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Proactive Efforts


Dmytro Shemelin, Lawyer at Ilyashev & Partners Law Firm
Source: The Ukrainskyi Yuryst

Working at the occupied territory: how to deal with appropriation of your client’s assets

At the moment of annexation of Crimean peninsula Ilyashev & Partners Law Firm had been running a great deal of cases in Crimean courts as well as cases related to assets located in Crimea. That is why the “Crimean problem” has become quite a pressing issue for our firm. We solved the problem in a straightforward and efficient manner: opened a Representative Office of Ilyashev & Partners Law Firm in Simferopol and hired experienced Russian lawyers to work there.

It is no secret that earlier, taking advantage of many similarities between civil legislation in Russia and Ukraine, Ukrainian lawyers could (sometimes very successfully) represent their clients’ cases in Russian courts in certain individual cases. However, when a considerable part of our practice is going to continue to be carried out under the laws of Russian Federation such temporary decisions are not in line with the present-day circumstances.

More importantly occupation of Crimea caused many additional problems to our clients which requires constant presence of professional lawyers in Crimea. These particular problems are handled by our new Crimean office. Among the urgent matters are: registration and re-registration of Crimean real-estate property in the Registers of the Russian Federation, corporate matters of the companies that stayed in Crimea, legal protection of assets under the Russian legislation, taxation issues etc.

Keeping hold of what is ours

The key problem bothering many owners in Crimea is so-called nationalization. New Crimean authorities took Ukrainian state enterprises into ownership and are trying to appropriate Crimean assets of some Ukrainian businessmen among whom is Ihor Kolomoyskyi and the group of his companies (PRIVAT). As of nowadays our Firm has been handling several cases related to protection of Ukrainian and foreign owners whose assets were “nationalized” in Crimea, as well as interests of the creditors of the “nationalized” Crimean companies. Unfortunately it is hard to predict when and where the new Crimean authorities will stop. At the moment their actions are only gaining steam.

The paradox of the situation is that “nationalization” of assets belonging to private persons is hardly advantageous for the Russian Federation in general.

Firstly, it is illegal under the Russian legislation and ignoring such a flagrant violation of property rights may lead to creation of a number of negative precedents for other Regions in Russian Federation.

If the Crimean Government can confiscate private property belonging to foreign citizens why doesn’t, for example, Tatarstan Government do the same?

Secondly, such aggressive nationalization does not contribute to investment attractiveness of Crimea. If companies from Russian Federation can somehow receive personal guarantees, foreign investors will likely forget their way to Crimea. In their way of thinking foreign companies can go even further: if Kremlin turns a blind eye to “nationalization” of property owned by foreign companies, wouldn’t it allow “nationalization” of property in Moscow in the future? One does not have to stretch his imagination much in order to find a formal motive for that.

Thirdly, straightforward dispossession of property is a great cause for initiating proceedings in an international court as a result of which Russia (with high degree of probability) will have to abroad full market cost of nationalized Crimean assets.

From the economic point of view in the end Russia will have to buy out the “nationalized” assets at their market (if not at even higher) price.

For example, prior to its expropriation the cost of YUKOS Oil Company was estimated at the level of 33 bln. US dollars and within the arbitration case lost by the Russian Federation the amount of compensation reached the mark of 50 bln. US dollars.

In spite of such transparent considerations Russian federal authorities are so far hesitant to interfere into the Crimea-related property matters. Russian courts of superior jurisdiction have also abstained from expressing their coordinated position regarding lawfulness of the “nationalization”.

Evidently the final political decisions are likely to be taken very soon. Meanwhile, Ilyashev & Partners is trying to defend its clients in Crimea applying all available methods, including initiating cases at the newly established Russian courts.

As out experience suggests that simultaneous lodging suits regarding Crimean “nationalization” in Ukraine in the majority of cases has little perspective. Decisions delivered by Ukrainian courts based on worthlessness of the acts issued by newly established Crimean Government will hardly be acknowledged in Crimea or anywhere in Russia. In their turn, enforcement of the mentioned decisions at the territory of Ukraine will only make sense if it is possible to find real property which may be subject to foreclosure. As a rule, “beneficiaries” of nationalization usually have no property in Ukraine.

International perspectives 

Should Russian authorities take final negative decision regarding nationalization the last word shall be secured by international courts: the European Court of Human Rights and international investment arbitration courts.

Deprivation of the proprietary rights under the “guise” of nationalization without making timely, sufficient and effective compensation is considered to be a violation (illegal expropriation) from the point of view of international law and causes responsibility in the form of restitution of the market cost of the “nationalized” property. As soon as new Crimean authorities constitute an integral part of the state authorities of the Russian Federation their official activities are considered to be official actions of the Russian Federation as a state and official responsibility for such actions shall be laid upon Russia as the official state.

Thus, private persons whose assets were “nationalized” through actions of new Crimean authorities without corresponding adequate restitution have fairly good chances in the international proceedings initiated against Russia.

However, it should be noted that international justice is not a speedy business. Review of a particular case in the European Court of Human Rights (unless such case is given priority) may take 5-6 years. Arbitration cases are reviewed noticeably quicker, however, they also may require 2-3 years to finish.

In addition, to get a reward is half the battle. It is also necessary to have the court decision executed. The practice of large-scale violation of proprietary rights by the state (cases regarding property in the Northern Cyprus reviewed by the European Court of Human Rights, lawsuits against Argentina initiated at the international arbitration courts) testifies that the states – respondents in such cases – often avoid (under political motives) making voluntary compensations according to the decisions of the international courts. It took five years to execute the court resolution delivered in Louizidou case and certain resolutions upheld against Argentina were not executed throughout even a longer period.

Eventually, international justice, especially in the form of international investment arbitration may also cost a pretty penny. Cases in international courts are usually entrusted to qualified lawyers and handling the cases against such respondent as the Russian Federation requires engaging also international specialists with international hourly rates.

That is why we recommend out clients, who are facing a threat of losing their Crimean assets to try to firstly renew their rights at the territory of Crimes and Russian. When it becomes apparent that this path leads to nowhere, it will be the time for international courts.

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