No Win – No Fee
Crisis is always a period for new opportunities. Many successful businesses have been established in turbulent times and have grown from start-ups to highly competitive market players. The most important thing here is to be ultra-responsive to business demands, to be extra-flexible and innovative in providing professional solutions. Overall, “thinking out of the box” is really significant now.
Recent times in our country have been extremely challenging for new investors. However, last year we saw the establishment of the Kiev office of TCM Group International on the professional legal services market. To learn about the recent achievements and plans of this new and ambitious team, we met Denys Kopii, partner at TCM Group Ukraine.
UJBL: The office of TCM Group International was launched in Kiev in 2014. Why did you decide to launch your business in Ukraine in the middle of a crisis?
Denys Kopii: TCM Group International is a unique alliance of 35 law offices and 110 agencies that practice international commercial dispute resolution and debt collection in 145 countries. It was established in 1987 as an alliance of a few small law offices in the Pacific Rim and grew up year by year until it became truly global.
As the foreign offices of the Group started receiving more and more inquiries regarding claims against Ukrainian businesses from their local clients during the crisis, we initiated dialog about opening an office in Ukraine with the Group’s CEO Mr. Etienne van der Vaeren, who also manages the work of TCM Group Belgium. Having had a good experience in advising the Group’s offices on claims in the CIS, we reached an agreement to launch a full office in Ukraine, and with the support of the Group’s Board of Directors we incorporated TCM Group Ukraine in Kiev in 2014.
The current Ukrainian crisis gave us a great opportunity to get into the market of alternative dispute resolution in the area of international commercial relations, and to offer to Ukrainian exporters a unique solution — to collect debts owed to them from all over the world on a “no win — no fee” basis.
UJBL: What problems do foreign companies face in resolving commercial disputes with Ukrainian counterparts?
D. K.: These are the same problems all national, foreign and international exporters and service providers face doing business all over the globe: different languages and time zones, different currencies and banking standards, different business traditions and customs.
Despite the fact that the English language is considered the international one in business and despite the fact that most transactions are made in USD, certain problems arising in this regard may be difficult for foreigners to handle.
For instance, it was quite complicated for foreign exporters to understand, why the National Bank of Ukraine restricted Ukrainian companies to proceed with the repayments to their foreign suppliers under BLs that were older than 180 days when they had signed contracts with deferral of payment conditions for 360 days, or when they had already been receiving regular payments according to settlement agreements with 2 or 3 years repayments plans.
UAH/USD and UAH/EUR currency exchange rates that significantly changed during the last year and limitations on currency exchanging operations also led to additional problems for foreign companies with resolving commercial disputes with Ukrainian business partners. Some of our foreign clients agreed to share the loss caused by the devaluation of the Ukrainian national currency together with Ukrainian companies, others did not agree to share losses but negotiated on reductions of future deliveries.
Another significant problem that foreign creditors experience while resolving commercial disputes with Ukrainian debtors is the mentality of Ukrainian business. I mean, if a Ukrainian company comes to a situation in which it is not able to fulfill its obligations towards a foreign company, it usually decides to simply hide and wait for better times, avoiding all communications with the creditors and trying to quietly sell out the goods, in order to accumulate money for repayments. When Ukrainian companies act like that, foreign creditors become worried about not receiving anything. As practice shows, if creditors do not reach their debtors through lawyers in time, there is a possibility that they will not receive their funds back.
UJBL: You work closely with Chinese banks and exporters. What are the main issues, currently arising between Ukrainian and Chinese business? What kind of dispute settlement prevails?
D. K.: TCM Group International is proud to have the biggest office in China, managed by the Group’s Board Member, Mr. Chunyang Li. The number of employees of TCM Group China reached one thousand people this year, and the Group definitely has a close relationship with banks and exporters in almost all provinces of China.
At the same time, the volume of cases accumulated by Chinese creditors against Ukrainian debtors has fallen significantly, as Ukrainian issuing banks stopped paying under issued letters of credit (LC) to Chinese banks. Since the National Bank of Ukraine started dissolving Ukrainian banks, the majority of Chinese banks stopped accepting LCs issued by Ukrainian banks as guarantees for obligations of Ukrainian importers.
