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Human Rights in Ukraine – 2005: XI. Property Rights

26.06.2006

The concept of property holds a special place in public consciousness and, more generally, in public life. Property rights form the basis and safeguard the existence and development of civic society.  The right of the individual to possession of property as fundamental to a law-based state and democratic society is enshrined in the Constitution of Ukraine which sets down the forms of ownership (articles 13, 41, 142 and 143 of the Constitution), 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 of the Constitution 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. The right of private property is inviolable[1].

The expropriation of private property may be imposed only in exceptional circumstances in the public interest on the basis and according to rules and procedure set down in the law, and on condition of advance and full compensation of their value.  The expropriation of such objects with subsequent complete compensation of their value is permitted only in conditions of martial law or during a state of emergency. Expropriation of property may only be carried out pursuant to a court decision, in the cases, to the extent and by the procedure established by law.

The use of property shall not jeopardize the rights, freedoms and dignity of citizens or the interests of society, and shall not aggravate the state of the environment and the natural qualities of land.

The Law of Ukraine “On property” affirms the fundamental principles of property rights in Ukraine and defines the scope of the rights of owners: it is stipulated that owners may carry out any activities in connection with their property which do not contravene the law. They may, for example, use the property to carry out economic activities or other activities, not prohibited by law, and may transfer it, free of charge or for payment, into the possession or the use of other individuals.  The Law prohibits the state from directly interfering in the economic activities of property owners. At the same time, however, it is stipulated that in exercising their rights and performing their duties, owners are bound to adhere to society’s moral principles.  The law also states that there is no limitation on the make up, number or value of the property items, except in cases set down in law.  On the other hand, it is also stipulated that certain separate legislative acts may establish special rules and procedure governing the right of ownership by individuals of specific types of property, and there is also a list of the types of property which cannot be owned by individuals. Special norms of the Law of Ukraine “On property” regulate the right of private ownership to land, to a flat or to other forms of property[2]  The new Civil Code later specified the regulation of property rights in accordance with the Constitution of Ukraine.

THE CONCEPT OF PROPERTY RIGHTS AND ITS GENERAL LIMITATIONS

An analysis of Ukrainian legislation on property from the point of view of its compliance with European standards, in particular with the European Convention on Human Rights and Fundamental Freedoms, and Article 1 of the First Protocol to the Convention should pay heed to certain extremely important aspects.

Article 1 of the First Protocol to the European Convention on Human Rights states:

“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”

In its structure Article 1 of the First Protocol to the Convention includes three rules which can be outlined as follows:

the first norm, defined in the first sentence of the first paragraph, establishes the principle of respect for property rights;

the second norm in the second sentence of this paragraph concerns the possible expropriation of this property and establishes conditions for such;

the third norm, set down in the second paragraph, defines the right of the member states to, among other things, control the use of property in accordance with the common interest.

In its case law, the European Court of Human Rights has drawn attention to the fact that these three norms are “distinct rules”, but has stressed that this should not be understood as meaning that they are not connected with each other: the second and third concern special cases encroaching upon the right to peacefully enjoy ones possessions and should thus be interpreted in the light of the general principle set down in the first norm.[3].

In confirmation of this, in the Judgment on the Case of Sovtransavto Holding v. Ukraine, the European Court of Human Rights stressed that these rules were organically linked.  “The second and third rules are concerned with particular instances of interference with the right to peaceful enjoyment of property and should therefore be construed in the light of the general principle enunciated in the first rule”[4].

An important role in resolving specific issues connected to the application of provision of the European Convention is played by such case law of the European Court.  Given the wide application of Article 1 of the First Protocol to the Convention and legal interpretation of the European Court on this issue, it seems important to make a comparative analysis of the concept of property contained in Ukrainian property legislation, and in the European Convention.

In analyzing case law of the European Court within the context of the European Convention, “property” is considered to include, as well as movable and immovable objects, the following:

-  company shares (see the explanation of the European Court on Cases № 8588/79 and №8589/79  Braimlid and Mahlstrohm v. Sweden);

-  claims for compensation of losses incurred due to domestic legislation;

-  rulings of a body of arbitration in connection with a dispute (the Case of the Greek oil refinement plant “Stern” v. Greece);

-  legitimate grounds for assuming a certain state of affairs (the Case of Pine Valley Developments Ltd and Others v. Ireland, 23 October 1991);

-  economic interests linked with running a business, as well as clientele management (business reputation, non-material assets, etc) (the Cases of Iatridis v. Greece, 25 March 1999, and of Van Marle and others v. the Netherlands, 26 June 1986);

-  the right to a pension (where contributions were made over a period of time) (the Case of Müller v. Austria).

As we see, the concept of “property” and “possessions” in the sense of Article 1 to the First Protocol is fairly broad. It covers the entire spectrum of economic interests which come into play with property rights, including movable and immovable objects, property, property-linked and non-property linked interests. In case law the concept of “property” has received reasonably wide interpretation and application.  In reviewing the cases of Hendyside and Marx, the Court explained that different terms could be applied to the concept of “property”  in the usual understanding of the word.  However in the case of Marx, the Court expressed the view that Article 1 to the First Protocol was only applicable in the case of existing property in the possession of any given individual, and not to the right to acquire property. The right to inherit property was not a property right until such time as it was appealed.  And the guarantees in Article 1 to the First Protocol are not brought into effect unless there is no possibility of putting forward ones right to property which is the object of dispute.   Only presently existing property and not the right to obtain property in the future, is protected by law.

