Enforcement of Court Judgments Rendered in Foreign Currency in Ukraine

Markian M. Malskyy, Tetyana V. Berezenska

Even though Article 533 of the Civil Code of Ukraine determines that money liability is to be fulfilled predominantly in Hryvnias, foreign currency remains the currency of business in Ukraine. Taking into consideration the reputation of the Hryvnia, businesses try to hedge themselves by tying the payments, which are to be effected in Ukrainian currency, to foreign currency — most often to the EUR or USD. Even that cannot help businesses be certain that the risk of losses on volatility of currencies will be minimized.

When it comes to the legal possibility of performing transactions in foreign currency on the territory of Ukraine (foreseen by Paragraph 2 of Article 192, Paragraph 3 of Article 533 of the Civil Code of Ukraine, Decree of the Cabinet of Ministers of 19 February 1993 No.15-93 On the System of Currency Regulation and Currency Control), problem issues still exist. However, another dog lies buried in here. Namely, it is connected with the troublesome enforcement of court decisions in foreign currency.

Court proceedings

Businesses normally do not anticipate court proceedings while concluding agreements to be fulfilled in foreign currency. However, real life has different situations in store. Once the trial is over, the resolution of a dispute reached and a positive court judgment is delivered, it still cannot be considered a victory. Since court decisions are lawfully rendered in foreign currency, normally containing argumentation of the choice of the currency, they are supposed to be enforced in it. The letter of the Higher Commercial Court of Ukraine No.01-08/369 of 29 June 2010 confirms that a commercial court can make a decision on collection of the indebtedness in foreign currency in disputes referring to the fulfillment of currency transactions, which are allowed by law. Besides, Ukrainian legislation does not require the commercial court to state the equivalent of the sum in Hryvnias. The same statement was previously made in the Regulation of the Plenum of the Supreme Court of Ukraine No.14 of 18 December 2009.

Court judgments are rarely voluntarily obeyed in Ukraine. Consequently, the enforcement authority has to take over the proceedings. And this is the stage, though the final one, which blocks justice.

State enforcement authority

Once the court decision in foreign currency reaches the enforcement authority, problems seem to arise. Despite the existence of the Regulation On the Order of the Fulfillment by the Banks the Documents for Transfer, Compulsory Transfer and Arrest of Money in Foreign Currencies and Banking Metals and Changes to Certain Normative Acts of the National Bank of Ukraine, as approved by the Board of the National Bank of Ukraine No.216 of 28 July 2008, enforcement cannot, in fact, be carried out. The reason is that the enforcement authority does not have bank accounts in foreign currency, while the money collected from the debtor has to be first transferred to the account of the enforcement authority and then the enforcement authority transfers it to the creditor.

For that reason the enforcement authority gets creative and transforms the nature of the court judgment in foreign currency, converting the sum into Hryvnia. Such conversion is compatible with Article 51 of the On Enforcement Proceeding Act of Ukraine, though incompatible with the interests of the creditor, who undergoes additional losses due to possible depreciation of Ukrainian currency.

Many court decisions, which are rendered in foreign currency, state the equivalent in Hryvnias, despite the absence of such obligation. Afterwards a respective enforcement document is issued, also containing the sum in foreign currency and its equivalent in Hryvnias. This, of course, facilitates the work of the enforcement authority, which collects the money in Hryvnias. However, even if the court decision and the enforcement document do not have the equivalent in Hryvnias the enforcement authority will still convert the sum in foreign currency into Hryvnias.

Another issue here is the exchange rate, which is used to convert the sum in foreign currency into Hryvnias. Bearing in mind the unpredictable history of volatility of national currency, the date of conversion might play a crucial role in the enforcement of the court decision. Normally the enforcement authority chooses either the date of opening of the court proceeding or the date of opening the enforcement proceeding. But this does not guarantee that the creditor will receive a sufficient amount of money in comparison to the real value of money claimed for in court.

Nonetheless, the enforcement authority is seeking any possible way of enforcing the court decision. It can be considered better than nothing, when it comes to the enforcement of court decisions, where the plaintiff is a non-resident of Ukraine and does not have any representative offices here, which could accept the Hryvnias as the enforcement of the decision. At the moment it is impossible to transfer the money in foreign currency under the enforcement procedure to residents of foreign countries.

Draft Act

There has already been an attempt to solve the current problems of enforcing court decisions, including decisions in foreign currency. Namely, the Draft Act On Amending Certain Legislative Acts of Ukraine Regarding the Improvement of Procedure of Coercive Enforcement of Decisions of 17 July 2008, No.2782 was submitted by the Cabinet of Ministers of Ukraine. It was adopted in the first reading (i.e. the Draft Act is subject to amendment, but it is adopted as a basic one for a future law) under No.118-VI of 19 March 2009.

The Draft Act, inter alia, contains an amendment to the On State Enforcement Service Act of Ukraine, which says that the departments of enforcement service are legal entities, which have accounts in the bodies of the State Treasury of Ukraine for the accounting of deposit sums and placing of money collected from debtors and its payment to collectors in national currency, and also respective accounts for accounting analogous transactions in foreign currency in banks. Beside the departments of enforcement service, the Ministry of Justice of Ukraine, main department of justice of the Ministry of Justice of Ukraine in the Autonomous Republic of the Crimea, main departments of justices in the regions all have similar accounts. Thus, if the Draft Act is ultimately adopted, it will positively impact the enforcement procedure. In particular, it will solve the problem of enforcing court decisions in foreign currency. The impact of other provisions of the Draft Act in its current form is assessed differently by experts. The Draft Act is currently being improved; afterwards it will supposedly proceed with the next steps of adoption.

Conclusion

Thus, there is an obvious gap in the legislation at the moment and this makes the problem of enforcement of court judgments in foreign currency solely procedural. If transactions in foreign currency are allowed, and they are, if court decisions can be rendered in foreign currency, and they can, there has to be a procedure for enforcing such decisions in foreign currency. Hopefully the Draft Act amending the procedure of coercive enforcement of decisions, once adopted, will not create other problems in enforcement proceedings substituting those discussed herein.