In 2014 Chinese banks and exporters were tending to file claims to international commercial arbitration courts and/or Ukrainian local commercial courts instead of looking for alternative ways of dispute settlement. Nevertheless, when they did not have sufficient documents confirming legal business relations with the debtors (originals of signed contracts, originals of orders for deliveries, originals of BLs) they tended to try to solve the disputes amicably, and we offered them mediation proceedings as the best way to settle disputes.
Another important issue is that Chinese exporters started requesting Ukrainian companies to pay for deliveries “in full and in advance” since the deals became uncovered by letters of credit. This trend reduced the overall amount of new sales concluded by Ukrainian companies that never imported goods from China and allowed Chinese exporters to avoid new commercial disputes related to Ukrainian companies failing to pay. Therefore, this trend decreased the number of China-Ukraine commercial disputes in which we could be involved as mediators, and settlements through international litigation started prevailing over the ADR with some exceptions with regard to international commercial arbitration.
UJBL: What is important to know before starting cooperation with Chinese counterparts?
D. K.: While we were working on some frauds committed by Ukrainian companies in the past, we started receiving more and more inquiries on frauds committed by Chinese companies against Ukrainian business partners. For instance, we had a few claims in which Ukrainian importers received containers full of trash from China instead of ordered goods.
We recommend all our Ukrainian clients to check the reputation and financial status of Chinese companies before making any prepayments to them. We send a request for such a check to the head office of TCM Group China, which then sends the request to the local office in province where the potential Chinese exporter is located. The local office obtains all information about the potential exporter and sends us back a report on its status. It usually takes around one week for the whole procedure.
Such reports on foreign companies usually show the following information: legal and factual addresses, form of incorporation, amount of registered capital, names of shareholders, names of affiliated legal entities, business areas to which the company is primarily involved, the number of employees, balance sheets for the latest period, etc.
Many of the Group’s global clients do not imagine the start of cooperation with Chinese or any other foreign counterparty without checking its reputation and financial position, and they regularly order such informational reports on foreign companies that may be provided by the Group in almost all countries of the world.
UJBL: What are the most efficient alternative dispute resolution methods in other jurisdictions where you have a presence? Which of them are not used in Ukraine? Why not? What are the benefits of these mechanisms?
D. K.: There are several reasons why companies, involved in transnational sales opt to choose international commercial arbitration as a type of alternative dispute settlement procedure. First of all, arbitration provides for obligatory enforcement of arbitral awards in more than 150 jurisdictions around the world. It should be noted that judgments adopted by state courts can be recognized and enforced in another state only if there is an international agreement with the state of the issuing court or through the principle of reciprocity. This limitation often leads to situations when companies are left with a positive judgment that cannot be enforced against a foreign debtor.
In addition, parties are granted a much higher degree of confidentiality in arbitration proceeding than in litigation. In many jurisdictions, litigation is public and court judgments are easily accessible to everyone interested, while arbitral awards usually cannot be disclosed to the general public without prior approval of the parties to the case. Finally, arbitration allows parties greater flexibility regarding competence and skills of judges (arbitrators), language and place of proceeding, applicable law and other essential issues.
Among internationally recognized arbitration centers, the most distinguished are: the International Court of Arbitration, established under the auspices of International Chamber of Commerce in Paris; the London Court of International Arbitration, and the Arbitration Institute of the Stockholm Chamber of Commerce. These arbitration courts handle thousands of cases each year with billions of dollars at stake. And it is our major advantage to be present in all key international arbitration hubs.
In addition to arbitration, mediation is becoming widespread in the majority of jurisdictions. The main advantage of mediation, when compared to litigation and arbitration, is that business partners are able to resolve disputes through finding a mutually acceptable solution and preserve their fruitful business relationship. Moreover, mediations are in general speedier and less costly than arbitrations and litigations.
Interestingly, some jurisdictions introduced mediation as a compulsory procedure in certain instances. For example, in the United States of America many judges oblige parties to refer their commercial disputes to mediation before going to courts. As practice shows, many creditors afterwards continue working with their debtors, which reveals the true added value of this ADR method.
We must admit that arbitration and mediation are not applied in Ukraine to the same extent as in the majority of developed countries. However, it should be noted that many developed countries started using arbitration in the late 1950s, while in Ukraine this form of dispute settlement is relatively new. Therefore, we believe that with time popularity of alternative dispute resolution in the Ukraine will only increase. The biggest contributing factors to this trend will be growth of volumes in transnational sales and bigger inflow of foreign direct investment into the Ukrainian economy. Usually, foreign companies feel more comfortable to conclude contracts with arbitration and mediation clauses instead of referring disputes to potentially biased state courts.
