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The Supreme Court: the right to appeal court rulings on appointment of tax audits within criminal proceedings is approved!

20 July, 2018 Newsletters

The Supreme Court: the right to appeal court rulings on the appointment of tax audits within criminal proceedings is approved!

The issue of the illegality of the appointment of tax audits within criminal proceedings by investigating judges was first raised in October 2016 in our newsletter “Tax audits within criminal proceedings: unlawfulness, inadmissibility, consequences”.

The legal community has faced a very serious problem from the first attempts at struggling against such court rulings – the courts of appeal were denying in opening of appeal proceedings upon appeal complaints due to the fact, that Article 309 of the Criminal Procedure Code of Ukraine does not provide the right to challenge such court rulings to the court of appeal. However, the Criminal Procedure Code of Ukraine provides neither right to investigators/prosecutors to apply to investigating judges with petition on the appointment of tax audits within criminal proceedings, nor the right to investigating judges to deliver such court rulings.

Obviously, certain appeal court panels, that approached to the resolution of the issue of right to challenge court rulings on appointment of tax audits within criminal proceedings from the perspective of the rule of law, have accepted for consideration and satisfied the appeal complaints of the taxpayers (for more information see the newsletter by the link) – however, the overwhelming majority of the appeal court judges tried to shrug off such appeal complaints and merely denied in opening of appeal proceedings upon such complaints.

These court rulings on denial in opening proceedings were challenged to the court of cassation. Even more, there was certain negative court practice – particularly, the Resolution of the Second Chamber of the Cassation Criminal Court of the Supreme Court as of February 15, 2018 in case No. 757/2200/17-к. By this Resolution the court has found the appeal court ruling on denial in opening appeal proceedings upon the appeal complaints on the court ruling appointment of tax audits within criminal proceedings legitimate. Mentioned Resolution was clearly illegal and unjustified, for more information see the newsletter by the link.

At the same time, fortunately, the judicial panel of the First Chamber of the Cassation Criminal Court of the Supreme Court has delivered the Court Ruling as of March 06, 2018 in case No. 51-499км17 and concluded to submit the case upon cassation complaint on the Court Ruling of the Appeal Court of Donetsk region as of August 30, 2017 on denial in opening appeal proceedings upon complaint on the Court Ruling on appointment of audit within criminal proceedings delivered by investigating judge – for consideration by the Grand Chamber of the Supreme Court as such, which contains an exclusive legal problem and this submission is required for ensuring the development of law and formation of a single law enforcement practice.

Thereafter, the legal community with bated breath was looking forward to the decision of the Grand Chamber of the Supreme Court: whether the Grand Chamber is going to confirm the right to appeal court rulings within criminal proceedings and whether the right of investigating judges to deliver such court rulings would be considered at all.

On May 23, 2018 the Grand Chamber of the Supreme Court (hereinafter – “the Grand Chamber”) has delivered the Resolution in case No. 243/6674/17-к (is available by the link), by which the Court Ruling of the Appeal Court of Donetsk region as of August 30, 2017 on denial in opening appeal proceedings upon complaint on the Court Ruling on appointment of audit was canceled and the new consideration of the complaint was appointed in the court of appeal (hereinafter – “the Grand Chamber Resolution”).

THE GRAND CHAMBER LEGAL STANCE

According to para. 15 of the Grand Chamber Resolution the court proceeded from the following (quote):

“15. By the Court Ruling as of August 30, 2017 with regard to part 4 of Article 399 of the Criminal Procedure Code of Ukraine the Appeal Court of Donetsk region denied in opening proceedings upon appeal complaint of attorney acting on behalf of TOV “NVO “Syntop” on the court ruling of investigating judge of the Slovyanskiy municipal and district court of Donetsk region as of July 27, 2017. The court of appeal noted, that due to the fact that mentioned court ruling of the investigating judge is not included into the list of court rulings subject to be challenged within pre-trial investigation (Article 309 of the Criminal Procedure Code of Ukraine), it is not a subject to appeal. Therefore, it is the ground for denial in opening appeal proceedings. However, the appeal court disregarded the fact that criminal procedural rule applied concerns denial in opening appeal proceedings upon appeal complaints exclusively on those court rulings of investigating judges which are provided by the Criminal Procedure Code of Ukraine.

