Pysarenko Oleksandr, Attorney-at-Law, MBA Degree.
Pysarenko Law Office, Kyiv, Ukraine.

In commercial litigations and legal cases in Ukraine, referring breach by Ukrainian partner of monetary liabilities under the provisions of contract, very often the questions arise about legitimacy of simultaneous recovery of penalty and fine as well as limit of its amounts.In compliance with provisions of the Civil Code of Ukraine penalty and fine are types of a contractual sanction.
Penalty is a contractual sanction reckoned in percentage from amount of non-performed or improperly performed liability.
Fine is a contractual sanction reckoned in percentage from amount of undue performance of monetary liability for each day of failure to pay.

Simultaneous recovery of penalty and fine for culpable delay in payment in Ukraine

Ruling of the Supreme Court of Ukraine, dated 27.04.2012, in case Nr. 06/5026/1052/2011, resumes legitimacy of simultaneous recovery of penalty and fine for culpable breach of monetary liability. Consequently, the debtor was made to recover penalty and fine of astronomical amount.
In compliance with Article 82 of the Commercial Procedural Code of Ukraine when choosing a legal norm which shall be applied during disputable legal relationship the Commercial Court shall take into consideration the resolutions of the Supreme Court of Ukraine, concluded on the results of revision of the court rulings in similar legal relationships.
In this article I would like to share another view of situation of recovery of surcharged penalty reckoned in percentage from indebtedness amount for each day of failure to pay (in legal essence – fine) based on practice of the Supreme Court of Ukraine and the Superior Commercial Court of Ukraine.
Ruling of the Supreme Court of Ukraine (herein after – SCU), dated 27.04.2012, in case Nr. 06/5026/1052/2011 referring legitimacy of simultaneous recovery of fine and penalty for breach of commercial monetary liability and results of reconsideration of cassational proceeding by the Superior Commercial Court of Ukraine of judicial acts in the above mentioned case, which proved the legitimacy of simultaneous recovery of fine amounting for double rate of the National Bank of Ukraine for undue payment and penalty of 0,5% from indebtedness for each day of failure to pay, draw to conclusion that position of SCU is a sort of “a shelter” for imposing on contracting party of penalties of astronomical amounts.
Being an attorney, having practice in this sort of litigations, I agree that such precedent looks rather upsetting and pessimistic both for debtors and their lawyers.
At the same time, I would propose to consider the situation of recovery of penalty (in legal essence – fine) in percentage from the indebtedness amount for each day of failure to pay, which can multiply manifold the limit size, stipulated by provisions of Article 3 of the Law “On responsibility for failure to perform the monetary liabilities”, from another point of view and to provide legal aid in this category of litigations in a different way.

Legal position of SCU “to shelter the debtors”