In Ukrainian legislation the following definitions are applied: the right of ownership is the right of an individual to a thing (property) which he or she disposes of in accordance with the law as s/he wishes, regardless of the wishes of others (Article 316 of the Civil Code of Ukraine). Thus property can include not only objects of the physical world in relation to which civic rights and duties may arise (Article 179 of the Civil Code), but also personal possessions which may be a single item, a group of such items, as well as property rights and obligations (Article 190 of the Civil Code), A separate category of property includes businesses as an entire property complex and monetary value. However at the same time, the understanding of property in Ukrainian legislation remains somewhat narrower which has an impact on the effectiveness of defending the right of ownership in Ukraine.

It should be noted that the European Court has its own independent definition of the term “possessions”, and this definition may differ from definitions and assessments applied in domestic (national) law. This method of applying an “autonomous” meaning is widely used in the European Court. For example, in the Case of Beyer v. Italy from 5 January 2000 the court pointed out “that the concept of “possessions” in the first part of Article 1 has an autonomous meaning which is not limited to ownership of physical goods.  It is independent from the formal classification in domestic law: some other rights and interests constituting assets can also be regarded as “property rights”, and thus as “possessions” for the purposes of this provision”.

The definitive criteria for assessing possessions are their economic value, that is, their worth in terms of money, based on objective factors, as well as the real nature of the property – the property must already be owned since the European Convention does not defend rights in the future.

It should also be noted that the European Convention provides equal protection for the property rights of individuals and of legal entities which is not often the case in Ukrainian legislation. In fact there is effectively a kind of competition between these norms in applying the Civil Code (the property rights of individuals) and the Economic Code (the property rights in the main of legal entities). Different norms for material law find further differences in procedural guarantees of court defence of the right of ownership, with these being different in economic courts and courts of general jurisdiction.

Another important aspect of the application of legislation in defending property rights are the boundaries of accessible (reasonable) intervention of the state in the affairs of owners. If one turns to Ukrainian legislation, the right of ownership is defined through the classical formula: an owner may possess, use and dispose of the possessions within the boundaries set down in law. Since the law is a product in the first instance of state activity, one may interpret this principle as meaning the possibility of using ones possessions at ones own discretion within the boundaries established by the state, or within the boundaries established by the state and set down in law.

Similarly the demand that any expropriation or deprivation of property must be carried out in the “public interest” is directly outlined in the second norm of Article 1 of the First Protocol to the Convention. The third norm of this Article also mentions the “general” interest. Thus, any form of interference with the right of ownership regardless of which norm is in question must meet the demand of having as its legitimate goal the public interest.

Furthermore, in accordance with European Court case law, for interference with the right of ownership to be deemed permissible it must not only serve a legitimate aim and be for the public interest, but there must be reasonable proportionality between the instruments used and the aim of any measure which deprives individuals of their possessions.  Reasonable balance must be maintained between the general interests of society and the demand to observe the fundamental rights of the individual (see the Judgment in the Case of AGOSI v. the United Kingdom from 24 October 1986).  In other words, the measures taken to limit the right of ownership need to be proportionate to the aim of their application.

 

PROBLEMS IN DEFENDING THE RIGHT TO PEACEFUL ENJOYMENT OF ONES POSSESSIONS

As the case law of the European Court of Human Rights shows, the property rights of individuals or legal entities are most often interfered with by state bodies, in particular, state executive bodies, sometimes legislative or judicial bodies, by means of passing legislative acts or through issuing illegal court rulings.  One should remember that Article 1 of the First Protocol prohibits any unwarranted intervention by state bodies.

Intervention must be lawful, that is undertaken on a legal basis. In this the Convention understands “the law” to be a normative act which must be accessible and foreseeable. The law must also satisfy all the demands placed on a normative act.  “Accessibility of a law” refers to the presence of access and awareness of the law within society and among particular individuals. “Foreseeable” concerns whether it is possible to foresee certain actions or consequences which could result from the application of the law.

In reviewing the issue of protection for the right of individuals to peaceful possession of their property, one must mention the position of the European Court according to which “the deprivation of property according to the second rule can only be justified if it is proven, amongst other things, to be in the “public interest” and “under the conditions set out in the law”. Furthermore, any interference with the possession of property must fulfil the requirement of proportionality. As the Court has stated on many occasions, a just balance must be struck between the interests of society and the need to protect the fundamental rights of the individual.

The largest number of judgments handed down by the European Court of Human Rights have concerned the non-execution or lengthy delay in implementing rulings of national courts connected with defence of property. One can cite as being in this category the judgments on the merits in the cases of Piven v. Ukraine, Zhovner v. Ukraine, Voitenko v. Ukraine, Shmalko v. Ukraine, Naumenko v. Ukraine, Dubenko v. Ukraine, Mykhaylenky and others v. Ukraine, Derkach and Palek v. Ukraine, Sharenok v. Ukraine, Katsyuk v. Ukraine and others. Moreover the number of such cases has been rising by the year.

For example, in December 2005 the European Court of Human Rights bound Ukraine to pay 16 Ukrainian citizens 27,716 thousand Euros in compensation for the non-enforcement of rulings of national courts in their cases. These judgments were passed on 14 different cases based on claims lodged by Ukrainian nationals. They had taken their complaints to the European Court of Human Rights against the non-implementation of rulings of Ukrainian courts awarding them pecuniary compensation. The state had not made the payments owed due to the lack of state revenue funds. The European Court found that there had been a violation of the claimants’ rights and ordered Ukraine to pay each claimant amounts between 1 and 2,720 thousand Euro.

