Partners of the law firm ‘JUSTICTORS’ Oleksiy Vorobyov and Andriy Zhuk provided a detailed justification of the erroneous nature of the conclusions of the courts of first and appeal instance in the case concerning the appeal against the results of an electronic auction, which resulted in the Supreme Court, sitting as a panel of judges of the Commercial Court of Cassation, adopting a new decision in the interests of the clients of the law firm “JUSTICTORS” – one of the leading financial companies and a private enforcement agent.
The local commercial court, whose position was endorsed by the court of appeal, reached the erroneous conclusion that the current sale price of mortgaged property at a repeat electronic auction should be determined in accordance with the provisions of the Law of Ukraine ‘On Enforcement Proceedings’, rather than those of the Law of Ukraine ‘On Mortgages’. Furthermore, the courts erroneously stated that the realisation of mortgaged property through sale at electronic auctions in execution of a court decision, in accordance with the procedure set out in Section V of the Law of Ukraine ‘On Mortgage’ and the Procedure for the Realisation of Seized Property, is possible only if the mortgagee has filed a claim for foreclosure on the mortgaged property and that claim has been upheld by the court.
However, the Supreme Court, sitting as a panel of judges of the Commercial Court of Cassation, noted in its ruling of 17 November 2021 in case No. 902/182/21, in particular, that Article 51 of the Law of Ukraine ‘On Enforcement Proceedings’ sets out specific provisions regarding the enforcement of claims against mortgaged property. The Law states that the enforcement of a mortgage is carried out by the enforcement officer in accordance with the provisions of the Law of Ukraine “On Mortgages”. Consequently, this provision is a reference provision and empowers the enforcement officer to apply, in the enforcement proceedings pursuant to a court decision on debt recovery, the provisions of the Law of Ukraine “On Mortgage” which define the specific features of the enforcement of a mortgage in court proceedings under the Law of Ukraine “On Mortgage”.
It follows from the first part of Article 41 of the Law of Ukraine ‘On Mortgages’ that the realisation of mortgaged property subject to enforcement pursuant to a court order or a notary’s writ of execution shall be carried out, unless otherwise provided for by a court order, by sale at public auction, including in the form of electronic auctions, within the framework of the enforcement proceedings provided for by the Law of Ukraine “On Enforcement Proceedings”, in compliance with the requirements of this Law.
Furthermore, when delivering a judgment in a case concerning the invalidation of a transaction concluded following an electronic auction, initiated by a participant in the electronic auction, all parties to the transaction must be joined as defendants (a similar conclusion is set out in the ruling of the Grand Chamber of the Supreme Court of 5 June 2018 in case No. 910/856/17). The Supreme Court takes the same position in its rulings of 6 February 2018 in case No. 911/845/17 and of 14 March 2018 in case No. 910/1454/17, which state that the disposal of property in disputed electronic auctions constitutes a sale and purchase agreement, which is a multilateral transaction, and when filing a claim to challenge it, such a claim must be brought against the other parties to this transaction with whom there is a substantive legal dispute, and these parties must be joined as parties to the proceedings. In addition to the organisers of the electronic auction, the person recognised as the winner is also joined as a defendant in the case.
Consequently, the proper parties to the dispute concerning the invalidation of the auction and its results are the group of participants comprising the seller, the successful bidder and the organiser of the auction (this conclusion was set out in the Supreme Court’s ruling of 5 March 2020 in case No. 14/325″b”, which was subsequently upheld by the Supreme Court in its rulings of 18 August 2020 in case No. 5023/4363/12 and of 16 September 2020 in case No. 5006/5/39b/2012).
The text of the ruling is available at the following link – https://reyestr.court.gov.ua/Review/101424078
