When making a decision on debt collection, on which interest or penalty is accrued, the court has no right to indicate in the decision on accrual of both interest and penalty until the court decision is executed - SC GC

When deciding on the recovery of a debt on which interest or penalties are accrued, the court has the right, in accordance with part 10 of Art. 238 of the Commercial Procedural Code of Ukraine (parts 10, 11 of Art. 265 of the Civil Procedural Code of Ukraine) to indicate in the decision on the accrual of the relevant interest or penalty until the decision is executed. It is not permitted to specify in the decision the simultaneous accrual of interest and penalties until the court decision is enforced.

Such accrual may be made by the court only on the basis of a procedural motion by the plaintiff. The question of whether the provisions of part 10 of Art. 238 of the Commercial Procedural Code of Ukraine (parts 10, 11 of Article 265 of the Civil Procedural Code of Ukraine) is decided by the court at its own discretion, with due regard to the circumstances of material importance, based on the principles of reasonableness, fairness and proportionality.

The Grand Chamber of the Supreme Court came to such conclusions.

Under a contract for the performance of a set of works, the plaintiff, as a general contractor, performed construction works, which the defendant accepted without objection but paid for partially.

The plaintiff filed a lawsuit to recover from the defendant the debt for the completed set of works, a fine, inflationary losses, 3% per annum and a penalty, and also requested that the 3% per annum and penalty be accrued until the court decision was enforced.

The courts of the previous instances found the plaintiff's claims for recovery of the debt for the work performed, penalties, 3% per annum, inflationary losses and a fine based on Article 231 of the Commercial Code of Ukraine to be reasonable and proven, as the defendant belongs to the public sector. In addition, the courts concluded that it is possible to simultaneously accrue 3 % per annum and a penalty on the actual (unpaid) amount of the principal debt until the court decision is fully enforced.

Instead, the Grand Chamber of the Supreme Court stated that the content of part 10 of Art. 238 of the Commercial Procedural Code of Ukraine (parts 10, 11 of Article 265 of the Civil Procedural Code of Ukraine) stating that the court may specify in the decision the accrual of interest or penalties until the decision is executed, makes it possible to conclude that the court takes such actions at the request of the plaintiff. On its own initiative, the court may not indicate in the decision on such further accrual of interest or penalties for the future.

By using the conjunction "or" in paragraph 1 of part 10 of Article 238 of the Commercial Procedural Code of Ukraine (part 10 of Article 265 of the Civil Procedural Code of Ukraine) when formulating the requirements for the content of a court decision, the legislator has expressly excluded (through the mandatory alternative of charging either interest or penalties) the simultaneous recovery of interest and penalties. This guarantees the fairness of the liability imposed on the defendant under the court decision in the future.

It is inadmissible to specify in a court decision on the recovery of a debt subject to interest or penalty that interest or penalty shall be accrued simultaneously for the entire period until the relevant court decision is enforced, as this directly contradicts the mandatory requirements of the said provisions of the Commercial Procedural Code of Ukraine and the Civil Procedural Code of Ukraine, the rule of law principle of legal certainty and makes it impossible to guarantee the implementation of the principle of justice at any time during the actual enforcement of the court decision.

In view of the foregoing, the Grand Chamber of the Supreme Court believes that the decision of the court of first instance to simultaneously charge penalties and interest until the execution of the court decision is erroneous and inconsistent with the provisions of part 10 of Art. 238 of the Commercial Procedural Code of Ukraine.

Also, as noted by the Grand Chamber of the Supreme Court, the accrual of penalties or interest in accordance with part 10 of Art. 238 of the Commercial Procedural Code of Ukraine (parts 10, 11 of Article 265 of the Civil Procedural Code of Ukraine) is based on the same substantive law provisions that form the basis for satisfying a claim for interest or penalty for breach of an obligation. In other words, these are the same liability measures, but extended for the next period during which the obligation is not fulfilled.

The 3% per annum provided for in part 2 of Article 625 of the Civil Code of Ukraine is covered by the provisions of part 10 of Art. 238 of the Commercial Procedural Code of Ukraine (parts 10, 11 of Article 265 of the Civil Procedural Code of Ukraine), provided that the plaintiff has filed a claim for recovery of 3 % per annum for breach of performance and the court has concluded that there are grounds to satisfy this claim.

In addition, pursuant to part 6 of Article 232 of the Commercial Procedural Code of Ukraine, the period for accrual of penalties based on part 10 of Art. 238 of the Commercial Procedural Code of Ukraine shall not exceed six months, unless a different period is established by an agreement or a special law containing substantive law regulating relations of commercial liability.

Resolution of the Grand Chamber of the Supreme Court of 5 June 2024 in case No. 910/14524/22 (proceedings No. 12-4гс24) - https://reyestr.court.gov.ua/Review/120088907

This and other legal opinions of the Supreme Court are available in the Database of Legal Positions of the Supreme Court - https://lpd.court.gov.ua.