Category: Ukraine

Avellum has supported the action group led by Ukraine’s Ministry of Finance and the State Financial Monitoring Service in its efforts towards the adoption of restrictive measures against Russia by the Financial Action Task Force.

“In an unprecedented move, on February 24, 2023, the FATF, a global money laundering and terrorist financing watchdog, suspended the membership of the Russian Federation, urging all agents in the international financial system to increase caution and ensure compliance,” Avellum informed.

“This step followed a series of previous more conservative measures taken by the FATF during its June and October 2022 plenaries, which significantly limited Russia’s role and influence within the FATF, by depriving it of the right to (1) hold any leadership or advisory roles, (2) take part in decision-making and peer-review processes, and (3) participate in the FATF project teams and meetings of the FATF-Style Regional Bodies,” the firm reported.

According to Avellum, as a result of the FATF’s February decision, Russia can no longer attend the FATF meetings and access the FATF documents: “as such, it eliminates Russia’s influence over decision-making processes within the FATF and significantly decreases Russia’s role in the global financial system.”

The Avellum team was led by Partner Vadim Medvedev and included Senior Associate Mariana Antonovych and Associates Kristina Mysenko and Oles Bidnoshyia.

The Russian invasion is still ongoing, affecting all areas of life in Ukraine, but there are slivers of hope and reasons to stay positive and optimistic, according to Kinstellar Partner Alla Kozachenko.

“Russia’s full-scale invasion continues with heavy shelling of infrastructure – aiming to cut off connectivity, water, and electricity,” Kozachenko begins. “Lawyers had to adapt in order to ensure the continuity of services to their clients. With power outages for more than ten hours a day, we had to work from ‘points of unbreakability,’ gas stations, bomb shelters, and other locations, and we had to distribute work to colleagues outside of Ukraine as well. Our offices are now fully equipped with power generators – which allows us to continue working even during power outages.”  Through it all, she says that Ukrainian lawyers demonstrated “incredible resilience, managed to persevere, and are now ready for anything.”

Legal work, according to Kozachenko, centered primarily around “support to NGOs in their charitable endeavors around the country, working on corporate, regulatory, commercial, tax, and other issues. Many NGOs came to Ukraine to provide war-related assistance, and they require help with structuring their operations, registering international technical assistance projects, and general tax and legal support,” she explains.

Moreover, lawyers have been heavily engaged in advising clients on sanctions-related legislation. “As the Russian aggression continues, so does the sanctions framework evolve and expand, meaning that we have to stay on top of it at all times in order to be able to fully support our clients in their needs,” Kozachenko says. Furthermore, she reports that transactions are “back on track. While there has been a slowdown at the beginning of the war, transaction pace has resumed and more and more M&A deals are taking place,” she says. Additionally, matters of “workforce relocation, layoffs, and conscription to military service” are also keeping everybody busy.

On a positive note, Kozachenko reports that the Ukrainian tech sector hasn’t skipped a beat and has continued to grow despite the war. “We have seen a number of mandates of structuring tech companies’ operations in Ukraine,” she reports. “The interest of foreign and local investors was preserved, seeing as how this sector was affected by the war the least, due to the possibility of remote work and relocation to safer areas,” she explains.

Finally, she remains optimistic, looking ahead. “We’re sure we’ll win the war, and we very much hope that will happen soon. Once the war is over, businesses will be rebuilt and things will go back to normal,” she says, adding that she expects real estate and dispute resolution to be the busiest areas once the rebuilding starts. In conclusion, Kozachenko says: “We are witnessing investments into the country and, even with this disastrous war ongoing, have managed to work decently. And we will continue to work just as hard on our path to victory.”

The law “On Amending Certain Laws of Ukraine in Connection with the Ratification of the Convention on Choice of Court Agreements” (the “Law”) came into effect on October 15, 2022. In 2021, the Ukrainian Parliament had made this Law a condition for the ratification of the Hague Convention of June 30, 2005 on the Choice of Court Agreements (the “Convention”).

The Convention is an international instrument strengthening the effectiveness of forum selection agreements and the enforcement of foreign court judgments in the member countries to the Convention (the “Contracting State”).

