ECONOMIC COURT OF KYIV 01030, Kyiv, B. Khmelnitskogo, 44-B, phone

Transcription

1 ECONOMIC COURT OF KYIV 01030, Kyiv, B. Khmelnitskogo, 44-B, phone DECISION IN THE NAME OF UKRAINE January 9, 2009 Case No. 5/5 Of suit filed by the Ministry of Fuel and Energy of Ukraine Against defendant-1 National Joint Stock Company Naftogaz of Ukraine Against defendant-2 Open Joint Stock Company Gazprom The third party on the side of defendant-1, which does not present independent claims as to the subject of the suit, subsidiary Ukrtransgas of the National Joint Stock Company Naftogaz of Ukraine: The third party, presenting independent claims as to the subject of the suit, the Cabinet of Ministers of Ukraine On adjudging annexes to contract invalid Judge L.B. Ivanova (chairman) Judge O.A. Khripun Judge L.D. Golovatyuk Representatives of proceedings participants: On behalf of defendant S.V. Nasvischuk (acc. to Power of Attorney No. 02/ dated ) On behalf of defendant-1 Yu.P. Gromnitskyi (acc. to Power of Attorney No dated ) S.V. Davidenko (acc. to Power of Attorney No dated ) On behalf of defendant-2 have not appeared On behalf of the third party On the side of defendant-1 S.V. Perepelitsa (acc. to Power of Attorney No dated ) On behalf of the third party which presents independent claims as to the subject of the suit E.A. Vlasenkova (acc. to Power of Attorney No /184 dated ) FACTS OF THE CASE: The Ministry of Fuel and Energy of Ukraine has addressed to the Economic Court of Kyiv with a suit against the National Joint Stock Company Naftogaz of Ukraine (defendant-1) and Open Joint Stock Company Gazprom (defendant-2) on adjudging Annex No. 1 GU-06 dated January 4, 2006, to long-term contract dated June 21, 2002, and Annex No. 1 GU-07 dated April 20, 2007 to long-term contract dated June 21, 2002 invalid for the future starting from the date of decision. By ruling dated January 5, 2009, proceedings have been initiated with regard to case No. 5/5, and also, subsidiary Ukrtransgas of the National Joint Stock Company Naftogaz of Ukraine has been engaged in this case as the third party on behalf of defendant-1, presenting independent claims as to the subject of the suit. By virtue of part two of Article 21 of the Law of the Ukrainian SSR On Languages in the Ukrainian SSR, all proceedings were held in Russian. [[Seal: Economic Court of Kyiv, Records Department No. 2] Page 1

2 The plaintiff s claims are based on abuse of authority by the National Joint Stock Company Naftogaz of Ukraine which lies in conclusion of disputable Annexes with the absence of Intergovernmental protocols. Substantiating the need of availability of such protocols, the plaintiff refers to the following circumstances. On October 4, 2001, the Cabinet of Ministers of Ukraine and the Government of the Russian Federation concluded an agreement on additional measures of ensuring transit of Russian natural gas across the territory of Ukraine, which stipulated conclusion of a long-term contract on transit of Russian natural gas across the territory of Ukraine for the period between 2002 and 2013 between the National Joint Stock Company Naftogaz of Ukraine and Open Joint Stock Company Gazprom, and also the need to establish the amount of payments for transit on the basis of annual Inter-governmental protocols for the respective year. On the basis of this agreement, on June 21, 2002, the defendants concluded a long-term contract on volumes and terms of transit of Russian natural gas across the territory of Ukraine for the period between 2003 and 2013 (hereinafter referred to as Contract). This Contract also stipulates annual signing of Annexes to it according to annual Intergovernmental protocols, which shall coordinate the volumes of gas transit, distribution of volume among the consumers, distribution of the volume among directions of transit, distribution of volume of transit by quarters, conditions of settlements for rendered services on gas transit. But, according to the statements of the plaintiff, the Intergovernmental protocols for years 2006, 2007 and 2008 to the Contract have not been signed. Despite this fact, the National Joint Stock Company Naftogaz of Ukraine and Open Joint Stock Company Gazprom concluded Annexes to the Contract No. 1 GU-06 dated January 4, 2006, and No. 1 GU-07 dated April 20, 2007, which established the rate of fee for services of Russian gas transit across the territory of Ukraine in the amount of USD 1.6 per 1 thousand cubic m of gas per each 100 km of distance till the end of As the plaintiff says, the above-mentioned actions of defendant-1 on signing of disputable Annexes without respective Intergovernmental protocols contradict article 241 of the Civil Code of Ukraine, which is the basis for adjudging them invalid. By ruling dated January 5, 2009, the Economic Court of Kyiv satisfied the suit of plaintiff on application of measures to support the suit, namely: defendant-1, subsidiary Ukrtransgas of the National Joint Stock Company Naftogaz of Ukraine and any other persons are prohibited to provide defendant-2 with services on transit of natural gas across the territory of Ukraine on the basis of transit rate fee of USD 1.6 per 1000 cubic meters starting from the year of During court proceedings, the representative of the plaintiff supported the presented claims in full volume and asked for sustaining of the case. On January 9, 2009, the Cabinet of Ministers of Ukraine as the third party who presented independent claims as to the subject of the suit, submitted a writ on adjudging Annexes No. 1 GU-06 dated January 1, 2006 and No. 1 GU-07 dated April 20, 2007 to the long-term contract dated June 21, 2002, invalid for the future starting from the date of decision. The basis for filing the suit is the non-conformity, according to the opinion of the Cabinet of [[Seal: Economic Court of Kyiv, Records Department No. 2] Page 2

