Author - Ivan Horodyskyy

On May 22, 2023, the Law of Ukraine "On compensation for certain categories of immovable property damaged and destroyed as a result of hostilities, acts of terrorism, diversion caused by the armed aggression of the Russian Federation against Ukraine" (hereinafter, the Law of February 23, 2023) will enter into force. The adoption of the Law has become the first legislative step towards the introduction of real mechanisms of compensation for damages to victims of Russian aggression at the national level. 

However, we should keep in mind that it is not a universal tool for solving all problems related to the compensation for damages, and that it only applies to immovable property. And although it is indeed an important step towards regulating compensation mechanisms at the national level, a number of its shortcomings should be corrected to ensure fair and full compensation.

The history of the legislative regulation of compensation for war losses in Ukraine

The Verkhovna Rada worked on the compensation for war losses even before the full-scale invasion, and the first proposal in this regard was draft law No. 5177 of March 1, 2021 "On the protection of property rights and other real rights of individual victims of the armed aggression." Although it did not directly address the damage caused by the aggression of the Russian Federation, the events after 2014 obviously became the reason for the development of this draft law, and it already took into account the law enforcement practice built during that period.

The authors of draft law No. 5177 proposed to guarantee individuals the right to compensation and to oblige the state to take measures to protect and restore their rights. The draft law provided for two forms of compensation: restitution (as a priority form) and compensation, as well as the creation of the State Register of Property Destroyed, Damaged and Lost as a Result of the Armed Aggression. Despite the fact that this draft law underwent a long parliamentary and expert review, and in February 2022 it was included in the agenda of the Verkhovna Rada, it became clear after the full-scale invasion of the Russian Federation that a new law should be drafted. 

New legislative initiatives in this field appeared soon after the beginning of the aggression. In particular, on March 24, 2022, draft law No. 7198, which we will study in detail, was registered, and on May 17, 2022, draft law No. 7385 "On compensation for damage caused to victims as a result of the armed aggression of the Russian Federation," The latter provided for the possibility of compensations for individuals and legal entities, as well as indemnification for moral and material harm. It also mentioned the creation of a special institutional mechanism, the Fund for the Compensation of Damage Caused to Victims as a Result of the Armed Aggression, as well as the State Register of Victims of the Armed Aggression. 

In the analytical report of the Dnistrianskyi Center "Reparations for Ukraine: Models, Prospects, Challenges" published in February 2023, we predicted that, despite the probability of the introduction of a brand new comprehensive draft law by the President or the Cabinet of Ministers, "the adoption of draft law No. 7198 appears to be most realistic, since its the authors are representatives of the majority in the Ukrainian parliament."

The content and key provisions of the Law of February 23, 2023

The Verkhovna Rada of Ukraine adopted the draft law No. 7198 on February 23, 2023. It addresses the compensation of losses caused by the destruction of or damage to the housing property. The draft law particularly defines the circle of persons who can claim compensation, the sequence of receiving compensation; ways and procedure to apply for compensation, and methods of its payment; mentions the creation of the State Register of Damaged Property, etc. 

At the proposal of the Parliamentary Committee on Economic Development, the law was supplemented with the provisions on creating the State Register of Property Damaged and Destroyed as a Result of Hostilities, Acts of Terrorism, and Diversions Caused by the Armed Aggression of the Russian Federation against Ukraine (hereinafter, the Register of Damaged and Destroyed Property). Taking into account the importance of this Register, as well as the amount of provisions dedicated to it in the Law, they will be analyzed in the next publication.

According to Article 2, claims for compensation may be filed both by individuals (owners, customers and investors in construction, members of cooperatives and their heirs) and legal entities (associations of co-owners of apartment buildings, maintenance companies, cooperatives). The priority will be given to combatants, conscripts, large families, and people with disability groups I and II (Article 9). Sanctioned persons and persons sentenced for crimes against national security, as well as their heirs, are excluded from the range of subjects who may claim compensation.

The compensation will cover both damaged and destroyed housing property. In the case of damaged property, the aim of compensation will be to restore the damaged property (Article 10), and in the case of destroyed property – to finance the construction of real estate property or the purchase of new property by issuing a housing certificate (Article 8).

Special commissions on granting compensation for destroyed real estate property created by local self-government bodies or military-civilian administrations will be responsible for resolving compensation-related issues. Victims should file applications for compensation to them in electronic (through the DIYA portal) or paper (through the Administrative Services Centers) form, with the documents attesting their ownership right and the proofs of destruction attached to the application.

The following funds are considered as sources for compensation according to Article 13 of the Law:

1) Funds of the state budget (including from the Property and Destroyed Infrastructure Restoration Fund, the Fund for the Elimination of Consequences of the Armed Aggression) and local budgets

2) Funds of international financial organizations, other creditors and investors

3) International technical and/or repayable or non-repayable financial aid

4) Reparations or other collections from the Russian Federation

5) Other sources not prohibited by the current legislation of Ukraine.

Detailed methodologies and the procedure for calculating and paying compensation etc. shall be outlined in the Procedure for Granting Compensation for Damaged Property, approved by the Cabinet of Ministers of Ukraine (Article 8). 