In other words, the Grand Chamber judged by the fact that since the Criminal Procedure Code of Ukraine does not stipulate any legal grounds and procedure for delivering court rulings on appointment of audits within criminal proceedings by investigating judges, the provisions of Article 309 of the Criminal Procedure Code of Ukraine foreseeing the list of investigating judges’ court rulings subject to appeal within pre-trial investigation, shall not be applied in this case.

Herewith, considering the issue regarding the application of procedural rules the court in para. 16 of the Grand Chamber Resolution agreed with the court of cassation which submitted this case for consideration by the Grand Chamber:

“…Provided that the investigating judge delivers the court ruling not foreseen by the criminal procedural provisions to which provisions of part 3 of Article 309 of the Criminal Procedure Code of Ukraine refer, the court of appeal has no right to deny in examination of such court ruling with respect to its lawfulness with reference to requirements of part 4 of Article 399 of the Criminal Procedure Code of Ukraine. The right to appeal such court decision is to be secured by application of para. 17 of part 1 of Article 7 and part 1 of Article 24 of the Criminal Procedure Code of Ukraine, which ensures such right, according to provisions of part 6 of Article 9 of the Criminal Procedure Code of Ukraine. This Article determines that in case provisions of the Criminal Procedure Code of Ukraine do not regulate or ambiguously regulate issues of criminal proceedings, the general principles of criminal proceedings determined by part 1 of Article 7 of the Criminal Procedure Code of Ukraine shall be applied…”.

Herewith, coming up with an argument regarding application of provisions of the criminal procedural law, the Grand Chamber specified in para. 20-21 of the Resolution the following:

20. Ensuring the right to reconsider the case in the court of appeal is one of the main principles of court procedure (para. 8 of part 3 of Article 129 of the Constitution of Ukraine, Article 14 of the Law of Ukraine as of June 02, 2016 No. 1402-VIII “On court procedure and status of judges”).

Mentioned law provisions are specified in para. 1, 2 and 17 of Article 7 of the Criminal Procedure Code of Ukraine pointing that the content and form of criminal proceedings should be consistent with the general principles of criminal proceedings and particularly with ensuring the right to appeal procedural decisions, actions and inaction.

21. The court rulings delivered by investigating judges may be appealed in cases, foreseen by the Criminal Procedure Code of Ukraine (part 3 of Article 392 of the Criminal Procedure Code of Ukraine). The literal interpretation of this provision leads to the conclusion that court ruling delivered by investigating judge may be appealed only if it is allowed by the certain provision of the Criminal Procedure Code of Ukraine. However, the Constitutional Court of Ukraine while considering provision of para. 8 of part 3 of Article 129 of the Constitution of Ukraine reached a conclusion that appealing court decision is possible in any cases except those when the law contains a prohibition on such appealing (paragraph 2 of subpara. 3.2. of Decision of the Constitutional Court of Ukraine as of January 27, 2010 No. 3-рп/2010…).

Whereas the court ruling on granting permission for conducting an unscheduled audit is not provided by the Criminal Procedure Code of Ukraine, there is neither permission, no prohibition on appealing such court ruling”.

Herewith, provisions of Article 309 of the Criminal Procedure Code of Ukraine provide that other court rulings delivered by investigating judge (in this respect right to appeal such court rulings on the pre-trial-stage is not provided by mentioned Article) are not subject to appeal and may be objected during the preliminary procedure in the court. With regard to abovementioned, application of such requirements in this case would violate the right to effective judicial protection. In particular, the Grand Chamber in para.22 of its Resolution stated the following:

“Part 3 of Article 309 of the Criminal Procedure Code of Ukraine provides, that other court rulings delivered by investigating judge are not subject to appeal and may be objected during the preliminary procedure in the court. It means, that in the event when parties disagree with other court rulings delivered by investigating judge, the lawfulness of such court rulings is subject to be examined by the court of the first instance during the preliminary procedure. The Grand Chamber of the Supreme Court agrees with arguments delivered by the Cassation Criminal Court judge panel and set forth in the court ruling as of March 06, 2018 regarding the fact, that mentioned audit is not effective legal remedy from a possible violation of Article 8 of the Convention for the Protection of Human Rights and Fundamental Freedoms (hereinafter – “the Convention”) and Article 1 of the First Protocol to the Convention, since, firstly, not all criminal cases within which the unscheduled audits were conducted would be taken to the court with an indictment. Secondly, preliminary case hearing in the court of the first instance, even if the indictment has been taken to the court, may occur far too late to remedy the violation. Thirdly during the preliminary court hearing the judge is not authorized to commit actions and take decisions, which can result in remedy the violation of Convention, caused by interference from the part of the state”.