Since fine can be recovered along with penalty, defender in the process of the case conduction questions its limit size.
This issue becomes more acute if it refers to contracts, concluded by debtor with creditors, which you are protecting, with “fictitious creditors” during the period of the debtor insolvency or the bankruptcy process.
Under such conditions often, holding tangible assets but not wishing to loose them in a result of the sanctions recovery imposition, the agreements with “fictitious creditors” are concluded post factum, per provisions of which the last supply the property or intangible assets to debtors (which later on are returned, exchanged or disposed of), while the debtors are obliged to pay a penalty of astronomic amount for several days or months of delay in payments of the main debt.
In one of the cases, proceeded by my law office, the debtor agreed on a penalty of 7% per each day of overdue payment, which in 62 days made UAH 17 346 000,00 while total amount of the main indebtedness to “fictitious creditor” was UAH 5 900 000,00 and UAH 15 939 000,00 to actual creditor.
Then, “fictitious creditor” claims its requirements to the bankrupt during the procedure of bankruptcy, takes part in the case proceedings on bankruptcy, and pretends to receive its payment. By doing so, it intends to decrease a percentage of satisfaction of requirements of actual creditors.
The Law “On renewal of solvency of a debtor or its bankruptcy acknowledgement” provides the creditors with a right to protest against requirements of other creditors and such protests are considered by court.
Per Part 1 of Article 231 of the Commercial Code of Ukraine (herein after – CCU) amount of sanctions for certain types of liabilities can be defined by legislation. The determined amount can not be changed upon accord of the parties.
Per Part 4 of Article 231 of CCU in case if amount of sanctions is not determined by law, they are recovered in the amount stipulated by the contract provisions.
Per Part 6 of Article 231 of CCU sanctions for breach of monetary liabilities are defined in percentage, which is stipulated by rate of the National Bank of Ukraine for the whole period of usage of alien assets, if other percentage is not stipulated by law or the contract provisions.
Per Part 2 of Article 343 of the Civil Code of Ukraine payer of monetary funds recovers a fee for undue payment in the amount agreed by the contract parties, but the amount of fee shall not exceed the double rate of the National Bank of Ukraine (herein after – NBU).
Article 1 of the Law of Ukraine Nr. 543-96 “On responsibility for undue performance of monetary liabilities” stipulates that payers of monetary funds pay in favor of beneficiaries of overdue payments a fee in the amount, agreed by the contract parties. Article 3 of the Law stipulates that amount of fee, defined by Article 1 of this Law, shall not exceed the double rate of NBU.
Hence, contractual legal relationship between payers and beneficiaries of monetary funds as for responsibility for undue performance of monetary liabilities is stipulated by the Law Nr.543-96/VR “On responsibility for undue performance of monetary liabilities”.
Thus, in case of overdue contractual payment only a fee shall be recovered, amount of which shall not exceed the double rate of NBU.
In ruling Nr.3-121cc11 of SCU, dated 07.11.2011, referring commercial case Nr. 5002-2/5109-2010, SCU applied the above mentioned legal viewpoint in litigation referring simultaneous recovery of penalty and fee, having revoked the decree of the Superior Commercial Court of Ukraine of 05.07.2011, which remained in force a recovery of a fee of 0,1% from unpaid amount for services for each day of failure to pay and additional penalty of 7% from the stated amount for the payment delay for more than 30 days.

Cassation proceeding taking into consideration legal conception of the Supreme Court of Ukraine

Based on the mentioned legal position of SCU, the Superior Commercial Court of Ukraine in its resolution Nr. 5002-2/5109-2010, dated 21.12.2011, ruled:
– Provisions of Article 3 of the Law of Ukraine Nr. 543-96 “On responsibility for undue performance of monetary liabilities” stipulate that amount of fee, specified by Article 1 of the above mentioned Law, shall not exceed the double rate of the National Bank of Ukraine, valid during the period a fee is paid for. For undue performance- of monetary liability a fee is recovered solely;
– In compliance with Provisions of Article 551 of the Civil Code of Ukraine amount of contractual sanction, specified by the Law, can be increased by contract, but shall not prevail over provisions of the Law “On responsibility for undue performance of monetary liabilities”.
Per provisions of Article 3 of the Law Nr. 543-96 amount of fee is reckoned from the sum of overdue payments and shall not exceed the double rate of NBU. Therefore, for overdue payment a fee shall be recovered solely, and its sum shall not exceed the one, reckoned on the basis of the double rate.
So, no matter which size of contractual sanction is defined by provisions of the contract. Its size shall not exceed the amount, which is defined by the Law to be a limit size. That is why, court of primary jurisdiction, having considered the provisions of the Law Nr. 543-96, lawfully ruled a recovery of the fee, which does not exceed the double rate of the National Bank of Ukraine, which was valid during the period the fee should be paid for;
– Local court withdrawn recovery of penalty for the reason that in Ukraine only a fee in the amount which does not exceed the double rate of NBU for undue performance of monetary liability can be recovered.
Local court had examined comprehensively, thoroughly and objectively factual background of the case and gave a competent legal evaluation per which the court ruling shall remain in force.
Thereby, there is a legal conception of the Supreme Court of Ukraine to protect debtors from recovery of extremely high penalty amount for failure to effect payments in a due course in Ukraine.

Oleksandr Pysarenko, attorney at law, MBA degree,
Pysarenko Law Office. Kiev, Ukraine.
Tel.: +38 (044) 279 56 32
E-mail: info@fides.com.ua