Top 10 Amendments to the Commercial Procedure Code of Ukraine

The entry into force on December 15, 2017, of the Law of Ukraine “On Amendments to the Commercial Procedural Code of Ukraine, the Civil Procedural Code of Ukraine, the Code of Administrative Procedure of Ukraine, and Other Legislative Acts” No. 2147-VIII dated October 3, 2017, can be viewed as one of the latest and most significant stages of the judicial reform implemented in Ukraine, which is of crucial importance for judicial reform as a whole.

Most of the innovations proposed by the Commercial Procedural Code of Ukraine, as amended on October 3, 2017 (hereinafter referred to as the “new version of the CPC”), are entirely new for all post-Soviet countries and are intended to bring the Ukrainian justice system in line with the standards and recommendations of the Council of Europe.

Let us examine the ten most significant innovations in commercial procedure.

1. Terminology and procedures for commercial, civil, and administrative proceedings have been standardized

In the text of the newly adopted versions of the codes, the legislature has unified the terminology and core procedures applied in commercial, civil, and administrative proceedings while preserving the specific objectives of the judicial process in each jurisdiction. The standardization of forms proposed by the legislature for different types of proceedings is useful and convenient for both judges and parties to the proceedings. This should reduce the risk of potential procedural errors, confusion, and, as a result, the inability of a party to the proceedings to take necessary procedural actions due to differing terminology regarding similar procedures or actions in different types of proceedings, which should increase public confidence in the judicial system as “consumers of judicial services.”

However, there is also a downside to such unification. The Commercial Procedural Code of Ukraine, as amended prior to October 3, 2017 (hereinafter referred to as the “previous version of the CPC”), was characterized by the simplicity and flexibility of its provisions, which were well-suited to the expeditious and informal resolution of commercial disputes. The new version of the CPC has become cumbersome and does not fully account for the specific nature of commercial proceedings within the framework of implementing a generalized model for various types of judicial proceedings. The drafters of the new version of the CPC focused on unification and the implementation of certain ideal models and theoretical, hypothetical standards of judicial proceedings, but failed to take into account the full range of legal issues, problems, and situations that the CPC is intended to resolve. The authors of the new version of the Commercial Procedure Code have opted for excessive regulation of procedural activities and restrictions on the court’s autonomy in determining the order of proceedings, the introduction of institutions foreign to commercial litigation, and excessive formalization of the process. As a result, this may create conditions under which there is a risk that the provisions of the law will be used to abuse procedural rights, prolong the proceedings, and distort their objectives.

2. The Objectives and Principles of Commercial Proceedings Are Clearly Defined

Compared to the previous version of the Commercial Procedure Code, the general provisions of the new version set forth the objectives and fundamental principles of commercial litigation in a separate article. The objective of commercial litigation is the fair, impartial, and timely resolution by the court of disputes related to the conduct of commercial activities, as well as the consideration of other cases falling within the jurisdiction of commercial courts, with the aim of effectively protecting the violated, unrecognized, or disputed rights and legitimate interests of individuals, legal entities, and the state, which focuses commercial courts specifically on resolving existing disputes based, first and foremost, on the rule of law; principles such as party autonomy, proportionality, and reasonable timeframes for case consideration have also been introduced, which are decisive in the courts’ exercise of their discretionary powers (Article 2 of the new version of the Commercial Procedure Code).

The existence of a clearly formulated objective has more than just methodological and theoretical significance. The practical aspect of this innovation lies in the introduction of a key criterion that judges and participants in the judicial process must adhere to when resolving commercial disputes. Deviating from this objective calls into question the outcome of the case and the conformity of such a decision with general principles of law.

3. Not only complete audio but also video recording of court proceedings becomes mandatory (Part 14 of Article 8 of the Commercial Procedure Code of Ukraine)

At the request of a party, the court shall ensure that the proceedings are broadcast on the Internet. In this case, video and audio recording may be conducted either alternately or simultaneously. If all parties to the case participate in the court hearing via videoconference, the proceedings must be broadcast on the Internet (Article 8, Part 6 of the new version of the Code of Civil Procedure). This creates the conditions for incorporating modern scientific and technological advances into the judicial process, thereby ensuring a higher level of transparency in court proceedings compared to the recent past. Of course, there are certain doubts regarding the operational capacity to technically implement such broadcasts in the near future.