In support of abovementioned, the Grand Chamber provided the European Court of Human Rights case law with regard to application of Article 8 of the Convention for the Protection of Human Rights and Fundamental Freedoms (hereinafter – “the Convention”) regarding the conditions of admissibility of the appeal complaint, noticing that one aspect of “Right to trial” is right to access the court, which is not absolute and may be subject to restrictions (posing restrictions is allowed according to the content, especially related to conditions of admissibility of the appeal complaint). However, such restrictions should be applied according to the legitimate purpose and should keep the balance between the remedies applied and the purpose set (the ECHR Decision “Volovik v. Ukraine”, “Kreuz v. Poland”, “Podbielski and PPU Polpure v. Poland”).

At the same time the Grand Chamber notes, that restriction imposed on access to court would be incompatible with clause 1 of Article 6 of the Convention if such restriction does not have a legal purpose or if there is no reasonable balance between the remedies applied and the legality of the purpose, which is aimed to be achieved (the ECHR decision “Tinnelly & Sons Ltd and Others and McElduff and Others v. the United Kingdom”).

Based on the mentioned above, the Grand Chamber in para. 26-28 of the Resolution came to the following c o n c l u s i o n s:

26. Given the importance of rights determined by Article 8 of the Convention and Article 1 of the First Protocol to the Convention for entities with regard to business activity of which unscheduled audits are granted by the investigating judges , and taking into account the lack of reliable procedural mechanisms for the protection of rights within the preliminary procedure, the Grand Chamber considers the right for appeal consideration of such court rulings within pre-trial investigation stage to be practical and effective.

27. Since the investigating judge of the Slovyanskiy municipal and district court of Donetsk region adopted a decision that grants permission for conducting a complex unscheduled audit, which is not foreseen by the Criminal Procedure Code of Ukraine, the court of appeal, while settling the issue on opening appeal proceedings upon appeal complaint on such decision, should have been guided by the provisions of part 6 of Article 9 of the Criminal Procedure Code of Ukraine as regards the application of general principles of the criminal proceedings, determined by part 1 of Article 7 of the Criminal Procedure Code of Ukraine. Among such principles is ensuring the right to appeal procedural decisions, actions and inaction (para. 17 of part 1 of Article 7 of the Criminal Procedure Code of Ukraine). The content of this principle is defined in Article 24 of the Criminal Procedure Code of Ukraine, according to the first part of which everyone has a guaranteed right to appeal procedural decisions, actions and inaction of court, prosecutor, investigator as prescribed by the Criminal Procedure Code of Ukraine.

28. The Grand Chamber presumes that THE COURTS OF APPEAL ARE OBLIGED TO OPEN APPEAL PROCEEDINGS UPON COMPLAINTS ON COURT RULINGS GRANTING PERMISSION FOR CONDUCTING UNSCHEDULED AUDITS DELIVERED BY INVESTIGATING JUDGES”.

Thereby, the Grand Chamber has eventually eliminated the contradictory practice related to appealing court rulings on the appointment of audits, delivered by investigating judges, and actually confirmed the right of individuals/entities to appeal such court rulings.

AS REGARDS THE COURT RULINGS DELIVERED BY INVESTIGATING JUDGES

However, as regards the issue of illegality of the court ruling on appointment of audit within criminal proceedings, which was also mentioned in the cassation claim, the Grand Chamber stated, that the court of cassation is deprived of the right to comment this issue, since the court of appeal has not considered these arguments and has not given its reasons regarding this issue. Therefore, the Grand Chamber was limited by the cassation proceeding.

In this regard, we consider that the Grand Chamber actually gave the appeal courts a fair shot to turn over a new leaf in consideration of such appeal complaints. Thus, the Grand Chamber directly pointed out in the Resolution that delivering court rulings on the appointment of audits is not provided by the Criminal Procedure Code of Ukraine.

Particularly, the Grand Chamber in para. 14, 15, 21, 27 of the Resolution stated the following:

“14. ANY RULE OF LAW to which investigating judge in the court rulings refers, DOES NOT PROVIDE him with authorities to deliver the court ruling on granting permission for conducting an unscheduled audit.

