Some issues of efficiency of enforcing court decisions. Column by Oleh Mykhaliuk for the Yurydychna Gazeta
In Ukraine, the efficiency of enforcing court decisions is critically low. According to various estimates, on average, a creditor can expect that only UAH 3 out of UAH 100 awarded by a court will actually be collected.
This state of affairs makes Ukraine unattractive for potential creditors and investors, given that debtors can avoid fulfilling their contractual obligations. A wide range of reasons contributes to this situation, ranging from poor culture of fulfilling obligations to gaps in legislation, the fact that there are no effective tools for tracing debtor’s property, moratoriums, etc. Each of the reasons warrants a separate discussion.
One study on the barriers to enforcing judgments in Latin American countries, which have very similar problems in the justice sector to those of Ukraine, assessed the macroeconomic impact of low enforcement efficiency. For example, low efficiency in enforcing judgments can be crystallised as an overall reduction in transactions in the economy, geographical restrictions on where business is conducted, fewer methods of payment, and the impossibility of reducing credit rates and prices.
Search queries in the Unified State Register of Court Decisions show tens of thousands of court decisions relating to complaints against state or private enforcement officers. When analysing particular court decisions, we see that quite often debtors challenge almost every step or action of the enforcement officer, including even such actions as sending requests for information about the debtor’s property, etc. This results in a situation where the process of enforcing a judgment turns into another extra court proceeding consisting of consideration of complaints against the actions of the enforcement officer. A distorted impression may be formed that after the dispute is resolved by the court, the creditor and the enforcement officer must convince the debtor that the judgement should still be enforced.
Although the fact that the debtor files a complaint against the enforcement officer with the court is not an automatic ground for the enforcement of the court decision to be “put on hold”, the complaint filed has a direct or indirect negative impact on the enforcement proceedings in any case. At the very least, the enforcement officer has to spend his time and financial resources on preparing materials and participating in court hearings.
It is quite obvious that in the course of enforcing a court judgment, the enforcement officer may make mistakes that in some cases can only be corrected by the court. However, this is an exception rather than a common practice, and in most cases, a debtor who did not voluntarily enforce a court judgment and challenges the actions of the enforcement officer is actually abusing this tool. Creditors can also file complaints, but usually such complaints concern the ineffective enforcement of a court decision by state enforcement officers. According to the EBRD’s analytical materials, a similar problem is observed in Mongolia, where the system of enforcing court decisions is also undergoing a reform.
The judiciary also spends its resources on considering such complaints, as the procedure is not much different from considering a lawsuit (the court must summon the parties, hold a hearing, prepare a judgement, etc.). Unlike lawsuits, if the debtor files a complaint, the court fee is not charged, and therefore filing a far-fetched complaint against the enforcement officer does not create any financial burden for the debtor. From an economic point of view, considering such a complaint is an extra service provided by the judiciary to the debtor.
From a practical point of view, the court fee, in addition to its compensatory function, partially performs an indirect function of deterring plaintiffs from filing deliberately unfounded claims and applications to the court. Drawing an analogy with statements of claim, it seems reasonable to consider the possibility of imposing a court fee on complaints filed against the actions of enforcement officers. Looking ahead and immediately responding to the criticism, we note that this will not be a restriction of the right to access to justice. The ECtHR, EU and other best global and regional practices do not consider court fees as a restriction of the right if the rate is proportional/differentiated and economically justified, and there are mechanisms for exemption, deferral, instalment or reduction of their amount.
In our opinion, introducing a court fee for filing complaints against the actions of enforcement officers would promote a culture of voluntary enforcement of court decisions, reduce the number of deliberately unfounded complaints, reduce the workload and provide extra funding for courts through court fees. All this would improve the protection of creditors’ rights and make enforcement more efficient.
On 6 July 2023, the Parliament of Ukraine registered Draft Law No. 9462 “On Amending Certain Legislative Acts of Ukraine on Improving Provisions on Judicial Control”. Challenging the actions of enforcement officers is an element of judicial control over the enforcement of court decisions, so it would be advisable to consider supplementing this draft law with provisions that if the parties to enforcement proceedings file complaints, they must pay a court fee. This will not be seen as a restriction on the right of access to court, but will make the debtors’ behaviour more responsible even before the creditor goes to court to recover a debt or enforce another obligation.
Oleh Mykhaliuk, Key National Expert, Property Rights and Enforcement Component Lead of EU Pravo-Justice Project.
The text was first published in the publication “Yurydychna Gazeta”.