Category: Ukraine

Integrites has successfully defended the interests of renewable energy producer EuroСape Ukraine in a dispute against the Head Office of the State Tax Service in Ukraine’s Zaporizhzhia region.

According to Integrites, “the dispute was resolved at the pre-trial stage. The background of the case includes the resolution issued by the tax authority to recognize certain business transactions of EuroCape on the purchase of services allegedly fictitious.” According to the firm, “Integrites’s team presented evidence to prove the opposite.”

Integrites’s team included Partner Viktoriya Fomenko, Senior Associate Kostiantyn Kharchenko, and Junior Associate Vitalii Labadin.

Avellum has advised Ukrainian development company UDP on the acquisition of a 33.35% stake in Ocean Plaza, a shopping and entertainment center in Ukraine.

Avellum’s team included Partner Yuriy Nechayev and Associates Yuliia Chelebii-Kravchenko and Yelyzaveta Kashyna.

Integrites has helped Agro Group, a Ukraine-based sugar producing company, complete a competition investigation project involving the sugar beet processing market initiated by the regional department of the Antimonopoly Committee of Ukraine in the country’s Chernihiv region.

According to Integrites, “the successful completion of the project enabled the Gals Agro Group to continue business operations and ensured conditions for fair competition on the regional market.”

Integrites’s team was led by Partner Serhiy Shershun and included Associates Anna Garbar, Mykola Boichuk, and Andrii Lasikov.

Bird & Bird has won a USD 149 million judgment from the English Commercial Court for Carpatsky Petroleum Corporation, a subsidiary of Kuwait Energy, in a dispute with PJSC Ukrnafta arising out of a joint activity agreement relating to gas fields in Ukraine.

According to Bird & Bird, the firm “sought to enforce an arbitral award from Stockholm under the New York Convention in London. Ukrnafta claimed that the award was invalid claiming fraud, issue estoppel, varying governing laws, the invalidity of the arbitration agreement, and non-existent parties to agreements. The claims led to a full retrial of all issues raised in the arbitration and experts in Ukrainian civil and criminal law, Delaware law, and Swedish law were required. The case has provided good guidance from the English Commercial Court on issue estoppel and the inability of parties to swap and change governing laws between different courts.”

“This has been a hard-fought legally technical dispute which has lasted over three years,” stated Sophie Eyre, Partner and Co-Head of Bird & Bird’s London Dispute Resolution Practice, who led the firm’s team on the case. “Our London Dispute Resolution team has proudly represented CPC throughout the process and ultimately, the English Commercial Court came to the right conclusion.”

Eyre was assisted by Bird & Bird Associate Simona Peter.

The COVID-19 pandemic is making a significant impact on international commerce with Ukrainian counterparties involved. Interrupted supply chains of goods (especially if they were partly or fully produced in China), inability to provide services, perform works during quarantine, and to conduct regular business operations are just a few problems that lots of companies have encountered.

The so called “antivirus” laws adopted by the Parliament of Ukraine on 17 March 2020 qualify quarantine introduced by the Cabinet of Ministers as force majeure. This triggered a rash of force majeure declarations with a reference to the new rule, even in cases when quarantine had no tangible effect on performing contractual obligations.
In this regard, many bona fide companies raised two types of questions regarding force majeure:

(1) how to protect themselves from their unfair counterparties which illegally refer to force majeure
(2) whether quarantine and other restrictive measures introduced in Ukraine affect the ability to perform their own contractual obligations.

In both cases the action plan is almost the same.

What does it look like?

1. Check the wording of the force majeure clause in the contract:

a. what force majeure events are included therein?
b. what is the “standard” of influence that force majeure has on performance of contractual obligations – just an impossibility to perform the contract or other consequences as well?
c. is it necessary to obtain confirmation that the force majeure did occur and where?
d. during what time and how exactly is it necessary to notify the counterparty?
e. what are the consequences of the force majeure declaration?