So far, the Convention has been ratified by the EU, Denmark, Mexico, Montenegro, Singapore, and the UK, making it a strong international tool for resolving disputes related to cross-border commercial and financial transactions.

The Convention is not yet operational for Ukraine. It will come into force three months after Ukraine submits the instrument of ratification to the Ministry of Foreign Affairs of the Netherlands. So far, there is no publicly available time estimate as to when this may happen. However, the changes envisaged by the Law have already come into force.

Choice-of-court agreement under the Law
Previously, there was ambiguity under Ukrainian law about whether parties to cross-border contracts may opt for foreign court jurisdiction. This created uncertainty, in particular, as to whether Ukrainian courts should enforce such intention of the parties and Ukrainian court practice varied in this respect.

The Law finally resolves that ambiguity, by introducing “choice-of-court agreements” (in Ukrainian – ugoda pro vybir sudu) whereby parties to the contract with a foreign element (i.e. a contract between Ukrainian and foreign parties) may subject their dispute to one or several foreign courts (“chosen court(s)”). Such an agreement must be made in writing.

Can the parties choose any foreign court for dispute resolution?
The Law permits parties to opt for litigation in courts of any state, and is not limited to those of the Contracting States.

At the same time, under the Law:

Parties may not subject their disputes to the foreign courts’ jurisdiction in cases where Ukrainian law provides for the exclusive jurisdiction of Ukrainian courts (e.g., disputes in respect of real estate located in Ukraine, disputes in respect of registration/liquidation of legal entities registered in Ukraine, bankruptcy cases, etc.).
If a party to the choice-of-court agreement is trying to initiate court proceedings in Ukraine, the Ukrainian court will leave the claim without review if the choice-of-court agreement is not void, terminated, or can be performed or does not violate Ukrainian law or any international treaty to which Ukraine is a party. No specific guidance is provided in this respect.

What are the rules for the enforcement of foreign court judgments in Ukraine?
The Law does not address matters of recognition and enforcement of foreign court judgments, so the general rules apply. Namely, the recognition and enforcement of foreign court judgments will be possible in cases based on international treaties in which Ukraine is a part, or based on the reciprocity principle. It is noteworthy that Ukraine has very few relevant bilateral treaties with foreign states. However, there is an established court practice in Ukraine with regard to the recognition and enforcement of foreign court decisions based on the reciprocity principle.

Grounds for the refusal of recognition and enforcement of the foreign court judgment are provided in the Civil Procedural Code and slightly differ from those established by the Convention.

Exclusive choice of court agreement under the Convention

Upon becoming enforceable in Ukraine, the provisions of the Convention will apply as follows:

Requirements for applicability of the Convention
The Convention introduces the concept of “exclusive choice of court agreement” (similar to the concept provided by the Law) whereby parties may subject their disputes to the jurisdiction of the courts of one or more Contracting States and exclude the jurisdiction of any other court. The exclusive choice of court agreement much be made in writing.

The “exclusivity” of the chosen court is presumed unless the parties have expressly provided otherwise in the agreement. Thus, should the parties provide a non-exclusive jurisdiction of a chosen court, the Convention will not apply.

The Convention provides a list of cases that may not be subject to exclusive choice of court agreement, covering employment contracts, status and legal capacity of natural persons, family law matters, wills and succession, insolvency, anti-trust competition, real estate disputes, disputes in respect of the functioning of public registers, claims for personal injury or property damage that do not arise from a contractual relationship, and others.

What if the party initiates the legal proceeding in a court other than the court provided by the exclusive choice of court agreement?
If a party to the exclusive choice of court agreement initiates court proceedings in a court, other than the chosen court (i.e. the court of the requested state), that court should suspend or dismiss the proceedings unless:

• The exclusive choice of court agreement is null and void under the law of the state of the chosen court;
• A party lacked the capacity to conclude the the exclusive choice of court agreement under the law of the state of the court seized;
• Giving effect to the agreement would lead to a manifest injustice or would be manifestly contrary to the public policy of the state of the court seized;
• For exceptional reasons beyond the control of the parties, the agreement cannot reasonably be performed; or
• The chosen court has decided not to hear the case.
• The above rule will not apply if proceedings were initiated in a court of a state that is not party to the Convention. Thus, local procedural rules of the courts seized need to be checked to assess whether courts may disregard the exclusive choice of court agreement provisions and consider the case on the merits.

