and Other Elderly People in Ukraine; On Fire Safety; On the Protection of Plants; On Victims of Nazi Persecution; On the Social Protection of Children of the War; On Pipe Transportation; On the Foundations of Ukraine’s Legislation on Culture; the Mining Law of Ukraine.  These are aimed not at bringing in effective mechanisms for funding of socio-economic rights, but an attempt to reduce such guarantees.

These amendments entail cancellation of specified scope of social rights and guarantees set out in special laws (concessions for housing and communal services; the size of remuneration; supplements to pensions, etc) to staff of the police, prosecutor’s office, State Fire Service; medical personnel and cultural workers; miners; victims of the Chernobyl Disaster; war or labour veterans, children of the War; victims of Nazi persecution and others).

This is done by handing the authority for establishing the size of socio-economic guarantees to the Cabinet of Ministers which will at its own discretion and from the point of view of the State’s financial possibilities, stipulate who is worthy of such guarantees and to what extent. Given the lack of funding for these benefits even at the present time when the law clearly establishes their size and everyone has the opportunity to defend their rights in court, it is entirely clear that the way out of the situation proposed by the Cabinet of Ministers is a means of avoiding liability for not implementing the socio-economic rights and their guarantees stipulated by law.

Procedure whereby the size of these benefits is determined and the benefits provided at the decision of the Cabinet of Ministers is a violation o the principles of the rule of law – the principle of proportionality, meeting legal expectations, legal certainty. The adoption of by-law decisions in Ukraine is not accompanied by sufficiently open procedure and accessibility for the wider public whom the decisions affect. The proposed procedure would also run counter to the requirement set out in the Law on State Social Standards and State Social Guarantees that the fundamental State guarantees which also include the size of State social assistance and other social payments are established by laws (Article 17 of the said Law).

 It should be stressed that any review of the conditions for providing social protection in Ukraine must start out from the constitutional norms stating that human rights and freedoms are inalienable and inviolable (Article 21) and that the content and scope of existing rights and freedoms shall not be diminished in the adoption of new laws or in the amendment of laws that are in force (Article 22).

Furthermore, the legal force of acts issued by executive bodies is considerably lower than the norms of laws since the Constitution stipulations that State bodies and bodies of local self-government and their officials are obliged to act only on the grounds, within the limits of authority, and in the manner envisaged by the Constitution and the laws of Ukraine (Article 19 § 2). Transferring authority to define the conditions for social security to the level of bodies which are obliged to ensure enforcement of legislative decisions will lead to the disruption of a stable and foreseeable system of civil rights and reduce the guarantees of their implementation.

We are therefore effectively talking about the revoking of socio-economic rights and guarantees due to the impossibility of defending these through the courts. By depriving people of the right to court defence, the State is depriving its citizens of the rights themselves, since they have now turned into a fiction.

Given the content of the provisions proposed, it is important to remember the frequent objections expressed by the Constitutional Court over initiatives to revoke, suspend or otherwise review the rights of citizens in the social sphere provided by laws.

The Constitutional Court has stated, for example, that in affirming and ensuring citizens’ rights and freedoms, the State has, through separate laws, established certain social benefits, compensation and guarantees which are a component of the constitutional right to social protection and the legal means for achieving this right. Therefore, in accordance with Article 6 § 2, they are generally mandatory and must be observed equally by State bodies and bodies of local self-government and their officials. Failure by the State to fulfil its social obligations regarding particular people places them in an unequal position and undermines the principle of individual trust in the State which therefore leads to violation of the principles of a social, law-based State.

It should be stressed that in envisaging the possibility of a “revision” of the rights of people, for example, those who suffered as a result of the Chernobyl Disaster, the legislators clearly stipulated the procedure for changing the benefits and compensation set out in the Law on the Status and Social Protection of those who suffered as a result of the Chernobyl Disaster. Article 71 of this law stipulates that the force of its provisions cannot be suspended by any other law except a law making amendments to this law.

Taking into consideration the above, as well as the problems existing in the legal fulfilment of social guarantees and privileges, we would note that the path chosen by the Cabinet of Ministers to deal with the State’s lack of the necessary funds for enforcing court rulings is more directed at restricting socio-economic rights than at actually resolving the problem.

The State’s responsibility for lengthy failure to enforce court rulings

Draft Law No. 7562 proposes establishing a mechanism for compensation in the case of long-term non-enforcement of domestic court rulings where the respondent was the State. Article 5 of the draft Law states that if the State Treasury Service has not within a period of three months provided the money awarded by a court, the person awarded the money should be paid compensation in the form of 0.3% of the annual interest on the unpaid amount. The money will be taken from a budgetary programme for ensuring enforcement of court rulings.

In general the introduction of this mechanism is a fairly positive step towards improving enforcement. The amount of compensation, however, is low and this could prove a significant impediment to its efficient application.

Even if we compare this level of liability with the level of inflation which in 2010 for the year stood at 9.1%, it becomes clear that the threat of liability will not serve as a stimulating factor for timely enforcement of court rulings. Furthermore, the State will find it more profitable to pay this minimum amount of compensation than enforcement the court ruling.

Even in not paying the amounts awarded by the European Court of Human Rights, the State must pay a bigger amount than the draft law envisages.  The amount is taken from the threshold lending rate of the European Central Bank plus three percent from when the three month period for voluntary enforcement of the ruling ended up till the moment when the amount is fully paid up.

Clearly the proposed amount in compensation is, through its pitiful size no compensation, and will therefore not act as an argument for paying the amounts. More likely the opposite – refusal to pay off the money owed will be seen as economically sensible since the value of such funds on the market will be considerably greater.

Conclusion

The draft Law on State Guarantees regarding Enforcement of Court Rulings No. 7562 contains significant flaws standing in the way of achieving its stated objective.

An undoubtedly positive aspect of the draft law can be seen in certain specific measures for resolving the problem of non-enforcement of domestic court judgements. This includes the introduction of special procedure for enforcement of court rulings where the respondent is the State; the removal of the moratorium on compulsory sale of property; the introduction of a mechanism of compensation for long-term non-enforcement of court rulings. However, as can be seen from the above analysis, there are serious flaws in implementing most of these measures.

There are also provisions of the draft law which are aimed at reducing the level of social guarantees and could lead to a serious reduction in socio-economic rights.

The draft Law also contains norms which in our view are in breach of the Constitution since they flout the principle of division of powers. For example, the Cabinet of Ministers is vested with powers which belong to parliament, namely in determining the provision and size of rights established by law.

Many important issues highlighted by the Council of Europe Committee of Ministers as systemic and needed urgent reaction are not addressed by this draft Law. For example, the ineffectiveness of the Bailiffs’ Service, the failings of the system of management of State enterprises; problems with legal regulation of enterprises’ bankruptcy; the lack of a legislative mechanism for compensating damages cause by criminal actions by insolvent public officials and others, etc.

The main issue of financing enforcement of rulings already passed by domestic courts in cases where the State is respondent also remains open. The same applies to those rulings which will be passed in future with respect to cases presently under examination.  We are speaking here of thousands of rulings which, through their non-enforcement, will sooner or later end up at the European Court of Human Rights. No attempt is even made to resolve the issue of present arrears through recognizing such debt that of the State and its possible restructuring with payment in future years as has on a number of occasions been done with payments of assistance to teachers. No variants are suggested for resolving this issue.

In view of the failure of the draft law to comply with the Constitution and international standards for human rights protection, we recommend that it be rejected and resubmitted to parliament after being reworked.

Maxim Shcherbatyuk

Volodymyr Yavorsky

Ukrainian Helsinki Human Rights Union

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