15. … However, the appeal court disregarded the fact that applied criminal procedural provision concerns denial in opening appeal proceedings upon appeal complaints exclusively on those court rulings of investigating judges that are provided by the Criminal Procedure Code of Ukraine. …

21. Whereas the court ruling on granting permission for conducting an unscheduled audit IS NOT PROVIDED BY THE CRIMINAL PROCEDURE CODE OF UKRAINE, there is neither permission, no prohibition on appealing such court ruling. …

27. Since the investigating judge of the Slovyanskiy municipal and district court of Donetsk region adopted a decision that grants permission for conducting a complex unscheduled audit, which is not provided by the Criminal Procedure Code of Ukraine…”.

Thereby, the Grand Chamber actually established the fact, that none of the provisions of the Criminal Procedure Code of Ukraine envisages the right of investigating judge to appoint an audit within criminal proceedings. Based on this particular fact a conclusion regarding the right to appeal such court rulings on general principles of the Criminal Procedure Code of Ukraine bypassing the provisions of Article 309 of the Criminal Procedure Code of Ukraine was made.

Therefore, according to part 6 of Article 13 of the Law of Ukraine as of June 02, 2016 No. 1402-VIII “On court procedure and status of judges”:

“6. Conclusions regarding the application of the provisions of law, set forth in resolutions of the Supreme Court, shall be taken into account by other courts when applying such rules of law”.

Besides, according to provisions of part 4 of Article 434-1 of the Criminal Procedure Code of Ukraine:

“4. The court, which considers the criminal proceedings in cassation and is represented by judge panel, chamber or joint chamber, shall submit such criminal proceedings for consideration of the Grand Chamber of the Supreme Court if such judicial panel (chamber or joint chamber) considers it necessary to waive the conclusion on application of the provisions of law in similar legal relationships, which was previously given in the Grand Chamber’s decision”.

In other words, the courts of cassation shall follow the conclusions on the application of the provisions of law, set forth in the Grand Chamber’s decision. Accordingly, the mentioned rule shall be automatically applied to the courts of first and appeal instances, for re-consideration of decisions of which the Cassation court is responsible.

Thereby, the given conclusions on the application of the rules of law, set forth in the Resolution of the Grand Chamber of the Supreme Court shall be taken into account by the court of appeal, and proceedings upon this appeal complaint shall be opened.

We considered stated above as legal community’s victory in the battle lasted for the last 2 years.

NEW CASE LAW

After the mentioned decision of the Grand Chamber was adopted, KM Partners’ Attorneys managed to cancel the Court Ruling on the appointment of the tax audit within criminal proceeding delivered by the investigating judge relating to one of the clients.

In particular, the Court of Appeal of the city of Kyiv by the Ruling as of July 09, 2018 in case No. 11-сс/796/3256/2018 has canceled the Court Ruling on appointment of the tax audit delivered by the investigating judge of the Pechersk District Court of the city of Kyiv as of March 03, 2018 (is available by the link) stating that:

The effective Criminal Procedure Code of Ukraine does not contain any provisions, which could provide the prosecutor or investigator with the right to apply to the investigating judge with petition on appointment of unscheduled documentary audit within criminal proceedings, as well as the Code does not determine the procedure of consideration of such petitions along with authorities of the investigating judge to consider such petitions and deliver decision based on results of consideration of petition on appointment of unscheduled audit…
Therefore, in absence of authorities granted to the investigating judge for consideration of the prosecutor’s petition on appointment of unscheduled documentary audit, as well as in absence of procedure of consideration of such petition determined by the Criminal Procedure Code of Ukraine, the judge panel reached a conclusion that the investigating judge of the Pechersk District Court of the city of Kyiv, having satisfied the prosecutor’s petition, exceeded powers granted to him by the criminal procedure law and adopted a decision, which is not provided by the Criminal Procedure Code of Ukraine and, consequently, does not meet the requirements of Article 370 of the Criminal Procedure Code of Ukraine.

Given the above, the judicial panel reaches the conclusion, that the court ruling delivered by the investigating judge of the Pechersk District Court of the city of Kyiv as of March 03, 2018 was adopted in non-procedural way upon violations of requirements of Article 26 the Criminal Procedure Code of Ukraine, i.e. upon significant violations of the requirements of the criminal procedural law, which prevented to adopt a lawful and justified decision, thus, is subject to be canceled”.

Therefore, we can see the supremacy of law already applied by the appeal courts. We believe that the investigating judges will follow this legal enforcement.

The above commentary presents the general statement for information purposes only and as such may not be practically used in specific cases without professional advice.

Kind regards,

© WTS Consulting LLC, 2018

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