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Volume 4, issue 08 August 2010 Kharkiv was not originally included among Ukraine`s four first choice Euro 2012 host cities, but the East Ukrainian capital forced itself into contention by pushing ahead impressively with a variety of infrastructure projects. This determination was finally rewarded when Kharkiv replaced Dnipropetrovsk as a UEFA host city in 2009.
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Metalist maracles win UEFA respect
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Kharkiv airport: ready for take off
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23:37 Saturday, September 4, 2010 |
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Industry Counting on the courts
Can Ukraine’s much maligned judiciary actually be relied upon to dispense justice?
Myron Rabij, Salans Volume 4, issue 6 June 2010
The system is completely corrupt. It’s all about bribery and who you know. You don’t stand a chance. Litigation is a joke. You should go for foreign arbitration. Do these statements sound all too familiar? We know the standard litany of complaints against the Ukrainian Court System by now. In this context the questions that international law firms operating in Ukraine repeatedly hear include: So…is it true? Is it really that bad? What do you foreign law firms do bearing in mind FCPA and Ethical Rules and fear of being disbarred? In this environment can you actually help us? The truth is that we lawyers hate being asked these questions because we know that the system is indeed corrupt; because our batting average in the local courts is low; because we do prefer foreign arbitration (or at least local arbitration); and because we, no less then anyone else, are both fed up and embarrassed by the system. And yet in the opinion of many of our local colleagues, international lawyers operating in Ukraine remain hamstrung by ethical rules. What’s an honest lawyer to do? Whatever reservations you may justifiably hold against Ukraine’s judicial system, the fact is that sometimes you are left with no choice but to litigate. This is generally the case when there are no grounds for foreign arbitration and, as is the case anywhere in the world, efforts at settlement have failed. I am probably the only Western expat who has appeared in Ukrainian courts and I’ve had my own personal experiences starting from the mid-90s: opposing counsel telling me just prior to start of the trial that “I’ve already paid off the judge.” Or the judge that simply refused to look at me during the trial but kept smiling at the counterparty; the courts that repeatedly fail to let you know that the next court hearing has now been scheduled for tomorrow or, even better, just happened to have taken place last week (sorry – we have no money for stamps and envelopes). The consultant who comes in and tells you he can “arrange it” but you have to pay him cash; the counterparty saying “of course we’re going to appeal, the head of the appellate court is my lawyer’s father-in-law. And the classic told to me by one of my clients: “so…what do you think about opposing counsel? Pretty hot, no? She better be – she’s sleeping with the judge.” At least we can take comfort from the knowledge that it’s not all about money. Nevertheless, the situation is far from pretty. But do please read between the lines: corrupt does not actually mean “completely corrupt” and in some cases pretty bad is not really as bad as you may think. As usual the reality of the situation is a bit more nuanced. Do bear in mind that there really are some extremely gifted litigators out there and their skill set would not be required if it was only about bribery and corruption. Can the law actually be made to work? The short answer to this question is ‘Yes’. However, this depends on the actual facts and merits of the case (as is true anywhere) and on against whom the decision is to be enforced. I tend to categorize any potential litigation as falling under any one of 5 general scenarios: 1. Regulatory enforcement (tax claims, customs, competition authority, regulatory agencies, etc) 2. Cases against State interests (state owned or controlled companies or municipalities) 3. Cases against substantial private Ukrainian or Russian companies 4. Cases against smaller Ukrainian players 5. Cases against foreign controlled companies (subsidiaries, JVs) or Ukrainian companies who do a lot of business with foreign companies Scenario 1 is fairly standard: too many people and companies have claims against regulators (itself a separate story worthy of an article, I would add). You should expect some fairness, although be warned that in the era of the shrinking revenue side of the State budget and the increasing State deficit, even this may be under siege. Scenario 5 is ideal: you are litigating against someone subject to the same FCPA (or equivalent) rules as you are or at least someone who does not want a bad reputation in the market. Take the case. Scenarios 2 and 3 realistically are problematic because courts can be influenced and hence chances of success are low unless you also are representing a an equally impressive 900 pound corporate gorilla that can balance the Ukrainian influence equation (at least by virtue of simple fear instilled in the judge that the matter should not be compromised for fear of reprisals). As to scenario 3, the foreign investor also needs to be wary of private interests litigating against them for pure commercial gain (so-called corporate raiders). A couple of our clients unfortunately have experienced such corporate raider attacks. These have resulted in commercial “settlements” under the threat of adverse (and in our view wholly unscrupulous) court decisions. I think it is fair to say that in any jurisdiction the courts are often simply another tool used to gain leverage in negotiations and to come to settlement. However, in scenario 3 in Ukraine you may indeed come across the fabled “offer you can’t refuse.” Cases falling within scenario 4 are harder to call. A risk of bribery and/or influence at the lower court level exists, but do your adversaries have the clout and/or deep pockets to go to the very top? I would counsel that you should try to categorize your potential dispute pursuant to these basic observations and that you should also insist that your lawyers take the position of devil’s advocate prior to you making a final decision as to whether or not to proceed. One needs to be extremely critical in order to adequately weigh up one’s strengths and weaknesses. If you don’t, then the other side will likely find that loophole you missed. Do I think the system will change? Of course I do – it has to and it will. Ultimately it is in Ukraine’s interest and in the interest of Ukraine’s business elite. However, while there is a light at the end of the tunnel, it remains a very long tunnel and all we can hope for is to move through it a little faster. Myron Rabij is a global partner at Salans’ Kyiv office. He has been working in Kyiv since 1992, focusing on corporate/M&A, real estate, oil & gas projects and financing
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