3 Ministers of Ukraine, of disputable Annexes with the legislation of Ukraine currently in force, namely Article 2 of the above-mentioned agreement dated October 4, 2001, which, according to part 2 of article 9 of the Constitution of Ukraine, is a part of national legislation of Ukraine. By ruling of January 9, 2009, the specified writ was accepted by the court for consideration on the basis of article 26 of the Economic Procedural Code of Ukraine. The representative of the Cabinet of Ministers of Ukraine, during the court proceedings, has completely sustained the claims. The representative of defendant-1 had no objections as to the essence of the suit and explained that the Intergovernmental protocols have not been signed before signing of the disputable Annexes. The representative of defendant-2 has not appeared at the court meeting, despite the fact that he had been duly informed about consideration of his case. The representatives of the plaintiff, with the purpose of execution of requirements of the court ruling, presented proof that they have forwarded copies of the writ and court ruling to the address of the Open Joint Stock Company Gazprom. Besides that, the materials of the case contain proof that the court rulings dated January 5, 2009, have been sent to the address of defendant-2 by courier service and facsimile. Participants of the proceedings (representatives of plaintiff, defendant-1 and the third parties) have expressed the opinion, during the proceedings, about the possibility to consider the case in essence in the absence of the representative of defendant-2, and also, they have drawn the court s attention to the fact that the mass media also informed about notification of authorized persons of Open Joint Stock Company Gazprom about the place and time of court proceedings, the subject matter of the case, basis for claims etc. The representatives of the parties and the third parties who appeared in court focused their attention upon the fact that the basis for lawsuit are the illegal actions of defendant-1, i.e. the National Joint Stock Company Naftogaz of Ukraine, and not Open Joint Stock Company Gazprom. In view of the above-said, the court considers it possible to consider the case according to the documents available according to article 75 of the Economic Procedural Code of Ukraine. The National Joint Stock Company Naftogaz of Ukraine, before the beginning of consideration in essence, has submitted an application on conduction of hearing of case No. 5/5 in private (closed) court proceedings. This application has been sustained by ruling of the court dated January 9, 2009, on the basis of article 4 4 of the Economic Procedural Code of Ukraine. During consideration of the case according to article 81-1 of the Economic Procedural Code of Ukraine, technical record of the proceedings has been performed with the help of soundrecording technical device. Having considered the documents and materials presented by the participants of the court proceedings, having heard the explanations of the representatives of the proceedings participants, having verified the circumstances on which claims and objections are based, in full volume, [[Seal: Economic Court of Kyiv, Records Department No. 2] Page 3

4 having objectively evaluated all proof in total which are significant for the case and solution of dispute in essence, the court has established: On June 21, 2002, in Kharkiv, defendant 1 in the person of deputy director of the Board, Viktor Voronin, acting on the basis of Power of Attorney No dated June 18, 2002, and defendant-2 in the person of deputy director of the Board, Aleksandr Ryazanov, acting on the basis of Power of Attorney No. D d dated November 30, 2001, concluded a contract on volumes and terms of transit of Russian natural gas across the territory of Ukraine for the period between 2003 and Starting from the preamble of the specified contract, the basis for its conclusion have been the principles of agreement dated December 22, 2000, between the Government of the Russian Federation and the Cabinet of Ministers of Ukraine about guarantees of transit of Russian natural gas across the territory of Ukraine and Agreement dated October 4, 2001, between the Cabinet of Ministers of Ukraine and the Government of the Russian Federation about the additional measures on ensuring transit of Russian natural gas across the territory of Ukraine. This contract says that its parties are legal entities of Ukraine (defendant-2) and the Russian Federation (defendant-2). Solving the matter of jurisdiction of this dispute in the economic courts of Ukraine, the court is guided by the following. According to article 124 of the Economic Procedural Code of Ukraine, the economic courts consider cases with the participation of foreign enterprises and organizations, if the defendant is located on the territory of Ukraine. The jurisdiction and cognizance of cases with the participation of foreign enterprises and organizations shall be determined according to the rules established by articles 12 to 17 of the given Code. In this dispute, one of the defendants is the National Joint Stock Company Naftogaz of Ukraine, which is located in Kyiv, Ukraine. According to article 124 of the Economic Procedural Code of Ukraine, this is the basis to consider this dispute according to the procedure of economic legal proceedings of the Economic Court of Kyiv. The same conclusions may be made on the basis of other acts of legislation which determine matters of jurisdiction of cases with the participation of enterprises which are non-residents of Ukraine, including norms of international treaties of Ukraine. So, according to article 4 of the Economic Procedural Code of Ukraine, if the international treaties of Ukraine which are made mandatory by the consent of the Verkhovna Rada of Ukraine, stipulate other rules than those which are stipulated by legislation of Ukraine, then the provisions of the international treaty shall apply. According to article 1 of the Agreement on procedure of solution of disputes related to performance of economic activity dated March 20, 1992 (hereinafter referred to as Agreement dated March 20, 1992), the mentioned Agreement shall regulate matters on solution of cases which arise out of contractual and other civil and legal relations between the economic bodies, or out of their relations with the state and other bodies, as well as execution of decisions made with regard to them. Article 2 of the Agreement determines that, with the purpose of this Agreement, the economic bodies shall mean enterprises, their associations, organizations of any organizational and legal forms, as well as citizens who have the status of entrepreneur according to legislation valid at the territory of states members of CIS, and their unions. [[Seal: Economic Court of Kyiv, Records Department No. 2] Page 4

