A Mature, Reliable, Flexible and Reputable Legal System

Current Ukrainian legislation lacks basic fundamental principles available in more developed jurisdictions. For this reason, very often commercial deals with the participation of Ukrainian businesses are governed by foreign law (usually English law). In order to secure the property and business of their clients, even Ukrainian legal advisors often advise their clients to leave local jurisdiction.

The expansion of English law across CIS states has become a striking trend of the decades. Its unique reputation and credibility has been explained to us by Philipp Wahl, partner of Allen & Overy and head of the Ukrainian regional desk based in London.

UJBL: Why has English law become a popular choice of law in commercial transactions for Ukrainian and other CIS businesses? In which jurisdictions do you observe the same situation? Please provide some typical examples, if possible.

Philipp Wahl: The use of English law as the governing law of transactions between parties from different countries is a common and widespread practice across many sectors and economies. It is particularly popular across the CIS as it is regarded as a mature, reliable, flexible and reputable legal system.

It is seen as flexible because it provides a greater deal of freedom than the laws of other countries in the contractual arrangements that parties may wish to agree. For example, the restrictions on shareholders agreement under Ukrainian law are not present in English law. As a mature jurisdiction its lawyers and court system have a wealth of experience in dealing with the type of transactions that many businesses in the CIS are looking to undertake. Indeed, many English law specialists focus solely on advising clients based in Ukraine and the CIS on matters of English law. The English legal system also provides a reliable and reputable set of legal principles, which parties in Ukraine and elsewhere wish to benefit from.

As the copy of the map shows (reproduced with the permission of Philip Wood and Allen & Overy’s Global Law Intelligence Unit), in private M&A transactions the UK style is the dominant style across the CIS.

UJBL: According to English law, shareholders are enabled to conclude shareholder agreements. What rights, commitments and remedies do shareholder agreements envisage? How does the agreement secure rights of minority shareholders?

P.W.: As a general rule, shareholders are free under English law to decide the way in which their company is run. This allows shareholders to set out in a detailed manner the way in which their company is managed, the composition of its board of directors, the matters that will require shareholder consent and any restrictions on transferring shares in the company. The great advantage of a shareholder agreement is that it is a private document and, unlike a company’s charter or articles of association, it does not need to be placed on public record.

The rights of minority shareholders can be set out expressly in any shareholders agreement, thereby contractually obliging the parties to such agreement to respect such rights that are granted to any minority shareholders in the agreement.

In Allen & Overy’s experience, clients in the Ukraine and CIS value the flexibility and choice afforded by English law governed shareholder agreements and are invariably keen to ensure that such matters are given the strong underpinning that is provided by setting out all relevant matters in a shareholder agreement. Allen & Overy’s Ukraine Desk, which I lead, has a great deal of experience in negotiating detailed and complex shareholder agreements and well understands those points that clients consider of particular importance in the affairs of Ukraine or CIS-based businesses.

UJBL: It is a common Ukrainian practice, when M&A and private equity deals are structured through an established special purpose vehicle outside Ukraine, most frequently in such common law jurisdictions as Cyprus, Seychelles or the British Virgin Islands. Does it affect the range of remedies available under English law?

P.W.: Each of the jurisdictions mentioned has an English common law legal system that is based and draws heavily on English legal principles. Moreover, each of these jurisdictions gives persuasive authority to English legal precedent and, for Seychelles and the BVI, the Judicial Committee of the Privy Council (in effect, the UK Supreme Court) is the final court of appeal. In view of the links between these jurisdictions and the English legal system, many of the remedies available under English law are available, understood and easily enforceable in those territories.

But despite this commonality there are other aspects of the legal systems in these jurisdictions which may prove to be obstacles in disputes involving entities established there.

UJBL: English arbitral tribunals, for example the London Court of International Arbitration, are now the favored choice for dispute resolution in Ukrainian related shareholder agreements. Why is it efficient to resolve disputes in these arbitration institutes? What kind of disputes are the most typical?

P.W.: While there are also benefits to deciding disputes via litigation in court, arbitral institutions such as the LCIA are favoured because of their reputation for administering disputes fairly and efficiently. This is particularly valued in jurisdictions where local courts are perceived to be slow and unreliable. In international disputes the confidentiality, flexibility and neutrality of arbitral institutions is particularly attractive, as is the enforcement regime under the New York Convention. Institutions also provide a framework for the administration of disputes, as well as access to panels of experienced arbitrators.

UJBL: We heard that some London law firms established their CIS groups focusing on CIS related disputes. Could you name the main trends of recent commercial disputes from the region?

P.W.: Arbitration in the CIS now covers the full range of commercial disputes. Whilst there remains a preponderance of disputes in the energy and infrastructure fields, the growth in arbitration has also encompassed corporate lending, the bond markets, and mergers and acquisitions. An increase in foreign direct investment has drawn state parties into arbitral proceedings, with claims against Kazakhstan, Moldova, Uzbekistan and Turkmenistan currently pending at the ICSID.

UJBL: It is widely discussed that the government of Russian Federation attempts to introduce amendments to the Russian Civil Code in order to terminate application of English law in Russian transactions. How may these innovations affect the dedicated English law firms working on such deals?

P.W.: We welcome any developments that advance the reliability, predictability and suitability of Russian law as the governing law of transactions. As a global law firm that has a long history of practising Russian law, we are confident that we would be able to continue to offer advice to clients undertaking transactions in Russia. We note, however, that familiarity across the world with English law as the law of international transactions will continue to make it the primary governing law in many markets. For example, the world’s largest loan syndication market is located in London and those working in that market are likely to be resistant to any changes in practice that would result from changes in the application of English law to their work.