Three options for a depositor

The failed legislation on the Deposit Guarantee Fund (the DGF) has led to confusion with jurisdictions. The disputes with the participation of the DGF could be the case both in the economic, civil and administrative courts. The Supreme Court made a point on the discussions.

The equation with multiple unknown variables

When trying to increase savings or just to keep it, the Ukrainians face a difficult question about the choices to make in investing money. According to the example of citizens of the advanced economies, it could seem that you could put the funds on a deposit with a bank and earn a good percentage to prevent depreciation. However, the Ukrainian realities do not support such a solution.

In recent years, the financial volatility has so depleted banks that they have failed to fulfill their obligations to depositors. In order to prevent panic, the National Bank intervened. The DGF began to withdraw the insolvent financial institutions from the market. At the same time, the Fund was obliged to repay the debt to the depositors in the amount not exceeding UAH 200 thousand per person.

Of course, when it comes to money, there are always those who feel deprived. It is therefore not surprising that the Fund has been inundated with the claims from the depositors and the banks owners.

And then the courts faced a difficult situation. The current legislation entrusts a number of functions to the DGF, which does not allow to clearly defining of its nature and, accordingly, its judicial jurisdiction, which should be sought in search of justice. On the one hand, the Fund acts as a power entity, when withdrawing banks from the market and paying off debts to the depositors. Thus, a lawsuit against it must be brought in the administrative court.

On the other hand, given that an authorized body carries out business activity when managing a bank, it has to be accountable to the economic court (in the case of a legal entity) or local court (if the individual applies).

Since the ministers of Themis did not venture to define the jurisdiction on their own, and their lengthy disputes deprived plaintiffs of their right to access to court guaranteed by the Constitution and international agreements, the Supreme Court (the SC) intervened.

At the VII All-Ukrainian Forum on Public Law and Financial-Banking Issues of the Ukrainian Bar Association, the judge of the Grand Chamber of the SC, Olena Kibenko, reported on this difficult solution.

 

Delicate decisions

The reason for the involvment of the Supreme Court in the jurisdiction dispute was the case of the invalidation of the Decree of the DGF authorized person that the transactions should be nullified. Trying to get to the core of the dispute, the judges of the Grand Chamber of the SC held numerous meetings and involved scholars. Each participant of the discussion had a reasoned decision. All arguments were finally gathered into several groups according to its positions, on the basis of which it was possible to formulate the verdict.

According to O. Kibenko, its historical significance is comes down to two main points. The first is recognition by the SC of the dual nature of the DGF and, accordingly, the possibility to consider the disputes which involve the one subject in the courts of different jurisdictions.

It is an interesting fact that the SC backed down the legal conclusion of the Supreme Court of Ukraine, in which the latter stated that all disputes concerning the nullity orders of the DGF or its authorized person should be considered as the bankruptcy case in the economic courts. The Grand Chamber of the SC does not agree with this position, because the banks that are withdrawn from the market are not subject to bankruptcy law. There are some special rules.

The second point is that the order of the authorized person of the Fund, which recognizes the transactions null, is an internal order of the bank and cannot contain requirements-obligations for the third parties, particularly, former or current counterparties of the financial institution.

Such a position was not expressed in any judicial decision before, so there was a lot of controversy. However, according to O. Kibenko, the position is quite correct. If you look at the orders of the special authority, which became the subject of the dispute, then you can see that they refer to the regulations specifically for the bank employees. In no way, the documents do not apply to individuals or legal entities whose transactions the financial institution considers nullified. Therefore, based on the Constitution and the principles of the stability of the economic turnover and the equality of rights of its subjects, the Supreme Court has ruled that if a bank managed by the Fund considers certain agreements as null, then it is necessary to apply to the court and prove the nullity of an agreement under terms established by law.

The gownsman is convicted that, it is unlawful and unfair to force people to defend themselves from the order of the bank, which is not supported by the court decision.

This is in line with Part 5, Article 38 of the Law “On the system of guaranteeing the deposits of individuals” of 23.02.2012 № 4452-VI, which states that in the event of receiving a notice of the DGF about the nullity of a transaction, a creditor is obliged to return a property (funds) that he received from the bank to the latter.

If to consider the above norm in the light of the Civil Code, the judge noted, it can be concluded that the return of money or property is possible only with the consent of the counterparty. In the contrary case, the court should intervene.

Another argument in favor of the position of the SC is that neither the fund nor the authorized person can apply to the administrative court with a suit on the execution of such an order.

Several lords of the mantle of the highest judicial institution expressed their disagreement with the above mentioned arguments of the Grand Chamber. Thus, “civilians” Natalia Lyaschenko and Olena Sitnik are convinced that the recognition of the nullity order invalid is an appropriate way of protecting rights. That is, such orders can be declared void in court, but as orders of the subject of private law. O. Kibenko strongly disagrees with this. If one recognizes that the orders have meaning as the transaction, then it should be recognized that the DGF is a public entity and acts accordingly.

“Administrator” Oleksandr Prokopenko believes that the DGF acts as a public-legal person in all respects, carries out the state functions, thus all disputes must be considered by the administrative courts. Most of the judges did not agree with this position.

 

Rights and compromises

The question arises: where other cases with the Fund should be considered?

The SC insists that jurisdiction should be determined depending on the subject structure. Thus, if it comes to the claims of individuals on the collection of deposits up to UAH 200 thousand, which is guaranteed by the state, such disputes remain in the administrative jurisdiction. For the first time such a position is reflected in the case № 820/11591/15. And now the number of such disputes has exceeded 30.

  1. Kibenko herself perceives this position as not entirely correct, since UAH 200 thousand are still paid at the expense of the bank. If there is not enough money, the Fund gives a loan and reduces the bank’s obligation to the depositor on the size of these claims. Therefore, the judge considers these relations as private-law, in which the DGF acts as an insurer with a special legal status.

However, when ruling the decision, the judges of the Grand Chamber of the Supreme Court considered both the legal and practical aspects. There are a great number of administrative disputes of this category, so the change of jurisdiction would be a problem for the plaintiffs. They would lose time and all hope for the return of their hard-earned money while trying to understand the intricacies of legal proceedings.

The claims of individuals exceeding UAH 200 thousand must be considered in civil jurisdiction. This is stated in the resolution dated April 18, 2018, № 826/7532/16. The Supreme Court ruled that an authorized person here acts on behalf of the bank and presents it.

The said statutory concept, O. Kibenko emphasized, is complicated, but today it protects depositors as much as possible.

Recently, the SC has adopted a number of decisions, in which it outlined positions on disputes involving the DGF. Thus, attorneys have at their disposal a range of positions of the highest judicial body in order to duly represent their clients.

 

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