How should the venue be laid for corporate disputes between two and more legal entities? The Alva Privacy legal team is about to share its insights from the litigation practice. For this, we scrutinize a precedent-setting ruling issued by the Supreme Court to designate the venue (commercial jurisdiction) for a case arising out of the performance of a share purchase agreement made between two legal entities.
Exclusive jurisdiction over corporate cases
The correct choice of court is essential to put in place the procedure that safeguards the efficient judicial protection.
Articles 27 to 31 of the Commercial Procedure Code of Ukraine (the “ComPC of Ukraine”) set forth the venue rules to govern the manner in which a competent court must be chosen depending on the nature of the dispute.
As a general rule set out in the procedural law, claims must be brought to a commercial court operating at the respondent's place of business. By way of derogation from this rule, the legislator has designated exceptional circumstances giving rise to the application of special venue rules.
Thus, special procedural treatment is available for corporate disputes. Article 30 of the ComPC of Ukraine contains an exclusive venue rule saying that disputes arising out of corporate relations must be referred to a commercial court at the location of the legal entity in question.
The case law on venue disputes: what is the position of the supreme court?
As a matter of practice, a complicated procedural situation arises when a corporate dispute concerns at the same time two and more legal entities having their places of business in different localities. In view that the law is ambiguous about such situations, there is legal uncertainty when it goes to choosing a competent court the case must be referred to.
So we must be guided by the Supreme Court who has set a precedent approach to resolve this procedural problem.
The resolution issued by the Supreme Court on 13 June 2023 in case No. 904/4802/22, in which Illia Shaposhnikov and Serhii Kunenko, attorneys-at-law at Alva Privacy Law Firm, acted for the claimant, turned out to be a landmark one. The matter in dispute was whether the preliminary share purchase agreement made in relation to shares in two business companies located in different cities (different regions) was fulfilled properly or not.
Having analyzed this procedural law problem, the Supreme Court stated there were gaps in the legal regulation as Article 30 of the ComPC laid down no explicit venue rules if a corporate dispute arose between several legal entities having their places of business in different localities and different commercial courts might be competent to deal with the case.
Application of the analogy of law
To bridge these procedural gaps, the Supreme Court conceded to the legal position taken by the Alva Privacy attorneys-at-law and applied the analogy of law, which is a legitimate procedural law tool acknowledged by the Grand Chamber of the Supreme Court in its resolution of 8 June 2022 in case No. 2-591/11.
The court extrapolated the principle enshrined in Article 30 (c) of the ComPC of Ukraine to regulate the competence of courts to deal with cases involving several real properties. This rule proclaims that if the matter in dispute involves several real properties the dispute must be heard at the location of the property which value is the highest.
Having applied such an approach to corporate disputes by analogy, the Supreme Court designated a value criterion as a decisive one for laying the venue. To be more specific, the court used as a basis the comparison between the sizes of the authorized capitals of the companies involved in the corporate conflict.
Consequently, in view that the authorized capital of one of the companies was larger, the Supreme Court mandated that the case should be submitted to the Commercial Court of Dnipropetrovsk Region, i.e., at the location of the legal entity with a larger market capitalization.
Algorithms to determine territorial jurisdiction
Thus, considering the legal position articulated by the Supreme Court, there is a clear algorithm to be used for laying the venue in corporate disputes involving several legal entities:
- If a corporate dispute concerns two or more legal entities with their places of business in different regions then it is the value criterion that should be applied.
- The size of the authorized capital of the legal entities in question serves as a key factor for comparison.
- The case must be referred to the commercial court at the location of the legal entity whose authorized capital is the largest.
Such legal position adds procedural certainty and predictability to litigations in complex corporate disputes and gives guidance for business entities, claimants and their representatives.
Given that issues related to the determination of territorial jurisdiction are very complex and critical for successful resolution of corporate conflicts in courts, we recommend you to engage qualified lawyers focusing on corporate matters from the very outset of the dispute.
Written by Andrii Pisotskyi, Lawyer.