5 This Agreement was signed by Ukraine on December 19, 1992, and ratified by resolution of the Verkhovna Rada of Ukraine No ХII dated December 19, 1992, and so it forms a part of legislation of Ukraine. Also, the given Agreement was ratified by resolution of the Supreme Council of the Russian Federation No dated October 9, In view of article 4 of the Economic Procedural Code of Ukraine, the Agreement on procedure of solution of disputes related to performance of economic activity shall form the integral part of legislation of Ukraine shall prevail in application in comparison to norms of national legislation, including laws of Ukraine currently in force. As it was stated above, according to articles 1 and 2 of Agreement dated March 20, 1992, this Agreement regulates matters related to solution of any civil and legal disputes in which legal bodies of Agreement parties take part, including bodies of Ukraine and the Russian Federation, which is what both defendants are, as well as state bodies, to which the plaintiff is related. According to clause a of part one of Article 4 of the Agreement dated March 20, 1992, the competent court of the state-member of CIS shall be entitled to consider disputes specified in article 1 of this Agreement, if the defendant had a permanent place of residence or place of location at the territory of this state-member of CIS as of the date of submission of suit. If several defendants located at the territories of different states-cis members take part in the case, the dispute shall be considered at the place of location of any defendant, as the plaintiff shall decide. Thus, in view of imperative norm of the international agreement or treaty which is made mandatory by the consent of the Verkhovna Rada of Ukraine, the dispute of civil and legal nature in which the plaintiff is the legal body of Ukraine and the defendants are located both at the territory of Ukraine and the Russian Federation may be considered by the competent court of Ukraine in case if this court was chosen by the plaintiff at his own discretion. In view of the fact that the plaintiff, being a legal entity of Ukraine, presented claims against two legal persons economic bodies registered in Ukraine and the Russian Federation, and, at that, the plaintiff chose the Economic Court of Kyiv as the place of legal proceedings, the consideration of such case by the specified court meets the requirements of the Agreement dated March 20, In view of the fact that the matter of establishment of jurisdiction of the Ukrainian court is solved at the level of the international agreement, the norms of national legislation which determine a different procedure cannot be applied due to the provisions of article 4 of the Economic Procedural Code of Ukraine which established priority of application of international agreement norms over the norms of any normative act of Ukraine. At that, the court also has paid attention to the fact that clause 11 of article 76 of the Law of Ukraine On International Private Law determines determination of jurisdiction by international treaty of Ukraine as one of the cases when this or that dispute is subject to jurisdiction of Ukrainian courts. On the basis of all the above-mentioned, the court shall draw the conclusion that this dispute is subject to jurisdiction of the economic courts of Ukraine. At that, the court takes into consideration that the provisions of article 12 of the Contract dated June 21, 2002, determine the procedure of consideration and solution of disputes according to the Regulation of the Arbitration Institution of the Chamber of Commerce of Stockholm only in the case if such disputes arose between the parties. The parties, according to article 1 of the Contract dated June 21, 2002, are [[Seal: Economic Court of Kyiv, Records Department No. 2] Page 5

