A key factor businesses ponder before pumping money into a country is whether they can protect their investment through a fair justice system.
Investors say they ask: will they find fair and quick resolutions to disputes? Is there equal and predictable application of the law? Are courts independent, accountable and competent?
Unfortunately, despite Ukraine’s many upsides, the answers to these questions about justice are all disappointing “nos.”
Investors who enter Ukraine tend to have a big appetite for risk, the muscle to overcome obstacles or the vision to capitalize on opportunities — or a combination of all.
One key to success in Ukraine’s muddy waters, however, often is the expertise of brilliant lawyers.
Having the best lawyers can make the difference between success and failure and help companies determine whether the risks are acceptable. With Ukraine’s complicated and erratic legal environment, lawyers are in demand.
The quality of legislation remains poor even in very basic aspects.”
– Serhiy Chorny, co-managing partner at Baker & McKenzie’s Ukraine practice.
“The quality of legislation remains poor even in very basic aspects,” said Serhiy Chorny, co-managing partner at Baker & McKenzie’s Ukraine practice.
Chorny suspects that Ukrainian powerbrokers sometimes make rules purposefully unclear and difficult to comply with. The goal, he said, may be to keep competition out and demand high for fixers.
By just reading the laws, “it is often difficult, if not impossible, to provide a qualified answer even to simple questions posed by our clients, especially in the famous tax and currency regulation area,” he admitted.
Ukraine’s legal framework falls short of international and European standards, agrees David Vaughn, chief of the Ukraine Rule of Law Project, which is funded by the U.S. Agency for International Development.
According to those standards, Ukraine’s High Council of Justice is not independent, for it does not have more than half of its judges appointed by peers. Moreover, how can anyone expect judges to be independent when they serve at the will and pleasure of the president?
“Judicial immunity is far too expansive … Also, the president should not have the authority to ‘liquidate’ courts, as set out in current legislation,” Vaughn added.
Another big issue is that no law firm can guarantee confidentiality to their clients. Courts and prosecutors have, in recent cases, demonstrated that they are not ready to respect the right of a lawyer to keep secrets about clients.
After prosecutors raided the Kyiv office of Magisters law firm and seized documents involving a high-profile client – state-owned energy monopoly Naftogaz – it became clear that if authorities want proprietary information, they can get it.
“We consider it to be a step backwards for democracy. If that continues, any law firm may be at risk,” said Andy Hunder, international business development director at Magisters law firm.
Technically you are not obliged even to be a law school graduate.”
– Myron Rabij, partner at the Kyiv office of the international law firm Salans.
After numerous raids on Magisters, the International Bar Association’s Human Rights Institute complained to Ukraine’s general prosecutors.
But the appeal appears to have fallen on deaf ears.
But these are not the only troubling issues.
To provide legal services, surprisingly – even shockingly — no license is required in Ukraine.
“Technically you are not obliged even to be a law school graduate,” said Myron Rabij, partner at the Kyiv office of the international law firm Salans.
Another shock for a foreigner is the lack of insurance protection to compensate for bad legal advice.
“In the United States, United Kingdom and Commonwealth, it is not uncommon that lawyers get sued for bad advice. So they need to have insurance. It is mandatory,” Rabij explains. In Ukraine, only several foreign law firms provide such protection.
While sorting out such a lawless environment may actually be a boon to lawyers, the state seems to take the most advantage of the situation.
“The laws are selectively enforced and implemented,” said Alex Frishberg, head of Frishberg & Partners law firm.
Avoiding court
Many foreign law firms working in Ukraine avoid going to court.
Once your case may affect certain state or oligarchal interests, your chances for success are slim.”
– Myron Rabij, partner at the Kyiv office of the international law firm Salans.
“Once your case may affect certain state or oligarchal interests, your chances for success are slim,” Rabij explained. “Realistically you will have a problem. It is difficult to predict whether the court will be objective.”
Many Ukrainian judges are both overloaded with cases and unqualified. A judge may try as many as 20 cases per day, from intellectual property to taxes.
Those who track court decisions often find no consistency in rulings.
But these are minor problems compared to the overarching ones – corruption and lack of independence, putting premiums on bribes and connections. It can be hard to prove.
“A case delivered to a court was lost. The judge fell ill and went on vacation for half a year. Sometimes judges were deliberately making mistakes in court decisions and other documents that made legal enforcement impossible. The list of such tricks could be very long,” said Vyacheslav Korchev, managing partner at Integrites law firm.
Even if demands for bribes are met to achieve a favorable ruling, there are no guarantees.
“Personal contacts are the only thing you can rely on. Personal connections in Ukraine – like in the old days in Sicily – work very well, and even beat bribes,” Frishberg said.
That is why Svitlana Romanova, partner and head of litigation practice at Baker & McKenzie, believes in justice in Ukraine only in cases in which no powerful players are involved. Romanova has seen lots of example of how judges disrespect the law.
Personal contacts are the only thing you can rely on. Personal connections in Ukraine – like in the old days in Sicily – work very well, and even beat bribes.”
– Alex Frishberg, head of Frishberg & Partners law firm.
“When my foreign colleagues hear that a court can make a decision in 20 minutes, or that I may be given as little as five minutes to explain my position, they don’t believe it,” Romanova said.
Once, when Romanova was defending her client, steel giant ArcelorMittal, against billionaire Igor Kolomoisky, she was shocked by a judge in Dnipropetrovsk who issued a ruling even without holding a court trial to hear evidence in the case.
“His hands were shaking, his mobile was constantly ringing, and in front of everybody he picked it up and reported to someone that everything is done,” Romanova recalled.
Some lawyers hope that things will get better, if only because “it could not get any worse,” as Frishberg put it.
“It always has been bad and is still bad,” Rabij from Salans said.
“If such a trend continues, the legal profession will be seen in Ukraine as a type of philosophy rather than anything of practical value,” predicted Chorny from Baker & McKenzie.
However, there are ways to adapt.
Romanova asks for recordings of all trials, and invites journalists and embassy workers to hearings in an attempt to help keep judges honest.
Lawyers could do more to improve their situation.
The lack of a unified bar association and professional standards for lawyers is a problem, said Vaughn of the U.S. AID Rule of Law Project. “The legal community should lead by example,” he said.
Legal education also needs to be improved. While there are more than 280 law schools in Ukraine, only approximately 200 law schools exist in the United States – a nation with more than six times the population of Ukraine.
Lawyers could support a credible process for law school accreditation, and require all students to study ethics. Vaughn believes these changes would help substantially, since law students represent future generations of judges, prosecutors and attorneys.
Kyiv Post staff writer Kateryna Panova can be reached at [email protected]
