Date of publication: 10 October 2014
Source: Yurydychna Praktyka
Roman Marchenko shares his views onto the challenges Ukrainian business is facing in Crimea, alternative security measures related to assets, as well as the Firm’s reasons to open a Representative Office there.
— What were your driving motives for opening a Representative Office in Simferopol?
— Directed at the necessity to protect the clients’ interests in new circumstances opening of a Representative Office in Crimea was, in fact, a response to the annexation of a part of Ukrainian territory by the Russian Federation. We had been examining the legal market of the Crimean peninsula, where we always had a lot of clients, for a long time, but never considered it big enough to step our foot there. All the legal matters of our Crimean clients were handled by lawyers from other offices located in Kyiv, Dnipropetrovsk and Kharkiv. Russian military intervention drastically changed the situation. All being the patriots of Ukraine and considering Crimea an integral part of Ukraine we simultaneously understand that it is actually under the jurisdiction of the Russian Federation at the moment. At the same time interests of our clients continue to exist and must be duly protected, including under the legislation of the Russian Federation. We have put together a team of lawyers specializing in Ukrainian and Russian legislation and currently the office is working at full capacity.
— What are the most important legal fields your Crimean Representative Office is currently engaged in?
— Primarily our activities are aimed at protection of internal and external interests of our clients in Crimea. Generally speaking the sizeable part of the work of our Crimean office is represented by protection of interests of Ukrainian banks (of which we have more than ten among our clients) in Crimea. Many banks started providing loans to the Crimean residents against property located at the territory of the peninsula. It needs to be noted that all the encumbrances contained in Ukrainian registers are actually not valid in Crimea nowadays, because Crimean local authorities are currently using the Russian State Register introduced a short time ago. In this situation the banks are faced with the necessity to protect interests of their depositors and shareholders. That is why, from a practical standpoint, of primary importance is the introduction of information about certain encumbrances into the Russian official state registers in order to prevent unpledging the property by unscrupulous borrowers. One can also witness overall nervousness of the owners of the property and assets in Crimea. Certain Ukrainian companies, for example, have had their manufacturing facilities nationalized. Currently all reasonably cautious companies have left Crimea for fear to come under sanctions. Only local and small-size Russian companies (not represented anywhere else) are currently present in Crimea. Global companies are mainly interested in proper way of leaving Crimea, but not organizing there work here. Throughout the period when Crimea is under Russian control it will be an outcast region and no civilized business will ever come there.
— What are the ways in this case how to leave Crimea with a minimum loss? It seems that Crimean assets are not in great demand now.
— Everything is relative. There are spheres that will always be in demand because business life in the region is going on. For example, Crimean real estate (including residential property) is still in good demand. In telecommunication sphere there are still certain infrastructural facilities owned by Ukrainian mobile companies which in one form or another will be transferred under control of Russian operators.
— What courts are authorized to review disputes in Crimea?
— Here we are faced with two kinds of situations. In de jure situation, all the disputes originated in Crimean shall be subject to the review of the corresponding courts in the city of Kyiv, which is stipulated by the Law of Ukraine “On guaranteeing the rights and freedoms of citizens and on the legal regime on the temporarily occupied territory of Ukraine”. For example, being an administrator of assets owned by Feodosia ship-building company MORE, I filed a lawsuit to Kyiv District Administrative court in order to appeal unlawful nationalization of the property of the mentioned state owned company. The court predictably established the nullity of the nationalization, but in fact it is nothing but a political declaration. Such court resolution cannot be enforced because the Russian Federation shall defy such decision in its entirety. Correspondingly we will have to file a lawsuit to the court of corresponding jurisdiction in Russian Federation.
— Can a claimant rely on receiving a fair verdict in the “Crimea-related case” in the courts of Russian Federation?
