The Grand Chamber of the Supreme Court Ruled on the Foreign State Law Application to the Legal Relationship of the Guarantee Between the Non-Resident Bank and the Guarantor-Debtor

In 2008, Landmont Limited, as a Borrower, and the Nordic Investment Bank (Bank) entered into a loan agreement for 40 million USD. The borrower undertook to repay the loan by June 17, 2015. The Borrower’s loan obligation to the Bank was secured by the guarantee of four solidary financial guarantors, including PJSC Dnipro Metallurgical Plant. The parties to the loan agreement and the guarantee agreement determined the law of England as the law of a foreign state which regulates and interprets these agreements.

In 2020, as part of the bankruptcy case of PJSC Dnipro Metallurgical Plant, the Bank applied to the court for recognition of monetary claims against the debtor in the amount of UAH 1,660,417,042.99 (principal and interest).

The court of first instance rejected the Bank's monetary claims against PJSC Dnipro Metallurgical Plant. The court of appeal amended the reasoning of this ruling regarding the conclusions about the legal nature of the disputed claims, defining them as competitive. The courts proceeded from the fact that the creditor had not provided admissible evidence by which it was possible to establish the actual content of the provisions of the English law in accordance with the current regulatory legal act similar in content to the provisions of the Civil Code of Ukraine regarding the guarantee and the grounds for its termination. The courts came to the conclusion that the obligation under the guarantee agreement had terminated with the expiration of six months from the date on which the basic obligation under the loan agreement was due on 17 June 2015 (part 4, Article 559 of the Civil Code of Ukraine), therefore, the Bank's claims to the guarantor were unreasonable.

The Commercial Cassation Court within the Supreme Court referred the case to the Grand Chamber of the Supreme Court to resolve an exclusive legal issue on the application of the law of England to disputed legal relations along with the provisions of the Civil Code of Ukraine on the termination of the guarantee.

The Grand Chamber of the Supreme Court concluded that in legal relations between the creditor and the debtor, the law of England was applied both with regard to the consequences of the guarantee transaction, as well as the duration of the guarantee as a security obligation and the limitation period for claims of the creditor against the guarantor.

Establishing the content of the provisions of foreign law to be applied to legal relations with a foreign element is the duty of the court considering the case by virtue of law and is carried out according to the official principle (ex officio). Parties interested in the court’s application of the law of the foreign state concerned have the right to assist the court in taking measures to establish the content of the foreign law provisions by submitting to the court documents confirming the content of such provisions.

The Grand Chamber of the Supreme Court pointed to the fact that the actual content of the English law can be derived from judicial decisions (precedents), legal customs, legal doctrine and codified legislation governing individual legal matters. An expert opinion is also an acceptable way for a court to obtain information about foreign provisions that apply to legal relations with a foreign element.

The Grand Chamber of the Supreme Court derogated from the opinion of the Commercial Cassation Court within the Supreme Court, as set out in the resolution of 28 July 2020 in case No. 904/2104/19, on the possibility of determining the actual content of foreign law, including that of England and Wales, solely from the source of law, which is only the relevant legal act in force.

The Grand Chamber of the Supreme Court derogated from the other conclusions of the Commercial Cassation Court within the Supreme Court in this resolution.

In view of the above, the Grand Chamber of the Supreme Court upheld the Bank's cassation appeal, cancelled the appealed court decisions, and recognized the Bank as a bankruptcy creditor of PJSC Dnipro Metallurgical Plant with monetary claims in the amount stated by the Bank including them in the register of creditors' claims.

The resolution of the Grand Chamber of the Supreme Court in case No. 904/2104/19 (proceedings No. 12-57гс21) - https://reyestr.court.gov.ua/Review/101990860.

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