Applicability of the Estoppel Principle by Ukrainian Courts
16 October 2020
The article is published in CIS Arbitration Forum
In 2020 Ukrainian civil and commercial courts, especially the Supreme Court considerably increased invoking and applying the principle of estoppel to protect legitimate expectations and prevent procedural abuse. This is remarkable because Ukrainian law does not expressly regulate this principle.
Estoppel is a legal concept that prevents someone from arguing something or asserting a right that contradicts what he or she previously said or agreed to by law. In other words, a person is “estopped” from going back on his or her words or actions on which another person relies. The concept originated in common law jurisdictions and became widespread in different legal practices. In view of the Supreme Court’s judgments binding effect for all government entities and lower instance courts, the widespread estoppel applicability gains weight in Ukraine and needs further analysis.
Genesis and international practice of the estoppel principle application
The estoppel doctrine has initially appeared and significantly developed in common law jurisdictions (the United States, the United Kingdom, Australia, etc.). For instance, the case law of these countries provides for the following types of estoppels: judicial estoppel, estoppel by representation, contractual estoppel, equitable estoppel, collateral estoppel, etc. However, in civil law countries such as Ukraine courts normally do not differentiate estoppel and apply it as a part of the good faith principle.
The existing practice of international courts and arbitral tribunals demonstrates a certain level of ambiguity when establishing the estoppel principle. Nonetheless, the general conclusion is typically applied when a subsequent argument or legal position clearly contradicts the argument or position that has been already accepted by courts. For instance, the High Court of Australia in the case Waltons Stores (Interstate) Limited v. Maher has formed a 6-tier test to establish the estoppel:
A legal relationship or its expectation existed between the plaintiff and the defendant. The defendant has induced the plaintiff to adopt the assumption or expectation that it would not withdraw from the expected legal relationship. Then the plaintiff acted or abstained from acting in reliance on the assumption or expectation. The defendant knew or intended the plaintiff to do so. The plaintiff’s action or inaction will occasion detriment if the assumption or expectation is not fulfilled. Finally, the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise.
As for the international arbitration practice, the Permanent Court of International Justice in the case Denmark v. Norway on the legal status of Eastern Greenland applied the estoppel in order to prevent Norway from occupying territories in eastern Greenland. In its judgement of 1933 the Court held that in accepting these bilateral and multilateral agreements [namely, the Treaty of 1826 and the Danish-Norwegian Agreements] as binding upon herself, Norway reaffirmed that she recognized the whole of Greenland as Danish; and thereby she has debarred herself from contesting Danish sovereignty over the whole of Greenland, and, in consequence, from proceeding to occupy any part of it. In other words, the Court decided that the respective actions and statements of the Norwegian government are unlawful and invalid.
In Carpatsky Petroleum Corporation v. PJSC Ukrnafta case, the London Circuit Commercial Court (QBD) had to consider whether an issue of estoppel arose in respect of the arbitration agreement and applicable legislation (Swedish or Ukrainian). Eventually, the court decided that “Ukrnafta accepted the applicability of Swedish law and can be said to be estopped by its conduct of the arbitration and the Swedish proceedings from taking a different position in these courts on enforcement“.
Estoppel in the precedential Ukrainian judicial practice
In Ukraine, the estoppel principle constitutes a part of the good faith doctrine and the law does not specifically regulate it. The Supreme Court has continuously referred to the principle of good faith envisaged in part 3 of Article 504 of the Civil Code of Ukraine which means a certain standard of good conduct, characterized by integrity, transparency, and respect for the other party’s interests.
According to national courts practice, when estoppel occurs Ukrainian courts simply refer to the general good faith civil principle provided for in the Civil Code of Ukraine and respective procedural codes. In particular, the Supreme Court in its Resolution dated 10 April 2019 in the case No. 390/34/17 stated that a party violates the good faith principle if its conduct is inconsistent with its prior statements or actions, provided that the other party reasonably relied on them.
In practice, the Ukrainian courts distinguish two types of estoppel – substantive and procedural. Substantive estoppel applies in cases when a party is deprived of its material right due to inconsistency of its previous actions or statements. For example, in the Resolutions dated 26 May 2020 in the case No. 235/2537/17 and dated 30 June 2020 in the case No. 484/2818/17 the Supreme Court applied the estoppel principle and concluded that a party whose tacit actions had indicated its intention to preserve the agreement may not challenge the agreement validity. The panel of judges made a similar conclusion in the Resolution of the Lviv Appeal Commercial Court dated 13 June 2017 in the case No. 914/2622/16. It stated that the claimant could have lost the right to invoke the grounds for invalidation of the disputed agreement since its actions demonstrated the recognition of the agreement.
On the contrary, the procedural estoppel applies in court proceedings when a party’s procedural action (e.g. submission of a claim) evidences its recognition of a particular fact. For example, the Supreme Court in the Resolution dated 13 May 2019 in the case No. 925/1530/17 concluded that by filing a claim on recognizing the ownership title for the premises, the defendant thereby admitted that it has been using someone’s property without a proper legal basis. Through such conduct, the defendant denied the circumstances, which is referred to as for the basis for the claims in other proceedings.
Despite the fact that Ukrainian courts sporadically apply the estoppel principle, the case law has not formed an exhaustive list of elements that must be proven to invoke estoppel. As a result, it is not clear which statements or actions of the party or its authorized representatives could trigger estoppel. For instance, the Supreme Court in its Resolution dated 14 April 2020 in the case No. 873/41/19 rejected the defendant’s argument, according to which the claimant violated the estoppel principle by changing its legal position regarding the arbitration clause envisaged by the loan agreement. By doing so, the Supreme Court explained that different representatives, rather than a single one, submitted clarifications with different legal reasoning. Therefore, the estoppel principle could not have been triggered.
In Ukraine, the estoppel constitutes a part of the good faith principle, which allows conscientious parties to have reasonable expectations and protect themselves against unreasonable claims and procedural abuses. However, even though some of the Ukrainian courts (mainly the Supreme Court) occasionally refer to the estoppel doctrine as a good faith illustration, the Ukrainian precedential judicial practice has still not formed any set practice on estoppel. That said, it is still not clear which party’s statements or actions could or could not trigger estoppel in a particular case.
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