Our legal advices helped the Client to save money on unpromising litigation

In July 2018, our company was contacted by a Client, a representative of a housing association (hereinafter - the Association), with a request of filing a lawsuit against the former chairman of the association for embezzlement.

Given the fact that this process is time and money consuming, we advised the Client to first thoroughly study the issue and assess the chances of success. Thus, this work has become a vivid example of consulting as a first step and as a part of a significant potential service (in this case, the prosecution of the former Chairman of the Association).

Article 1191 of the Civil Code provides for the right of recourse against the guilty party. However, the only provision of the law is not sufficient to draft a statement of claim for damages. It is necessary to correctly identify the defendant, prove his/her guilt and provide appropriate evidence to the stated claims.

A detailed study of the Charter of the Association has shown that the governing body of the Association is the Board of Directors. According to the Charter, the Chairman of the Board of Directors ensures only the day to day running of the Association and the implementation of the decisions of the General Meeting and the Board of Directors, while the Board of Directors is responsible for conclusion of agreements and disposal of the funds of the Association, according to the income and expenditure budget approved by the General Meeting.

History of the cases like this shows that the courts, when deciding on matters of compensation for damages, proceed on the basis that the damage caused to the property of a legal entity (in particular, the Association) is subject to compensation only if the official acted unlawfully and his/her actions were guilty (i.e. he/she acted intentionally), and there is a direct causal relationship between the actions of the person and the damage.

Thus, in the Client’s situation, the claim for compensation for damages shall be issued against the Board of directors. However, the composition of the Managing Board is not specified in the Unified State Register of Legal Entities, Individual Entrepreneurs and Public Organizations of Ukraine, and the Client did not have any documents identifying the exact members of the Board of Directors at the time of the embezzlement.

Moreover, the damage was caused by actions which deemed to be a right and not an obligation, according to the law, i.e. the activities of the Board of Directors did not involve wrongful or illegal acts (actions or inactions).

Taking into account the data of the analysis, it was necessary to file a lawsuit against the Board of Directors, however, due to the lack of documentary proof of the specific individuals serving as members of the Board of Directors, a weak position on the confirmation of the illegality of their actions and, consequently, the causal relationship between the actions and consequences, we suggested the Client to abandon this attempt.

This case has served to emphasize once again the importance of the consultation services to the Client if his/her key goal is to get compensation for damages, rather than to satisfy personal emotional needs by prosecuting the former Chairman of the Association. In order to prevent irresponsible behaviour of the employees of legal entities, the owners should seek such services not upon detection of theft, but in order to prevent such cases and ensure a high level of the employees’ responsibility for the corrupt practices. This will contribute to avoiding such situations in the future.

Publication date: 21/08/2018

About author

Name: Volodymyr Gurlov

Position: Partner

Education: National Academy of the Security Service of Ukraine

Knowledge of languages: Russian, Ukrainian, English

Email: [email protected]

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