6 Executor (NJSC Naftogaz of Ukraine, defendant-1 in the case) and Customer (OJSC Gazprom, defendant-2 in the case). The plaintiff and the Cabinet of Ministers of Ukraine are not parties to the Contract and have no legal possibility to address to the Arbitration institution of the Chamber of Commerce of Stockholm to protect their rights and interests. Considering the matter on choice of legislation which is applicable to the evaluation of relevance of disputable additional agreements, the court shall be guided by the following: Article 124 of the Constitution of Ukraine establishes that justice in Ukraine is exercised by courts only. The jurisdiction of the courts shall cover all legal relations which arise in the country. According to the Constitution of Ukraine, in the system of general jurisdiction courts, general and specialized courts of individual (separate) court jurisdictions are established. Specialized courts are economic, administrative and other courts defined as specialized courts (article 19 of the Law of Ukraine On Judicial System of Ukraine ). On the basis of articles 21 and 22 of the Law of Ukraine On Judicial System of Ukraine, the Economic Court of Kyiv is a local economic court which considers cases that arise out of economic relations, as well as cases which are related to their jurisdiction by the procedural law. According to article 4 1 of the Economic Procedural Code of Ukraine, the economic courts solve economic disputes according to the action proceedings stipulated by the given Code. According to article 4 of the Economic Procedural Code of Ukraine, the economic court shall solve economic disputes on the basis of the Constitution of Ukraine, the Law on Economic Courts, the Economic and Procedural Code of Ukraine, other legislative acts of Ukraine, international treaties which are made mandatory by the consent of the Verkhovna Rada of Ukraine. Part four of article 4 of the Economic Procedural Code of Ukraine established that the economic court shall apply the norms of law of other states only in cases when liability on application of such norms is established by law or international agreement. Based on all the above-said, evaluating the matter of relevancy of concluded agreement and availability of basis for adjudging it invalid, the economic court shall, upon general rules, be guided by legislation of Ukraine. The exceptions of this rule may be established only by the valid norm of the Law of Ukraine or the international agreement on condition that the consent for its application is determined (granted) by the Verkhovna Rada of Ukraine. According to article 1 of the Law of Ukraine On External Economic Activity, an external economic agreement (contract) is a materially executed agreement of two or more bodies of external economic activity and their foreign counteragents, aimed at establishment, change or termination of their mutual rights and duties in the external economic activity. The disputable additional agreements to the contract dated June 21, 2002, in their essence are the external economic contracts because they are aimed at occurrence of legally significant consequences for the parties to the contract defendants in this case, one of which is a body of external economic activity of Ukraine, and the other is its foreign counteragent. The general bases for adjudging the external economic contract invalid are established by article 6 of the Law of Ukraine On Foreign Economic Activity which is applied by the economic court in view of article 4 of the Economic Procedural Code of Ukraine. According to [[Seal: Economic Court of Kyiv, Records Department No. 2] Page 6

7 the norm of part five of the article specified above, an external economic contract may be adjudged invalid in court proceedings if it does not meet the requirements of laws of Ukraine or the international treaties of Ukraine. Thus, the sufficient legal basis for adjudging an external economic contract, one of the parties to which is a Ukrainian body of the external economic activity, shall be non-conformity of the disputable contract with the imperative requirements of laws of Ukraine which are valid as of the moment of its conclusion and the international agreements ratified by the Verkhovna Rada of Ukraine. At that, the court shall pay attention to the fact that provisions of article 12 of the contract dated June 21, 2002, concluded between the defendants, which determine matters of law applicable to the interpretation of the contract, cannot be applied to this dispute. So, the third paragraph of clause 12.2 of article 12 of the Contract establishes that the law which regulates this contract is the substantive law of Sweden. Item 4 of article 1 of the Law of Ukraine On International Commercial Arbitration defined the concept choice of law as a right for the participants of legal relations to define, the law of what state is to be applied to the legal relations with the foreign element. The materials of this act do not contain the proofs of coordination by the plaintiff or the Cabinet of Ministers of Ukraine of application of the substantive law of Sweden to the legal relations between them and defendants. According to article 33 of the Law of Ukraine On the International Private Law, the validity of the deal, its interpretation and the legal effect of invalidity is defined by the law, applicable to the content of this deal. Article 32 of the Law of Ukraine On the International Private Law states that the content of deal can be regulated by the law, which is selected by the parties, except as otherwise permitted by the applicable law. Thus, article 12 of the contract dtd June 21, 2002, obligates to consider the dispute in the Arbitral Institute of the Stockholm Chamber of Commerce and to apply the substantive law of Sweden only of the parties of this contract. Under the indicated norm, any substantive-legal dispute that arose between the parties (which in this case are the defendants, but not the plaintiff and not the Cabinet of Ministers of Ukraine) on the above-mentioned contract or in connection with it, is be to resolved in the order, agreed by them, via the initiation of the international arbitration. At the same time, the plaintiff The Ministry of Fuel and Energy of Ukraine - and the third party with independent requirements with regard to the matter of dispute - the Cabinet of Ministers of Ukraine - are not the parties of the contract dtd June 21, 2002, and consequently, the disputes that arose between the plaintiff and defendants are outside the framework of conditions, stipulated by article 12 of the contract. The Court ascertains that the plaintiff and the Cabinet of Ministers of Ukraine did not sign the contract and the annex to it, and the conditions of the contract (including the conditions of article 12) were not agreed with them. In addition, the Court took into the account that the matter of dispute is not a contract, but the annex to it, while article 12 of the contract does not cover disputes, which arise in connection [[Seal: Economic Court of Kyiv, Records Department No. 2] Page 7

