2021 TOP-5 positions of the Supreme Court in banking disputes

Banking disputes are one of the most popular and discussed categories of litigation in the legal community in Ukraine. At the same time, this category of disputes is usually one of the most difficult in legal practice, as it is connected not only with the big amount of evidence used by the parties, but also with the ambiguity of judicial practice.

In addition, we should also mind that within the not always clear banking legislation, the court is facing the task of taking into the account the interests of depositors, borrowers, bank owners, the state and the impact of legal positions on the state economy. As a rule, these interests do not coincide and are diametrically opposite. And behind each legal position of the Grand Chamber of the Supreme Court (GH SC) there are dozens, hundreds of similar cases suspended in the courts of lower instances, in which the participants are waiting for the adoption of the relevant legal position of the Supreme Court. Therefore, the matter of economic relations settlement is at the main.

The most interesting decisions of 2021 were analyzed by Andrii Spektor, Member of the Ukrainian Bar Association (UBA) in Dnipropetrovsk region, a Partner of the “Laboratory of Bankruptcy LLC”.

1. Some questions in resolving legal issues in disputes concerning the liability of persons related to the bank for the damage caused to the bank (preliminary decision of the Grand Chamber of the Supreme Court dated 25 May -2021 in the case № 910/11027/18).

From 2018, disputes on the claim of the Deposit Guarantee Fund for Individuals (DGFI), acting on behalf of the bank, for compensation of damages related to the bank individuals are subject to consideration under the rules of commercial litigation. There are currently 64 such lawsuits pending against 774 defendants against nearly 30 banks, and there are open disputes regarding reimbursement of damages related to the bank individuals under Part 5 of Article 52 of the Law of Ukraine "About Deposit Guarantee System for Individuals".

In this case, the plaintiff exercised his right to provide evidence, which, in his opinion, confirmed the illegality and guilt of the actions of the defendants. And the defendants did not provide any evidence of their actions that would indicate the absence of guilt for failure to comply with the Law of Ukraine "About Banks and Banking" obligations for conscientious, reasonable, responsible management of the bank, preventing possible risks (paragraph 7.58 of the resolution).

Of course, this solution is interesting in terms of determining the amount of damage. The position of the Supreme Court in this case is as follows: if the bank is harmed not by committing certain actions (inaction) that resulted the destruction or damage to a particular thing, loss of specific income or similar consequences, but by non-compliance with legal requirements, the failure to take timely measures to prevent insolvency etc., which led to a decrease in the bank's net assets, violation of regulations, including liquidity and loss of solvency by the bank, the amount of damage caused to the bank is estimated by the amount of insufficiency of the bank's property to meet the requirements of all creditors, unless proven greater damage. That is, in this case, the amount of insufficiency of the bank's property to meet the requirements of all creditors is the minimum assessment of the damage caused to the bank (paragraph 7.61 of the resolution).

2. Procedure for assignment of the right of claim under credit and security agreements (decision of the Supreme Court dated 16 March - 2021 in the case № 906/1174/18).

In the decision taken on 31 October - 2018 in the case № 465/646/11 (proceedings № 14-222cs18) the Grand Chamber of the Supreme Court made a general conclusion, which was further applied in the decision of 10 November - 2020 in the case № 638/22396/14-c (proceedings № 14-16cs20), that the assignment of the right of claim under the loan agreement in favor of an individual is contrary to the provisions of Part 3 of Article 512 and Article 1054 of the Civil Code of Ukraine, because the obligations arising under the loan agreement are characterized by a special entity, namely - the creditor-bank or other financial institution.

In 2021, the Grand Chamber of the Supreme Court specified this conclusion so that the assignment of claims under credit and security agreements is possible not only in favor of financial institutions under the circumstances where the previous creditor (bank) was deprived of a banking license and was in liquidation.

3. Conditions for satisfaction of claims under the bank guarantee (decision Civil Court of Cassation of the Supreme Court of Ukraine dated 18 June - 2021 in the case № 910/16898/19).

