New rules related to compensation of court expenses.

New rules related to compensation of court expenses.

New rules related to compensation of court expenses.

Procedural codes as revised and amended establish a range of novelties. Such changes relate, inter alia, to court expenses and compensation thereof, which is quite an important issue to consider.

According to the procedural codes, court expenses shall include court fees and costs related to proceedings in a case.

Court fee is an amount of money that is paid for the filing of applications, complaints, as well as for issuing of documents by courts. Amount of the court fees depends on several factors:

• type of a document being submitted to or obtained from a court;

• type of a court fee payer (an individual, a legal entity, an individual entrepreneur);

• claim value;

• amount of the cost of living for the working age population (being determined by the state budget for a current year).

According to the Code of Civil Proceedings of Ukraine and the Code of Commercial Proceedings of Ukraine, below shall be considered as costs related to proceedings:

• legal fees;

• costs spent on the engagement of witnesses, specialists, interpreters, experts and conducting of expert examinations;

• costs arising from evidence gathering, on-site inspections of evidence, preservation of evidence;

• costs related to the performance of other procedural actions necessary for a case review of for its preparation for consideration.

According to the Code of Administrative Proceedings of Ukraine, additionally, parties and their representatives bear costs arising from the court appearance.

Revised and amended provisions of the Code of Civil Proceedings of Ukraine and the Code of Commercial Proceedings of Ukraine envisage a number of brand new instruments such as preliminary determination of court fees amount, securing and prepayment of court fees.

Thus, along with the initial complaint, each party hereto shall submit to the court a preliminary estimate of court expenses already incurred, as well as expenses, which may be further incurred in terms of a case review. It is important to duly observe this requirement, since failure to submit such preliminary estimate may result in court rejecting to compensate court expenses other than court fees to a failing party.

In order to prevent abuse of procedural rights by parties involved, as well as to avoid the filing of groundless claims, the law-making authority provided for a mechanism aimed at securing and prepaying of court expenses.

Considering peculiarities of administrative proceedings, securing of court expenses was not envisaged by the Code of Administrative Proceedings of Ukraine. Pursuant to the Code of Civil Proceeding of Ukraine and the Code of Commercial Proceedings of Ukraine court expenses shall be secured by the court under a plea lodged by respondent. Such security mechanism provides for applicant's obligation to place a certain amount of deposit on a court’s account, which shall be sufficient to cover projected expenses incurred by a respondent (legal fees inclusive). Such deposit mechanism shall apply in a case:

• there are legitimate concerns to consider that a complaint is groundless; 

• applicant has no duly registered place of residence in Ukraine, as well as any property in Ukraine that could be sufficient to cover respondent's court expenses in case of dismissal of a complaint.

In the first place, this serves as a protection mechanism for a diligent business and exercises a preventive function of a "barrier" that holds groundless complaints off.  This mechanism also reserves an opportunity to compensate court expenses (legal fees inclusive) in case a court rejects the complaint, dismisses it without review on merits or terminates proceedings thereon. 

The mechanism for prepayment of court costs, as set out in all three procedural codes, has a somewhat different aim – it seeks to prevent parties in a lawsuit from abusing their procedural rights. Under the prepayment mechanism, the court may direct the party in a lawsuit filing a motion to call a witness, or a motion for expert witness testimony, etc., to make an advance payment of court costs. In case the party fails to make the required advance payment in a timely manner, the court may deny the motion or revoke it's earlier decision to grant the motion and choose to reach its decision on the basis of other pieces of evidence.

The costs of litigation support, i.e. a lawyer’s or lawyers' fees, are perhaps the largest chunk of litigation expenses borne by businesses. Before the redrafted procedural codes went into effect, recovering litigation expenses, in particular, legal fees, had been a problematic issue. The judges used to adopt a rather selective approach as to which of the fees for lawyer’s services should and should not be reimbursed, how to assess such expenses, etc.

Passing new procedural legislation has resolved this controversial issue. Pursuant to an earlier established procedure, each party shall be liable to pay his own lawyer for the litigation support services, with the exception of legal aid cases. The new procedural codes detail the scope of professional legal costs and determine the basis used for calculating the lawyer’s fees.

The payment due to the lawyer as reimbursement for his expenses, the lawyer’s fee (for representation in court and other legal support in the case, including preparation for trial, gathering evidence, etc.), as well as the fee charged by the attorney's legal assistant, shall be assessed pursuant to the terms of the legal representation agreement and based on the documented scope of legal assistance provided in the case.

Therefore, the costs recovered from the opposing party shall include the fees charged by the lawyer and his assistant not merely for representing the party in court, but also for other court-related work (filing the Statement of Claim or the Notice of Appeal, serving court papers, document review, etc.).

It should be pointed out that a lawyer’s fee is fixed and determined by:

• the complexity of the case and the services provided by the lawyer;

• the time spent by the lawyer on the case;

• the scope of the services;

• the cost of the claim and/or its significance for the party, including the influence of the decision in the case on the party’s reputation, or public interest in the case.

An essential innovation introduced by the procedural codes concerns the burden of proving the costs inadequate – it shall now rest with the party filing a motion for reducing legal fees to be distributed between the parties.

On the whole, the amount paid or payable by the party in the case shall be determined by the court on the basis of evidence provided by the parties (agreements, bills, etc.). The evidence above shall be made available no later than during final representations, or within five days after the court makes a decision, provided that the party filed a respective notice while the trial was in progress. In case the party fails to provide relevant evidence within the established time frame, the court shall refuse the notice. Where there is an abuse of procedural rights by the party or his representatives, or a dispute arising from the party’s misconduct, the court has full discretion to order this party to pay the court costs in whole or in part, notwithstanding in whose favor the dispute is resolved.