Overall, in 2005 120 judgments were passed against Ukraine, with the absolute majority of these concerning the right to peacefully enjoy ones possessions.[5]

This should not be any surprise if one considers the fact that over the last year the Ukrainian Bailiffs’ Service only secured the implementation of 50% of all court rulings, whereas in other European countries this figure reaches 80%  The need for change in this was spoken of on many occasions by ex-Minister of Justice, Roman Zvarych, who stated: “If one were to assess the work of our bailiff service on the 1 – 5 scale, I would be loath to give it even a 2[6]

The problem of the Ukrainian bailiffs’ service at local level is often explained by specialists as being due to its effective subordination to the local authorities, and to the unprotected legal status of its employees. It is clear that, despite certain steps in the direction of reform, the bailiffs’ service does not serve to protect citizens’ property rights.

The foundation for reforming the bailiffs’ service was laid last year with the Decree of the President of Ukraine from 20 April 2005 № 701/2005 „Issues for the Ministry of Justice of Ukraine” and with the Resolution of the Cabinet of Ministers of Ukraine from 23 April 2005 № 320 „On the creation of a government body for state administration within the Ministry of Justice of Ukraine”

The Presidential Decree instructed the Cabinet of Ministers to put forward suggestions for introducing amendments to the relevant acts of legislation on creating, within the Ministry of Justice of Ukraine, a state body on issues of the state bailiffs’ service, having allowed for the creation of the appropriate territorial bodies to carry out the duties vested in it.  The Resolution of the Cabinet of Ministers established within the Ministry of Justice and on the basis of bodies of the state bailiffs’ service a Department for the State Bailiffs’ Service as a governmental body of state administration. 

Two laws aimed at implementing these documents were tabled and passed by the Verkhovna Rada, these being the Law of Ukraine “On introducing amendments to the Laws of Ukraine “On the State Bailiffs’ Service” which came into effect on 22 July 2005, and the Law of Ukraine, valid from15 July 2005 “On enforcement proceedings”.

The Law defines the legal status of the Department of the State Bailiffs’ Service and the procedure for appointing and dismissing its head and other employees.  The Department of the State Bailiffs’ Service is defined as a governmental body of state administration which functions within the Ministry of Justice of Ukraine, and is responsible for implementing a single state policy as regards enforcement of rulings. The Law also outlines the appointment and dismissal procedure for management and employees of bodies of the State Bailiff Service.

The amendments to the system of bodies of the State Bailiffs’ Service thus introduced a strict hierarchy for lines of management excluding the possibility of double subordination of regional and territorial bodies of the State Bailiffs’ Service to both the Department of the State Bailiffs’ Service and to territorially-based departments of justice.

A system of non-state institutions for executing court rulings was not however permitted despite the fact that more careful consideration of this issue was long overdue given the helplessness of the state service.

It should be noted that the lack of implementation of court rulings protecting the right of ownership is not solely linked to problems with the State Bailiffs’ Service, but is often attributable to Ukrainian legislation.

One can cite as example the problem of prohibiting the sale of state property in accordance with the Law of Ukraine “On introducing a moratorium on enforced sales of property”. The issue would seem to be simple.  A system of “privatization” was widely practised in Ukraine, according to which to pay off the debts of a state enterprise, which had often been run up deliberately, the property of these enterprises was bought up for a mere pittance. Since parliament was unable to regulate such relations in a normal fashion, it simply imposed a ban on any measures involving the expropriation of state enterprises in order to pay off the debts of the particular enterprise.  However the state is the owner of these enterprises, and having introduced such a law, it effectively deprived those individuals and legal entities who were owed money by the given enterprise their property rights.  Furthermore, those owed money did not even have anything to look forward to since there was no promise even that the money owed would be repaid.  Under such conditions, the European Court of Human Rights did in fact take the side of the individuals who were owed payments, the latter in the understanding of the First Protocol being included under the right of ownership.

The Ministry of Justice has already attempted on several occasions to change this law, however State Deputies rejected the attempts, justifying it as in the state interest to defend property which has not yet been plundered. Meanwhile the property rights of others have continued to be violated.

On the basis of this Law at present more than 20 thousand court rulings on repayment of debts in the form of salaries not received, amounting to approximately 50 million UH are not being implemented. In all, as a result of this Law, the execution has been stopped of 250,302 bailiff orders to the sum of 10 billion UH which is half of the overall amount in unpaid debts. The European Court of Human Rights is inundated with suits lodged over non-implementation of court rulings as a result of this law since it is an obvious violation of Protocol No 1 to the European Convention on Human Rights and Fundamental Freedoms, and could also be deemed a violation of Article 13 of the European Convention which guarantees the provision of an effective remedy for defending rights and freedoms which have been violated.

This was one of the reasons why in the given Law amendments were introduced which cancelled the force of the moratorium for court rulings involving unpaid salaries. These amendments were introduced on 21 October 2004 by the Law of Ukraine “On introducing amendments to some legislative acts of Ukraine on ensuring timely payment of salaries”. It should be noted that appeals to the court for compensation against the property of state enterprises and business associations where less than 25 percent of the statutory funds come from state enterprises are dealt with on the basis of general principles in accordance with the requirements of the Law of Ukraine “On court implementation proceedings”, that is, by means of seizing and selling the property of the debtor.  However the problem of protecting the property rights of other individuals or physical entities who are owed something other than unpaid salaries by enterprises remains a burning one since the moratorium on the sale of such enterprises is still in effect.