4. The list of remedies has been expanded; in fact, it is not exhaustive

The new version of the Code of Civil Procedure has expanded the list of remedies compared to those provided for in Article 16 of the Civil Code of Ukraine, Article 20 of the Commercial Code of Ukraine, by providing for the possibility of protecting rights not only in the manner specified by law or contract, but also in any other manner set forth in the complaint that does not conflict with the law and effectively protects the right (Article 5 of the new version of the Code of Civil Procedure). Therefore, at present, in addition to Article 16 of the Civil Code of Ukraine and Article 20 of the Commercial Code of Ukraine, a complaint must cite Article 5 of the new version of the Commercial Procedure Code regarding methods of judicial protection.

However, given the new principle of disposability in commercial proceedings (Article 14 of the new version of the Commercial Procedure Code), the plaintiff must take an active stance regarding the choice of remedy, bearing in mind that the court’s role is limited to organizing the commercial proceedings, facilitating the exercise of the rights of the parties to the proceedings and monitoring their compliance with their legally defined obligations; and the court is not authorized to determine the method of protection without a corresponding request from the interested party, since the court considers cases only upon a party’s petition, within the scope of the claims asserted by that party, and on the basis of evidence submitted by the parties or requested by the court in the cases provided for by the new version of the Commercial Procedure Code. The collection of evidence in commercial cases is not the court’s obligation, except in cases established by the new version of the Commercial Procedure Code.

However, the absence of clear criteria for the court to determine the remedy, which is not established by law or contract, creates conditions that allow for broad discretion in determining the appropriate remedy for a violated right and may lead to a violation of the principles of proportionality, reasonableness, adequacy, and equality of the parties and, as a result, to a deviation from the purpose of commercial litigation.

5. New rules on jurisdiction have been introduced

Not only has the basic concept of “subject-matter jurisdiction” been replaced with “jurisdiction,” but one of the criteria for commercial jurisdiction—commercial legal relationships—has also been clearly defined. Thus, Article 20 of the new version of the Commercial Procedure Code stipulates that commercial courts hear cases involving disputes arising from the conduct of commercial activities and other cases in instances specified by law.

The new version of the Commercial Procedure Code has amended the rules of jurisdiction. Under the new rules, jurisdiction is also differentiated based on the subject matter of the dispute, rather than solely on the parties involved. To prevent jurisdictional disputes and the “duplication” of civil, commercial, and administrative cases, the concept of “derivative claims” has been introduced. Currently, the jurisdiction of commercial courts includes, in particular, cases involving claims for the registration of property and property rights, other registration actions, and the invalidation of acts that violate property rights (property interests), provided that such claims are derivative of a dispute concerning such property or property rights or of a dispute arising from corporate relations, if that dispute is subject to consideration by a commercial court and has been referred to it for consideration together with such claims; claims regarding the registration of property and property rights, as well as other registration actions, if the consideration of such claims falls within the jurisdiction of a commercial court, shall be heard by the commercial court designated in accordance with the rules of jurisdiction governing the consideration of the dispute. By providing for the possibility of combining derivative claims with the main claims in a single lawsuit, provided that such claims would otherwise have to be considered in separate proceedings, the legislature has thereby reduced the time required and saved the resources necessary for a person to ensure the full and proper protection of their rights and interests. This will certainly have a positive impact on the efficiency of judicial proceedings, since under the previous version of the Commercial Procedure Code, a person would have had to file claims with different courts in several jurisdictions in order to protect their rights and interests.

Of course, the approach of determining the jurisdiction of commercial courts based on the subject matter rather than the parties also creates a significant risk of inconsistent practical application of the provisions governing jurisdiction. Therefore, it is evident that this issue will be resolved in the future through a series of clarifications by the Supreme Court.

