21 November 2013
Kyiv Post publishes commentary by Robin Wittering on English law in international transactions

 

Businesses favor London for settling legal disputes

Ukrainian corporate legislation is as young as the country. It sprang up when Ukraine declared its independence in 1991. That’s also when demand for foreign legal counsel among local businesses skyrocketed, a trend that continues today, lawyers say.

An astounding 90 percent of mergers and acquisitions in Ukraine are done under English law, according to Volodymyr Sayenko, managing partner of Sayenko Kharenko, a Ukrainian law firm that recently cut the ribbon on a new office in London.

“We are very upset with this situation,” Sayenko says. “Ukrainian business is trying to move away from the jurisdiction of its native country and consider that English, Cypriot and other courts should resolve its disputes. It’s a paradox and a wrong global trend in my view,” he says, adding that it’s typical for post-Soviet countries and other countries whose legal systems have not developed.

“English law remains first choice in cross border and even many domestic Ukrainian and Russian transactions because of its flexibility and the dominance of private equity-style structuring and provisions derived from Anglo-Saxon experience,” Robin Wittering, Partner and Head of International M&A Projects Practice of Egorov Puginsky Afanasiev & Partners says. The demand for English law in international transactions is primarily for international delivery rather than out of London, except in the case of capital markets, litigation and private client services, he adds.

British law is a key area of practice at Integrites law firm, according to managing partner Ruslan Bernatsky. Large- and medium-sized businesses from the Commonwealth of Independent States demand the practice, including financial and industrial groups, as well as high net worth individuals. Agriculture, chemical, banking as well as mining and smelting enterprises are among the company’s most active clients.

One of the most popular practices in Integrites’ London branch is dispute resolution, in particular international arbitration, according to Bernatsky. At the same time, transaction issues, such as corporate law, capital markets, banking and finance law are also in demand. 

Ukrainian businesspeople, the richest ones in particular, often move to a foreign jurisdiction by establishing holdings abroad. 

For instance, the headquarters of EastOne Group that belongs to Ukrainian billionaire Viktor Pinchuk was established in the UK in 2007. Ihor Kolomoisky and Gennadiy Bogolyubov are shareholders of Britain’s JKX Oil&Gas Company, with assets in Ukraine and Russia. In 2012, System Capital Management, the holding of the richest Ukrainian billionaire Rinat Akhmetov, opened in London its subsidiary SCM Advisors (UK) Limited. Consequently, these people appeared in a recent court case in London regarding shares in the Kryvyi Rih iron ore plant.

“For those owners (it) is more convenient to conduct negotiations at the level of international holding as Ukrainian law doesn’t give the opportunity to  make flexible arrangements on the way of managing those business,” Sayenko says. 

He also points out the absence of warranties and representation concepts, which allow the buyer compensation for losses if they are cheated. 

“Foreign jurisdiction has a much more extensive and undeniably effective arsenal of tools to combat the siphoning of assets, their search and confiscation,” while the majority of such instruments are not available in many ex-Soviet republics or their application is not effective, Bernatsky explains. 
Conversely, lawsuits in the UK have some disadvantages, in particular, the costs and the amount of time they take.

A corrupt judicial system at home is another reason to choose London. Only 2 percent of Ukrainians trust their courts, while 46 percent do not at all, according to an October nationwide study by Razumkov Center, a think tank that polled 2,010 residents. The study also shows that public support of Ukraine’s court system has been falling steadily. From 2001-2004, some 11 percent of Ukrainians supported it, while in 2011-2012 that number was just 6 percent.

Unlike Ukrainian legislation, British law has a reputation tested by centuries, Sayenko says.  So far, just a few changes to Ukrainian corporate legislation have been made. He names the law on joint stock companies that came into force last summer and a number of draft laws which if adopted are supposed to regulate the work of limited liability companies. 

However, it’s still not enough.

“Our Russian colleagues have advanced in this direction. The reform of civil legislation is under way and the civil code is being rewritten there,” Sayenko says. “I hope that this trend will reach us soon.”

Kateryna Kapliuk, Anastasia Forina

 

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