The problem of the property rights of other people remains and all of these individuals can also lodge appeals with the European Court of Human Rights since the right of ownership cannot be protected in the country on the basis of a ruling of a national court since the latter is not being implemented.

A similar problem is that of the non-payment to teachers of supplements set down in the Law of Ukraine “On education” (for example, under Article 57 of this law).  This can be seen in the following case.

THE CASE OF P. (CHERNIHIV)

In January 2003  Tetyana Vasylivna Pashchuk (hereafter the Claimant) who whose teaching experience spans more than 30 years and who has all that time worked in Chernihiv secondary specialized school No. 1 with intensive study of foreign languages (a highest category specialist), filed a suit with the Desnyansky District Court in Chernihiv demanding that the Department of Education of the Chernihiv City Council pay her supplement based on long service, and also a health allowance amounting to 4,500 UH (around 900 USD).

On the ruling of the Desnyansky District Court in Chernihiv from 7 April 2003, the Department of Education of the Chernihiv City Council was ordered to pay the claimant 3,068 UH 84 kopecks supplement for long service, 758 UH 51 kopecks health allowance, with indexation of 1,037 UH, 70 kopecks, with the total figure coming to 4,865 UH, 14 kopecks.

The Chernihiv Regional Appeal Court on 1 July 2003 refused to overturn the above ruling of the Desnyansky District Court from 7 April 2003, and rejected the appeal brought by the city department of education. This meant that the court ruling of 7 April 2003 came into effect and its implementation became legally binding.

A panel of judges of the Chamber for Civil Cases of the Supreme Court of Ukraine from 3 November 2004 rejected the cassation appeal brought by the Department of Education of the Chernihiv City Council against the ruling of the Desnyansky District Court in Chernihiv from 7 April 2003, and the decision of the Appeal Court of the Chernihiv Region from 1 July 2003.

On 17 December 2004 a writ of execution was presented by the Claimant to the office of the State Bailiffs’ Service of the Desnyansky District Department of Justice in the city of Chernihiv. At first the document calling for execution of the court ruling was returned on the grounds of lack of funds in the respondent’s account. After complaints, the enforcement proceedings were again launched.

Meanwhile, due to the huge number of claims from teachers, parliament adopted the Law of Ukraine “On the restructuring of debt on payments foreseen by Article 57 of the Law of Ukraine “On education” to teaching, academic and teaching, and other categories of employees of educational institutions”. That is, the debt owed the teacher was recognized as money owed by the state and needed to be repaid in accordance with the law over a period of five years in equal parts by means of inclusion of payments by the relevant laws of Ukraine on the National Budget of Ukraine, beginning from 2005 in the form of separate purpose-linked subsides from the National Budget of Ukraine for those public sector categories of employees. However for 2005 these funds in the Chernihiv region were not allocated.

On the basis of this and on the grounds that there were not enough funds in the respondent’s account, the State Bailiffs’ Service  for the third time suspended enforcement proceedings on this case.

Having exhausted all national remedies for defending her rights, the claimant in autumn 2005 lodged a claim with the European Court of Human Rights complaining that her right to the enjoyment of her possessions had been infringed through the non-payment of her compensation within a reasonable period, and that her right to a fair hearing had been violated through the long-standing non-enforcement of the court ruling.  It was also pointed out that the state may not, in an effectively unilateral manner, change the procedure for enforcement of a court ruling, define the procedure for repayment of its debts, and that accordingly the given national law violated the right of Tetyana P. to peacefully enjoy her possessions.

As has already been discussed, Article 1 of the First Protocol to the European Convention gives a somewhat broader definition of property than that set down in Ukrainian legislation. Shares and corporate rights arising out of the possession of shares are viewed as one of the forms of property which are subject to projection by the mechanisms of the European Convention.

Analyzing Ukrainian corporate legislation, one can point to several problems at the present time which may be considered the result of shortcomings in regulating property rights. This involves first and foremost protection for shareholders of closed joint stock companies

Closed joint stock companies have become one of the most burning issues in the development of current corporate legislation. It is clear that the very existence of a Ukrainian model of such companies set down in the Law of Ukraine «On business companies”, passed in September 1991, saw the beginning of an escalation of the problem, which was then manifested in the Civil and Economic Codes of Ukraine passed. Suffice it to say that the Civil Code of Ukraine, adopted on 16 January 2003, contains no mention whatsoever of closed joint stock companies, while the Economic Code of Ukraine adopted at the same time envisages the existence of both open and closed joint stock companies. 

The acuteness of the problem is determined by the lack of resolution of the issue concerning the procedure for expropriation of the shares of a closed joint stock company.  Neither in the Law of Ukraine “On business companies”, passed in 1991, nor in the Economic Code of Ukraine is there clear procedure for expropriation of the shares of a closed joint stock company.  Nor are the conditions set down for compensation of their value to the owners of shares which may be bought by the joint stock company from a shareholder in a closed joint stock company without providing them with the right to sell them at their own discretion (to any third party).  In this way the entire burden is placed on corporate regulation (that is, on the establishment of the appropriate provisions in the company charters). However, as an analysis of the majority of charters of closed joint stock companies shows, such provisions are not, as a rule, set down.

Nor is the issue of right of inheritance resolved when an individual dies who owned shares of a closed joint stock company.  There is also no regulation of the question as to whether shares in closed joint stock companies may be used as security. Flagrant examples of violations of shareholders’ rights can be seen in cases where shareholders have had their shares confiscated, amongst other things, for infringements of work discipline, for removal from ones job without good reason, etc.

