Remedying Violations: a Formal and a Flexible Approach<\/strong><\/p>\nOne of the legal grounds for terminating a special subsoil\u2011use permit in the new version of Article 26 of the Subsoil Code of Ukraine is omission by the subsoil user to take measures to remove the causes of a suspension of the permit due to breaches of legislation. Earlier, when addressing similar issues, courts tended to rely on the provisions of the Law of Ukraine \u201cOn the Permit System in the Field of Economic Activity.\u201d<\/p>\n
When examining claims brought by the State Service of Geology and Subsoil of Ukraine to terminate (annul) a special permit on this ground, the courts proceed from the premise that it is not enough to record the mere fact of an omission to respond to identified violations. They also assess whether the measures actually taken were sufficient and consider the nature of the reasons why certain violations remained unremedied.<\/p>\n
In this regard, the Supreme Court applies the approach that \u201cthe failure to remedy certain violations which do not depend on the respondent\u2019s will cannot be regarded as a ground for annulment of a subsoil\u2011use permit.\u201d<\/p>\n
This approach was formulated in the resolution of the Cassation Administrative Court within the Supreme Court of 11 March 2025 in case No. 400\/3307\/23. The Supreme Court upheld the lower courts\u2019 findings that there were no legal grounds to terminate a municipal utility\u2019s special permit for not obtaining an environmental impact assessment (EIA) conclusion. The Court reasoned, in particular, that obtaining the EIA required payment, whereas the municipal water utility declared losses and such expenditure was not envisaged by the current tariff for water supply and wastewater services. The Court additionally took into account the enterprise\u2019s particular social, economic and environmental significance for the community\u2019s essential services.<\/p>\n
Conversely, in case No. 240\/3812\/19, the subsoil user fared less well.<\/p>\n
The State Service of Geology and Subsoil alleged that, from the time the right to use the relevant subsoil plot arose, the user had failed to formalise the land plot.<\/p>\n
Although the user sought approvals to obtain the land plot and even challenged the Cabinet of Ministers\u2019 inaction as the land manager, the cassation court in its 25 June 2024 ruling recorded passive conduct on the part of the subsoil user and agreed that termination of the special permit was lawful.<\/p>\n
In conclusion, active steps by a subsoil user to bring its operations into compliance do not invariably shield it from the risk of losing subsoil\u2011use rights\u2014even where not everything depends on the user\u2019s own conduct.<\/p>\n
Denial of Access for Inspection: a \u201cred card\u201d for the subsoil user<\/strong><\/p>\nA subsoil user is obliged to admit officials of the State Service of Geology and Subsoil of Ukraine to conduct inspections for the purposes of state geological control.<\/p>\n
This obligation follows from Article 11 of the Law of Ukraine \u201cOn the Basic Principles of State Supervision (Control) in the Field of Economic Activity\u201d and from the agreements on the conditions of subsoil use, which form an integral part of the special permit.<\/p>\n
Refusing to admit specialists to verify compliance with the conditions of subsoil use\u2014especially upon a repeated visit\u2014is a serious breach that may lead to annulment of the special permit.<\/p>\n
Previously, such conduct was qualified as a breach of the subsoil\u2011use agreement and of statutory requirements that obstruct the State\u2019s control functions aimed at protecting the public interest.<\/p>\n
Since 28 March 2023, refusal to admit inspectors has been expressly defined in the Subsoil Code as a ground for suspending a special permit, while termination is possible if the causes of suspension are not remedied (i.e., upon a repeated refusal to admit).<\/p>\n
The seriousness of this breach is illustrated, inter alia, by case No. 380\/12531\/21, where the subsoil user twice refused to admit specialists for an inspection, arguing that its director was physically in another region and therefore could not admit the inspectors. Another argument was that the user\u2019s property had been seized and transferred to the Asset Recovery and Management Agency (ARMA).<\/p>\n
In its ruling of 13 November 2024, the Supreme Court rejected these arguments and affirmed that there were legal grounds to annul the special permit: (1) the seizure concerned the user\u2019s property complex, not the wells; and (2) the director\u2019s absence on site does not negate the fact of refusal to admit inspectors.<\/p>\n
Ultimate Beneficial Owner: a \u201csanctions filter\u201d<\/strong><\/p>\nUnder the Law of Ukraine of 1 December 2022 \u201cOn Amendments to Certain Legislative Acts of Ukraine to Improve Legislation on Subsoil Use,\u201d Article 13 of the Subsoil Code was supplemented to provide that legal entities whose ultimate beneficial owners (UBOs) are sanctioned persons and natural persons who are citizens or residents of the aggressor state cannot be subsoil users.<\/p>\n