8 with the validity of annexes to the contract. According to part one of article 14 of the Law of Ukraine On the International Private Law, the provisions of the indicated law do not limit the effect of the imperative provisions of law, which regulate the corresponding relations, regardless of the law that is to be applied. Part two of the same article 14 of the Law On the International Private Law states that the court, regardless of the law that is to be applied, can apply the imperative provisions of the law of other state, which have close connection to the appropriate legal relations, except for the cases, defined by part one of article 14 of this law. At the same time, the court is to take into the account the purpose and nature of these provisions, and also the consequences of their application or non-application. The matter of judicial assessment in this case is the annex to the contract for provision of natural gas through the territory of Ukraine, and consequently, the examined relations are most closely related to Ukraine compared to other states. This circumstance by virtue of article 14 Law of Ukraine On the International Private Law also is foundation for the assessment of annexes for their conformity to the national legislation of Ukraine, including international agreements, the consent to the mandatory nature of which was given by the Verkhovna Rada of Ukraine. Taking into the account that the dispute on the validity of the disputed annexes to the contract arose between the plaintiff, the Cabinet of Ministers of Ukraine and defendants, which have not concluded any agreements on the application of other legislation, except for the Ukrainian one, and taking into the account that the defendants did not prove that the provisions of article 12 of the contract cover the plaintiff and the Cabinet of Ministers of Ukraine, which did not sign this contract, the court came to the conclusion that the law, on the basis of which the annexes to the contract, disputed by the plaintiff, are to be assessed, according to article 6 of the Law about External Economic Activity, is the substantive law of Ukraine. Assessing the provisions of the disputed annexes for their conformity to the requirements of the legislation of Ukraine and the grounds for their invalidation, the Court reasons from the following. On December 22, 2000, in Moscow the Government of Russian Federation and the Cabinet of Ministers of Ukraine signed the Agreement about the provision of transit of Russian natural gas through the territory of Ukraine. This Agreement was ratified by the Law of Ukraine No.2796-III dtd November 15, 2001, and approved by the Resolution of the Government of the Russian Federation No. 21 dtd. 11 January By the indicated agreement, the Governments of Ukraine and Russian Federation coordinated the basic principles of gas transition through the territory of Ukraine in On October 4, 2001, the agreement, indicated above, was modified on the basis of Agreement between the Government of the Russian Federation and the Cabinet of Ministers of Ukraine about additional steps on provision of transit of Russian natural gas through the territory of Ukraine (hereinafter referred to as Agreement dtd 4 October 2001), which was signed on that very day. [[Seal: Economic Court of Kyiv, Records Department No. 2] Page 8

9 Agreement dtd 4 October 2001 was signed by the Russian Federation on the basis of the resolution of the Government of the Russian Federation No.708 dtd 3 October 2001 and was ratified by the Law of Ukraine No III dtd 15 November According to the final paragraph of article 2 of Agreement dtd 4 October 2001, open joint-stock company Gazprom (defendant-2) and National joint-stock company Naftogaz of Ukraine (defendant-1) will until 1 November 2001 sign a long0term contract about transit of Russian natural gas through the territory of Ukraine for the period of Such contract was signed by the defendants on 21 June 2001 in the city of Kharkov. According to article 2 of the contract between defendant-2 and defendant-1 about volumes and conditions of transit Russian natural gas through the territory of Ukraine for the period from 2003 to 2013 (further referred to as the contract), the subject of the latter presupposes that defendant-1 grants transit services on onerous basis from the period from 2003 to 2013 exclusively of Russian natural gas of defendant-2 through the territory of Ukraine via pipeline transport from entry points on the border of the Russian Federation and Ukraine, and that of Republic of Belarus and Ukraine to the exit points on the border of Ukraine with other European states, from the border of the Republic of Moldova and Ukraine to the border of Ukraine with Rumania, through the territory of Luganskaya and Sumskaya oblasts of Ukraine to the south of the Russian Federation and to Kursk oblast of the Russian Federation in the volumes and within terms, envisaged by article 3 of this Contract. The provision of the second paragraph of article 2 of Agreement dtd 4 October 2001 establishes that the volumes of transit of Russian natural gas through the territory of Ukraine, and the amount of pecuniary payments and/or volumes of gas supply towards payment for transit will be clarified on the basis of annual Intergovernmental protocols for the corresponding year. According to article 1 of the contract, the term Intergovernmental protocol means the annual protocol between the Government of the Russian Federation and the Cabinet of Ministers of Ukraine to Agreement dtd 4 October 2001 between the Cabinet of Ministers of Ukraine and the Government of the Russian Federation about additional steps on provision of transit of Russian natural gas through the territory of Ukraine. Hence, according to the imperative norm of the current international agreement (article 2 of Agreement dtd 4 October 2001), consent to mandatory nature of which was given by the Verkhovna Rada of Ukraine, coordination of the matters of the volume of transit of Russian natural gas for every given year of the validity of the Contract and establishment of the amount of payments (or volumes of gas supply towards clearing off these payments) for gas transit through the territory of Ukraine for this year does not belong to the power of the defendants, and is established on the basis of Intergovernmental protocols, which are signed by the authorized representatives of the Cabinet of Ministers of Ukraine and the Government of the Russian Federation. The same principle of establishing the volumes of transit of gas and the amount of payments towards clearing off the services, granted for transit, was also taken into the account in the contract. Thus, according to regulation of the final paragraph of item 3.1 of the contract, the volumes of transit of Russian natural gas through the territory of Ukraine will be clarified on the basis of annual intergovernmental protocols for the corresponding year and will be indicated in the annual annexes to this Contract. [[Seal: Economic Court of Kyiv, Records Department No. 2] Page 9