How the recognition and enforcement of judgments under the Convention work

A court judgment issued by the chosen court under an exclusive choice of court agreement shall be recognized and enforced in other Contracting States, unless one of the following grounds for refusal set out by the Convention applies:

• The judgment is not enforceable in the state of the chosen court;
• The exclusive choice of court agreement was null and void under the law of the State of the chosen court, unless the chosen court has determined that the agreement is valid;
• A party lacked the capacity to conclude the exclusive choice of court agreement;
• There was no due service of process on the defendant;
• The judgment was obtained by fraud in connection with a matter of procedure;
• Recognition or enforcement would be manifestly incompatible with the public policy of the requested state, including situations where the specific proceedings leading to the
• judgment were incompatible with fundamental principles of procedural fairness of that state; or
• The judgment is inconsistent with an existing judgment in a dispute between the same parties and regarding the same cause of action, provided that such existing judgment may be recognised in the Contracting State, where enforcement is sought.

The Convention establishes the exhaustive list of documents to be submitted for recognition and enforcement of the court judgment, namely:

1. The full-text of the judgment;
2. The full text of the exclusive choice of court agreement; and
3. Documents confirming that the judgment is final and enforceable in the state of origin.

These rules, however, will not apply in cases when an exequatur is sought in states, which are not parties to the Convention. Thus, local law requirements will need to be checked on a case-by-case basis.

Impact of the Convention and the Law on Ukrainian and German businesses

For business between German and Ukrainian companies, the ratification of the Convention is a step in the right direction towards more legal certainty. Germany, one of Ukraine’s most significant business partners, is bound by the Convention as a member state of the European Union.

In most cases involving cross-border business relationships, the companies tend to opt for arbitration clauses in their contracts. Arbitration has become an essential tool in international dispute resolution. One of the reasons for the success of international arbitration is the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”) encompassing 172 contracting states as of today. The New York Convention facilitates the enforcement in foreign states making arbitration the preferred option in international business. Due to the success of the New York Convention, it was used as the model for the Choice of Court Convention.

However, the Convention can be considered a strong instrument in international dispute resolution. Litigation before state courts can be the right choice depending on a number of circumstances. For example, arbitration proceedings can be expensive. If the amount in dispute is small, litigation before state courts can be a more cost-effective alternative. Therefore, some German courts have introduced “Chambers for International Commercial Disputes” in Frankfurt, Hamburg, Mannheim and Stuttgart. At these specially established chambers, the hearings are held in English before three judges, with the presiding judge being highly experienced in corporate law. The other judges (at least at the Frankfurt court) are business professionals appointed on the recommendation of the German Chamber of Industry and Commerce for a term of five years. The Joint Commercial Court of Stuttgart and Mannheim even offers a possibility of appeal which is a direct advantage in comparison to arbitration proceedings. As for the costs, there are no additional fees for these special chambers.

The establishment of the commercial chambers was part of the courts’ own initiative to adopt the German court system to international disputes. Meanwhile, German parliament introduced a draft legislation in March 2022 which aims at establishing more of those commercial chambers by law.

The next step that Ukraine has taken towards implementing the Choice of Courts Convention with the Law could be an opportunity for cost-effective dispute resolution between Ukrainian and German companies before the Commercial Courts in Frankfurt or Stuttgart in the future.

Outlook

It is worth mentioning that both Ukraine and the EU have joined not only the Convention but also the Convention of July 2, 2019, on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (“Judgments Convention”). The Judgements Convention will enter into force on September 1, 2023. Compared to the Convention, the scope of the Judgments Convention is broader since it is not confined solely to exclusive choice of court agreements. It remains to be seen what impact the Judgments Convention will have and how it will coexist with the Convention. It is certain, however, that both Conventions will considerably facilitate international dispute resolution outside the field of arbitration.As of now, parties should carefully consider in advance whether the chosen court should have either exclusive or non-exclusive jurisdiction. Last, but not least, it is advisable to accurately draft the choice of court agreement (similar to the arbitration agreement) to ensure its validity and enforceability.

