Crux (#11-12 November-December 2021)

Legal Digest

For the past few months, we have carefully monitored the most important novelties and initiatives in Ukrainian legislature. The highlights of the period are definitely the newly-adopted Law On Meditation and the recently signed EU-Ukraine Open Skies agreement, both of which were long-awaited in the legal sphere and beyond. Another significant initiative is the presidential draft On Ratification of the Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters. For your attention there is also Law No. 3959-1, which finalizes the launching of the Bureau of Economic Security and important laws in the agriculture and infrastructure fields.


On 5 November Draft Law No. 0132 On Ratification of the Convention of 2 July 2019 on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters was registered in Parliament. What does this ratification envisage, and why is it important for Ukraine?

The Convention aims to provide a single global framework for the free circulation of judgments in civil and commercial matters among the Convention’s contracting states. To that end, the central obligation imposed on states is the mutual recognition and enforcement of foreign judgments. The following provisions of the Convention are worth noting.

Firstly, the Convention lists those matters that are excluded from its scope, in particular insolvency, defamation, carriage of goods, intellectual property matters. In addition, the Convention does not apply to interim relief.

Furthermore, a judgment is eligible for recognition and enforcement under the Convention, if it complies with the so-called jurisdictional requirements stipulated by this treaty. For instance, if the person against whom enforcement is sought was habitually resident in the state where the judgment was given.

Finally, if a judgment is enforceable under the Convention, it shall be recognized and enforced without any review on its merits. There are only limited grounds on which a court can refuse to recognize and enforce it, including public policy, fraud, improper notice.

In conclusion, the Convention appears to be a great step forward in the area of recognition and enforcement of foreign judgments. The treaty provides an essential toolkit to overcome the lack of uniformity in national laws and practices around the globe, ensuring a sufficient degree of predictability.

Though the ratification of the Convention by Ukraine is a significant development, it will not become an immediate game-changer for Ukrainian parties. The Convention has not yet entered into force, and, currently, there are only five signatories, including Ukraine. Thus, the real impact of this treaty would be felt in the long-term, as more and more states join the Convention. In this regard, it is noteworthy that the European Union and the United Kingdom are likely to accede to the Convention in the foreseeable future.


On 16 November the Ukrainian Parliament adopted the Law On Mediation (draft law No. 3504) in its second reading. What amendments were brought in comparison to its first reading?

The Verkhovna Rada of Ukraine has adopted the Law On Mediation and submitted it to the President of Ukraine for signing. The given law spells out the legal grounds and order under which mediation as a non-judicial procedure to settle a conflict (dispute) is conducted.

Generally, the legislative procedure in connection with this Law has been under way for 18 months. In fact, this is the period of time between the first and second readings. Taking the afore-mentioned into account, the content of the draft law in the first reading and content of the adopted Law has certain differences. Thus, the following are significant amendments to the content of the draft law:

— expanded purpose of mediation which specifies two goals or, to be more specific, during the procedure the parties are trying to prevent a conflict (dispute) or settle it. In other words, mediation has started to perform a preventive function rather than only a regulative one;

— specified list of stages at which mediation may be conducted by adding a stage of pre-trial investigation to reconcile the victim and the suspect;

— provided that mediation does not influence the period of limitation;

— simplified requirements to persons who can become mediators (a degree from a higher educational institution is not required);

— application of the Law to persons who had been equipped with the basic skills of a meditator before the Law came into effect, with respective certificates confirming this fact.

Generally, the mediator may not issue an award on merits of a conflict (dispute) between parties to mediation. That said, the parties may go beyond the subject of the conflict (dispute) in their agreement following mediation. Information about mediators will be entered into open registers on the Internet.

The Law has also introduced changes to a number of procedure codes in terms of possible application of mediation during the trial. Thus, the parties to a case may file a motion with a court regarding non-judicial settlement of a dispute via mediation. In such a case the court may suspend proceedings for the period of mediation but not for more than 30 days after the day on which a respective order is made.

At the same time, mediation can also be conducted during the pre-trial investigation, though the Law does not introduce any changes to provisions of the Criminal Code of Ukraine, which may result in certain collisions in practice.

Thus, mediation must, in its essence, become an alternative to public courts. However, taking into consideration the imperfect nature of provisions of the Law, its implementation may fail to achieve the objectives pursued by mediation.


The Draft Law On Critical Infrastructure (No. 5219) was adopted on 16 November in its first and final readings. How do you assess the adopted draft?