2. Check the applicable law since it can supplement force majeure clause in the contract:

a. if it is the law of Ukraine that applies to the contract, apart from force majeure clause, it is recommended to analyse Article 14-1 of the Law of Ukraine “On Chambers of Commerce and Industry”, Article 617 of the Civil Code of Ukraine, as well as Article 218 of the Commercial Code of Ukraine.
If it is the possibility to refer to quarantine as a force majeure event that is under question, it is necessary to analyse what contractual obligations were to be fulfilled in March-April 2020, and what particular restrictions set by the Cabinet of Ministers made it impossible to fulfil them. In any case, causal relationship between force majeure and impossibility to fulfil the contractual obligations shall be checked.

b. if the law applicable to the contract is not Ukrainian, it is advised to check the default provisions of the applicable law on force majeure (if any), as well as the peculiarities of applying it in the relevant legal system.

c. if international instruments are applicable, e.g. the Vienna Convention of 1980, the UNIDROIT Principles, it is recommended to check the provisions set therein and align them with those in the contract.

3. Check the consequences of the force majeure declaration/non-declaration, in particular:

a. whether there is a maximum time limit for a force majeure event;
b. whether force majeure declaration will not result in termination of the contract;
c. whether force majeure declaration under one contract has negative impact on other related contracts (e. g., within one project or within a chain of contracts);
d. whether it is necessary to declare the occurrence of a force majeure to the counterparties (e. g., insurance company or bank);
e. what are the consequences of a failure to notify of a force majeure event or to notify thereof within a specified time limit.

4. Be extremely careful in communications with your counterparty. Keep the records in writing and record audios (with an appropriate warning thereof). It can be of crucial importance for further dispute resolution, if it comes to that. If you agree to modify the contract within the process of communication, it will facilitate further execution of the contracts.

5. Collect evidence, including media coverage, and if necessary, apply to the competent authority specified in the contract in order to confirm occurrence of the force majeure event.

Additionally, it is essential to maintain internal track record (internal orders, etc.). This is the evidence which further will be of great importance while qualifying a particular event as a force majeure. The certificate issued by the CCI or other competent authority is only one piece of evidence which the arbitral tribunal or court will consider along with others.

6. Treat new contracts with the due attention. Generally, measures which existed or could be foreseen at the time of the signing, cannot be qualified as force majeure.

! Companies with an insurance policy are strongly recommended to look through it. Even if the consequences of pandemic and quarantine are not explicitly indicated therein, it is necessary to analyse the provisions of the policy in order to check whether it covers situations like these. If it does, then it is required to follow instructions provided in the policy, including that to notify the insurance company in order to maintain the right for a compensation.

By Olena Perepelynska, Partner, Integrites

The LCF Law Group has announced the integration of teams from both the Evris Law Firm and Sheverdin and Partners.

As the result of the integration, the LCF Law Group reports, it is introducing new practices, such as Tax law, Antitrust and Competition law, Intellectual Property law, and Criminal law and Cross-Border Investigations.

Post-integration, the firm will have more than 60 lawyers, including nine partners.

Since mid-2019 Ukrainian authorities have been bringing to public fora various suggested amendments to Ukrainian “green” (feed-in) tariff framework. The most recent proposal from the Ministry of Energy and Environmental Protection mentioned creating an option with voluntary 5-25% reductions to the existing tariffs simultaneously with prolongation of their lifespan.

These moves by the Ukrainian government could repeat the questionable policy of other states where governments scratched generous incentives to develop clean energy (including feed-in-tariffs) after having realised that they constituted too heavy burden on state budgets.

The same justifications are aired by Ukrainian officials, who state that the Guaranteed Buyer does not have enough funds to buy electricity generated by renewable energy plants under the existing green tariff. These talks coincided with the steep rise in the number of renewable energy producers using green tariff. According to recent statistics, the total capacity of electricity produced within the current green tariff framework more than tripled from 1.97 GW in 2018 to 6.33 GW in 2019.

Ukrainian government should be wary though. Changes to renewable energy incentive schemes, including, specifically, retrospective reductions of feed-in-tariffs, have triggered around 100 investment arbitration cases against Italy, Spain, the Czech Republic, and other states so far. Reportedly, out of 40 cases initiated against Spain alone nearly 15 resulted in awards finding Spain liable and ordering it to pay compensation.