By Natalia Selyakova, Patner, Heiko Heppner, Partner, Co-Head Litigation and Dispute Resolution Germany, Artem Lukyanov, Senior Associate,  Dentons

Everlegal has successfully represented the interests of the Louis Dreyfus Company Ukraine in a dispute with a supplier over the collection of a fine amounting to 30% of the value of unfulfilled agricultural product orders. 

According to Everlegal, “the complexity of this case lay in the fact that the supplier asserted that there was no basis for holding them liable for failing to fulfill the supply contract; provided the court with documents created by their employees regarding the alleged damage to the crop of agricultural products they had grown, as a result of unfavorable weather conditions that had occurred after the supply contract’s conclusion; and filed a counterclaim against the client for termination of the contract in connection with the alleged damage.”

Everlegal’s team included Counsel Svitlana Teteria.

Asters has successfully represented the interests of PrivatBank before the Supreme Court of Ukraine, securing a final ruling on the bank’s ownership following its 2016 nationalization. 

According to Asters, PrivatBank is the largest bank in Ukraine in terms of the number of clients, assets value, loan portfolio, and taxes paid to the national budget.

According to the firm, “on February 15, 2023, the Court delivered a final ruling, stopping the ex-owners’ attempt to return PrivatBank, which was nationalized in 2016. The Supreme Court applied, for the first time, the Law of Ukraine No. 590-IX, which was adopted to eliminate gaps in Ukrainian legislation that previously allowed courts to resuscitate insolvent banks, which [had been] taken off the market due to their insolvency. The law also prohibits the return of the nationalized banks to their former owners.”

In 2022, Asters successfully represented PrivatBank in a number of cases, including two parallel arbitration proceedings before the London Court of International Arbitration regarding the enforcement of Eurobonds issued in 2010 and 2013 (as reported by CEE Legal Matters on October 10, 2022), another Supreme Court case relating to the bank’s nationalization (as reported on August 3, 2022), and a UAH 152 million dispute regarding the ownership rights over its Dnipro head-office building (as reported by CEE Legal Matters on May 5, 2022).

Asters’ team included Co-Managing Partner Oleksiy Didkovskiy, Partner Andriy Pozhidayev, and Senior Associates Oleksii Ananiichuk, Vira Baulina, and Viktor Tarasenkov.

Editor’s Note: On November 21, 2023, Asters announced that “the Sixth Administrative Court of Appeal overturned the decision of the court of first instance in favor of the former owner of PrivatBank and closed the proceedings. This court’s decision confirmed the impossibility of returning PrivatBank to its former owners.”

On 11 December 2022, the Law of Ukraine “On Amendments to Certain Legislative Acts of Ukraine on Preventing and Counteracting Mobbing (Harassment)” (the “Mobbing Law”) became effective.

Among other things, the Mobbing Law: (1) introduces the new legal term “mobbing” and specifies its forms; (2) provides for new grounds for termination of employment relations due to mobbing; and (3) specifies the ways of legal protection of employees against mobbing as well as the employer’s obligation to prevent and counteract mobbing.

Under the Mobbing Law, from now on an employee has not only the right to healthy and safe working conditions, but also to decent treatment by the employer and other employees.

The Mobbing Law defines “mobbing” (harassment) as a systematic long-lasting intentional action or inactivity of an employer or individual employees aimed at humiliating the dignity and honour of an employee, his/her professional reputation (including for the purpose of termination of employment by such employee), in the form of psychological and/or economic pressure, in particular with the use of electronic communications, creating a tense, hostile, offensive environment, including that which makes a person underestimate his/her own professional capability.

The following forms of psychological and economic pressure are considered to constitute mobbing and are prohibited in any of these forms:

• the creation of a tense, hostile, offensive environment in relation to the employee (e.g. threats, disparaging remarks);
• unreasonable negative separation of the employee from the team or his/her isolation (e.g. non-invitation to mandatory meetings);
• inequality of opportunities for training and career growth;
• unequal pay for work of equal value performed by employees of equal qualifications;
• unjustified deprivation of the employees of part of their payment (bonuses and other incentives);
• unreasonable unequal distribution of workload and tasks by the employer among the employees with the same qualifications and productivity who perform equivalent work.

