Ukraine: Lawyers on the edge

Everyday legal work is at a halt and the country’s lawyers stand ready to do their bit in the army if the Russians move in

The political crisis in Ukraine has shifted the priorities of the country’s lawyers. Day-to-day legal activity has ground to a halt as citizens work out what the impact of the overthrow of the government led by Viktor Yanukovych and the ensuing annexation of the Crimean peninsula by Russia means.

Kiev’s nascent government has in the past fortnight mobilised some 40,000 army reservists as the crisis intensifies. The first round of part-time soldiers – given its marching orders as a response to Russian president Vladimir Putin’s move to station 50,000 Russian troops on Ukraine’s eastern border – consists for the most part of students and younger workers.

Ukraine

But if the situation worsens the next call-up could see much of Ukraine’s business law profession in uniform. As Ilyashev & Partners managing partner Mikhail Ilyashev explains, many lawyers joined the reserves while studying law at university and remain on call. More than half the 30-strong qualified team at his firm are in that category.

“Many lawyers, including myself, are reservists,” he says. “It dates back to our time at university, when we had military training alongside our degrees. Most of those doing law degrees will also have qualified as officers in the reserves. So far, we’ve just been put on notice and not fully called up. If the government sticks with the 40,000 it’s not likely that it will affect us. But if it increases that number there’s a strong possibility we will be mobilised.”

Such a drastic move would clearly have considerable professional and personal ramifications. But then, acknowledges Ilyashev, by that stage all normality would have evaporated.

“If that happened,” he sighs, “the situation would be so bad there wouldn’t be much standard legal work to be done for it to make a difference to the firm. It would be a case of armed conflict.”

The impossible nightmare

It is difficult not to fall into worst-case scenario speculation. While there are moves towards diplomacy, negotiations between Russia, the EU and the US are stuttering at best.

But not everyone is pessimistically waterproofing their combat boots.

Lavrynovych
Lavrynovych

“Those with experience of working with Ukraine will understand that it is fantastic and impossible to imagine Russia would do something like intervening into the main territory of Ukraine – no-one believes that,” maintains Lavrynovych & Partners managing partner Maksym Lavrynovych.

Lavrynovych dismisses Russian sabre-rattling regarding the status and position of ethnic Russians in eastern Ukraine as just that. 

“It’s just talk,” he says. “Putin has a lot of problems domestically so he’s trying to make a big noise. We all know the problems with the Russian market and economy. The issue around Ukraine allows them to hide those problems.”

The lawyer also says Moscow’s claims of ethnic Russian unease in Ukraine is overly emotive and overplayed, again for political capital on the other side of the border.

“We don’t have Russians in the east of Ukraine; we don’t have them in Kiev,” he says. “We have only people who speak the Russian language but are Ukrainian.”

Lavrynovych is also confident that the Russians – while bellicose – are not foolish.

“We don’t anticipate a war,” he says. “We’re a big European country and fighting us – even for a country such as Russia – would be the end of the Russian Federation. Because the federation is not Russian, it consists of many territories.”

Nonetheless, on a practical commercial level the tensions in Ukraine – heightened by weeks of pro-democracy demonstrations calling for closer ties to the EU and resulting in the demise of the pro-Moscow government of Yanukovych – have, according to many lawyers, essentially brought standard legal work to a halt.

“It’s extremely hard for Ukrainian lawyers to focus on their practices when their country is experiencing an effective revolution,” says Alexander Khvoshchinskiy, managing partner of Moscow and Berlin-based consultancy Legal Statagency

“There are life-changing events going on here, so the majority of Ukrainians – and lawyers will be no different – will have trouble focusing on business issues at the moment,” he adds, predicting that “foreign investors will put their plans on hold and, indeed, some might use the situation as an excuse to exit projects”.

But, as with any upheaval, disruption is not entirely disastrous for the legal profession. Indeed, the first round of mobilisation itself, with the call-up of tens of thousands of reservists, has got law firms’ phones ringing.

“Clients want to know whether they need to continue paying salaries to workers who have been put on active military duty,” says Ilyashev. 

He points to issues over whether Kiev will guarantee the jobs of those workers by compensating employers financially for lost manpower.

And there are other issues around the obligations of businesses following mobilisation or war.

