How to protect the rights of bona fide purchasers in disputes over the return of property to the state?

Persons who acquired property from owners who did not have the right to alienate this property are called «bona fide purchasers». How can their rights be protected in disputes over the return of this property to state ownership?

The answer to this question was sought by attorneys and judges during a roundtable discussion on «Discussion of problematic issues of protecting the property rights of bona fide purchasers in disputes over claims of prosecutors for the return/reclamation of property to state ownership» organized by the UNBA Committees on Business and Investor Protection and on Agrarian, Land and Environmental Law.

Sergiy Lysenko, Deputy Chairman of the UNBA Committee on Business and Investor Protection, outlined the issues that arise in court practice when considering cases on prosecutors' claims for reclamation of property from bona fide purchasers into state ownership.

Kirill Kuznetsov, Secretary of the UNBA Committee on Business and Investor Protection, drew attention to the lack of a legislative definition of a «bona fide purchaser» and also identified a number of criteria, taking into account the decision of the Supreme Court of Ukraine of 18.01.2023 in case No. 488/2807/17, which indicate the presence of such a status, namely:

1) whether the person behaved in good faith at the stage preceding the acquisition of the land plot from state/municipal ownership;

2) if the acquirer received the land plot from a private person who illegally acquired it from state/municipal ownership, whether the final acquirer could have found out this by exercising reasonable care (for example, during a visual inspection of the land plot, by reviewing certain documents);

3) whether there are any ties between the final and initial purchasers of the state/municipal land plot (e.g., family, friendship, work, business, in particular through joint participation in legal entities).

He also drew attention to the dissenting opinion set forth in the resolution of the Supreme Court of Ukraine dated 18.01.2023 in case No. 488/2807/17, regarding the need to establish whether a person was or could have been aware of its actual location, natural properties, and available documentation at the time of acquisition of the disputed land plot to establish the proportionality of the reclamation of the disputed land plot to the legitimate purpose of applying such a restriction on the right to peaceful enjoyment of property, which is not regulated by any provision of the current legislation.

The speaker raised the issue of effectiveness and harmonization with the procedural codes of the provisions of the draft Law No. 9302, which provides for amendments to Article 390 of the Civil Code (amendments relate to the provision that the court, simultaneously with the satisfaction of the claim for reclamation of property from a bona fide purchaser, must decide on the reimbursement to the bona fide purchaser of the costs incurred by him for the acquisition of property).

Yuriy Chumak, Judge of the Commercial Court of Cassation emphasized that one of the important components of proof in this category of cases is the issue of establishing the presence or absence of the will of the property owner, the state represented by the authority, to dispose of the property belonging to it, as required by Part 1 of Article 388 of the Civil Code.

He also emphasized that when representing bona fide purchasers in court, a lawyer should take an active position, draw the court's attention to the need to comply with the principles and guarantees of property rights protection, and the current practice of the European Court of Human Rights. At the same time, the court of cassation is not empowered to interfere with the adversarial nature of the process and consider issues that were not the subject of consideration in the court of first instance

The judicial practice has not fully resolved the problem of protecting the rights of a bona fide purchaser, whereby he loses property and is forced to seek ways to compensate for his losses. According to the practice of ECHR judgments (Fresso and Rouard v. France), such a construction is unacceptable and can be interpreted as arbitrary interference by the state with human rights without an urgent need.

When considering such categories of cases, there is a certain abuse of procedural power by the prosecutor's office. One example is when prosecutors file lawsuits with commercial courts in order to establish certain facts of violations of current legislation in criminal proceedings.

S. Lysenko noted that the courts, including the cassation instance, rather superficially consider, and sometimes do not investigate at all, the prosecutor's office's compliance with important principles of legitimate purpose, a fair balance between the interests of the state (society) related to the interference and the interests of the individual, the principle of good governance, when the state should be responsible for violations committed by the authorities during the alienation of property, which led to negative consequences in the form of reclamation of property from a bona fide purchaser. The judges of the Supreme Court drew attention to these and other issues regarding the observance of the guarantees of property rights enshrined in Article 1 of Protocol 1 to the Convention for the Protection of Human Rights and Fundamental Freedoms in their dissenting opinion to the resolution of the Supreme Court of 07.11.2018 in case No. 488/5027/14c.

As a result, the speakers presented a number of ways to protect the rights of bona fide purchasers:

- initiation of court proceedings against the owner of the land plot for reimbursement of expenses for maintenance and preservation of the land plot incurred from the time when the owner has the right to return it, and in case of improvements to the land plot that cannot be separated from it without causing damage to it - for reimbursement of expenses incurred in the amount by which the value of the land plot has increased based on the conclusions of the Supreme Court, which were set out in the Resolution of the Supreme Court of 07.11.2018 No. 488/6211/14c;

- initiation of court proceedings against the seller of the land plot, as well as the state body (as a result of whose actions the procedure for land allocation was violated) for compensation for damages due to improper performance of obligations based on the conclusions of the Supreme Court, which were set out in the resolution of the Supreme Court of 29.05.2019 No. 367/2022/15-ts, of 12.06.2019 No. 487/10128/14.