Turning to the problem of the functioning of open joint stock companies, one notes that here too a considerable number of violations of shareholders’ rights occur. One has in mind first of all the “dilution” of packages of shares. At present there are no norms which can provide reliable protection for a minor shareholder. As an example of a violation of corporate rights in the context of Article 1 of the First Protocol to the European Convention, one can cite the Case of Sovtransavto Holding v. Ukraine.

It should be noted that the right to peaceful possession of property depends on the protection of this right by norms of civil, administrative and criminal legislation.

Throughout 2005 there were significant problems in Ukraine both with the interpretation and application of the relevant legislation.  One example would be the Law of Ukraine “On introducing amendments to the Code of Administrative Offences of Ukraine”, № 2635-IV which sets down that the theft of others’ property is deemed a minor offence if the value of the property at the moment when the offence was committed did not exceed three times the minimum monthly wage before tax. In accordance with these amendments, we thus see that administrative liability for a minor theft begins if the culprit encroaches upon any form of possessions, including private property. 

Surprise, however, was aroused by the explanation of the Supreme Court of Ukraine which expressed the view that the given amendments had made it impossible to establish criminal responsibility for particular offences which were previously considered crimes. The Court came to the conclusion that the Law had partially decriminalized certain crimes which are foreseen by the Criminal Code of Ukraine in Articles 185, 188, 190, 191 and 193.  Furthermore, theft repeated or by an organized group, combined with breaking into a home or other premises are now classified as minor offences if the value of what is stolen at the moment of theft was not higher than 393 UH[7].

This means that effectively the state is renouncing any responsibility for defending citizens from the theft of property worth up to 393 UH since it has removed the most effective protection – criminal liability.  Together with this, problems arise in gaining a correct estimate of the value of the property, and accordingly, whether or not to apply criminal liability which is effectively left in many cases to the full discretion of the law enforcement officers.

PROBLEMS OF DEPRIVATION OF THE RIGHT TO PEACEFULLY ENJOY ONES POSSESSIONS

In Ukrainian legislation, numerous possibilities have been set down for revoking a person’s right to their property. For example, Article 55 of the Law of Ukraine “On property” allows for the following instances where property may be expropriated:

1)  the expropriation of a person’s property is permitted where there has been a claim on the property against commitments  which it’s owner has not met in cases and according to rules and procedure foreseen by the Law of Ukraine “On property”, the Civil and the Civil Procedure Codes of Ukraine;

2)  the expropriation (requisition) of a person’s property in the public interest in exceptional circumstances (a natural disaster, accidents, human epidemics, epidemics among animals), and according to conditions established by Ukrainian legislative acts with the payment to the owner of compensation for all losses in full;

3)  paid expropriation of a person’s property pursuant to a ruling from a court or other competent body in cases foreseen by legislative acts of Ukraine with the payment to the owner of the value of the property to the amount stipulated by legislation;

4) the expropriation without compensation (confiscation) of property in accordance with the ruling or sentence of a court or other competent body as penalty for committing an office.

The new Civil Code of Ukraine has to some extent established some order with regard to the issue of forced expropriation of a person’s possessions.  Article 321, for example, allows for an individual to be deprived of property rights or limited in enjoying them only in cases and according to the rules and procedure established by the law. Compulsory removal of private property shall be applied only as an exception for the common good on the basis of and according to the rules and procedure established by the law, and on condition of prior and full compensation of its value.

Article 346 of the Civil Code provides a detailed list of the grounds for suspending property rights. They include grounds for suspension regardless of the wishes of the owners themselves. Such grounds are, for example:

а) suspension of the right of ownership to property which by law may not belong to the person;

b) compulsory purchase of historic or cultural monuments;

c)  compulsory purchase of a plot of land on land needed for the common good;

d)  compulsory purchase of real estate located on land needed for the common good;

e)  a claim on the property to be used as compensation for unfulfilled commitments;

f)  requisition;

з) confiscation;

From the point of view of guaranteeing the right of ownership, a particularly problematical area is that of public property. In Ukraine there remains no legislative act which establishes the legal principles (the grounds, conditions, rules and procedure, and legal consequences) of the nationalization of property. It should be remembered that the possibility of nationalization of property, arising from the principles of international public law, is recognized as one of the elements of state sovereignty, and is therefore not rejected as possible grounds for suspending the right of ownership of individuals or legal entities. 

It is, however, another matter that, in accordance with the general principle, nationalization shall be carried out in the interest of social (public) order and on a commercial basis. The lack of legislation in Ukraine on nationalization is, in our view, a negative feature since the state itself is not restricted by normative regulations regarding the actual procedure for taking decisions on nationalization, and the rules and procedure for undertaking this, and most importantly, is the rights and relevant guarantees for owners whose property is subject to nationalization are not stipulated.  Such a situation can only be described as a lack of any legal clarity and definition.

Another important issue in today’s Ukraine given the process of privatization of state property which took place in Ukraine is the problem of re-privatization. The procedure for privatization of state enterprises was set down in a package of privatization laws and other normative legal acts and carried out under the control of and with the direct participation of state privatization bodies. It is thus assumed that specifically these bodies take responsibility for adhering to legislation in the course of privatizing the property of state enterprises (in taking decisions, valuing the property, carrying out tenders or auctions, selling packets of shares, concluding sale and purchase contracts, etc).

At the same time, there were not just isolated cases in court practice in 2005 when either on application from prosecutor’s offices, or sometimes from the actual state privatization bodies themselves, acts privatizing state enterprises were declared invalid, that is, effectively a process of “re-privatization” (entire or partial) was carried out.

