EU Enlargement Report: Separate Vectors for Economic Justice. Column by Oleh Mykhaliuk for Yurydychna Gazeta

At the end of 2023, a report of the European Commission was presented, which contains an assessment of Ukraine’s progress in fulfilling the criteria for membership in the European Union. This report presents a detailed description of the achievements and challenges Ukraine has been facing in terms of compliance with economic, legal, humanitarian, and other criteria as a candidate country. Let us consider certain provisions of the report that relate to economic justice and protection of creditors’ interests.

Traditionally, creditor guarantees are an integral part of both the business climate and the rule of law. The issue of enforcement of contractual obligations and effective resolution of economic disputes is gaining special relevance against the background of the recovery of Ukraine. Risks associated with the impossibility of debt collection directly affect the cost of any investment project. Potential investors in large infrastructure or energy projects for the recovery of Ukraine want to understand what their chances are to collect debts in case of non-fulfilment of a contract by partners in Ukraine.

Traditionally, the execution of court decisions in civil and economic cases was one of the weakest points of Ukraine’s justice system. The introduction of a private enforcement profession in 2017 partially solved that problem. Despite this, it would be fair to say that the creditor winning the case in a Ukrainian court has still fought only half the “battle”. In practice, there are quite a few cases when the process of executing a decision is commensurate with the length and complexity of the process of court trial of the relevant case.

Because of this, the report emphasises the need to take systematic measures to promote the reform of enforcement of court decisions, including the implementation of judgments of the European Court of Human Rights. The problem of low efficiency in the execution of court decisions against the state has reached critical proportions, as evidenced, in particular, by the well-known ECtHR judgement in Burmych et Others v. Ukraine case.

In view of this, in addition to settling the accumulated array of non-enforced decisions of national courts, which obviously go beyond the mentioned case, the State shall work on preventive mechanisms and not create conditions when court decisions cannot be executed due to the lack of funds, deficiencies in legislation, etc.

The factors that lead to the accumulation of an array of non-enforced court decisions and that require urgent structural changes include the following: (i) often economically unjustified social legislation; (ii) systems of moratoria, which actually exempt the largest systemic debtors (mainly large state-owned enterprises) from the obligation to comply with court decisions; (iii) sometimes imperfect bankruptcy procedures; (iv) lack of uniform approaches regarding the scope of court intervention in the powers of executive authorities (the so-called discretion).

It is worth noting that the scale of the problem outlined in the report is quite difficult to assess due to the lack of adequate statistical information that would demonstrate the actual percentage of successful (non-)execution of court decisions. In particular, such information is only partially processed by the Department of the State Enforcement Service of the Ministry of Justice of Ukraine and mainly concerns decisions on collection of funds. At the same time, the State and other stakeholders do not know for sure what percentage of binding decisions are successfully implemented, especially when it comes to the implementation of binding decisions against the State.

The extensive system of statistical reports of the State Judicial Administration and the Supreme Court do not contain either any information regarding binding decisions, groups of debtors or legal relations. As one of the recent studies of the EU Project Pravo-Justice shows, citizens and businesses no less suffer from the low efficiency of enforcement of binding court decisions, where public administrations are respondents. Taxation, land and regulatory relations, disputes with local self-government bodies, alongside the traditionally complicated area of pension provision, are the areas in which court decisions are the most difficult to enforce.

Court practice shows that the long-term failure of a state body to comply with a court decision which obliges it to issue a document in favour of a company (for example, a permit, licence, etc.) has negative consequences for the economy and the business climate. From the point of view of the economic analysis of the law, such a behaviour of the State leads to an increase in transaction costs, since the business has to make extra efforts to exercise the right, which is already protected by the court.

In view of this, the report emphasises that the government should make efforts, which are possible under the given circumstances, to build an effective system of execution of court decisions. At the legislative level, this can be achieved through the adoption of draft law “On Enforcement” (No. 5660) and draft Law “On Amendments to Certain Legislative Acts of Ukraine on Improving Provisions on Judicial Control” (No. 9462).

However, legislative changes alone cannot produce the results the professional community is expecting for. An important role is attributed to non-normative changes in the practice of applying the law. In this case, it means the need to raise legal culture in both public and private sectors and to create favourable conditions for the voluntary execution of court decisions. First of all, the debtor should strive to comply with a court decision, not because of the fear of being punished, but because of the general legal awareness and zero tolerance for non-compliance with court decisions.

We hope that the EU enlargement report will become a catalyst for reforming the sphere of enforcement of court decisions, which is of critical importance not only for the practical establishment of the principle of the rule of law, but also for the reconstruction of Ukraine and economic stability.

Oleh Mykhaliuk, Key Expert on Economic Justice, EU Project Pravo-Justice”.

The text was first published in the publication “Yurydychna Gazeta”.