10 According to item 8.1 of the Contract, the payment rate for transit of 1000 (one thousand) of cubic meters of Russian gas through the territory of Ukraine from the borders of Ukraine with the Russian Federation, Ukraine with the Republic of Belarus, Ukraine with the Republic of Moldova to the borders of Ukraine with other European states, from the border of Ukraine with the Republic of Moldova to the border with Rumania, and to the border with the Russian Federation for provision of gas to the consumers of Kursk oblast and the south of the Russian Federation is established on the basis of annual intergovernmental protocols for the corresponding year and is indicated in the annual Annexes to this Contract. By item 9.1 of the Contract, the defendants agreed that defendant-2 pays for services, granted by defendant-1 in transportation of Russian gas through the territory of Ukraine in the order, established by annual intergovernmental protocols for the corresponding year, and this order is indicated in the annual Annexes to this Contract. In other words, both the requirements of the current legislation and contract conditions divest the defendants of the right to establish the volumes of gas, which is transited through the territory of Ukraine, as well as of the right to establish the price for the transit of this gas. According to the requirements of Agreement dtd 4 October 2001 and the contract, such powers is due exclusively to the Government of the Russian Federation and the Cabinet of Ministers of Ukraine, and these powers are implemented via signing a joint protocol. In particular, the court established the fact of signing such protocols for 2003, 2004 and 2005, which indicate the volume of natural gas, which is to be transited through Ukraine and the payment rate for natural gas (the copies are subjoined to the case materials). Resolving the dispute with regard to lawfulness of the conclusion of disputed annexes, the court reasons from the following. On January 4, 2006, in Moscow the defendants concluded annex No. 1 GU-06 to Contract dtd 21 June 2002 between National joint-stock company Naftogaz of Ukraine and Open joint-stock company Gazprom about volumes and conditions of transit of Russian natural gas through the territory of Ukraine for the period from 2003 to 2013 (hereinafter referred to as annex No.1 GU-06). By item 1 of annex No.1 GU-06 the defendants agreed that defendant-2 in 2006 transfers Russian natural gas in the volume of 127,777 billion cubic meters to delivery and acceptance units on the border of Russian Federation and Ukraine, Republic of Belarus and Ukraine, as well as Republic of Moldova and Ukraine, whereas defendant-1 guarantees its acceptance and further transit through the territory of Ukraine to delivery and acceptance units on the border of Ukraine with Rumania, Hungary, Slovakia, Poland and Moldova, as well as on the border of Ukraine and the Russian Federation for the consumers of the South of the Russian Federation and Kursk oblast, where the defendant-1 delivers, and defendant-2 accepts the indicated volume of gas. Thus, by item 1 of Annex No.1 GU-06 the defendants actually coordinated at their sole discretion the matter of the volumes of natural gas, the transit of which is to be carried out through the territory of Ukraine on the basis of Agreement dtd 4 October 2001 and the contract. At the same time, as it was indicated above, the matter of establishing the volume of transit of Russian natural gas through the territory of Ukraine for the corresponding year by [[Seal: Economic Court of Kyiv, Records Department No. 2] Page 10

11 article 2 of the current Agreement dtd 4 October 2001 is referred to the jurisdiction of the governments of the Russian Federation and Ukraine, and this matter is to be coordinated on the basis of Intergovernmental protocol. Under such conditions, the court comes to the conclusion that item 1 of Annex No.1 Gu- 06 shall meet the legal requirements only if the volume of transit of Russian gas through the territory of Ukraine, established in it, shall in 2006 correspond to the volume, indicated in the intergovernmental protocol, signed in the established order. According to article 33 of Economic Procedural Code of Ukraine, each party is to prove those circumstances, to which it refers as to the basis of its requirements and objections. The evidence is provided by the parties and other participants of the judicial proceedings. Contrary to requirements of article 33 of Economic Procedural Code of Ukraine, the defendants in the course of the court session failed to prove in the established order the fact that Intergovernmental protocol to Agreement dtd 4 October 2001, which would indicate the volumes of transit of natural gas through the territory of Ukraine, was concluded between the Cabinet of Ministers of Ukraine and the Government of the Russian Federation for 2006, and that this volume corresponded to the volume indicated in item 1 of annex No.1 GU-06 Thereby, the court took into the account the explanation of the representatives of the proceeding that this protocol was not concluded for Thus, the court established that item 1 of annex No.1 GU-06 contradicts the requirements of the norm of the second paragraph of article 2 of Agreement dtd 4 October As it was indicated above, according to part five of article 6 of the Law of Ukraine About external economic activity, the external economic contract can be invalidated by judicial means, if it does not meet the requirements of laws of Ukraine or international agreements of Ukraine. Taking into the account the fact that item 1 of annex No.1 GU-06 does not meet the requirements of the current international agreement of Ukraine article 2 of the Agreement between the Government of the Russian Federation and the Cabinet of Ministers of Ukraine about additional steps on provision of the transit of Russian natural gas through the territory of Ukraine, this article is be invalidated according to article 6 of the Law of Ukraine About external economic activity. On the same grounds, item 2 of annex No.1 GU-06 is to be invalidated, for, having established the daily limits of the gas volume, the defendants thus interfered in the competence of the governments of Ukraine and Russian Federation, which have the sole authority to establish such volumes via signing the corresponding protocol. The court has adjudged that by the regulations of Annex 1 GU-06 the issues of the amount of payments in terms of money and the amounts of gas supply in return for transit for 2006 were solved, and that according to article 2 of the Agreement issued on the 4 th of October 2001 it is under the authority of the Cabinet of Ministers of Ukraine and the government of the Russian Federation that have to draw up mutual intergovernmental protocols on that. In such a way, for instance, the scheme of defining the cost of gas transit service through gas-measuring unit Orlovka was agreed in term 3 of Annex 1 GU-06, whereas the cost of any transit service is defined by intergovernmental protocols according to the [[Seal: Economic Court of Kyiv, Records Department No. 2] Page 11