In the case of a positive decision to pay compensation for destroyed property, the recipient of compensation shall conclude an agreement on ceding to the state or territorial community the right to present claims for compensation to Russia (Article 8). It is interesting that the procedure for receiving compensation for damaged property does not contain such a norm (Article 10).

Conclusions and recommendations

Adoption of the Law of February 23, 2023 is an important step for the legal regulation of compensation for war losses in general, although its subject is limited only to compensation for damage to the housing property. This gave impetus to further legislative development of compensation issues, i.e. to other categories of persons and for damages caused to other types of property. And the international community received a signal that Ukraine is actively working not only in the foreign policy arena, but is also taking practical steps to create compensation mechanisms at the national level.

At the same time, provisions of the Law contain a number of problematic aspects to be resolved. In particular:

1) According to the Law, compensation shall cover the property destroyed or damaged after February 24, 2022. It raises questions regarding the property destroyed and damaged from 2014 to 2022. Collecting evidence and other documents related to this period may be more difficult than for the time after 2022. And even if these issues are eventually resolved in a separate reparation procedure, victims of that period will be in a worse position than those who suffered after February 24, 2022. 

In addition, we should not forget that Ukraine insists on the political and legal recognition of the fact that the aggression of the Russian Federation began in 2014, and the approach used in the Law seems to ignore this position. 

2. The list of individuals who may claim compensation is limited to the citizens of Ukraine. This is a discriminatory condition, as it excludes the possibility to claim compensation by foreigners and stateless persons who are the owners of the destroyed or damaged property, its investors or heirs of the owners. The international practice recognizes the right of all victims, regardless of their nationality, to claim compensation for war damages. For example, when Iraq compensated for damages for the invasion of Kuwait, citizens of 97 UN member states and Palestine received compensation.

3. The deadline for submitting claims is definitely insufficient: during martial law and within one year after its cessation (Article 4). In the initial wording, it was 90 days and was increased during the discussion of the draft law to one year after the cessation of martial law, but this will probably not always be enough. People will not always be able to access their own real estate within such a period, and there may be serious reasons for that: mining of the territory, being on the demarcation line, temporary control of the territory by the aggressor, etc. These circumstances may be defined by law as exceptional grounds for extending this term or may be regulated in another way.

4. Another problem is the lack of determination of the specific term for providing compensation to the victims and the term of completion of the compensation process as a whole. It is clear that the process of compensating for war losses is lengthy and at the moment it is difficult to predict the operational burden on the institutional compensation mechanism and the time required to process and consider all claims for compensation. However, the absence of time frames, on the one hand, can significantly extend this process, and on the other hand, it can disorient victims about the moment of receiving compensation.

5. The law does not provide for an administrative procedure for appealing against decisions of the Commission, and in the event of disagreement with them, the law proposes to bring the issue before the court (Article 11). This approach, on the one hand, creates additional legal and financial burdens for the victims (court fees, legal aid costs), and on the other hand, it increases the burden on the judicial system as a whole.

Creating the possibility to file a complaint against the Commission's decisions to a higher administrative body would make the administrative procedure for compensation more complete and full-fledged, and moreover, it would correspond to the international practice in the approach to compensation for war losses.

6. The law, despite the fact that it went through a long parliamentary procedure, contains a number of technical shortcomings, in particular, different names of the same document appear in different articles of the law. In one case, the Cabinet of Ministers must approve the "Procedure for Providing Compensation for Damaged/Destroyed Property", and in the other one – the "Procedure for Providing Compensation for Destroyed Real Estate Property." Such inaccuracies can make it difficult to develop, adopt and apply this "Procedure".

7. From a political point of view, the definition of a wide list of sources of compensation, which includes not only reparations from the Russian Federation, is debatable. On the one hand, victims' rights must be protected as soon as possible by compensating them for the cost of the lost housing. However, it is important that such compensation is paid from an appropriate source, or otherwise the concepts of "compensation" and "restoration after an armed conflict" may become confused. The compensation shall be paid at the cost of the Russian Federation, not from some other sources.

It does not mean that other sources shall not be used. However, it would probably make sense to create a mechanism to clearly distinguish the processes of "compensation" and "restoration" and to determine the appropriate source of funding for them. This could be done, for example, by a special fund that would attract funds from the state budget and international donors under the guarantees of their future repayment at the expense of reparations from the Russian Federation. It is also possible to provide different ways of functioning of this mechanism.

Summing up the whole information, we can positively assess the beginning of the process of regulating the issue of compensation for war losses in Ukraine. The Verkhovna Rada of Ukraine is currently considering draft Resolution No. 9280 of May 8, 2023 "On the specific aspects of the legislative regulation of the principles of providing compensation for victims of the armed aggression of the Russian Federation against Ukraine" and the draft law "On the basic principles of providing compensation for victims of the armed aggression of the Russian Federation" No. 9279 of May 8, 2023. This is indicative of the ongoing legislative process in this direction.

However, the problematic issues raised above should be resolved in the medium term. This is necessary to create effective mechanisms for protecting rights of victims of Russian aggression and increase an overall trust in the compensation process and its transparency.

The publication was prepared with the support of the International Renaissance Foundation as the part of the project "#Compensation4UA/Compensation for war losses for Ukraine. Phase II: ensuring the effectiveness of mechanisms at the national and international level" project.