Additionally, Article 20 of the new version of the Commercial Procedure Code expands the list of cases in disputes heard by commercial courts; specifically, the following have been added:

- cases involving disputes arising from transactions concerning shares, equity interests, stakes, and other corporate rights in a legal entity, except for transactions in family and inheritance legal relationships;

 - cases involving disputes over securities, including those related to rights to securities and rights arising therefrom, the issuance, placement, circulation, and redemption of securities, the registration of rights to securities, and obligations under securities, except for debt securities owned by a natural person who is not an entrepreneur, and promissory notes used in tax and customs legal relationships;

 - cases involving disputes over ownership or other real rights to property (movable and immovable, including land), the registration or record-keeping of rights to property that is (or the rights to which are) the subject of the dispute, the invalidation of acts that violate such rights, except for disputes to which a natural person who is not an entrepreneur is a party, and disputes concerning the expropriation of property for public needs or on grounds of public necessity, as well as cases involving disputes over property that is the subject of security for the performance of an obligation, to which legal entities and/or natural persons who are entrepreneurs are parties;

- cases involving disputes related to appeals against decisions of the Antimonopoly Committee of Ukraine, disputes concerning appeals against acts (decisions) of business entities and their bodies, as well as officials and civil servants in the sphere of organizing and conducting economic activities.

Jurisdiction has also been expanded to include claims for compensation for damages caused by the actions (or inaction) of an official. The previous version of the Commercial Procedure Code covered only disputes between a business entity and its official; the new version covers disputes between any legal entity and its official. Furthermore, in such cases, the claim is filed by the owner (participant, shareholder) of such a legal entity in the interests of that legal entity.

Unlike the previous version of the Commercial Procedure Code, the provisions of the new version contain a non-exhaustive list of cases falling within the jurisdiction of commercial courts. Thus, paragraph 15 of Article 20 of the new version of the Commercial Procedure Code also provides for “other cases involving disputes between business entities.”

However, there is also a partial narrowing of jurisdiction compared to the previous version of the Commercial Procedure Code: the new version of the Commercial Procedure Code excludes from the jurisdiction of commercial courts cases involving disputes arising from land relations.

6. The institution of witnesses has been introduced as a subsidiary source of evidence

A significant innovation of the new version of the Commercial Procedure Code is that witness testimony may serve as a source of evidence in commercial proceedings, though with certain nuances regarding its presentation and limitations on its application. Thus, witness testimony cannot be used to establish circumstances (facts) that, in accordance with legislation or business customs, are reflected (recorded) in the relevant documents (Article 87 of the new version of the Commercial Procedure Code), due to the specific nature of the consideration and resolution of commercial disputes.

However, in commercial proceedings, there are virtually no cases in which a decision could be altered solely based on witness testimony; therefore, introducing the institution of witnesses into commercial proceedings appears somewhat impractical. Potentially, the involvement of witnesses could create conditions for abuse, in particular, the prolongation of proceedings due to the involvement of witnesses.

7. The list of evidence has been expanded, and a new procedure for submitting evidence has been established

The new version of the Commercial Procedure Code contains provisions that, in particular, regulate the definition, procedure for submission and examination of electronic evidence, and the conduct of expert examinations not only based on a court order but also at the request of the parties to the case, among other things.

To ensure proper and thorough consideration of cases and to enable the parties to the proceedings to properly exercise their rights, the legislature has introduced provisions requiring the parties to the proceedings to promptly and fully submit the evidence they possess regarding the case — together with the complaint or answer to the complaint—as well as the consequences of violating this rule and the established deadlines for submitting evidence: the court’s refusal to consider such evidence.

The new version of the Code of Civil Procedure provides for electronic evidence, defined as information in electronic (digital) form containing data on circumstances relevant to the case, including electronic documents (text documents, graphic images, plans, photographs, videosand audio recordings, etc.), websites (web pages), text, multimedia, and voice messages, metadata, databases, and other data in electronic form. Such data may be stored, in particular, on portable devices (memory cards, mobile phones, etc.), servers, backup systems, and other locations for storing data in electronic form (including on the Internet).