Since Ukraine is the party to the Energy Charter Treaty and more than 60 bilateral investment treaties, which protect foreign investments and provide for dispute settlement through arbitration, these investor-state disputes may become very relevant for Ukraine and investors into its renewable energy sector.

Obviously, each dispute is unique. There are, however, several important general takeaways for investors into Ukrainian renewable energy sector:

·       in most cases (e.g., Eiser v. Kingdom of Spain and Novenergia v. Kingdom of Spain) investors claimed that changes to the feed-in-tariff violated their right to fair and equitable treatment (FET). FET is a standard investment protection found in the majority of investment treaties;

·       specifically, investors tended to complain that states violated their legitimate expectations to stable regulatory framework by drastically changing the incentive schemes, which induced relevant investments in the first place;

·       the practice of the arbitral tribunals shows that whether investor indeed had (and could rely on) legitimate expectations would depend heavily on the facts of the case pertaining to such investor’s investment. The different cases have common ground though. Direct commitments expressed by states to induce investments are strong hints that investors could have protected legitimate expectations; and

·       arbitral tribunals were also unanimous that investors, whose legitimate expectations were breached, were entitled to full reparation for the losses suffered. Tribunals usually assess the investor’s actual financial situation and compare it with the one that would have prevailed had the regulatory measures not been changed by the state. In Eiser v. Kingdom of Spain, the tribunal awarded investor the compensation based on the reduction of the fair market value of its investment by calculating the value of cash flows, which were lost as a result of the disputed state measures.

Given that Ukrainian legislator has provided a direct guarantee of stable “green” tariff in the Law of Ukraine “On Electricity Market”, drastic retrospective changes would surely make investors feel that their legitimate expectations were violated and might lead to investment arbitrations against Ukraine.

It seems that Ukrainian authorities understand this and consider possible ways to reduce burden on state budget from green tariff with caution.

By Oleksii Maslov, Senior Associate and Dmytro Izotov, Associate, Avellum

Ukraine’s Esquires Attorneys at Law has successfully represented Trade and Logistic Complex Arctic LLC in a dispute involving a former director of the company’s unlawful transferring of equipment related to the supply of electricity to a complex of storage and food production facilities covering a total area of more than 20 thousand square meters to the ownership of another company that he was affiliated with.

According to Esquires, “these actions of the fraudulent director led to the loss of 90% of the company’s profits and put at risk the normal functioning of the property complex, [which is] valued at over UAH 330 million.”

Acting on behalf of Trade and Logistic Complex Arctic, Esquires persuaded the Commercial Court to rule the Purchase and Sale Agreement of the property invalid, in the words of the firm, “due to the malicious agreement entered between the former director of the company with the other party.”

The Court’s decision was upheld both by the court of appeals and the court of cassation. “At the same time,” Esquires reports, “while considering this case, the Grand Chamber of the Supreme Court resolved an exceptional legal problem regarding the disparate application by the courts of the rules regarding the legal relations of representation and ensured the development of law and formation of a single law practice.”

Avellum and Watson Farley & Williams have advised the EBRD on a long-term secured loan of up to EUR 52.5 million to Novi Biznes Poglyady.

According to Avellum, “NBP is a special project company which owns and operates Riviera Shopping City, a shopping mall located in the Odessa region [of Ukraine]. The loan will be used for the expansion of the shopping mall’s lease area, as well as for the financial restructuring of the NBP’s balance sheet.”

Avellum’s team was led by Senior Partner Glib Bondar and included Counsel Maksym Maksymenko, Senior Associate Tetiana Mykhailenko, and Associates Oleg Krainskyi, Anastasiia Zhebel, Daryna Mykhailenko, Mariana Veremchuk, Dmytro Radzivon, and Andriy Kornuta.

Watson Farley & Williams’s team was led by Partner Joe Levin and included Associate Oliver Acland.

Asters has advised British oil and gas company Regal Petroleum on its up to USD 8.63 million acquisition of Arkona Gas-Energy, a Ukrainian company holding the license to explore, develop, and produce hydrocarbons in the Svystunkivsko-Chervonolutske field, in the Poltava region of Ukraine.

Asters’s team included Partner Oleg Boichuk, Senior Associate Oleksandr Khomenko and Associates Bogdana Marchuk and Natalia Kondrashyna.