The court canceled decision revoking the lease of a Dobropilliavuhillia's mine by DTEK
The Commercial Court of Appeals satisfied the grievance of the State Property Fund of Ukraine (SPFU) and the Ministry of Energy of Coal of Ukraine (MECIU) regarding changes to the lease agreement for mines of Dobropilliavuhillia State Enterprise by DTEK. The DTEK aimed at excluding the Bilytska mine from the lease agreement, since the later did not meet the expected production output. This was reported in the decision of the Donetsk Commercial Court of Appeals dated July 24, 2018, and published on Unified State Register of Court Decisions of Ukraine webportal.
On July 18, 2018, the Donetsk Commercial Court of Appeals considered the appeal of the regional affiliation of the SPFU and the MECIU requesting to redress the decision of the Donetsk Regional Commercial Court taken on March 19, 2018.
In December of 2010, the DTEK Dobropilliavuhillia LLC entered into a contract with MECUI to lease all mines of Dobropilliavuhillia State Enterprise. According to the lease terms, the DTEK committed to decommission all exhausted mines. According to the MECUI, the Bilytska mine still has coal reserves for minimum of 100 years of production, or untapped 65 mil ton of high-volatile DG grade coals. In December of 2017, the DTEK contested the lease agreement in the court of original jurisdiction while requesting to exclude the Bilytska mine from the list of the five mines being leases from the Dobropilliavuhillia State Enterprise.
The DTEK grounded their position with new circumstances revealed regarding the mine, that could not have been known at the date lease agreement was signed. These circumstances included water influxes, eboulement of malm-rock in the longwalls, 2,7 meter dipping faults (first experienced in 2012), shrinking of the longwall thickness from 1.5 meter to 0.4 meter (first encountered in 2014). Because of all these geological complications, the mine did not perform to the projected level. The DTEK representatives noted, that the operational conditions of the mine deteriorated, and the company would have rejected the lease, if knew about these shortcomings. Thus, the lease contradicted commercial well-being of the parties, and should be amended.
The MECUI rejected the DTEK's reasonings while speculating on awareness of the private leaser about the condition of assets for the lease, and the lack of evidentiary support in line with Article 625 of Civil Code of Ukraine for termination of agreement based on newly revealed circumstances. In addition, both the MECUI and the SPFU, disapprove such selective exclusion of assets having been already leased.
“The coal beds at deposit field of the Bilytska mine is of thin nature (up to one-meter thickness). It is a common knowledge, that most of coal beds of the Donetsk Coal Basin (estimated 85 %) are the thin layer deposits, That cannot be debated in court as unforeseen circumstances”, as cited by the state defendants in the court decision. The MECUI stated, that DTEK did not introduced advanced technologies, or took any actions to modernizes equipment, and operated the mine using outdated technologies and project design. On top to all that, the lease agreement does not presuppose decommissioning of a mine with coal deposits in place, rather than conservation of it at the expense of a lessee.
The court of the original jurisdiction still agreed to reasonings of DTEK, and satisfied all of their claims in full. That laid a ground for MECUI and SPFU to impeach the award. On July 24, 2018, The Donetsk Region Commercial Court of Appeal issued the decision to revoke the award of the court of the original jurisdiction. As such, the litigation was unsuccessful for DTEK in ditching Bilytska mine from Dobropilliavuhillia‘s leased assets.