Thus, information from websites on the Internet can now serve as evidence in court. However, there are many issues related to the technical characteristics and nature of electronic evidence. In particular, these include the possibility of quickly altering such evidence stored on computer servers abroad; blocking access to certain resources or servers on the Internet; determining whether electronic evidence is an original or a copy; copying files that are and/or contain electronic evidence while altering the computer’s date and time settings, and many others. Therefore, the issues of formalizing electronic evidence and the procedures for its submission must be clarified and further explained, since the absence of such clarifications will effectively make it impossible to submit electronic evidence or lead to its erroneous classification as improper or inadmissible—or vice versa.

8. Changes have been made to the forms of commercial litigation.

Article 12 of the new version of the Commercial Procedure Code defines two forms of commercial litigation: 1) summary proceedings; 2) action proceedings, which in turn are divided into general and simplified proceedings.

In the new version of the Commercial Procedure Code, to simplify and expedite certain categories of cases, the option was introduced to hear such cases through summary proceedings if the claim involves the collection of a monetary debt under a contract concluded in writing, provided that the amount of the claim does not exceed one hundred times the subsistence minimum for able-bodied persons.

At the same time, summary proceedings are intended for the adjudication of cases based on claims for the recovery of monetary debts under a contract concluded in writing (including electronic) form, provided that the amount of the claim does not exceed one hundred times the subsistence minimum for able-bodied persons.

General civil proceedings are intended for cases that, due to their complexity or other circumstances, are not suitable for consideration under simplified civil proceedings.

Simplified proceedings are intended for the adjudication of minor cases, cases of minor complexity, and other cases where a swift resolution is a priority. In this context, “cases of minor importance” are: 1) cases in which the amount in dispute does not exceed one hundred times the subsistence minimum for able-bodied persons; 2) cases of minor complexity deemed by the court to be of minor importance, except for cases that must be heard solely under the rules of general civil proceedings, and cases in which the value of the claim exceeds five hundred times the subsistence minimum for able-bodied persons.

However, the new version of the Code of Civil Procedure does not define the concept of “cases of minor complexity.” Therefore, this issue will either be decided on a case-by-case basis by the judge—which could lead to inconsistent application of the law—or the Supreme Court will issue a clarification on this matter in the near future.

9. “Electronic Court” Introduced

The provisions of the new version of the Civil Procedure Code provide for extensive opportunities to conduct court proceedings using information technology (“electronic court”), in particular, the performance of all procedural actions via electronic means of communication with appropriate identification and security mechanisms.

The new version of the Civil Procedure Code provides for the creation of the Unified Judicial Information and Telecommunications System (hereinafter “UJITS”). This system will constitute the so-called “electronic court.” Thus, mandatory registration in the USITS is required on the day of receipt of complaints and other petitions, appeals, and other procedural documents provided for by law that are filed with the court. At the same time, court decisions and other procedural documents will be sent to the parties to the proceedings at their official email addresses in the USITS.

The regulations are to be adopted by the High Council of Justice upon the proposal of the State Judicial Administration of Ukraine (hereinafter referred to as the SJA) by February 28, 2018; this system will replace the automated court document management system. Order No. 1126 of the SJA, dated December 22, 2017, approved the Action Plan for the SJA’s implementation of Law No. 2147-VIII. Thus, the SJA plans to develop a draft Regulation on the Unified Judicial Information and Telecommunications System (UJITS) by February 28, 2018, consult with the Council of Judges of Ukraine, and submit it to the High Council of Justice for approval.

Until the Unified Judicial Information and Telecommunications System becomes operational, in accordance with paragraph 19 of the Transitional Provisions of the new version of the Code of Civil Procedure, the submission, registration, and transmission of procedural and other documents, evidence, as well as the compilation, storage, and transmission of case materials, shall be carried out in paper form.