The Mobbing Law establishes new obligations for employers related to the prevention of mobbing. In particular, employers are responsible to take measures to ensure the safety and protection of the physical and mental health of employees, to prevent risks and tension at the workplace, and to carry out informational, educational, organisational trainings/measures to prevent and counteract mobbing. From now on, the list of an employer’s measures aimed at preventing, counteracting and ending mobbing should be one of the essential provisions of a collective agreement.

An employee who believes that he/she has been subject to mobbing has the right to file a claim with the State Labour Authority and / or with the court. The employee also has a right to the compensation of losses (including moral damages) caused by mobbing, but only if it is confirmed by a court decision that has entered into force. If due to mobbing, damage is caused to the employee’s health, the employee must be reimbursed in full for the relevant treatment costs.

The Mobbing Law introduces new grounds for the termination of employment relations due to mobbing:

• based on the employee’s initiative – if the employer has committed mobbing against the employee or did not take measures to end it, which is confirmed by the relevant court decision, the employee has the right to terminate the employment agreement at his/her will on the requested date. In such a case, the employer should pay the employee a
• severance amounting to at least three average salaries of the employee;
• based on the employer’s initiative – (1) an employee may be dismissed if he/she has committed mobbing, which is confirmed by the relevant court decision and (2) the managing director may be dismissed if he/she has committed mobbing and/or did not take measures to terminate it, which is confirmed by the relevant court decision.

In addition, as a follow-up to the Mobbing Law, the Ukrainian Parliament passed the Law of Ukraine “On amendments to the Code of Ukraine on Administrative Offences to prevent and counteract mobbing (harassment)” (the “Liability Law”) which became effective on 23 December 2022. The Liability Law establishes the administrative liability for mobbing for both employers and/or employees. For example, if mobbing is committed against the employee, the company’s officers shall pay an administrative fine in the amount from one hundred to two hundred untaxed minimum incomes (approx. from EUR 42 to EUR 84) or may be punished by correctional treatment for a term of thirty to forty hours. The liability becomes more severe if mobbing has been committed by a group of persons or a person who has been subject to an administrative fine for the same violation within a year.

By Olena Kravtsovac, Associate, Wolf Theiss 

While Ukrainian law firms have to deal with issues ranging from power outages to effective work distribution, their intellectual property, tax, labor, and corporate law practices remain relatively busy, according to Baker McKenzie Managing Partner Serhiy Piontkovsky.

“For nearly a year now, Ukraine has been suffering from the Russian invasion,” Piontkovsky begins. “This has had a significant impact on the country’s economy, businesses, and legal market.”

“Law firms, similarly to our citizens and businesses, experienced power interruptions as a result of intentional actions taken by Russian forces,” he notes. “These forces aimed to disrupt the normal functioning of the country by causing widespread power outages. However, to combat these attempts, we took the proactive step of installing diesel generators and Wi-Fi systems to provide a steady and reliable source of power, even in the face of these malicious attempts to induce blackouts.”

“Furthermore, we see lawyers actively participating in a global initiative to relocate individuals and their families,” Piontkovsky continues. “This includes ensuring that children have access to quality education through enrollment in kindergartens. Although some of our lawyers are located outside of Ukraine, they are still engaged in projects within the EMEA region.”

All the while, Piontkovsky highlights that some areas of law remain quite busy, including intellectual property, taxes, labor, and corporate law. “These four practice areas are the main drivers of our business,” he says. “The Labor practice remains busy due to the various reorganizations and changes taking place in the market, as well as the need for companies to make changes to their employment practices,” Piontkovsky notes. “This includes relocating and transferring employees to other offices. Additionally, recent legislative changes – such as the requirement for employers to keep records of employees who may be subject to military service – have raised important questions and triggered an increased demand for our services.”

Piontkovsky adds that “the tax practice area has been affected by changes introduced by the government last year, which resulted in the implementation of a single tax of 2% of revenues. Companies have the option to switch to this tax regime and, if they do so, they are exempt from paying corporate income tax and value-added taxes.” Piontkovsky highlights that this change has made the tax administration process more convenient, from an administrative point of view.

