Editor’s note: Our 2019 Doing Business in Ukraine magazine is out. Get a PDF version online or pick up a copy in Kyiv.
In Ukraine, most businesses and services have been hit hard after the country’s EuroMaidan Revolution in 2014.
After the Ukrainian people ousted Kremlin-backed President Viktor Yanukovych, Russia annexed Crimea and invaded the country’s eastern Donbas regions. It was an enormous blow to the Ukrainian economy.
Despite that, some segments of the economy managed to succeed. Arbitration lawyers are one group who did particularly well.
In part, this is due to Russia’s war. Many Ukrainian international arbitration practitioners decided to represent their country’s interests in international courts — defending both state property lost and private businesses affected by the Russia’s aggression.
Now, after a string of victories, they are hoping that the lessons learned and the skills gained will continue to serve Ukrainian lawyers in the future.
Growing under pressure
Aminat Suleymanova, a co-managing partner at the Avellum law firm, says that, so far, Ukraine’s international arbitration performance has been successful over the past five years.
“We have shown great qualification, great selection of foreign counsel — because in such cases the best foreign… firms are also involved,” she said. “We have been performing with tremendous breakthroughs, winning practically all the cases.”
After the annexation of Crimea, lawyers from Ukraine and abroad quickly joined in to help with the country’s international arbitration court cases. Law firms from Kyiv, London, Oslo, Paris, Stockholm and other arbitration capitals of the world began representing Ukrainian interests.
For example, Oslo-based law firm Wikborg Rein represented Ukraine’s state-owned oil and gas monopoly Naftogaz in its case against its Russian counterpart, Gazprom. Dag Mjaaland, a partner at the firm, says that, in general, Ukrainian lawyers fared well considering their country’s difficult conditions.
However, foreign firms are largely serving as lead counsel in Ukraine’s major international arbitration cases. Besides Naftogaz’s usage of Wikborg Rein, Ukrainian state-owned bank OschadBank was represented by Quinn Emanuel Urquhart & Sullivan’s London office in its case against Russia.
Ukraine won those cases, and Russia suffered severe losses thanks to the work of both Ukrainian and foreign lawyers. Gazprom must now pay Naftogaz $2.6 billion dollars instead of the $56 billion it expected to receive from Ukraine prior to arbitration. Russia also must pay $1.3 billion after the International Chamber of Commerce arbitration court in Paris ruled in favor of OshchadBank.
Mjaaland told the Kyiv Post that, while working on the Naftogaz case, “the bulk of the work was conducted by (Wikborg Rein) and the Swedish counsel, and only partly by Ukrainian counsel…”
“What we have demanded from the Ukrainian counsel was (research) about Ukrainian legislation, witness interviews, review of documents in Ukrainian, etc,” he added.
Svitlana Chepurna, a lawyer at Asters in Kyiv, says that the cooperation with the foreign counsel in the Oschadbank case was enormous.
“The level of output expected from the national counsel was very high: that is, the level of integration into the team, the level of responsibility, the issues handled.”
According to Chepurna, Ukrainian lawyers are very knowledgeable on arbitration matters, but this does not prevent high-end cases from going to foreign firms.
“Ukraine as a jurisdiction still does not have a really voluminous dispute resolution experience, because we are just finishing reforming the legislation, the judicial system,” she said. “We still need to get real law enforcement in place and overcome the (formalistic) approach in applying legislation. We need a change in worldview.”
Markian Malskyy, a Lviv-based lawyer at the Arzinger law firm, says that Ukrainian practitioners must get more work experience.
In several cases, some Ministry of Justice employees are unhappy with the quality of service provided by foreign firms to Ukrainian companies because the foreigners fail to involve a local counsel.
Malskyy suggests making it mandatory to have Ukrainian lawyers participate at the official level in such major cases.
He also suggests having more state regulations requiring foreign law firms to disclose which Ukrainian firms they are cooperating within particular cases. In addition, he says law firms should be required to reveal what instructions the Ukrainian counsel receives, as well as the type and load of work that is being done.
Sergiy Gryshko of Redcliffe Partners also believes that there should be more state regulation in arbitration cases so that “the expertise stays in Ukraine.”
International cooperation
But not all the expertise is being lost. The unprecedented work done recently in Ukraine-related cases has resulted in serious contributions to international legal theory.
Here, the cooperation with foreign lawyers has been critical, says Oleksandr Martynenko of the CMS Cameron McKenna Nabarro Olswang office in Kyiv.
“Our lawyers have achieved phenomenal success because the international arbitration tribunals have arrived at a novelty in international investment law by treating investments made by former domestic investors on the territory of their own state as foreign investments (in case of the territories’ annexation),” Martynenko said. “The theory (behind that approach) was that the treaties on mutual protection of investments refer to situations not only de jure, but also de facto.
“That is, when a party to a treaty exercises actual control over a certain territory… then investments on such territory are to be considered as foreign investments.”
A number of companies belonging to oligarchs Ihor Kolomoiskiy and Gennadiy Boholyubov, as well as the state-owned Oschadbank, advanced their legal reasoning using this logic in arbitration proceedings and won their cases.
Aadne Haga from the Wikborg Rein law firm is confident that the demand for arbitration services in Ukraine will likely remain stable as “Ukraine opens up toward Europe and the rest of the world and becomes increasingly integrated in the global economy.”
He says that integration into the global economy will increase the number of arbitration disputes in Ukraine because “arbitration is firstly the dispute resolution mechanism of choice for international trade.”
Suleymanova knows that the number of cases caused by the Russian annexation of Crimea — the reason for this Ukrainian arbitration boom — is limited, but she also remains optimistic that “the large-scale foreign businesses investing in Ukraine will always choose arbitration.”
“And we (Ukrainian lawyers), having proven ourselves as a professional community, will obtain the necessary trust and respect and will be able to handle some cases by ourselves,” she said.