This gives rise to the question of how these consequences apply where the relevant circumstances arose before the amendments to the Code.<\/p>\n
The Supreme Court\u2019s practice is not uniform across these scenarios.<\/p>\n
\n- If the UBO is a resident of the aggressor state, an existing special permit is not terminated. In its ruling of 21 May 2025 in case No. 400\/9675\/23, the Supreme Court held that there were no grounds to annul a current special permit solely because the subsoil user\u2019s UBO is a citizen of the aggressor state. The Court noted that, prior to the entry into force of Law No. 2805\u2011IX (effective 28 March 2023), Part 3 of Article 26 of the Subsoil Code stated that other cases of termination of subsoil\u2011use rights could be provided by Ukrainian law; however, this clause was deleted by Law No. 2805\u2011IX.<\/li>\n<\/ul>\n
Accordingly, after the amendments, the Code does not provide for grounds to terminate a special permit other than those listed in Article 26, which does not include the presence of a UBO who is a citizen of the aggressor state.<\/p>\n
The Court also observed that the Final Provisions of Law No. 2805\u2011IX do not envisage annulment of special permits already issued to persons who do not meet the amended requirements of Article 13 of the Subsoil Code.<\/p>\n
\n- If sanctions are applied to the UBO, the special permit is suspended\/terminated. Addressing termination on the ground that sanctions had been imposed on the subsoil user\u2019s UBO before the legislative amendments, the Supreme Court\u2014in its ruling of 18 October 2024 in case No. 160\/8773\/23\u2014agreed with the position of the State Service of Geology and Subsoil.<\/li>\n<\/ul>\n
The Court\u2019s logic was that the Law of 1 December 2022 was published three months before it entered into force, making its consequences foreseeable for the subsoil user and thus allowing time to take steps in advance\u2014in particular, to change the UBO so as to avoid suspension of the special permit.<\/p>\n
The Court explained that this deferred effective date was intended to provide sufficient time to eliminate the grounds for suspending the granted permit.<\/p>\n
In this context, attention should also be paid to the Supreme Court\u2019s ruling of 26 May 2025 in case No. 160\/1038\/24, in which the Court refused to recognise the disposal by a person subject to asset\u2011blocking sanctions of his\/her share in a Ukrainian company\u2014even if such disposal was purportedly effected in a foreign jurisdiction. The Court held that asset\u2011blocking sanctions:<\/p>\n
\n- have an extraterritorial character, i.e., they are not confined to the territory of Ukraine;<\/li>\n
- may extend to assets abroad where there is a mechanism for enforcement through international cooperation;<\/li>\n
- the registration of a new UBO in a foreign jurisdiction does not automatically entail recognition of that fact in Ukraine;<\/li>\n
- a transaction purporting to sell the share bears the hallmarks of sanctions circumvention and is null and void as contrary to Ukraine\u2019s public order.<\/li>\n<\/ul>\n
Thus, we face a situation where, on the one hand, the Supreme Court maintains that a subsoil user could, during the three\u2011month period before the amendments to the Subsoil Code took effect, take steps to change its UBO. On the other hand, the Court deems unlawful the exit of such a sanctioned UBO even under the laws of foreign jurisdictions. The cassation court did not illuminate a clear way out of this impasse; in practice, each case will have to find its own fact\u2011specific path forward.<\/p>\n
Interim Measures (Injunctive Relief): choosing the right strategy<\/strong><\/p>\nOne tactic used by subsoil users in response to sanctions imposed on their UBOs is to transfer the rights under the special permit. To complete this procedure, the purchaser must apply to the State Service of Geology and Subsoil (Derzhheonadra) to have the relevant changes recorded in the permit.<\/p>\n
In practice, however, Derzhheonadra often refuses to amend a permit if a \u201csanctions trace\u201d is detected; the next step typically is termination of the special permit.<\/p>\n
Subsoil users try to counter the highly probable loss of the permit by challenging Derzhheonadra\u2019s orders in court and seeking to preserve the status quo through interim measures (injunctive relief).<\/p>\n
In case No. 620\/9187\/24, the subsoil user challenged Derzhheonadra\u2019s order refusing to amend the permit. At the same time, it asked the court to secure the claim by (i) staying the effect of the refusal order and (ii) prohibiting Derzhheonadra from taking any actions regarding the permit other than entering the requested amendments.<\/p>\n
In its ruling of 7 January 2025 in this case, the Cassation Administrative Court held that an order refusing to amend a special subsoil\u2011use permit does not produce executory legal effects; accordingly, its \u201cexecution\u201d or \u201coperation\u201d cannot be stayed by way of interim relief.<\/p>\n