Attorneys, notaries, private enforcement officers, arbitration administrators, forensic experts, state bodies, local self-government bodies, and business entities in the state and municipal sectors of the economy are required to register official email addresses with the Unified Judicial Information and Telecommunications System (EJITS). Other individuals may do so on a voluntary basis (Part 6 of Article 6 of the new version of the Code of Civil Procedure). Once a person is registered in the ESITS, the court shall serve all case documents on that person exclusively in electronic form by sending them to the person’s official email addresses; this does not deprive the person of the right to receive a paper copy of the court decision upon separate request.

The system for sending electronic summonses via email or instant messages using mobile communications (SMS/MMS) is being introduced. It is now possible to file procedural documents with the court and review case materials via the Internet. When a case is opened, the judge specifies in a ruling the web address of the page on the official web portal of the Ukrainian judiciary, where the parties to the case can obtain information regarding the case under consideration.

Parties to the case are provided with the opportunity to participate in court hearings via videoconference without leaving their home or workplace (unless the court decides otherwise), while witnesses and experts are required to appear in person at the premises of another court.

The procedure for implementing the “e-court” system is set forth in the Final and Transitional Provisions of the new version of the Code of Civil Procedure.

10. Electronic Case Proceedings.

Once the Unified Electronic Court System (ESITS) becomes operational, the court will conduct proceedings based on the case file in electronic form (Article 6 of the Civil Procedure Code of Ukraine). Procedural and other documents and evidence in paper form must be converted to electronic form no later than three days from the date of their receipt by the court and added to the electronic case file in accordance with the procedure established by the Regulations on the ESITS.

This raises the issue of providing courts with the necessary equipment and human resources to carry out this work. The situation is exacerbated by the fact that the court will receive not only the complaint but also the answer with evidence, the reply to the answer, objections to the reply, and third-party statements regarding the complaint or the answer. Therefore, the volume of documents that will need to be digitized in a timely manner will be substantial.

11. Liability for Abuse of Procedural Rights Has Been Established

The new version of the Code of Civil Procedure introduces a mechanism to prevent the abuse of procedural rights. This includes, in particular, preventing the filing of multiple claims against the same defendant(s) regarding the same subject matter and on the same grounds, or the filing of multiple claims regarding similar subject matter and on similar grounds, or the commission of other actions aimed at manipulating the automated assignment of cases among judges, initiating fictitious lawsuits against “friendly” defendants, intentionally delaying the proceedings, or manipulating jurisdiction. The new version of the Code of Civil Procedure contains Article 63, “Prohibition of Abuse of Procedural Rights,” which lists a non-exhaustive list of possible abuses of procedural rights.

The new version of the Civil Procedure Code also provides for sanctions for the abuse of rights: imposing court costs on such a party, regardless of the outcome of the dispute (Part 9 of Article 129 of the new version of the Civil Procedure Code), and the imposition of a fine ranging from 1 to 10 subsistence minimums for able-bodied persons (as of January 1, 2018, from 1,762 UAH – 17,620 UAH); if the abuse is committed repeatedly, then from 5 to 50 (from January 1, 2018, from 8,810 to 88,100 UAH) – Parts 1 and 2 of Article 135 of the new version of the Code of Civil Procedure.

The provisions regarding the inadmissibility of abuse of procedural rights contain certain ambiguities and gaps, which, given the subjective component (internal conviction) of each judge, may lead to procedural violations. In particular, in the case provided for in paragraph 3 of Part 2 of Article 43 of the new version of the Code of Civil Procedure—a violation involving the filing of a knowingly groundless claim, a claim in the absence of a subject matter of the dispute, or a dispute that is manifestly artificial— there is a high risk of a judge subjectively assessing whether the parties are abusing their rights, which could lead to restricted access to the courts, since the concept of “groundlessness” is not defined in the legislation. Consequently, if a genuine claim is filed without the intent to abuse the system, but merely with “deficiencies” in its legal justification as determined by the subjective view of a particular judge, the court may deem such a claim groundless and fine the plaintiff and/or their representative. In light of this, there is a significant risk of pressure being exerted on the parties, as well as a risk of inconsistent and not always lawful application by judges of procedural coercive measures—provided for in cases of abuse of procedural rights—against the parties to the case and/or their representatives.