Here it is useful to consider the re-privatization of the Kryvorizhstal Steel Mills, the Nikopolsky Feroalloy plant and a number of other state enterprises previously privatized with violations of the above-mentioned rules. On the subject of Kryvorizhstal, for example, the Economic Court in Kyiv[8], and later the Economic Appeal Court in Kyiv and the Supreme Court of Ukraine,  ruled that the privatization of the metallurgic company had been illegal since significant violations of Ukrainian legislation on privatization had taken place.  The violations included in particular the fact that the terms of notification of a tender had not been kept, as well as infringements in establishing additional conditions for the tender, the procedure for accepting bids for the tender, the manner in which the share package was formed, as well as in the expert studies and the way of determining the winning bid.  The court based its decision on the requirements of Ukrainian legislation, however one should at the same time note that in reaching this decision, it encountered the problem of inadequate legal regulation covering re-privatization in Ukraine, and was confronted by a number of legal norms which contradicted one another, creating a huge obstacle towards ensuring the state’s protection of the rights of individuals to peacefully enjoy their property.

In general, the revoking of any acts involving privatization result in the need to apply bilateral compensation, that is returning both parties to the original position they were in as regards property. This to a significant degree violates the rights of individuals who took part in the privatization process, especially in such cases where the privatization was carried out with special forms of payment (privatization property certificates, compensation certificates).  One could hardly agree that in the process of compensation which was applied in such cases, in particular, in the case of the re-privatization of Kryvoryzhstal, that the possibility of receiving fair compensation was ensured.  At the same time, one should note that it is the regime which carries the direct responsibility for the legal consequences since its representatives either directly or indirectly enabled the violation of legislation in carrying out the process of privatization, and the problem remains unresolved at the legislative level to the present day.

As a result of this, the owners of this enterprise can lodge a claim with the European Court of Human Rights with regard to observance of their right of ownership due to:

-  the lack of clarity in the law which regulates such situations;

-  the lack of a situation of legal certainty in privatization since at any moment a body of power may take the privatized property back;

-  the question of the amount of compensation for the re-privatized property which does not include compensation for changes made by that owner and the latter’s expenses;

-  the possibility of discrimination since no action was taken against the owners of property in similar cases although there had been violations there as well.

The argument in this case will be the fact that the public officials who carried out the privatization in the name of the state have not been punished; it is logical to assume that when violations are evident during privatization, that the officials responsible for it would be punished. .

Otherwise the fact of the illegality of the privatization is openly questionable on account of the contradictory nature of certain norms of national legislation.

A claim on property against its owner’s debts is, as a rule, imposed on the ruling of a court or other empowered body in cases where the owner has refused or is unable to meet his or her obligations. These can be claims on the property of a debtor which was provided to the creditor as security, a claim on property which constitutes tax security, the enforcement by agencies of the State Bailiffs’ Service of court rulings allowing for items to be confiscated or a sum of money to be extracted from the debtor to pay the creditor, or for the settlement of creditors’ demands using the property of the debtor when carrying out bankruptcy proceedings.

In accordance with Article 18 of the Law of Ukraine “On the legal regime for a state of emergency”, in the case of the imposition of such a state of emergency where particularly grave situations of a manmade nature or due to an act of nature have arisen which jeopardize the life and health of a significant part of the population, the competent bodies may carry out a number of measures including those connected with the limitation of property rights and the requisition of property. In particular, the mobilization and use may be demanded of resources of businesses, institutions and organizations, regardless of their form of ownership, in order to avert danger or liquidate emergencies, with compensation mandatory for the losses incurred. A glaring example of the shortcomings in the legal regulation of requisition of property is provided by the cases where poultry was killed in connection with the spread of bird flu and the imposition of a state of emergency in the Autonomous Republic of the Crimea.

Confiscation of property is a punishment imposed for committing a crime and is applied exclusively in cases specially stipulated by the Criminal Code of Ukraine on the basis of a court verdict. Article 59 of the Criminal Code sets down that confiscation of property shall be the mandatory and uncompensated seizure by the state of all or a part of the property of a convicted person. Confiscation of property is imposed for serious and particularly serious mercenary crimes and may only be applied in cases specifically allowed for in the Special part of the Code. It should be noted that Ukrainian legislation defines a list of items of property which are not liable to confiscation, or to claims for compensation against the owner’s unfulfilled commitments.

The suspension of the right of ownership to property which by law may not belong to the given individual takes place in cases where an individual, for reasons not prohibited by law, obtained the right to own property which, in accordance with a law passed later, could not belong to this individual and involves the duty to take away the property within a time period established by law (Article 348 of the Civil Code of Ukraine). In the event that this duty is not carried out within the appropriate period, the property on the basis of a court ruling and at the application of the relevant state executive body is subject to compulsory sale. If the property has not been sold, it is, with the sanction of the court, transferred into the possession of the state. In the latter case the former owner of the property is paid the amount assigned in the decision of the court. This rule also applies in cases where the law stipulates that a special permit is required in order to purchase certain property, and the person who owns the property has been refused such a permit. The purchase of a piece of land for the common good is regulated by Article 350 of the Civil Code of Ukraine.  Such purchases are sanctioned through decisions passed by competent bodies of state power or bodies of local self-government. The purchase is carried out with the consent of the owner or on the basis of a court ruling and in accordance with rules and procedure established by law. The purchase price for the land includes the value of the land itself, any immovable property on it and any profit that may be lost.  The right of ownership to immovable property located on the land subject to compulsory sale may be suspended on a ruling of the court by means of compensating its value and with the mandatory prior compensation of losses in full (Article 351 of the Civil Code).  The grounds for such a court ruling would be the impossibility of using the land purchased for the common good without suspending the right of ownership to property on it.