A somewhat different strategy was used in case No. 138\u0437\u043f\u201125\/160. As before, events unfolded adversely for the subsoil user: Derzhheonadra first refused to amend the permit and then terminated it. The user brought separate challenges against the refusal order and the termination order. As interim relief in the action seeking to declare the termination order unlawful and to set it aside, the claimant requested: (i) suspension of the termination order, and (ii) a prohibition on Derzhheonadra taking any steps to transfer the subsoil\u2011use rights to third parties.<\/p>\n
On 27 August 2025, the Supreme Court upheld the lower courts\u2019 decisions granting such interim measures. The Court reasoned that, if the claim to quash the disputed termination order were ultimately allowed, a transfer of the subsoil\u2011use rights to other persons would deprive the claimant of the ability to realise its legitimate interest\u2014namely, to carry out subsoil\u2011use activities on the basis of the sale\u2011and\u2011purchase agreement for the special permit. At the same time, suspension of the contested order is temporary, is not equivalent to quashing it, and does not amount to determination of the dispute on the merits.<\/p>\n
Conclusion. In such scenarios, it is prudent to calibrate the relief sought. A refusal to amend a permit in connection with its transfer does not justify a court\u2011ordered prohibition on Derzhheonadra terminating the permit\u2014even where such termination is foreseeable. However, targeted interim relief aimed at maintaining the claimant\u2019s ability to realise its rights (e.g., by suspending a termination order and preventing onward transfer to third parties) may be justified and sustained on appeal.<\/p>\n
Winning the auction guarantees nothing<\/strong><\/p>\nAn unfortunate situation arose with the winner of an auction for a special subsoil\u2011use permit, whose claim against Derzhheonadra\u2014seeking a declaration of unlawfulness of its inaction in failing to conclude a sale\u2011and\u2011purchase agreement for the permit\u2014was examined in case No. 320\/1572\/23.<\/p>\n
In that case, the subsoil user paid the platform operator\u2019s fee and the cost of the auction documentation package three days after the regulatory deadline.<\/p>\n
The Supreme Court was categorical: the time limits set by the Procedure for Conducting Auctions (Electronic Trading) for the Sale of Special Subsoil\u2011Use Permits for paying the platform operator, as well as the forfeiture of the winner\u2019s right to obtain the permit for missing those payment deadlines, are mandatory (ruling of the Cassation Administrative Court of 27 February 2025 in case No. 320\/1572\/23).<\/p>\n
After the auction results are announced, the winner must strictly follow the order and timing of each subsequent step. Otherwise, the winner will not acquire the subsoil\u2011use right and will forfeit the guarantee payment.<\/p>\n
Conclusion<\/strong><\/p>\nIn matters concerning termination of subsoil\u2011use rights, the Supreme Court employs both formal and flexible approaches and may account for the social, economic and environmental significance of a subsoil user\u2019s operations.<\/p>\n
Denial of access for inspection affords no benefit to the operator; on the contrary, it constitutes an independent ground for suspension or termination of a special permit.<\/p>\n
Jurisprudence on the status of ultimate beneficial owners reflects a tightening of sanctions control while at the same time exposing issues of legal certainty as to how operators may lawfully adapt to the new realities. Interim measures can preserve the status quo only where they are precisely tailored to the subject matter of the claim and do not predetermine the merits.<\/p>\n
Finally, auction winners must observe strict post\u2011award discipline: even seemingly minor breaches can result in irreversible consequences, including loss of the right to subsoil use and forfeiture of the guarantee payment.<\/p>\n
Vitaliy Izvekov<\/p>\n
Council at Esquires<\/p>\n","protected":false},"excerpt":{"rendered":"
Legal regulation of relations in the field of subsoil use in Ukraine rests on a fundamental constitutional principle whereby subsoil constitutes an object of ownership of the Ukrainian people. This principle underscores the primacy of nationwide (public) interests over private interests in subsoil use and requires all actors to comply strictly with the legislation. The […]<\/p>\n","protected":false},"author":2,"featured_media":21784,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[50],"tags":[],"class_list":["post-21783","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-publications"],"yoast_head":"\n
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This principle underscores the primacy of nationwide (public) interests over private interests in subsoil use and requires all actors to comply strictly with the legislation. 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