Supreme Court: A Company in Occupied Territory Cannot Be Denied Legal Representation Merely Because of Its Location
⚖️ Ukraine | Commercial Disputes | Access to Justice
Case Details
Case No.: 913/768/21
Court: Supreme Court, Commercial Cassation Court
Decision Date: 26 March 2024
Case Category: Commercial Litigation
Subject Matter: Right to Legal Representation / Access to Court
Sub-Subject: Temporarily Occupied Territory / Legal Services Agreement / Procedural Capacity
Underlying Dispute: Recovery of a contractual penalty under a supply agreement
Parties: Satellite LLC v Dibrova LLC
Key Issue: Whether a legal services agreement concluded by a Ukrainian company located in temporarily occupied territory is void under legislation governing economic activity in occupied territories
Outcome: The Supreme Court rejected the approach that the company’s location in occupied territory, by itself, prevented it from obtaining professional legal assistance and remitted the matter to the appellate court for further consideration.
Background of the Dispute
In November 2021, Satellite LLC brought a commercial claim against Dibrova LLC seeking recovery of a contractual penalty under a supply agreement.
The Commercial Court allowed the claim and ordered Dibrova LLC to pay the relevant penalty. By an additional judgment, the court also awarded Satellite LLC its expenses for professional legal assistance and other litigation costs.
Dibrova LLC sought to appeal those decisions.
The appellate commercial court, however, returned the appeals without considering their merits. It relied on Article 260(5)(1) of the Commercial Procedure Code of Ukraine because the appeals had been signed by a lawyer acting for Dibrova LLC whom the appellate court considered not to have authority to sign them.
The reason for that conclusion was unusual and commercially significant: Dibrova LLC was located in temporarily occupied territory.
The Appellate Court Treated the Legal Services Agreement as Void
The appellate court considered the legal services agreement between Dibrova LLC and the lawyers representing it.
It relied on Article 13(2) of the Law of Ukraine “On Ensuring the Rights and Freedoms of Citizens and the Legal Regime in the Temporarily Occupied Territory of Ukraine.”
On that basis, the appellate court concluded that the agreement for legal assistance was void.
If the legal services agreement was void, the lawyer had no proper authority to act for the company. The appellate court therefore returned the appeals without proceeding to consideration of their merits.
The Supreme Court disagreed with that interpretation.
The Supreme Court Distinguished Economic Activity From Obtaining Legal Services
The Commercial Cassation Court focused on the wording and purpose of Article 13 of the legislation governing temporarily occupied territories.
The Supreme Court noted that the relevant statutory provision concerns the conduct of economic activity in temporarily occupied territory.
The critical question was therefore whether Dibrova LLC's agreement with its lawyers fell within that concept.
The Court concluded that it did not.
Under the legal services agreement, Dibrova LLC was not supplying goods, carrying out works or providing services.
Instead, it was receiving legal services from a lawyers' association.
The company was therefore acting as a consumer of professional legal assistance rather than carrying out the type of economic activity addressed by the statutory restriction.
Not Every Contract Concluded by a Business Is Part of Its Economic Activity
This distinction is important beyond the immediate facts of the case.
Dibrova LLC was a commercial company and therefore an undertaking engaged in economic activity.
But the Supreme Court's reasoning indicates that this does not mean that every agreement entered into by a commercial company automatically constitutes the exercise of its economic activity for the purposes of Article 13.
The relevant question is what the company is actually doing under the particular agreement.
A business may manufacture products, sell goods, perform works or provide services as part of its commercial operations.
Obtaining professional legal assistance in order to protect its interests in court is different.
The Supreme Court therefore rejected an interpretation under which the company's status and location were sufficient to invalidate its agreement for legal representation.
Location in Occupied Territory Does Not Eliminate the Right to Legal Assistance
The Supreme Court also addressed the broader consequences of the appellate court's approach.
The right to a fair trial and the right to professional legal assistance are protected under Ukrainian constitutional law and the European Convention on Human Rights.
The Court considered it unjustified to restrict a person's ability to obtain professional legal assistance merely because that person's registered location or place of residence had fallen under occupation as a result of the war.
This consideration is particularly important given the changing territorial situation caused by hostilities.
A contrary interpretation could effectively prevent companies or individuals located in occupied territories from obtaining professional representation before Ukrainian courts.
Companies in Occupied Territories Retain Procedural Capacity
The Supreme Court further noted that Ukrainian procedural legislation does not prohibit such persons from participating in litigation.
They may act as either claimants or defendants before Ukrainian courts.
In other words, the fact that a Ukrainian company is registered or located in temporarily occupied territory does not, by itself, deprive it of procedural capacity or access to the Ukrainian judicial system.
The ability to participate in proceedings must consequently be distinguished from statutory restrictions applicable to particular forms of economic activity in occupied territories.
The Supreme Court’s Decision
The Commercial Cassation Court set aside the appellate court's ruling and remitted the case to that court for continuation of the proceedings from the stage of determining whether there were grounds to open the appellate proceedings.
The Supreme Court concluded that Article 13(2) of the Law of Ukraine “On Ensuring the Rights and Freedoms of Citizens and the Legal Regime in the Temporarily Occupied Territory of Ukraine” had been interpreted too broadly.
In particular, the Court established that:
the statutory restrictions concern agreements connected with the conduct of economic activity;
Dibrova LLC was receiving, rather than providing, legal services under the relevant agreement;
obtaining professional legal assistance is not equivalent to the company's conduct of its ordinary business activity for these purposes;
the company's location in temporarily occupied territory did not justify depriving it of professional legal assistance; and
Ukrainian procedural law continued to recognise its ability to participate in court proceedings.
Why This Decision Matters
The decision has significance for businesses whose registered offices, assets, management or counterparties are connected with Ukrainian territories affected by occupation.
Most importantly, it demonstrates that restrictions imposed because of occupation should not automatically be extended to every contractual relationship involving a company located in such territory.
The legal character and purpose of the particular transaction matter.
For foreign companies and international counsel, this distinction can become relevant when dealing with Ukrainian counterparties whose registered location has subsequently become occupied.
The mere existence of such a connection should not automatically lead to the conclusion that every agreement involving the Ukrainian company is void or that the company has ceased to possess procedural rights before Ukrainian courts.
Instead, the applicable statutory restriction and the nature of the particular transaction must be analysed separately.
Lions Lawyers’ Analysis
The practical importance of this judgment lies in resisting an excessively broad interpretation of wartime restrictions.
Occupation may substantially affect a company's operations, contractual relationships and ability to perform obligations. It does not follow, however, that the company ceases to exist as a participant in Ukrainian legal relations or loses access to Ukrainian courts.
For businesses and foreign counsel, this means that the legal consequences of a counterparty's connection with occupied territory should be assessed transaction by transaction.
The questions may include whether the relevant activity falls within a statutory prohibition, what role each party performs under the agreement, whether performance involves occupied territory, and whether separate sanctions, regulatory or public-policy restrictions apply.
The judgment is also important procedurally. Questions concerning wartime restrictions should not be interpreted in a manner that unjustifiably prevents a party from obtaining legal representation and having its case heard by a court.
Lions Lawyers advises Ukrainian and international clients on commercial litigation and wartime legal issues in Ukraine, including contractual disputes, legal consequences of occupation, cross-border disputes, representation before Ukrainian courts and the enforceability of commercial arrangements affected by the war. We also provide standalone Ukrainian-law opinions for foreign companies and international counsel assessing transactions, counterparties and litigation risks in Ukraine.
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