The position of the Supreme Court on the possibility of recovering damages from the Russian Federation

One of the most pressing topics today is the receipt of compensation by both individuals and legal entities for the damage caused by Russia’s military aggression.

And while the state is developing centralized compensation mechanisms, which are likely to be primarily aimed at helping individuals, businesses are considering ways to recover from the aggressor country the amount of damage themselves.

In this regard, we would like to bring to your attention our comments on this issue below.

1. Regarding the potential possibility of filing a lawsuit against Russia in a Ukrainian court

It should be noted that according to the general rule provided for in Art. 79 of the Law “On Private International Law”, to file a lawsuit in a Ukrainian court against any foreign state the appropriate consent of the competent authorities of such state must be obtained.

However, recently on the website of the Supreme Court (hereinafter – the Supreme Court) was published the legal position set out in the Resolution of 14.04.2022 on case 308/9708/191¹ (hereinafter – the Resolution), rendered in the case of a citizen of Ukraine against Russia regarding compensation for non-pecuniary damage, inflicted on her and her children in connection with the death of her husband as a result of the armed aggression of Russia.

In particular, the Supreme Court concluded that “after the start of the war in Ukraine in 2014, the court of Ukraine, considering a case where the defendant is Russia, has the right to ignore the immunity of this country and consider cases of compensation for damage caused to individuals as a result of armed aggression.”

In addition, the Supreme Court also noted that “due to the full-scale Russian invasion of Ukraine on February 24, 2022, Ukraine severed diplomatic relations with Russia, which makes it impossible to send various inquiries and letters to the Russian Embassy because of termination of its work on the territory of Ukraine.

The Supreme Court has established grounds for concluding that, starting in 2014, there is no need to send requests to the Russian Embassy in Ukraine for Russia’s consent to be a defendant in damages in connection with Russia’s armed aggression against Ukraine because of it ignores the sovereignty and territorial integrity of the Ukrainian state. And from February 24, 2022, such a sending is also impossible due to the severance of diplomatic relations between Ukraine and Russia.”

Thus, the Supreme Court in this case made an exception to the above general rule under Art. 79 of the Law “On Private International Law”, in particular, concluded on the possibility of considering claims for damages caused by Russian military aggression in Ukrainian courts, without the need for consent of the competent authorities of Russia and in principle without the need to send such bodies any procedural notifications.

It should be noted that in accordance with the rules of procedural law of Ukraine, such a conclusion of the Supreme Court is not 100% binding on domestic commercial courts in cases of claims of economic entities for damages caused by military aggression.

However, commercial courts will be obliged to take into account such a conclusion, and if in considering future cases one or another commercial court deviates from such a conclusion, the cassation appeal of such a decision of the commercial court will be transferred to the Grand Chamber of the Supreme Court, which will make a final decision in this case².

At present, it is difficult to predict what interpretation of this issue will be followed by Ukrainian courts in the future, as to date we have not been able to find the full text of this Resolution of the Supreme Court³, let alone its application in judicial practice.

Nevertheless, in our opinion, such a legal position of the Supreme Court, at least, creates a procedural basis for further consideration of cases of compensation for damage caused by Russian aggression in Ukrainian courts.

2. Regarding the potential possibility of enforcing the decision of the Ukrainian court to recover from Russia the damage caused by the war

Even if further procedural practice follows the path set out in the above-mentioned Supreme Court Resolution, namely, if Ukrainian courts accept and satisfy claims of individuals and legal entities against Russia for damages caused by military aggression, this will not automatically mean the possibility of such plaintiffs to receive actual compensation.

After all, the Russia is unlikely to voluntarily enforce such court decisions, so there will be a need to enforce them by recovering property and other assets belonging to the Russian Federation.

We see two potential scenarios for such enforcement:

– scenario 1 – enforcement in Ukraine – by foreclosure on assets of the Russian Federation located in Ukraine. However, given the total amount of damage caused by the war, these assets are unlikely to be enough to compensate;

– scenario 2 – enforcement abroad – due to assets of the Russian Federation located in foreign countries.

However, with regard to scenario 2, it should be borne in mind that Ukrainian court decisions will not be automatically enforced abroad, as this will require a special procedure for obtaining the consent of foreign courts to recognize and enforce a Ukrainian court decision.

The rules for recognizing and enforcing foreign court decisions are provided for either in bilateral international legal aid treaties⁴ or in the national legislation of the countries with which Ukraine has not signed special agreements on this issue and in which the issue of execution of decisions of Ukrainian courts is considered on the principle of reciprocity (Germany, France, Great Britain, etc.).

It should be borne in mind that the vast majority of bilateral international agreements on legal assistance as a prerequisite for the recognition and enforcement of a foreign court decision determines the condition that the defendant in the case should not be deprived of protection of their rights and proper representation during the consideration of a court case, which includes timely and proper receipt of summonses to court hearings, etc.

Similar rules are provided for in Ukraine’s procedural law and are therefore likely to apply in countries with which Ukraine has not concluded bilateral international legal assistance agreements and which will consider the enforcement of Ukrainian court rulings against Russia on a reciprocal basis.

Therefore, if the company is considering the possibility of future recognition and enforcement of the decision to recover compensation from Russia in a foreign country, we consider it appropriate at the stage of filing a lawsuit in a Ukrainian court to obtain advice from relevant foreign lawyers regarding assessment of the prospects for such a decision in their country and formal requirements of local law for such enforcement.

3. Regarding the potential possibility of recovering lost profits caused by the military aggression of Russia on the territory of Ukraine

According to the general rule provided by civil law, in case of violation of a person’s rights, the latter may claim compensation for both his actual losses (losses incurred in connection with the destruction or damage of his property) and lost profits (income that the person could actually obtain under normal circumstances, if his right had not been violated).

This means that businesses can hypothetically claim not only direct damage from Russia caused by damage or destruction of assets as a result of hostilities, but also income lost by the company due to complete or partial cessation of its economic activities during the war.

However, it should be noted that proving the lost benefit claimed for recovery is much more complex than the direct damage caused by property damage. In this case, it is necessary to document not only the amount of lost income (as evidenced by a comparison of official financial statements of the company for periods of war compared to similar periods in previous years), but also a direct causal link between loss of income and war.

There are no universal approaches to this issue, and the prospects for such proof can be determined only in each case individually, depending on the specific facts and the specifics of economic activity of each company.

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Thus, the Supreme Court’s ruling on the possibility of considering claims for damages caused by Russia’s military aggression in Ukrainian courts, without the need for the consent of the competent Russian authorities, provides a basis for further consideration of such cases in Ukrainian courts.

This issue can be resolved unequivocally only after a systematic practice of dealing with such cases is established.

However, even if in the future Ukrainian courts will accept and satisfy lawsuits of individuals and legal entities against Russia for damages caused by military aggression, it will not automatically mean that such plaintiffs can receive actual compensation, as this will require a procedure of enforcement of these court decisions.

Initiating the procedure of recognition and enforcement of decisions of Ukrainian courts against Russia abroad (for recovery of assets of the Russia located outside Ukraine) will require early (at the stage of litigation in the Ukrainian court) to obtain advice from relevant foreign lawyers on specifics and prospects for enforcement under the law of the country concerned.

And not only real damage caused by the destruction or damage of property may be compensated, but also lost profits – lost income, but only if properly documented that the relevant income was lost by the company directly in connection with military aggression of Russia.