CASE OF FEDORENKO v. UKRAINE
Violation of P1-1;Pecuniary damage - financial award;Non-pecuniary damage - financial award;Costs and expenses partial award - domestic proceedings
Peer Lorenzen
5. The applicant was born in 1937 and lives in the town of Malaya Vyska, the Kirovograd region, Ukraine. 6. On 9 April 1997 the applicant sold his house for UAH 35,000 to the Kirovograd Regional Department of Justice (hereafter “the Department”), responsible for the logistical support of the judiciary. The Department was represented in the transaction by Mr R., the President of the Malaya Vyska City Court. The contract was certified by a notary and specified that the purchase price had to be paid in two instalments: UAH 5,000 and 30,000 to be paid by 1 May 1997 and 1 September 1997 respectively. The contract also contained a clause stating the following: “In case if the exchange rate of the Hryvna depreciates the overall sum to be paid cannot be less than the Hryvna equivalent of USD 17,000.” 7. In June 1997 the applicant was paid UAH 5,000. In 1998 the Hryvna substantially weakened against US dollar. In October 1998 and August 1999 the applicant received UAH 11,000 and 20,000 respectively. 8. The applicant instituted proceedings against the Department, claiming that it had failed to fulfil its obligations under the contract, as the sum paid did not take into account the substantial depreciation of the exchange rate of the Hryvna. Thus, according to the applicant, he had lost some USD 6,553. 9. On 4 November 1999 the Kirovsky District Court of Kirovograd (hereafter “the District Court”) rejected this claim as unsubstantiated. On 8 September 2000 the Presidium of the Kirovograd Regional Court, following the protest (extraordinary appeal) of the Deputy President of this court, quashed the judgment and remitted the case. 10. On 29 November 2000, in the course of a new hearing, the Department lodged a counterclaim seeking the annulment of the contract on the ground that Mr R. had exceeded his powers in agreeing to the dollar value clause. 11. On 24 July 2001 the Kirovsky District Court of Kirovograd granted the applicant’s claim and rejected that of the Department. The court established that the clause in issue aimed at ensuring the stability of the contract and protecting the applicant against inflation. The court further found that the applicant had suffered increased financial losses due to the erosion of the Hryvna’s purchasing power during the lengthy delay in execution of the contract. It found that the amount eventually paid to him on the date of the final transaction had only been USD 10,457.50. The court awarded the applicant UAH 35,527.77 in compensation for the devaluation of the Hryvna, UAH 3,197.31 in statutory interest for the delay and UAH 502.13 in court costs. 12. The Department appealed against this judgment and, on 20 December 2001, the Kirovograd Regional Court of Appeal (hereafter “the Court of Appeal”) quashed it and rejected the applicant’s claim. The court found in favour of the Department on both of their objections. It noted that Mr R. had acted ultra vires by conceding the inclusion of the disputed provision in the contract without the prior consent from the Department. The Court of Appeal further stated that, according to Article 3 of the Governmental Decree on the Regime of Currency Regulation and Currency Control 1993 (the 1993 Decree), the Hryvna was the only currency which could be used for internal transactions. The court did not find convincing the District Court’s argument that the impugned clause protected the applicant from inflation, since Article 214 of the Civil Code 1963 provided for compensation for losses incurred due to inflation if the execution of a contract was delayed. The Court of Appeal acknowledged that the price for the apartment was paid with considerable delay and that the applicant, having made the relevant claim before the court, had the right to be awarded statutory interest at the rate of 3% per annum. Taking into account that the applicant had already received an extra thousand Hryvnas (paragraph 6 above), the Court of Appeal found it appropriate to award him further UAH 678.50. 13. On 30 May 2002 the Supreme Court rejected the applicant’s request for leave to appeal in cassation. 14. Article 3 of the Decree provided that the currency of Ukraine (i.e. the Hryvna) was the only lawful means of payment in Ukraine. 15. According to Article 48 of the Code, a contract concluded contrary to the law should be declared invalid. If the contract is invalidated the parties should return to each other all that was received in execution of the contract. 16. Article 214 of the Code provided that a debtor who had delayed the execution of a financial undertaking was obliged, on the request of the creditor, to pay the debt taking into account the established index of inflation for the period of delay, as well as statutory interest at 3% per annum.