Sanctions: Policies, Procedures, and Private International Law will become this autumn one of the top topics at the third IBA Conference on Private International Law. Due to turbulent international events sanctions legislation of most countries has started to develop rapidly in recent years. But such development has actually resulted in a massive attack on individual rights and freedoms. Blurry boundaries of national interests and security, covered by state secrets, have become a universal justification for state interference in private-law relations.

Ukraine has not become an expulsion from general trend. Judiciary position came down to the fact that rights and freedoms were not absolute. Their exercise relates to liabilities and responsibility and may be subject to formalities, conditions, restrictions or sanctions which are prescribed by law and required in a democratic society both for national and public security, and territorial integrity. Imposition of sanctions by state is not a violation of an individual’s rights and freedoms, since the possibility of their imposition is provided for by law and has a legitimate purpose – need to immediately and efficiently respond to threats to the national security of Ukraine.

Such a formal explanation, without a court’s examination of the validity and principles of imposed sanctions on a case-by-case basis, does not take a person (an individual) with any chances to be efficiently protected by judicial authorities. It also creates the basis for further restriction of rights and legitimate interests at the level of by-laws.

In particular, the National Securities and Stock Market Commission decided that depository institutions are required, when imposing an “asset blocking” sanction:

– to include into an appropriate list, when compiling the lists of holders of securities for arrangement and holding of the general meeting of a joint stock company, holders being the persons, referred to in the sanction list, on which/whom sanction should be imposed, and indicate therein their shares as non-voting shares (clause 2 of Decision No. 1707 dated October 13, 2015).

However, this provision simultaneously contradicts the laws and regulations carrying the highest legal force, and violates the principle of the rule of law and does not comply with the international standards for imposing the “asset blocking” sanction.

According to clause 1 of Part 1 of Art. 4 of the Law of Ukraine “On Sanctions” the asset blocking is a temporary restriction imposed on a person’s right to use and dispose of his/its property.

Pursuant to Art. 190 of the Civil Code of Ukraine the property shall mean a separate thing, a collection of things, as well as the property rights and obligations. Property rights are a non-consuming thing and they are recognized as proprietary rights (real rights).

Moreover, in accordance with clause 8 of Part 1 of Art. 2 of the Law of Ukraine “On Joint Stock Companies”, corporate rights mean a collection of property and property rights of the shareholder owning company’s shares, which arise out of the ownership of shares, including the right to participate in management of a joint stock company, to receive dividends and assets in the event of its liquidation in accordance with law, as well as other rights and powers provided for by law or by-laws.

According to clauses 13 and 14 of Part 1 of Art. 1 of the Law of Ukraine “On Depository System” there are:

  • rights to securities being the proprietary rights to securities (right of ownership, other proprietary rights as defined by law);
  • rights under securities being the rights arising out of the issuer’s obligations under the securities placed by him/it (right to participate in general shareholders meeting, right to receive income, other rights).

Subject to the foregoing, rights to securities are proprietary (property) rights and property within the meaning of Art. 190 of the Civil Code of Ukraine. These rights are certainly limited to the period of the “asset blocking” sanction.

However, corporate non- property rights are not property (assets) within the meaning of Art. 190 of the Civil Code of Ukraine.

Therefore, shareholder’s rights to make proposals, participate in general meeting and vote are the non-property corporate rights and non-property (non-proprietary) rights under securities.

Accordingly, such rights are not property (Art. 190 of the Civil Code) and are not temporarily restricted for the period of the “asset blocking” sanction.

Instead, the provisions of sub-clause 2 of clause 2 of Decision No. 1707 establish the following legal consequences of imposing the “asset blocking” sanction which lead to depriving a shareholder of a non- property corporate right to manage joint-stock company, in particular:

  • voting right;
  • right to make proposals with regard to the issues on the agenda;
  • right to submit proposals for candidates to the company’s bodies, etc.

New sanctions legislation, lack of experience and good judicial practice give rise to a wrongheaded view of an unlimited state interference in rights and freedoms. Therefore, there is an urgent need for public authorities to explain the reasons for imposing sanctions in each unobvious case, as well as for an efficient judicial protection of individual rights from the government interference which does not pursue a legitimate aim.

 

Author: Vladimir Vashchenko, head of Dispute Resolution, partner at VB PARTNERS