Ukraine: Professional Legal Aid Costs: A Move Back?

Last Updated: 20 February 2019
Article by Maksym Zamikhovskiy and Victoria Korneyuk

Approaches to compensating parties for legal aid costs were significantly liberalised after the new editions of procedural codes became effective and the advocacy institute was reformed. It gives hope for transformation of a helpless mechanism into an efficient means of court costs reallocation.

Conceptual element of the new approach was waiver of legislative regulation of compensation limits, which did not reflect the real attorney's fees and pricing policy on legal services market, as well as direct orientation to the conditions of legal aid agreements between a client and an attorney. The approach proclaimed by the legislator allowed the legal community to rely on introduction of civilised rules of the game, and provided clients with the opportunity to transfer the burden of paying for legal services to a party to a dispute against whom a judgment was made.

The constitutional right to professional legal aid and free choice of defence attorney is guaranteed by Art. 59 of the Constitution of Ukraine. According to Art. 22 of the Constitution of Ukraine, it may not be cancelled, and restricting the content and scope of existing rights and freedoms is prohibited. Thus, the right to free choice of defence attorney, including free choice and approval of conditions of legal aid provision, must be intact.

Furthermore, costs allocation mechanism must become some kind of a filter aimed at reducing the number of unreasonable or minor disputes between parties, which would be economically feasible to resolve in an out-of-court procedure, rather than face the burden of legal aid costs. In order to avoid potential abuses, the procedural codes provided courts with sufficiently wide discretionary powers to reduce costs claimed for compensation following a petition filed by other party should they be inconsistent with the «scale» of a case and scope of legal work performed.

At the same time, law practice analysis shows that courts' approaches to compensating legal aid costs not only remained unchanged, but became even more rigid in some cases. Court's discretion regarding the final determination of costs amount to be compensated resulted in reviewing attorneys' work, when, in the absence of procedural rules, which would provide relevant powers, courts assess the contractual conditions, scope and composition of legal services, property status of parties and many other conditions resulting in a significant reduction in the costs amount to be compensated.

As a result, practicing attorneys do not actually regard Art. 126 of the Code of Commercial Procedure of Ukraine and Art. 137 of the Code of Civil Procedure of Ukraine as an instrument that can compensate for costs incurred by a client on qualified and quality legal defence.

Required minimum

The composition and amount of costs related to paying for legal aid is included in the facts of a case to be proven. The following documents must be submitted to court in support of such circumstances: legal aid agreement (commission agreement, legal services agreement, power of attorney); documents certifying payment of a fee and other expenses related to legal aid provision; detailed description of actions performed (services rendered). Provision of court with the specified documents is a basic condition and prerequisite for allocating legal aid costs, and whether or not they will be satisfied depends on the level of detail and substantiation.

Such an approach to legal aid costs compensation was laid down by the legislator and applied by the Civil Cassation Court as part of the Supreme Court in case No. 372/1010/16-ц. In a decision dated 03/05/2018, the cassation court stated on the court costs allocation that if a party provides documentary evidence that it incurred legal aid costs (provides a legal aid agreement, services delivery and acceptance act, payment documents on paying for such services, calculation of such costs), then the court will have no grounds to refuse to award such cost to a party in whose favour a judgment was made.

The described approach is in line with the «permissive» nature of Art. 126 of the Code of Commercial Procedure of Ukraine and Art. 137 of the Code of Civil Procedure of Ukraine, which do not provide for assessment by court of contractual conditions or review of the scope of services beyond the principle of proportionality.

It should be noted that for the purposes of court costs compensation it does not matter whether an attorney represented a client under a power of attorney or a warrant (part 4 Art. 6 of the Code of Civil Procedure of Ukraine). However, the absence of a fully fledged legal aid agreement will make it impossible to determine the amount and subsequently compensate the attorney's fees.

Notwithstanding the provisions of clause 1 part 2 Art. 137 of the Code of Civil Procedure of Ukraine, which allows a party to provide evidence of the costs amount payable in the future, for enabling a court to award costs against an opponent, it is advisable to provide evidence of the actual legal aid costs incurred by a party. This is mentioned in a decision of Kyiv Court of Appeal dated 15/11/2018 in case No. 758/16719/17.