With regard to the latter situation,  the problem for Ukrainian citizens should be noted of having their right of property observed in connection with the implementation of a program of comprehensive reconstruction of micro-districts with dilapidated housing. The Draft Law №7483 (tabled by Yulia Tymoshenko and the Cabinet of Ministers of Ukraine[9]) which had been prepared for its second reading in the Verkhovna Rada failed on many points to ensure apartment owners’ right to possess, use and dispose of their property in the understanding of Article 1 of the First Protocol to the European Convention. The Ukrainian Helsinki Human Rights Union prepared expert comments and recommendations with regard to this Draft Law[10] and sent them to the relevant Committee of the Verkhovna Rada on issues of housing, communal services, transport and communications and to the Ministry of Justice of Ukraine.  Criticism of this Draft Law also came from organizations opposing the illegal building of towns, as well as from other civic activists, and as a result the Draft, when tabled for its second reading failed to gain the support of Verkhovna Rada Deputies.

Article 352 of the Civil Code of Ukraine covers issues related to the compulsory purchase of historic and cultural monuments. If, as a result of the actions or lack of action of their owners, such monuments or places of significance face damage or destruction, the state body on preserving places of historic and cultural heritage shall issue the appropriate warning to the owners. If, despite this, measures are not taken by the owners, the property may be compulsorily acquired by the state. In cases where there is an urgent need to safeguard the preservation of the historic or cultural monument, an application to the court on its acquisition may be presented without prior notice. The redemption price shall be determined with the consent of all parties, and in the case of dispute, by the court.  Historic and cultural monuments thus acquired become the property of the state. .

Measures involving requisition and confiscation are outlined in Articles 353 and 354 of the Civil Code of Ukraine. On the whole they do not change the regulation of conditions and consequences set down in previous legislation.

The above analysis of legislative acts regulating the conditions, rules and procedure for removing possessions from their private owner shows that the usual grounds for such measures are the securing of public or state needs. Clearly the use of such value categories as “public or state needs” gives rise to difficulties and in practice may accordingly create conflict.

One may also regard as cases of effective expropriation the use of mechanisms for arresting assets and the use of a tax payer’s property as tax security, envisaged by the Law of Ukraine “On the rules and procedure for clearing taxpayers’ debt to budget and state purpose-linked funds”.  In the understanding of this Law, the tax commitments which are viewed as being the obligation of tax payers to pay the budget or state purpose-linked funds the appropriate amount in accordance with the rules and procedure and time limits stipulated by Ukrainian tax legislation create a tax debt if not paid. The payment of this debt may be secured through the imposition of tax security on the assets, or by arresting the debtor’s assets.

On the basis of the tax security a debt collection body has the first right in the case of non-payment of the tax debt to receive the money owed from the value of the property used as security before other creditors. The power of the owner as regards any property used as tax security is limited by the imposition on the owner of the duty to agree a number of operations with regard to this property with the tax body. No property which is stipulated as tax security may be used as security by other creditors or used to satisfy either present or future demands by any third party.  Thus, the establishment of tax security, while not resulting at the first stage in the expropriation of the property, does however effectively substantially limit the real possibilities of the owner to freely use and dispose of his or her possessions.

In the event that measures taken to retrieve the tax debt have not been successful, the tax body carries out measures against the taxpayer and in the interests of the state aimed at using additional means to pay back the amount of the tax debt. These involve in the first instance retrieving money which the taxpayer may possess, however if this is insufficient, then through the compulsory sale of the taxpayer’s other assets.

Although such assets may be forcibly levied as payment for tax owed only with the sanction of the court, the very fact of the stipulation of tax security and imposition of administrative arrest on funds which can be exercised by state tax bodies using their authority should be regarded as a significant limitation by the state of the powers (and therefore, the right) of owners, which substantially decreases their level of control over their property.

The Decision of the Constitutional Court on the Case concerning tax security[11] is important to consider, in particular, Point 4.2. The Decision states that the provision in paragraph 2 of the second part of Point 8.2 of Article 8 of the Law of Ukraine “On the rules and procedure for retrieval of taxpayers’ debts to budget and state purpose-linked funds” envisages that the grounds for using tax security would be the non-provision or untimely submission by the taxpayer of his or her tax declaration. In this way, the legislators have effectively equated such failure to provide a tax declaration on time, or at all, with non-payment of a tax bill. Yet such behaviour does not prove the existence of any tax liability, let alone of tax debt.  By establishing such grounds for the imposition of tax security, the legislators did not take into consideration either the lack of any tax liability or the consequences which could be faced by a tax payer for not providing a tax declaration or providing it late. In so doing, they unlawfully restricted the rights of such taxpayers to have control over their property. These arguments gave the Constitutional Court grounds to declare the given provision unconstitutional. 

In addition, Point 4.3 of the Court’s Decision concerned sub-point 8.2.2 of Point 8.2 of Article 8 of the Law in question. This envisages that tax security will cover any types of assets of the taxpayers which they were in possession of at the moment when the need to extract such security arose (full economic assets), as well as any other assets that the taxpayer may become owner of in the future until such time as the tax liability or tax debt has been settled. It follows from this provision, and the experience of its application confirms, that the right to extract tax security covers virtually all forms of assets owned by the taxpayer. Nor is the correct correlation between the amount of the tax liability or tax debt with the size of the assets of the taxpayer treated as security taken into consideration, this hardly promoting a just resolution of issues involving the application of tax security between the relevant parties to the tax issue.