“Mobilisation isn’t just an issue affecting people but also assets such as vehicles, property and food,” says Ilyashev. “In the event of war the government and the military will enforce a right to property around which there are compensation issues. Businesses owned by the state before privatisation – coal, gas, food suppliers – are contractually responsible for keeping reserves of stock.”

Work in a new world

Other Ukrainian lawyers have been called up in a different sense – to assist in drafting legislation following Russia’s dramatic annexation of Crimea, a move unprecedented in modern Europe.

Tatyana Slipachuk, head of the international arbitration and trade practice groups at Sayenko Kharenko, claims the most important issue for the legal and business sectors is the Ukrainian parliament’s enactment of legislation covering what she describes as the “occupied territory”.

Indeed, Slipachuk herself has advised the new Kiev ministers on the drafting of a law she says is “very important in relation to the civil rights of the people in the Crimea”. It covers principles concerning the rights to economic activity in Crimea and the rest of Ukraine.

“The main point behind the law,” says Slipachuk, “is that Ukraine views the annexation as an occupation and that the Crimea is still legally part of Ukrainian territory. And that Ukraine should maintain certain rights to preserve business activities.”

Asters senior partner Armen Khachaturyan says the law raised “a good number of red flags” over doing business in Crimea.

Slipachuk highlights practical legal problems created by the annexation around duplication of laws.

“There are contracts in force,” she says. “And my understanding is that many businesses in Crimea would like to maintain the Ukrainian contracts. Should they suddenly be forced to jump into the Russian legal system?”

Legally challenged

The position regarding Crimean commercial court judgments remains unresolved.

“We don’t know how to challenge recent decisions,” says Ilyashev. “Do we have to go to higher courts in Russia or in Kiev? There’s also uncertainty over enforcement – will the new authorities in the Crimea recognise court decisions under the pre-annexation regime?”

Others are more sanguine about the effect of Ukraine’s trauma on short-term business and legal work. Lavrynovych expects banking and finance work to pick up soon after the dust has settled.

“Over the past two years,” he explains, “European banks have closed their branches in Ukraine because they saw no prospects. But I think we’ll return to the environment of 2005 when the market was growing, because the new government is business-orientated and in favour of co-operation with European and American companies. It wants help and support from the EU. So we should expect not only investment, but also new players to the market from the EU. This will create a lot of legal work for business law firms.”

Indeed, only days after Kiev mobilised reservists, Lavrynovych says his firm was talking to Finnish clients – a bank and a vehicle parts manufacturer – about a potential deal to come to Ukraine. And Khvoshchinskiy points out that “more adventurous foreign investors might view the current situation as an opportunity to pick up some assets going cheap”.

He also says that, while it might not be immediately obvious, recent dramatic events could have a positive effect on Ukraine’s legal and business sectors. 

“The change of government,” he says, “means the Ukrainian judicial system might have a chance to develop in the right way. Ultimately, the process will give Ukrainian lawyers a chance to develop the local legal market.”

Khachaturyan says many clients are pursuing their Ukrainian projects.

And Ilyashev points out that some routine legal work continues.

“There remains a degree of advisory work for insurance companies and banks trying to maintain day-to-day activities. Some people continue to buy and sell real estate. For the most part, the situation is quiet across the country apart from in Crimea. It’s certainly better than two months ago.”

As for the issue that triggered the upheaval – whether Ukraine should turn east or west in its business and trade outlook – Ilyashev maintains the point is resolved. 

“By the annexation of Crimea,” he says, “Russia demolished any social and political bridges it had with Ukraine. Now Ukraine has no choice but to look towards Europe.”

Recent legal moves in (and out of) Ukraine

February 2014: CMS suspends trainee secondments to Kiev

December 2013: Gide Loyrette Nouel hires a team of nine from Germany’s Beiten Burkhardt as the latter closes its Ukraine presence

October 2013: Squire Sanders signs an association agreement with Ukrainian firm Salkom, beefing up its presence in Kiev; Sayenko Kharenko opens in London; Sweden’s Magnusson hires a lawyer from Andreas Neocleous & Co to launch in Kiev

July 2013: Germany’s Noerr hives off its Kiev office, which becomes independent outfit Nobles

Key figures: Ukraine

GDP: $337bn

Inflation: 1.2%

Population: 44.6m

Life expectancy at birth: 71

Unemployment: 8.1%

Sources: International Monetary Fund, Tradingeconomics.com, World Bank, CIA World Fact Book