Unclear components of professional legal aid costs

The profession-oriented Law of Ukraine «On Advocacy and Practice of Law» does not use the term «professional legal aid», but instead defines practice of law through the provision of legal aid, as well as determines its types, among which client representation in courts plays a key role. Comprehensive interpretation of Articles 42 and 126 of the Code of Commercial Procedure of Ukraine gives grounds to conclude that such representation is not limited to participation in a court hearing and includes attorney's work beyond such hearing, including familiarization with case files, collection and submission of evidence and procedural documents, consulting a client.

In this regard, an issue must be resolved whether the time spent by an attorney on performing technical tasks in client's interests, as well as the «waiting» time spent by an attorney for reasons beyond his/her control, are to be included in the legal aid costs. Court's approach set forth in case No. 910/18954/17 is a good illustration of this issue. When allocating court costs in a ruling dated 22/08/2018, Kyiv Commercial Court of Appeal stated that such costs as sending documents by mail service were not attorney's legal aid and, therefore, were not compensable.

However, part 9 Art. 80 of the Code of Commercial Procedure of Ukraine expressly provides for a duty of a participant in a case to send copies of evidence to be submitted to other participants. Part 7 Art. 116 of the Code of Commercial Procedure of Ukraine states that sending documents by mail service is a proper way of submitting documents to court. In this case, time spent by an attorney on exercising procedural rights to submit documents is an integral part of representing a client in court and is related to a case (even though such an action is not a qualified legal work by its nature). Why the basic provisions of procedural codes are disregarded by courts is a rhetorical question, but it becomes no less topical because of that.

Another illustrative example is court's conclusion in the same case regarding the time spent by an attorney on representing a client directly at court hearing on the case in court of appeal. Thus, the court of appeal found that only 1 hour was justified out of six hours claimed, having taken into account that the total time of hearings, which took place on 30/05/2018, 27/06/2018 and 25/07/2018, did not exceed 1 hour, and the court hearing of 03/07/2017 did not take place at all.

At the same time, such an approach does not take into account time spent by a litigant waiting for a hearing in a case to commence should court hearings be rescheduled, which is a very common practice in domestic litigation. Such delays caused by improper organization of litigation are beyond the control of participants in a case. However, the burden of incurring them is necessary for representing a client and is directly related to case consideration by a court. Court's refusal to take them into account when allocating the court costs by reality criterion is odd, to say the least.

It should be noted that after mandatory recording of a court hearing using audio recording devices was introduced in courts of all jurisdictions, which also provides for recording the time a hearing commenced, the issue of proving a delay in hearing commencement is not a challenge.

Principle of proportionality

Having introduced a requirement to proportionality in the amount of attorney's services fees with the nature and complexity of a case, procedural codes provided no objective criteria for assessing the specified concept. As a result, we have a non-uniform judicial practice and a tendency to review attorneys' activity by court, which may be interpreted as interference with activity of an independent self-governing institute.

Legal position of the Cassation Court set forth in case No. 753/15683/15 is a classic example of broad understanding of proportionality. Claim amount in the case was UAH 110 million of loan debt, and the legal aid costs constituted 0.1% of the claim amount.

When allocating the costs incurred by bank for professional legal aid, the Supreme Court concluded that the submitted legal services agreement with an attorney at law, a memo slip, a description of services rendered and additional costs, and work performed delivery and acceptance act was not an unconditional ground for compensating court costs in the specified amount since they did not meet the reasonableness criterion.

The court believes that, since the services were provided by three attorneys involved in the legal support of a case, the same work was de facto performed, and professional legal aid costs amounting to UAH 120,000.00 were overestimated and constituted an excessive burden for a defendant. In such circumstances, the court awarded only UAH 5,000.00 against the defendant, which was 4.5% of the amount claimed for compensation.

By this decision the court de facto restricted the constitutional right of a party to free choice of defence attorney, having specified that conditions for providing legal aid were excessive. However, considering the claim amount and importance of the case for bank, we believe that this conclusion is groundless. The court de facto «advised» the party to use services of «cheaper» attorneys.

Disconcertingly, the examples of bold interference by courts in parties' procedural rights and mechanisms for organizing the work of large attorneys at law deprive large businesses and their legal counselors of the opportunity to get fair compensation for their legal aid costs by encouraging debtors to continue evading their contractual obligations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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