The critical infrastructure protection system is an integral part of the national security of common law and civil law countries. Amidst global escalation in political and military context that has recently diffused, North America and Europe are extremely concerned about this issue. Ukraine, in turn, is only now laying one of the key elements in national security groundwork.

The Draft Law On Critical Infrastructure No. 5219 was adopted on 16 November in its second reading. The Law has been sent to the President of Ukraine for signing. However, no public consensus was reached on this issue. The business community is uncompromising: the law needs revision. The American Chamber of Commerce, the European Business Association, the Internet Association of Ukraine and others have repeatedly said this. Moreover, after the Law was adopted, the European Business Association asked the President of Ukraine not to sign it.

Business sees substantial risks in the practical application of the current version. Business believes that the Law contains overly broad definitions and criteria for classifying objects as critical infrastructure and that they will confer unlimited powers on certain authorities when classifying a critical infrastructure object. Please note that according to the adopted Law, as a result of classification of an object as being critical infrastructure, a number of managerial and financial obligations are imposed on the owner of such object. For non-compliance with such obligations the Law imposes special administrative and economic sanctions.

It is expected that the President will hardly respect the position of the business community due to the extreme importance of this Law. The time for discussions is over before it has even begun. This example of lawmaking once again shows that Ukraine lacks precedents of successful communication between the public and private sectors, which ensures consensus and common interest on all issues, even national security.


Ukraine and the EU signed the Agreement on a Joint Aviation Area. How will it influence the state of aviation in Ukraine, local airlines, passengers, and how do you evaluate the Agreement?

The Agreement on a Joint Aviation Area, or Open Skies agreement, was signed between the EU and Ukraine at the 23rd Ukraine-EU Summit, which took place on 12 October 2021 in Kyiv.

The main goal of the agreement is to deepen the integration of Ukraine into the European airspace ensuring high standards of flight safety, environmental protection, and aviation security, air traffic control, as well as benefits for participants in the aviation market (including passengers). It is assumed that following the signing of the agreement the air transportation market will become more open and competitive.

At the same time, signing the agreement is only the first step. Now is not the right time to discuss any short-term benefits for the aviation market. The process of implementing the deal is quite continuous. After all, the agreement provides for the introduction into Ukrainian legislation of a number of EU regulations and directives, which should be dealt with by the central authorities of Ukraine.

The agreement provides for the liberalization of flights between the EU countries and Ukraine, which will be implemented in two stages. The first is the removal of restrictions for Ukrainian and EU carriers on flights between any cities or countries. The second stage is that EU air carriers will be able to operate domestic flights in Ukraine. Also, at this stage, Ukrainian carriers will be able to make unlimited flights between any EU airports, as long as the starting or ending point of the route is in Ukraine.

The agreement provides for the introduction of equal rights for Ukrainian and European airlines, the lifting of monopolies on certain routes and restrictions on flights between the airports of Ukraine and the EU countries. In other words, it is planned to create prerequisites for opening new routes and conditions for better competition in the aviation market.

The greatest advantage for passengers lies in the mandatory implementation by Ukraine of EU directive No. 261/2004 on the protection of passengers’ rights during delays and cancellations of flights, which regulates compensation issues. In the event of a long delay of the flight, the airline must provide passengers with food and accommodation. Also, passengers can count on compensation if the delay was due to the fault of the airline. It is important that these requirements will also apply to low-cost airlines. Hence, it is hoped that national air carriers can become more responsible. However, we will see the impact of the agreement on the Ukrainian aviation market only in a few years.


The Verkhovna Rada of Ukraine adopted Law No. 3205-2 On the Fund for Partial Credit Guarantee in Agriculture. What does it provide, and how will it influence the agriculture business sector?

On 4 November 2021 the Ukrainian Parliament adopted the Law of Ukraine On the Fund for Partial Credit Guarantee in Agriculture.

Under the Law, the Fund will be a non-banking financial institution with special status, providing credit support and guaranteeing the repayment of loans to small and medium-sized agricultural enterprises by partially guaranteeing the fulfilment of obligations.

The Law defines key issues of the Fund’s activity, namely, the procedure for forming authorized capital, conditions for the increase and decrease thereof; procedure for convening, competence and decision-making of the Fund; determining the criteria for business entities subject to a partial credit guarantee.

Most importantly, it sets out eligibility criteria for the Fund’s support, i.e. agricultural enterprises cultivating up to 500 hectares of land, which meet the requirements for micro-, small— and medium-sized enterprises.

