Cancellation of Contract, Implemented Completely or Partially, by Parties Shall not Deprive Them from Right to Lodge Claim on the Recognition of Such Contract as Invalid – the SC Grand Chamber

The Grand Chamber of the Supreme Court derogated from the opinion on the application of a legal norm in similar legal relations noted in the Resolution of the Supreme Court of Ukraine in the case No. 918/144/15 of 23 December 2015 (proceedings No. 3-1143гс15), since pursuant to the provisions of civil and commercial law, the cancellation of a contract, implemented completely or partially, by parties shall not deprive the parties from right to apply to court in future with a claim on the recognition of such contract as invalid.

The dispute in this case deals with the recognition, for future reference, of a real estate rental contract concluded between the Regional Office of the State Property Fund of Ukraine in Donetsk oblast and Firma Tekhnotron LLC; in this case the real estate is the state property. Pursuant to the contract, the lessor transferred, and the lessee received non-residential built-in premises in the house for training workshops in limited paid utilization; these training workshops are owned by Mariupol Vocational School (asset holder). The property was leased out in order to locate the production of temperature sensors for gas ovens.

Pursuant to Part 4 of Article 61 of the Law of Ukraine “On Education” (amended as of concluding the contentious premises rental contract), property of educational establishments may be applied as an additional source of financing for these establishments by means of acquisition of incomes for rental of premises. However, rental of such temporary unoccupied premises shall be allowed only for performing activity connected with scientific-educational process of a relevant educational establishment in case of non-worsening social and living conditions of individuals living or working in the educational establishment.

The appeal court rightly concluded that contentious premises had been received by Firma Tekhnotron LLC for rent contrary to the prohibition established by the current legislation, since the lessee received the property in order to locate the production of temperature sensors for gas ovens, i. e. for the activity, which had not been connected with the scientific-educational process of Mariupol Vocational School. The noted contract was concluded with the violation of the current law on education; under such circumstances, it shall be recognized as invalid pursuant to Articles 203 and 215 of the Civil Code of Ukraine.

While considering disputes on the recognition of deals (commercial contracts) as invalid, commercial court shall establish the presence of factual circumstances, with which the law links the recognition of such deals (commercial contracts) as invalid at the moment of their performing (entering) and ensuing of relevant consequences. In case of the satisfaction of the claim – to note in the judgment, what is the essence of the unlawfulness of the party’s actions and which legislative norms were not observed while performing the appealed deal.

Since the invalidity of the contract is the subject of dispute and such contract shall be recognized as invalid from the moment of its conclusion, the SC Grand Chamber noted that the conclusion of a supplementary contract by the parties on the termination of such contract and return of property may not be considered as the grounds for the termination of proceedings in the case due to the lack of the dispute subject (item 1-1 of Part 1 of Article 80 of the Commercial Procedure Code of Ukraine amended as of the adoption of the appealed judgment). The cancellation of a contract, implemented completely or partially, by parties shall not deprive the parties from right to apply to court with a claim on the recognition of such contract as invalid. Similarly, termination of the action of the appealed deal before lodging a relevant claim shall not prevent lodging this claim.

The SC Grand Chamber also drew attention to the fact that the current legislation did not foresee the recognition of a deal as invalid for future reference. Thus, the judgment of appeal court, which recognized the rental contract as invalid for future reference (from the moment of coming into force of relevant judgment) is wrongful.

Follow the link http://www.reyestr.court.gov.ua/Review/78376886 to see full text of the Resolution of the Grand Chamber of the Supreme Court in the case No. 905/1227/17 (proceedings № 12-112гс18) of 27 November 2018. Separate opinion of judges of the Grand Chamber of the Supreme Court – by the link http://www.reyestr.court.gov.ua/Review/78977531.