— When we initiated the review by the courts of Russian Federation of the nullity of the nationalization carried out in Crimea lawyers in our Crimean office specializing in the Russian legislation brought out an opinion that from legal standpoint the case in question was deemed to be a success. They substantiated their opinion by the fact that according to the laws of Russian Federation constituent entities of the Federation are not empowered to confiscate any property or assets – it can only be done on the basis of the federal law and upon making corresponding settlements etc. However, in view of the current political situation I can predict dragging the review of this case in time – postponing it in connection with ongoing criminal proceedings, reviewing it by the European Court of Human Rights etc. As a matter of fact, on the one hand the Russian Federation has nothing to say regarding the evident unlawfulness of actions performed by the new Crimean authorities; on other hand it will be politically difficult to acknowledge the fact of any infringement of law. Frankly speaking we have been facing many non-standard situations at the moment. One of our clients has found himself in an interesting situation “at the interface of times”: he managed to win a lawsuit at Sevastopol Commercial Court and lose it at Sevastopol Commercial Court of Appeal. Prior to the occupation of Crimea we appealed the mentioned decision to the Higher Commercial Court of Ukraine (the HECU) and won again. But as soon as the HECU issued its official decision local Crimean authorities do not held it as valid following the annexation. As a result we were forced to submit a complaint to the Supreme Court of Russian Federation. The situation gets even more complicated as the HECU has not sent the case materials back to Crimea.
— Is it virtually possible to enforce in Crimea a resolution upheld by a Ukrainian court?
— In general the situation is quite complicated, but each case must be analyzed individually. However, for example, as regards to enforcement of court decisions in favor of Ukrainian banks on September 03, 2014 the Crimean State Council issued a resolution on suspension of enforcement of such resolutions up until January 01, 2017. Hence, one can easily understand the tendencies dominating at the occupied territory.
— What are the prospects of enforcing Ukrainian court resolutions in Crimea?
— Manifested here is enormous political influence. If escalation of the conflict continues and the peninsula remains under the Russian control it is entirely possible that decisions of Ukrainian courts will never be enforced. At the same time it needs to be remembered that in principal disputes, for example, related to real estate, securities etc. virtually any country will accept jurisdiction of its own courts. That is why, with many factors in mind, we review judicial options of out clients struggling for certain assets as political rather than real. In order to achieve the desired goals filing lawsuits to courts of Russian Federation and communicating with other Russia state authorities is inevitable.
— What is your general opinion about the future of “Crimea-related court cases”?
— Actually there are several options how to protect your interests in Crimea. Option No. 1 – file lawsuits to Ukrainian courts and wait until Ukraine is able to enforce corresponding court decisions. Second option is to go Russian courts. Third option is to go through all court instances in Ukraine and apply to the European Court of Human Rights. There is also a fourth option. If your have certain investment interest you need to initiate arbitration court review based on the Agreements on mutual protection of interests entered by and between Ukraine and Russian Federation. 
— Could you elaborate on international arbitration option?
— Agreement between the Cabinet of Ministers of Ukraine and the Government of the Russian Federation for the promotion and reciprocal protection of investments stipulates for the right to appeal to the tribunal under the UNCITRAL rules or the Stockholm arbitration court. It is clear that each situation is unique. There are different volumes of business. Review of certain appeal may last for several years and can easily cost its initiator several million US dollars. Therefore, not every asset is worth fighting for. Moreover, initiating any proceedings against Russia’s illegal expropriation one should be aware of absence of any guarantees of enforcement of future court decisions. It is a well-known fact that Russia is not very successful in international courts nowadays, but is very reluctant to settle any awards. And after the YUKOS cases the situation is going to be even more aggravating. Generally, in the medium-term prospective, I personally assume exclusion of Russian Federation or withdrawal of its membership from the Council of Europe, including due to its failure to enforce decisions passed by the European Court of Human Rights.
— If we leave out the political issue of the Crimean jurisdiction, when, in your opinion, the peninsula is going to go back into the lawful framework?
— If we talk about the occupational (Russian) framework, nowadays there are many judges in Crimea, who only started studying laws of the Russian Federation and, therefore, are making a lot of errors. At the same time the mentioned errors are rectified at the appellate and cassation levels. So, I think, the courts are going to sort out domestic disputes fairly quickly. Difficulties will appear regarding the relations which had originated prior to the annexation, and to which both Russian and Ukrainian laws may be applied. But I think that within a year the judiciary and other legal practices in Crimea will be stabilized. If only (in which we place great reliance, but unfortunately, not much yet believe) Crimea is going to become a part of Ukraine this same year.