The Law also ensures transparency and increases the Fund’s efficiency by providing guarantees amounting to 50% of the principal loan for the term of the loan agreement but no longer than 10 years.

The agricultural industry has predominantly supported the law. Agrarians have listed it among key bills for the effective operation of the agricultural sector since it would be challenging for farmers to compete with other market participants without a financial instrument like a partial credit guarantee.

It is expected that the Fund’s activity will reduce the risks for the banks while farmers will have access to financial resources for agricultural work. This will enable farmers not only to avoid minimizing the costs of agricultural production but to continue commercial activity. Such developments will lead to an increased investment flow as well as higher quality and competitiveness of agricultural products.

In overall terms, Law No. 3502-5 is widely endorsed and anticipated to bring promising changes to the Ukrainian agribusiness.


The Law of Ukraine On Making Amendments to the Article 11 of the Law of Ukraine On Currency and Currency Operations On Banks Performance of Functions of the Agents of Currency Supervision No. 1774-IX came into force on 10 November 2021. What caused the provision of additional credentials to the banks and, in your view, how efficient is it?

The afore-mentioned law has been adopted to support the discharge by Ukrainian banks of their supervisory duties over certain transactions in Ukrainian hryvnia.

Currently, as part of their duties under existing foreign exchange regulations, Ukrainian banks are obliged to provide the National Bank of Ukraine with information on currency transactions carried out by residents and non-residents through such banks and to restrict the making of any currency transactions that violate such regulations.

Existing legislation views the transfer of UAH between a resident and a non-resident as a currency transaction (as opposed to UAH transfers between residents).  At the same time, when making a UAH transfer at its client’s request to a beneficiary’s account opened with another bank, the Ukrainian bank cannot identify the residency of the beneficiary and whether such transaction is a currency transaction.  As a result, the bank may not be in a position to restrict the making of a UAH currency transaction where such restriction is required by the applicable regulations.

With the adoption of the above-mentioned law, the situation should change as Ukrainian banks will now be obliged to exchange information regarding the affiliation of their clients’ bank accounts with bank accounts opened for non-residents.  With such new regulations in place, any account opened by a non-resident client with a Ukrainian bank will likely have to be reported by such bank to a centralized register of the NBU, to which all Ukrainian banks will have access.  This, in turn, should allow banks to identify the non-resident status of the beneficiary of the transferred UAH funds and ensure that the relevant currency transaction does not violate the applicable restrictions.

At the moment, it remains to be seen how such a register will function and whether the NBU will introduce any additional limitations for UAH transfers between residents and non-residents.


The Law of Ukraine On Introduction of Changes to the Administrative and Criminal Law in Regards to the Establishment of the Bureau of Economic Security of Ukraine No. 3959-1, which increases the liability for tax crimes, was adopted on 17 November. What does this law provide for, what is the premise for it and is increasing the liability for tax crimes reasonable?

The main purpose of Law No. 3959-1 was to introduce changes to the law to ensure proper functioning and exercise of the powers in regards to the pre-trial investigation of criminal offenses by the detectives of the Bureau of Economic Security of Ukraine. Among other changes, the content of Article 185-13 of the On Administrative Offenses Code of Ukraine has been broadened, setting responsibility for the failure to provide information or providing incomplete information at the request of the BES detectives in the manner prescribed by Article 93 of the CPC of Ukraine. However, in addition to harmonization of legislation, lawmakers also made a decision to substantially increase liability for tax evasion, whereas no substantiation of the necessity of such decision had been given in the supporting documents to the Law.

In particular, the Law doubles the penalties under Article 212 of the Criminal Code of Ukraine:

Under Par. 1 (tax evasion in gross amounts), the maximum penalty was increased from UAH 85,000 to UAH 170,000;

Under Par. 2 (tax evasion in gross amounts or upon prior conspiracy), the maximum penalty was increased from UAH 119,000 to UAH 255,000.

Notably, the sanction under Par. 1 of Art. 212 of the CC of Ukraine has also been changed from an alternative “a penalty… or revocation of the right to hold certain posts…” to “a penalty… with revocation of the right to hold certain posts… or without it”.

Taking into consideration the fact that Law No. 3959-1 assigns the investigation of a criminal offence under the afore-mentioned article to the BES, this is a clear attempt by lawmakers to increase the influence and authority of the Bureau of Economic Security with hopes for effective operation of the newly-created authority, which is expected to lead to an increase in proceeds to the state budget and speed up legalization of the economy.

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