Finally, Piontkovsky notes that the IP practice area has not been greatly affected by the ongoing conflict and war. “IP rights continue to be registered despite the challenging circumstances, which helps to maintain the stability of this practice area,” he says. “The corporate practice area has also remained busy, as clients may choose to undergo corporate reorganizations, resulting in the consolidation of multiple companies into a single entity.”

On the flip side, real estate and dispute resolution are among the practices which are currently less busy, Piontkovsky says. “Due to the current business environment, law firms’ utilization levels are not at 100%, and some of the employees may not be busy enough,” he notes. “However, we are endeavoring to help these people work on other projects and ensure that their skills are applied effectively. Despite everything, we are making efforts to keep all lawyers busy and engaged,” he adds. “We believe that – once the war is over – the recovery and reconstruction of Ukraine will begin, so we intend to retain our teams and boost their professional development, to deal with the challenging and sophisticated client work ahead.”

On 31 January 2023, the Resolution of the Cabinet of Ministers of Ukraine “Some issues with implementation of the provisions of the Law of Ukraine ‘On Mobilization Training and Mobilisation’” No. 76 dated 27 January 2023 (“Resolution”) came into effect. The Resolution approves a new procedure for reserving persons subject to military service, as well as criteria for determining companies that are critically important for the functioning of the economy and ensuring the livelihood of the population during a special period.

Key changes

• Qualified companies can reserve 50% of employees subject to military service (or more if there are relevant grounds).
• The Director (CEO) of the company and their deputies may be subject to reservation regardless of their military rank, age, and military specialty.
• Several categories of companies can reserve their employees: those that carry out mobilisation tasks; those that produce goods, perform work, or provide services necessary to support military formations; and those that are critically important for the functioning of the economy or for ensuring the livelihood of the population during a special period.
• To be recognised as critically important, a company must meet at least three of the following criteria:
  • The total amount of taxes, fees and payments made to the state and local budgets (excluding customs payments) exceeds the equivalent of EUR 1.5 million.
  • The amount of income in foreign currency (except for credits and loans) exceeds the equivalent of EUR 32 million.
  • The company is of strategic importance for the economy and security of the state.
  • The company is important to the sector of the national economy or for meeting the needs of the territorial community.
  • The company has no outstanding Unified Social Contribution payments.
  • The amount of the average salary of the company’s employees for the last calendar quarter is not less than the average salary in the region for that period.
  • The company is a resident of Diia City.
• The determination of the company as critically important is carried out by the state governing body of the relevant sector of the national economy or by the regional state administration (military/military-civilian administration).
• UN agencies, foreign diplomatic missions in Ukraine, representative offices of international organisations and executors of international technical assistance projects also can reserve their employees.

By Lina Nemchenko, Partner, Mariana Marchuk, Counsel, Baker McKenzie

Sayenko Kharenko has advised the EBRD on its EUR 25 million loan to the city of Lviv under the EBRD’s Resilience and Livelihoods Framework.

According to Sayenko Kharenko, “the loan has a maturity of 4.5 years and will be used to provide liquidity support for Lviv’s municipality and its key municipal companies – including transport company Lvivelectrotrans, road construction, maintenance, and traffic-management enterprise Lvivavtodor, water operator Lvivvodokanal, district heating company Lvivteploenergo, and waste management operator Zelene Misto.”

“The EBRD’s loan will help these entities provide essential services and compensate for temporary revenue losses and additional war-related expenses,” the firm reported.

The Sayenko Kharenko team was led by Partner Igor Lozenko and included Associates Oles Trachuk and Oleksandr Motin.

Sayenko Kharenko has advised Goldman Sachs Asset Management on the acquisition of digital consultancy Cprime.

According to Sayenko Kharenko, Cprime is a consulting firm focusing on providing digital transformation, product, cloud, and technology solutions.

Sayenko Kharenko’s team included Partners Oleksandr Nikolaichyk, Vladimir Sayenko, and Vitaliy Odzhykovskyy, Senior Associates Tymur Enkhbaiar, Mykhailo Grynyshyn, Igor Pomaz, Pavlo Kovalchuk, Kateryna Utiralova, and Yuliia Brusko, and Associates Nazarii Pylypchuk, Snizhanna Sheshliuk, Svitlana Derkach, and Andrew Oliinyk.