The obligation of the guarantor to pay the creditor a sum of money, in accordance with the terms of the guarantee, arises if the debtor violates the obligation secured by the guarantee and the creditor sends a written claim to the guarantor together with the documents specified in the guarantee. In the absence of one of these conditions, the guarantor’s responsibilities are not liable. In resolving a dispute about the existence of the guarantor's obligation to pay the guarantee, the subject of proof includes, first of all, the study of the presence or absence of the relevant obligation - the guarantee case (breach of the debtor's obligation secured by the guarantee), rather than a formal examination payment under warranty.

4. Elimination of the contradiction between the norms on the procedure for the sale of mortgage property during the enforcement proceedings (decision of the Grand Chamber of the Supreme Court dated 25 May - 2021 in the case № 923/971/19).

The conflict between Article 49 of the Law of Ukraine "About Mortgage", which allows the mortgagee to keep the subject of the mortgage in case of recognition of the first or second public auction as failed, and the rules of Part 6 and Part 9 of Article 61 of the Law of Ukraine "About Enforcement Proceedings", which gives such a right to the collector (mortgagee) only in case of non-sale of property at the third electronic auctions. The Supreme Court came to the conclusion that in the legal regulation of the procedure for the sale of property, which is subject to recovery by the state (private) executor, the rules of Article 61 of the Law of Ukraine "About Enforcement Proceedings" are general in relation to the provisions of Article 49 of the Law of Ukraine "About Mortgage", which define the features of the sale of mortgage property at public auction, taking to the mind the legal regime of expropriated property as encumbered by the mortgage collector-mortgagee and within the preemptive right of the mortgagee to satisfy claims on the subject of the mortgage.

In addition, the counter-crediting of the mortgagee's monetary claims as a result of the announcement of the first bidding as not due to the absence of bidders, not only simplifies for the mortgagee, who is the sole debt collector in enforcement proceedings, foreclosure on property, and allows to enroll in repayment of the debt monetary claims of the debt collector, corresponding to the expert value of the subject of the mortgage without reducing them in the second and third auctions. The mentioned above is in the interests of the mortgagor in enforcement proceedings for the fullest satisfaction and repayment (termination) of the creditor's claims in enforcement proceedings at the expense of the value of the property, which is levied by the state (private) executor.

5. Determining the amount of claims of the secured creditor to the property guarantor, who is not a debtor in the main obligation (decision of the Civil Court of Cassation of the Supreme Court of Ukraine dated 04 February - 2021 in the case № 904/1360/19).

The court determined that the interpretation of paragraph 3 of Part 2 Article 45 of the Code of Ukraine on Bankruptcy Procedures in conjunction with the provisions of Article 572, Article 575, Article 589 of the Civil Code of Ukraine, Article 7, Article 11, Article 17, Article 18 of the Law of Ukraine "About Mortgage" and Article 12, Article 19, Article 28 of the Law of Ukraine "About Pledge" states that the claims of the secured creditor, unless otherwise stipulated by the pledge agreement (mortgage) and with no application of such creditor for full or partial waiver of security to the property guarantor who is not a debtor in the principal obligation, such liabilities are secured in general, regardless of the accounting valuation of the hypothecated (mortgaged) property, determined by the parties in the pledge (mortgage) agreement.

The final value of the hypothecated (mortgaged) property for the purposes of settlements with the secured creditor is formed at the time of its implementation. The pledge (mortgage) is terminated, and the claims of the secured creditor are considered repaid in case of sale of the subject of the pledge (mortgage) in compliance with the requirements of the Code of Ukraine on Bankruptcy Procedure.

Finally, the Supreme Court once again reminds that the main thing of the pledge (mortgage) is not only to secure the main obligation in full, but that the right of pledge (mortgage) is the right to another individual thing, which belongs to the creditor in securing his right to claim the obligation and is manifested in the possibility of overriding (compared to other creditors) satisfaction with the value of this thing. Such a preemptive right is also enshrined in Part 6 of Article 64 of the Code of Ukraine on Bankruptcy Procedures, which establishes that the repayment of the claims of secured creditors at the expense of the bankrupt's property, which is the subject to be collateralized, is carried out in the manner prescribed by this Code out of turn.