The Supreme Court explained whether the recognition of a normative act as invalid affects previously arisen obligations

The Supreme Court, sitting as a panel of judges of the Cassation Administrative Court, examined a dispute between a Limited Liability Company and the National Commission for State Regulation of Energy and Public Utilities (NERC) concerning the legality of the Regulator's order to eliminate violations of licensing conditions.

The key issue in case No. 380/4648/25 was to determine the legal consequences of a court recognizing a provision of a normative legal act as unlawful and invalid and its impact on obligations that arose during the period of that provision's validity.

Circumstances of the case

The Limited Liability Company challenged NERC's order dated February 25, 2025, No. 22-r, by which the Regulator obliged the company to eliminate violations of licensing conditions by fulfilling a power purchase agreement under the "green" tariff concluded with the State Enterprise "Guaranteed Buyer" and to make settlements regarding reimbursement of a share of the cost of balancing electricity imbalance.

The basis for the order was a scheduled inspection report, in which NERC established the company's debt to the State Enterprise "Guaranteed Buyer" in the amount of UAH 9.941 million for reimbursement of a share of the cost of balancing electricity imbalance.

The plaintiff argued that it did not sign the acceptance certificates and did not pay the corresponding amounts because they were calculated using the formula provided in paragraph 9.3 of chapter 9 of the Procedure for purchase by the guaranteed buyer of electricity, which was later recognized by the Supreme Court as unlawful and invalid in case No. 640/4069/21. According to the company, after such a court decision, the State Enterprise "Guaranteed Buyer" should have adjusted the relevant calculations.

NERC, on the other hand, stated that the disputed obligations arose during the period when the relevant provision was still valid, and therefore the company was obliged to fulfill the terms of the contract and reimburse the share of the cost of balancing the imbalance.

Decisions of the courts of first and appellate instances

The Lviv District Administrative Court dismissed the claim. The court reasoned that the recognition of paragraph 9.3 of chapter 9 of the Procedure as invalid does not affect legal relations and obligations that arose during its validity.

The Eighth Administrative Court of Appeal overturned this decision and satisfied the claim. The appellate court held that after the disputed provision was recognized as unlawful and invalid, its application to determine the amount of the reimbursement share for balancing costs was impossible. The court also noted that the State Enterprise "Guaranteed Buyer" subsequently did not use the disputed formula and had the opportunity to adjust the calculations.

Position of the Supreme Court

The Supreme Court noted that the key issue in the case is to determine the consequences of recognizing a normative legal act as unlawful and invalid for legal relations that arose during its validity.

The court recalled that according to Article 58 of the Constitution of Ukraine, normative legal acts do not have retroactive effect, and according to part two of Article 265 of the Code of Administrative Procedure of Ukraine, a normative legal act loses its validity from the moment the relevant court decision enters into legal force.

The Supreme Court confirmed its previously established legal position that recognizing a normative legal act as unlawful and invalid does not automatically terminate or revise the legal consequences that arose during its effect. Such a decision terminates the act's effect prospectively but does not apply retroactively to already existing legal relations unless otherwise expressly provided by law or court decision.

A normative legal act recognized by a court as unlawful and invalid loses effect only from the moment the relevant court decision enters into legal force, unless otherwise expressly provided by law or the court decision itself.

The court emphasized that the disputed obligations of the company regarding reimbursement of a share of the cost of balancing the imbalance arose between February and August 2022, when paragraph 9.3 of chapter 9 of the Procedure in the version of NERC Resolution No. 46 remained valid and was subject to application.

The Supreme Court also stressed that the challenged NERC order did not create new property obligations for the plaintiff and did not apply the formula later recognized as invalid. The Regulator only stated the fact of the licensee's failure to fulfill already existing obligations under the contract with the State Enterprise "Guaranteed Buyer" and applied legally provided measures in response to the violation of licensing conditions.

Furthermore, the Supreme Court emphasized that the mere challenge of a normative legal act or the expectation of its possible cancellation does not exempt a participant in the electricity market from the obligation to comply with the rules and contractual obligations in force at that time. A market participant does not have the right to independently refuse to comply with regulatory requirements solely due to disagreement or their judicial challenge.

The court also noted that issues regarding the correctness of calculating the disputed debt, the amount of the relevant sums, or grounds for their adjustment have a civil-law nature and may be the subject of a separate dispute between the contracting parties but are not within the scope of this administrative proceeding.

The Supreme Court separately emphasized the principle that challenging a normative legal act itself does not exempt a person from the obligation to comply with its provisions until it loses validity.

As a result of considering the cassation appeal, the Supreme Court satisfied NERC's appeal, canceled the appellate court's ruling, and upheld the first instance court's decision to dismiss the claim.

The cassation court's ruling enters into legal force from the date of its adoption and cannot be appealed.

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