Limit of discretion: ADER HABER defended PJSC “Cherkasy Khimvolokno” in a dispute with the NEURC for UAH 150 million.

The law firm ADER HABER successfully defended the interests of its client – Private Joint Stock Company “Cherkasy Khimvolokno”, which generates heat and electricity and acts as a provider of utility services in the city of Cherkasy – in a protracted, multi‑year dispute with the National Energy and Utilities Regulatory Commission of Ukraine (NEURC).

🔹 Subject‑matter of the case:
The subject of the challenge in case No. 826/3880/18 was a number of NEURC resolutions on the imposition of sanctions and the application of measures of influence, which were adopted almost ten years ago following an inspection of the company’s activities for 2016 and provided for the imposition on the company of financial penalties in the total amount of approximately UAH 1.8 million, as well as the establishment of an obligation to revise the Investment Programme for 2018 by implementing its measures at the expense of a “saving” in the amount of about UAH 149 million, as determined by the regulator.

A characteristic complexity of case No. 826/3880/18 was the context in which it arose, since the inspection of the company and the adoption of the contested NEURC resolutions took place amid a radical transformation of the sector: the creation of the retail electricity market in Ukraine, the repeal of the Law of Ukraine “On Electric Power Industry” and the adoption of the Law of Ukraine “On the Electricity Market”.

As a result, a striking situation arose in which, upon completion of the inspection of the licensee’s activities for 2016, NEURC not only “delayed” for eight months in adopting a decision following the inspection, but resorted to direct financial pressure on the company: instead of applying the rules in force at the time when the legal relations arose, it imposed maximum financial penalties under the Law of Ukraine “On the Electricity Market”, which, during the period reviewed by the regulator, had not yet been adopted.

🔹 Significance of the case and the role of ADER HABER:
Despite agreeing that NEURC’s financial penalties were unlawful, the Supreme Court, in its judgment of 14 March 2019, held that the courts of first and appeal instances had not established all the circumstances of case No. 826/3880/18 that were material for its proper resolution and ordered that the case be remitted for a new trial.

At the new stage of the proceedings, the efforts of the ADER HABER team were aimed not only at having the unlawful penalty decisions annulled, but also at protecting the company from NEURC’s unlawful interference in its activities by the groundless determination of a colossal “saving” of funds and the imposition on the licensee of an obligation to direct these funds to the implementation of the investment programme.

On 18 February 2026, the Sixth Administrative Court of Appeal, refusing to grant NEURC’s appeal and upholding the decision of the court of first instance declaring NEURC’s resolutions unlawful and quashing them, held that:

• the adoption of the contested resolutions in February 2018, i.e. more than eight months after the scheduled inspections were carried out, did not comply with the principles of timely decision‑making by a public authority;

• NEURC’s application of the provisions of the Law of Ukraine “On the Electricity Market” when determining the amount of the sanction for the offences committed, in the context of legal relations that had taken place long before that Law entered into force, in 2016, was contrary to the principle prohibiting retroactive effect of the law;

• NEURC failed to comply with the principle of lex specialis: when determining the amount of the financial penalty, the special rule of the Law of Ukraine “On Heat Supply”, which sets a different maximum amount of sanction for breach of licensing terms in the sphere of heat supply than that applied to the company under the Law of Ukraine “On Natural Monopolies”, was to be applied;

• in the absence of a reasoned indication of the grounds for applying the chosen amount of the financial penalty, as well as of the grounds for the impossibility of applying a financial penalty in a smaller amount, the contested NEURC resolutions did not comply with the principles of reasonableness and proportionality of a public authority’s decision;

• NEURC’s division of a single investment programme of the licensee into separate components by type of activity (generation of electricity and generation of heat) and the imposition of a separate penalty for failure to implement each of these parts was an example of double punishment of a business entity for the same act, which is contrary to Article 61 of the Constitution of Ukraine and the principle of legal certainty;

• at the time the contested resolution was adopted, NEURC acted in breach of Article 19 of the Constitution of Ukraine and outside the scope of its powers, since it had no right to oblige the licensee to amend its investment programme and to treat funds as an additional source of financing for the investment programme.

The legal position developed by ADER HABER once again reminded the regulator of things that are obvious but fundamental: NEURC’s discretion is not unlimited, and state supervision and discretionary powers may not be exercised through “on‑the‑fly” interpretation of the law or turned into a tool of financial pressure. The supervisory authority is obliged not merely to state a breach, but to provide detailed justification for the chosen amount of the financial penalty, demonstrating the impossibility of applying a lesser sanction.

This case shows that a coherent legal position and strategic perseverance can secure victory even in the most complex regulatory disputes, bringing state supervision back within the bounds of legality.

The project was handled by a team of ADER HABER Law Firm lawyers comprising partner Tetiana Daniltseva, senior associate Vadym Ponomarenko and associate Anhelina Dubrova.