Crisis, what crisis?

Despite the desperate situation of their fellow countrymen and a huge reduction in client work, not all Russian lawyers are on the breadline, reports Alice Lagnado.

THE World's media has made much of the financial storm which has engulfed Russia since August's disastrous rouble devaluation.

State and private employees have gone unpaid for months and Muscovites have seen the return of that most unwelcome of local traditions – the food queue.

But one sector of the Russian workforce seems to be weathering the economic storm better than most. Sitting in their offices in a state of apparent calm, it looks as though Russia's lawyers are pulling through relatively unscathed.

However, it has certainly not been an easy ride for lawyers. They may be in a better relative position than their fellow-countrymen, but many have still seen huge reductions in client work.

Russian lawyers say the volume of work has fallen simply because clients no longer have the money to pay fees, or because companies have collapsed altogether.

Other clients have money they cannot get at because the country's banking system has fallen apart.

Vladimir Lavrov, a commercial and criminal lawyer in Moscow, now has only a fifth of the work he had before the crisis hit. He says: “There is much less work just because many firms kept their money in banks. The banks are no longer working and so the companies can't get at their own money, which means they can't pay for lawyers.”

Like many other lawyers, Lavrov has felt the crisis hit his pay packet – he has not been paid for the entire month of September.

Julia Telyukina, another Moscow commercial lawyer, is in the same situation as Lavrov. She is only handling a third of the work she had pre-crisis.

Lawyers, or advocats as they are known in Russia, have always had varying pay packets depending on their caseload. The average pay of a lawyer in Moscow or St Petersburg is around $US600 per month – less in the provinces – although top lawyers can earn far more.

But some lawyers are experiencing good times, working on contracts that were set up before the rouble fell and taking on extra work which results directly from the crisis.

“The crisis has affected all of Russia, but we have lots of work from cases which started way before the crisis began,” says Oleg Sergeyev, a partner at Shcheglov Sergeyev and Partners, a major St Petersburg firm.

Sergeyev says that after the initial panic, work has virtually returned to normal, with longer working hours a sign that work is picking up again.

“During the crisis we worked for eight or nine hours a day. Now it's 12 hours,” says Sergeyev. “We had fewer clients for the first three weeks of the crisis, but since 10 September we have more or less come out of the crisis condition, and there has even been a growth in demand for our services.”

Sergeyev and other lawyers are not yet picking up bankruptcy work. However, they expect this situation to change dramatically by the end of the year – Russian bankruptcies can only be instituted if a contractor has not been paid for three months and the crisis is still only in its second month.

One welcome source of new work comes from foreign companies who are looking for extra cost-cutting and employment advice, despite obvious constraints on how much they can spend.

Christian Altmann, managing director of the Pulkovo Cargo Terminal, says the crisis has resulted in a need for more legal advice, but he says companies cannot just throw money at lawyers. “There is a paradoxical situation in the market,” he says. “Companies need more consulting services and financial advice, but at the same time they have to cut expenses.”

Altmann says his company has set aside a modest sum of money for assistance, but is also working on developing its in-house legal know-how.

Timothy Stubbs, resident partner at the St Petersburg office of Salans Hertzfeld & Heilbronn, says his firm has not seen its usual influx of new Russian investment projects lately. But he says the firm has been handling more work related to the effects of the crisis on large foreign companies, such as debt restructuring and employment.

Stubbs says other firms which do a lot of capital markets work have suffered.

The highest profile court case resulting from the Russian crisis was Lehman Brothers' recent action against Uneximbank.

Lehmans, a US investment bank, froze the assets of Uneximbank, Inkombank and SBS-Agro – all major Russian banks – in the UK in late September, obtaining an injunction from the High Court. Lehmans claimed the banks owed it $113m in forward contract debt.

Russian banks owe foreign creditors over $50bn in similar debts, but Lehman Brothers has so far been the only Western bank to take such action against the Russians.

Brenda Horrigan, a Paris-based Salans Herzfeld lawyer who represents companies and financial institutions owed money by Russian banks, says Lehmans-style legal action is potentially self-defeating. She recently told the Moscow Times that creditors could hasten a debtor's collapse by taking legal action, and would be unlikely to get money back.

But Horrigan says other creditors are showing an interest in Lehmans' example and are trying to get at the foreign accounts of Russian banks. The banks have allegedly sent billions of dollars abroad in recent weeks.

Meanwhile, Lehmans has dropped its claims. The reasons for this remain unclear, but the Russian banks have called on Lehmans to be excluded from the talks between the Kremlin and Western investors aimed at restructuring the debt market.

Foreign companies are also trying to regain lost money through the courts. One of the first such cases was brought by Independent Media, publishers of the Moscow Times, the St Petersburg Times and a range of magazines in Russia. The company served a temporary injunction in mid-September against an SBS-Agro branch in The Netherlands to reclaim $200,000 owed to its Russian employees.

The injunction froze payments from the Dutch branch to its sister bank in Moscow, pending the outcome of a lawsuit against SBS-Agro in a Dutch court. Lawyers say other companies are doing the same thing and that many more cases might be started, but the success of those cases depends on which countries the suits are filed in.

Russian citizens and companies have also lost huge amounts of money from banks which have collapsed or frozen accounts. A few have tried to fight back through the courts – but lawyers are not hopeful.

Ania Daichman works as an in-house lawyer for the Compaq computer company and has her own Moscow practice. She says she is turning people away.

“Many individuals and companies have approached me, asking for help in retrieving their money from banks like SBS-Agro, Menatep and Inkombank.

“I have to say I can't help, because it is a very long procedure – it takes up to five years – and these cases are unlikely to be won,” she says.

Daichman's experiences confirm that the outlook for many of her potential clients is gloomy. But real opportunities still exist for Russian lawyers in the middle of a financial crisis. The forecast for them – at least in the short term – shows bright patches among the dark clouds. That economic storm might yet be weathered.