12 Agreement signed on the 4 th of October By term 4 of the Annex 1 GU-06 contrary to the demands of the Agreement signed on the 4 th of October 2001 the defendants agreed that the defendants define the cost of transit service whereas according to the Agreement the defendants have no right to fix these figures themselves. By term 5 of the Annex 1 GU-06 the defendants on their own, contrary to the demands of the Agreement, signed on the 4 th of October 2001 fixed the payment rate for transit service of 1000 m 3 of gas in the sum of 1,6 US dollars per 100 kilometers of the distance which in not under their authority, as is was stated above. The issues of the amounts of gas transit on the territory of Ukraine, the cost of gas transit services and the points of amount of gas supply in return for transit were settled by other terms of the Annex 1 GU-06 which according to term 2 of the Agreement signed on the 4 th of October 2001 can not be defined by the defendants alone but involves drawing up of intergovernmental protocols for In such a way, non-conformity of Annex 1 GU-06 to the demands of article 2 of the Agreement signed on the 4 th of October 2001 found by the court according to article 6 of the Law of Ukraine About foreign economic activity entails declaring Annex 1 GU-06 null and void. In connection with this, the action about declaring Annex 1 GU-06 null and void is the subject to being met. Settling the dispute of demands to declare the Annex 1 GU-07 issued on the 20 th of April 2007 null and void the court proceeds form the following: On the 20 th of April 2007 defendant-1 and defendant-2 signed Annex 1 GU-07 to the Agreement issued on the 21 st of June 2002 between the National Joint Stock Company Naftogas of Ukraine and the Joint Stock Company Gazprom about volumes and terms of Russian natural gas transit through the territory of Ukraine for the period of 2003 to 2013 (further Annex 1 GU-07). The court adjudged that by this Annex 1 GU-07 the defendants agreed on the issued concerning the amounts of Russian natural gas transit on the territory of Ukraine and the amounts of payment in terms of money and the amounts of gas supply in return for transit for In such a way, by terms 1 and 2 of Annex 1 GU-07 the defendants agreed on the amount of Russian gas transit on the territory of Ukraine in 2007 which, according to article 2 of the Agreement signed on the 4 th of October 2001 is under the authority of intergovernmental protocols signed by the Cabinet of Ministers of Ukraine and the Government of the Russian Federation. As well by Annex 1 GU-07 the defendants agreed on the payments for transit of natural gas on the territory of Ukraine (terms 3, 4, 5, 6, 7, 8 etc.). By term 16 of the Annex, contrary to the demands of the Agreement signed on the 4 th of October 2001, the parts adopted the right to define the amounts of gas transit on the territory of Ukraine and the cost of the transit, whereas this issue, as it is mentioned above, can be settled by intergovernmental protocols only. The court adjudged that the intergovernmental agreement between the Cabinet of Ministers of Ukraine and the Government of the Russian Federation provided by article 2 of the [[Seal: Economic Court of Kyiv, Records Department No. 2] Page 12

