Grand Chamber of the Supreme Court Expresed Opinion as for the Termination of Economic Entity’s Right to Share in Common Property

Pursuant to Article 7 of the Commercial Code of Ukraine and Articles 1 and 9 of the Civil Code of Ukraine, provisions of Article 365 of the Civil Code of Ukraine shall be applied to commercial legal relations as for the termination of right to share in common property under judgment on the grounds of claim of other co-owners.

To terminate the right of an economic entity (legal entity) to a share in common property on the grounds of claim of another co-owner, it is necessary to establish the existence of at least one circumstance provided by Items 1-3 of Part 1 of Article 365 of the Civil Code of Ukraine, if such termination does not cause significant damage to the interests of the co-owner, and if the claimant preliminarily deposits the value of this share to the court’s account.

The Institute of Oil Plants of the National Academy of Agrarian Sciences of Ukraine – the defendant, and Ukrnasinniaprom LLC – the claimant, concluded a shareholder agreement, pursuant to which the parties were obliged to build together an object – the contemporary plant CIMBRIA on a land parcel permanently used by the Institute, by means of joining their property, efforts, material and technical resources owned by the parties basing on the relevant legal provisions, within the current legislation pursuant to their statutes. The abovementioned plant was specialized on modifying and sorting seeds and grain.

The claim of Ukrnasinniaprom LLC was justified by the fact that the Institute did not carry out duties of co-owner and did not participate in ongoing activities, exploitation and management of common property, where 213/214 shares in the proprietary right were owned by the claimant, and 1/214 share – by the defendant. I. e., in the claimant’s opinion, the defendant impeded the economic activity held by the claimant while exploiting, managing and receiving incomes from equipment use; that was the grounds for the termination of the defendant’s right to the relevant insignificant share in such common property pursuant to Article 365 of the Civil Code of Ukraine.

The SC Grand Chamber remarked that the subject of the claim in this case was represented by the termination of the Institute’s right to the share in common property – the integral property complex of the plant, awarding it with financial compensation for this share and the recognition of the claimant’s proprietary right to this share. Between the case parties – legal entities – economic entities, commercial legal relations developed regarding the termination of the right to share in the common property by the request of other co-owners.

The regulations of acts of commercial legislation of Ukraine do not include the legal norms regulating relations as for the termination of right to share in common property by a judgment on the grounds of other owners’ claim. Such commercial legal relations as for the termination of right to share in common property are regulated by norms of civil law. Relevant rules of the Civil Code of Ukraine, particularly, Article 365 of this Code, shall be applied concerning these relations.

The SC Grand Chamber drew attention that the property complex of CIMBRIA plant was situated on state land parcel covering 3.14 hectares owned by the Institute on the right of permanent use; thus, the alienation of 1/214 share owned by the Institute in the common real estate (the integral property complex of CIMBRIA plant), which was the object of the state property, would lead to the factual eventual loss of the possibility to use the noted land parcel by the Institute. Such situation would lead to the termination of the right of the Institute, as a scientific establishment founded on the state property, to the disputed share owned by it in the common real estate (the integral property complex of CIMBRIA plant) situated on the land parcel of the state ownership attached to it on the right of permanent use, as well as would cause significant damage both to its interests and those of the state.

Taking into account the fact that the termination of individual’s right to share in common property pursuant to judgment on the grounds of this article is possible in case of existence of at least one circumstance provided by Items 1-3 of Part 1 of Article 365 of the Civil Code of Ukraine, if such termination does not cause significant damage to the co-owners’ interests, and if the claimant preliminarily deposits the value of this share to the court’s account, the Grand Chamber of the Supreme Court made conclusion on the lack of grounds for the termination of the Institute’s right to the disputed share owned by it in the common property upon the request of the other co-owner (Ukrnasinniaprom LLC), pursuant to Article 365 of the Civil Code of Ukraine, and, consequently, on the lack of grounds for the satisfaction of the claim on awarding the Institute with financial compensation for this share and the recognition of claimant’s proprietary right to this share.

Follow the link http://reyestr.court.gov.ua/Review/78977551 to see the full text of the Resolution of the Grand Chamber of the Supreme Court of 18 December 2018 in the case No. 908/1754/17 (proceedings No. 12-180гс18).