The Constitutional Court considered that the amount of the tax security, based on general principles of law, needed to correspond to the amount of the tax liability, this securing observance of the constitutional requirement for justice and proportionality. Proportionality, as an element of the principle of justice, envisages the establishment of public legal limitations on the control of assets owned by a taxpayer in the event of non-payment or untimely payment of the tax liability, and the differentiation of such limitation depending on the amount of the non-payment involved. This point was declared in contravention of the Constitution of Ukraine since it extended the right to apply tax security to any assets of the tax payer and could lead to the person being deprived not only of his or her profits, but also of other assets, placing his or her continued business activities in jeopardy or even stopping them.

One well-known example of illegitimate limitations on the right of ownership imposed by tax bodies was the case involving the publishing house “Taki spravy” which is presently being reviewed by the International Centre for Settlement of Investment Disputes.  The case revolved around the unwarranted deprivation and damage to the property of the given business by employees of the tax inspectorate and law enforcement bodies, the blocking of the business’ work over a lengthy period of time and other obstacles placed on their functioning.  These actions were supposedly aimed at investigating a crime, although the criminal case was later closed due to the lack of evidence of a crime.  In the meantime losses in the millions were incurred by the owners of the publishing company. The conflict arose when the company published a work written by authors in opposition to the regime then in power, yet the new regime is showing no intention of restoring the right of ownership of the Lithuanian investors.  The state therefore, In our opinion, has not safeguarded the property rights of a foreign investor, the Lithuanian closed stock company "Tokios Tokelės", and this could, accordingly, result in a substantial compensation bill, given that the figure in the suit at the present time amounts to 75 560 541 US dollars. The government furthermore is not actually proposing any amicable settlement of this dispute

European Court case law is based on the principle that the establishment by the state of particular prohibitions on exercising property rights, as well as the use of state means for ensuring the payment of taxes should be seen as interference by the state in the peaceful possession of property which is defined as one of the fundamental human rights. Such instances need to be analyzed to decide whether their application was justified, that is, lawful, expedient and proportionate. As the above analysis shows, in this sphere Ukrainian tax bodies very often infringe both legislative norms, and general principles of law as a whole.

RECOMMENDATIONS

1.  In order to ensure the effective defence of various forms of property rights, the range of objects which are protected by the right of ownership needs to be extended.

2.  The functioning of the Ukrainian State Bailiffs’ Service needs to be made more efficient to ensure the proper enforcement of court rulings.  A System of private bailiffs should be introduced in Ukraine.

3.  Discriminatory norms differentiating between the right of ownership of individuals and of legal entities need to be removed, in particular, through the gradual abolition of the Economic Code or by bringing its norms into line with those of the Civil Code of Ukraine, as well as by introducing amendments to the Law of Ukraine “On the introduction of a moratorium on the compulsory sale of property”, and by imposing a ban on retrospective amendments to norms on taxation, etc.

4.  To provide safeguards of the right of ownership, legal shortcomings in regulation of nationalization and privatization of property need to be rectified.

5.  Inadequacies in corporate legislation must also be addressed, including by means of passing the Law of Ukraine “On joint stock companies”.

Tax legislation must be changed or substantially improved with the aim of ensuring equity and defence of all forms of ownership rights.

Effective defence of the right to all forms of ownership must be secured, in particular, via norms of civil, administrative and criminal legislation.



[1]  The right to peaceful possession of ones property. Precedents and commentaries. – Lviv. “TeRus”, 2005. – p. 61-72

[2]  The European Convention on Human Rights: basic provisions, practical application in the Ukrainian context. – Kyiv,  Vipop, 2004. – pp. 723-740

[3]  Judgment of the European Court of Human Rights in the Case of Sporrong and Lönnroth v. Sweden, from 23 September 1982

[4]  Judgment of the European Court of Human Rights in the Case of Sovtransavto-Holding v. Ukraine from 22 July 2002

[5]  “Ukraine loses in the European Court”, the newspaper “Dzerkalo tyzhnya” [“The Weekly Mirror”] № 49 (577), Saturday, 17-23 December 2005.  Available in Ukrainian and Russian at: http://zn.kiev.ua/ie/show/577/52106/

[6]  This is the normal scale in educational institutions, and 2 is the standard “failed” mark (translator’s note)

[7]  In the context of the Law of Ukraine “On income tax” three minimum wages before tax came to 393 UH

[8]  Ruling of the Economic Court in Kyiv from 22.04.2005, published (in Ukrainian) in Yurydychna gazeta, 2005, 05. No. 9

[9]  Draft Law of Ukraine No. 7483 from 16.05.05 “On the comprehensive reconstruction of quarters (micro-regions) of dilapidated housing” http://rada.gov.ua:8080/pls/zweb_n/webproc4_2?id=&pf3516=7483&skl=5.

[10]  The UHHRU’s analysis of the Draft Law can be found (in Ukrainian) on the organization’s website: : http://helsinki.org.ua/index.php?id=1130933031

[11]  Decision of the Constitutional Court in response to a constitutional submission from 48 Ukrainian State Deputies regarding the observance of the Constitution of Ukraine (the constitutionality) of the provisions of Point 1.7 of Article 1 and Article 8 of the Law of Ukraine “On the rules and procedure for retrieval of taxpayers’ debts to budget and state purpose-linked funds” (the case on tax security)

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