13 Agreement signed on the 4 th of October 2001 was not signed that indicates that the defendants by themselves at their own discretion settled the issued that can be settled only by agreement between the government of Ukraine and Russian Federation. Non-conformity of Agreement 1 GU-07 found by the court to the Agreement signed on the 21 st of July 2002 between the National Joint Stock Company Naftogas of Ukraine and the Joint Stock Company Gazprom about the amounts and terms of Russian natural gas transit through the territory of Ukraine for the period of to the demands of article 2 of the Agreement between the Government of the Russian Federation and the Cabinet of Ministers of Ukraine about additional measures for provision of Russian natural gas transit through the territory of Ukraine is a sufficient ground to declare it null and void on the basis of article 6 of the Law of Ukraine On foreign economic activity. In connection with this, the demands to declare Annex 1 GU-07 null and void are legitimate and are subject to be met. The court takes into consideration that The Ministry of Fuel and Energy of Ukraine has enough authority to start a legal case in the Economic Court. Such issues that are settled by the Agreement signed on the 4 th of October 2001 concern the management of fuel and energy complex of Ukraine and activity of defendant-1 as a company of fuel and energy complex whose corporate right are managed by the plaintiff (term of the statutes of defendant-1, ratified by the Cabinet of Ministers of Ukraine 747 issued on the 25 th of May 1998). Such issues according to the statute of the Ministry of fuel and energy of Ukraine (ratified by the decree of the Cabinet of Ministers of Ukraine 1540 issued on ) are in the authority of the plaintiff whose main tasks are managing the fuel and energy complex, realization of the government policy in the fuel and energy complex and realization of energy policy of the state (term 3 of the statute of Ministry of fuel and energy of Ukraine). According to article 16 of the Law of Ukraine «On international agreements of Ukraine» ministries and other legislative institutions, Counsel of Ministers of Autonomous Republic of Crimea, other authorities, the issues are under the authority of, that are settled by international agreement of Ukraine, provide the observance of the commitments taken by international agreements of Ukraine, see to exercising of the rights that result from such agreements for Ukraine and to observance by other parties of international agreement of their commitments. In such a way the plaintiff, being the minister, under the authority of whom are the issues settled the by the Agreement signed on the 4 th of October 2001, has enough authority to provide the fulfillment of the demands of the Agreement by the defendants during running of their activity according to the Agreement. Having determined the violations of the demands of the international agreement by the defendants that had to be controlled by the plaintiff, the plaintiff lawfully started the legal case in the court to stop the violation by declaring null and void of all the actions performed by the defendants that violate the international agreement that is annexes to the Agreement that have to by agreed upon by the government of Ukraine and the Russian Federation. As to starting a legal case by the Cabinet of Ministers of Ukraine the court pays attention to the fact that according to articles 113 and 117 of the Constitution of Ukraine the latter in the supreme body in the system of legislative bodies and implements home and foreign policy of the state and provides implementation of foreign economic activity of Ukraine. [[Seal: Economic Court of Kyiv, Records Department No. 2] Page 13

14 The matter of the dispute is nullity of the deals by means of which contrary to the interests of the state the defendants had settled the scheme of using the gas pipeline for transit of gas on the territory of Ukraine including the amount of payment for transit which harmed the state interest and threatened the energy safety of Ukraine which has to be guaranteed by the Cabinet of Ministers of Ukraine. The mentioned above grounds are sufficient for starting the legal case by the Ministry of Fuel and Energy of Ukraine about declaring null and void of Annexes 1 GU-06 issued on the 4 th of January 2006 and 1 GU-07 issued on the 20 th of April While making the decision the court took into consideration the fact that in the course of proceeding the fact that defendant-1 had no authority to sign disputable agreement was confirmed, in particular that was confirmed by the representative of the Cabinet of Ministers of Ukraine. Part one of the article 2003 of the Civil Code of Ukraine makes provisions that the contents of the deal can not contradict this Code, other acts of civil legislation and moral standard of the society. Non-observance of the demands of legislation during signing of the disputable annexes to the Agreement according to part one of article 203 and part one of article 215 of the Civil code of Ukraine is a ground for declaring such annexes null and void by the court. In connection with this the court comes to the conclusion that the demands stated by the Cabinet of Ministers of Ukraine are grounded and the actions are to be met in the full extend. According to article 49 of Economic Procedural Code of Ukraine the legal expenses of the Ministry of fuel and energy of Ukraine and the Cabinet of Ministers of Ukraine connected with the actions are to be paid by defendant-1 as the dispute was caused by the illegal actions of the latter. In particular, the National Joint Stock Company Naftogaz of Ukraine is to pay 340 Hr of the state duty and 236 Hr of expenses connected with informational and technical support of the judicial proceedings. Taking into consideration the mentioned above, and being guided by articles 33, 49, 82-85, 124 of Economic Procedural Code of Ukraine, by the Agreement about the procedure of settling disputes connected with running economic activity issued on the 20 th of March 1992, the Economic Court of Kiev city DECIDED: To meet the action of the Ministry of Fuel and Energy of Ukraine to the fullest. To meet the action of the Cabinet of Ministers of Ukraine to the fullest. To declare Annex 1 GU-06 issued on the 04 of January 2006 to the Agreement signed on the 21 st of June 2002 between the National Joint Stock Company Naftogas of Ukraine and the Joint Stock Company Gazprom about the amounts and terms of Russian natural gas transit through the territory of Ukraine for the period of null and void. To declare Annex 1 GU-07 issued on the 20 th of April 2007 to the Agreement signed on the 21 st of June 2002 between the National Joint Stock Company Naftogaz of Ukraine and the Joint Stock Company Gazprom about the amounts of terms of Russian gas transit on the [[Seal: Economic Court of Kyiv, Records Department No. 2] Page 14

15 territory on Ukraine for the period of null and void. To recover from the National Joint Stock Company Naftogaz of Ukraine (Ukraine, 01001, Kiev,6, Khmelnitskogo st. code ) for the benefit of the Ministry of Fuel and Energy of Ukraine (Ukraine, 01001, Kiev, 10, Khreshchatik, 30, code ) 340 Hr of state duty and 236 Hr of expenses for informational and technical support of the assize. The decision comes into action in ten days after it is made and signed. The decision can be appealed according to procedure and terms defined by the Economic Procedural Code of Ukraine. Judge [signature] Judge [signature] Judge [signature] L.B. Ivanova (presiding) О.А. Khripun L.D. Golovatiuk [[Seal: Economic Court of Kyiv, Records Department No. 2] Page 15