While still at the stage of drafting, the federal law on peculiarities of repayment and extrajudicial settlement of debts of borrowers residing in the territory of the Republic of Crimea and Sevastopol, called intense interest of lawyers. Its provisions are interpreted ambiguously even after January 10, 2016 – the date of entry into force.

The Federal Law No. 422-ФЗ of December 30, 2015 regulates repayment by individuals (including those engaged in entrepreneurial activities without forming a legal entity) residing in the territory of Crimea (borrowers) of debts under loan facility agreements with Ukrainian banks, which activities in the territory of Crimea was terminated according to decision of the National Bank of Ukraine. The said law regulates a wide range of issues, such as determining the amount of debt, calculation of interest on the loan, penalties and fines; determines the procedure for recalculation of the amount of debt under foreign currency loans.

Intense interest of a wide range of people to this law gave rise to a large number of controversial opinions. A special debate caused the issue of whether the law No. 422-ФЗ regulates relations between banks and their borrowers? Since the first reading of the draft law and up to the present the law remains an acute problem in the application of legislation to debts of the Crimean of borrowers as it has not uniform interpretation even in its application by courts.

We, defending clients’ interests of the Ukrainian banks constantly come across the diametrically opposing views of judges of the Crimean courts on the rules of Law No. 422-ФЗ. At the moment, it is not even necessary to state that some point of view prevails. With that in 9 out of 10 cases, the borrowers file to the court the application for applying provisions of the said law to their legal relations with the bank.

One of the common views of judges of the Crimean courts in disputes between borrowers and Ukrainian banks is what the law No. 422-ФЗ shall apply to such debt relations. Thus, in its decision the panel of judges of the Supreme Court of the Republic of Crimea on February 02, 2016 came to the conclusion on the need of application of the Law No. 422-ФЗ to relations between the Ukrainian bank JSC “Finance and Credit” and the borrowers located in the territory of Crimea.

As a result of such application the court by its decision upheld the statement of claim of the bank stating that for recovery of money from JSC “Finance and Credit” it is initially necessary to implement the pre-trial settlement procedure as set forth by Art. 2 of the Law No. 422-ФЗ. It states that if there is disagreement between the borrower and the person having the right to claim repayment of debt as regards repayment o debt arising from liabilities to banks operating in the territory of the Republic of Crimea and (or) in the territory of the city with federal status Sevastopol, the person having the right to claim repayment of debt is obliged to apply with a written application for settlement of disputes (hereinafter, the application) to the Fund (except in the case envisaged in part 2 of this article), which must be accompanied by the documents confirming that person’s right to claim repayment of the respective debt.

At the same time the legitimacy of such a position of the court calls into question not only application of the Law No. 422-ФЗ to the relations, in which the person referred to in paragraph 3 of Art. 1 of the Law No. 422-ФЗ does not participate, but also the fact that the court applied this law to legal relations that have arisen long before its adoption, because in a particular case the bank filed a lawsuit on recovery of debt as early as 2012. The analysis of the law does not give grounds to conclude that it has a retroactive effect and can be applied to legal relations that arose before its adoption.

Another common point of view of the Crimean courts is that the Law No. 422-ФЗ is not applicable to the relations between the Ukrainian banks and the borrowers permanently residing in the territory of Crimea. The courts of different jurisdictions stated this position in their rulings refusing debtors in applying at their request of rules of the Law No. 422-ФЗ.

I would agree with this position at least in terms of its soundness and conformity with the letter of the law, because the Law No. 422-ФЗ clearly defines the range of persons, relations between which it regulates, and, at the same time, banks are not such entities. In addition, the law has no retroactive effect and, thus, ipso jure can not be applied to the relations that arose before its entry into force, and we are talking about transactions concluded years earlier, such as loan agreements, mortgage contracts.

The fact that this law applies to debt relations only on the assumption that the debt was assigned to a Russian legal entity is also indicated by the provisions of the Regulation on extrajudicial settlement of disputes by the independent non-commercial organization “Depositors Protection Fund”, according to which the application filed only by the person referred to in paragraph 3 of Article. 1 of the Law No. 422-ФЗ, i.e. a legal entity established in the territory of the Russian Federation, may be considered.

The Law No. 422-ФЗ can not be applied to other legal relations either by operation of law or due to lack of mechanism for such application.

However, the Crimeans continue to go to court demanding application of provisions of the Law No. 422-ФЗ and the consequences of such application are different. In case law there are decisions according to which the Crimean courts completely removed obligations of borrowers to the Ukrainian banks. The obvious consequence of such actions may be that the receivables of the banks, which the banks may be expected to assign to third parties, will not only fall in price, but also fully depreciate due to termination of obligations by the courts operating at the location of the property securing the bank’s claims.