UJBL: Ukraine does not have appropriate mediation regulation. How does the mediation service function at the moment? What kind of client typically chooses a mediation procedure?
D. K.: The absence of appropriate mediation regulation is a challenge both for Ukrainian mediators and for potential clients involved in disputes.
First, mediators do not have appropriate licenses confirming their authorization to mediate because there is no licensing system for it in Ukraine. At the same time, many young Ukrainian lawyers having had courses on mediation during their LLM studies at foreign Universities suggest to their clients that they try mediation as a pre-trial way of dispute settlement before filing the claim to a court.
Frankly speaking, this is quite an unusual situation in Ukraine, when lawyers suggest their clients solve commercial disputes through mediation on a success fee basis. This happens when clients are not ready to spend money on litigation and declare to lawyers that they would try to negotiate with their counterparties themselves before making a final decision to litigate.
Usually, having an agreement with a creditor, a lawyer makes a call to the debtor and appoints a meeting with him for and on behalf of a client. Then the lawyer takes the client to the debtor’s office, or less often brings the debtor to the client’s office, and announces that there will be the mediation conducted between them and that he would be an independent intermediary.
Second, neither the client nor his counterparty knows much about mediation and how it should look due to the absence of regulations in Ukraine. So being in such a dispute and sitting in an office with the lawyer who declared that mediation would happen now, they start their negotiations exactly in the same way as before the involvement of a mediator.
Unfortunately, being in a commercial dispute, both disputants do not like to understand the reasons why the other party acted in the way that it acted, and the parties are more concentrated on the monetary side of the dispute instead of being focused on its nature. Commonly, the creditor wants to hear the answer to the question: “When will I get my money?”, while the debtor wants to hear an answer on question “How much time do I still have for not paying?”. Therefore, being in the past state of mind and having not looked deeper, the parties usually choose the averaged answer to both of their questions, and most commonly do not follow the agreement after the mediation is completed. On the other hand, real mediation should explore the core of the problem that leads to a commercial dispute, and a mediator should lead the parties to a possible final settlement that is enforceable by law.
Talking about international commercial dispute resolution of commercial claims, the lawyers of different offices of TCM Group International most likely apply the so-called “shuttle diplomacy”. For instance, the Polish office under the management of the Chairman of TCM Group International, Mr. Hubert Czapinski, passes to the Ukrainian Group’s office a claim against a company located in Ukraine. In such a case the Polish office collects all available information and documents from their local client that exported goods to Ukraine, and provides us with the cover letter explaining the facts and the current position of the claimant. The role of the Ukrainian office in this dispute is to check the registration and financial status of Ukrainian counterparty, to allocate the responsible management of the debtor, and to initiate negotiations with them in order to obtain their opinion or counterclaim together with the supporting documents and to make our suggestion on further settlement strategy. When the said is done, the Ukrainian office passes this information and supporting documents back to the Polish office, which informs the client accordingly, and negotiates with the client with regard to the settlement suggestion, made by us. In such a case, having agreed on the strategy with the client, our Polish colleagues entrust us to act on behalf of the client towards the settlement of the dispute with the Ukrainian company and this usually leads us to signing a settlement agreement with a repayment plan to be followed by the Ukrainian debtor and to be controlled by us.
The same mechanism of so-called “shuttle diplomacy” in the area of international commercial dispute resolution and debt collection works in the opposite direction when a Ukrainian client has a claim against a Polish company or against a counterparty located in any other country where the Group has presence. The important point is that it is not necessary for the intermediary to have 20 flights per month between the offices of disputing parties located in different parts of the world in order to agree all the paragraphs of the settlement. TCM Group International provides a unique solution for foreign creditors to get in close touch with its overseas debtors through the offices of the Group in order to solve the international commercial disputes at the earliest convenience of the two intermediaries that understand local creditors and foreign debtors, as they are located in both jurisdictions at once, and that understand each other, as they are the part of one Group, all the offices of which work according to the same principles.
Annual General Meeting of TCM Group International, Florence, Italy, 2015
TCM Group Ukraine
Key facts:
Year of establishment 2014
Number of lawyers/partners 12/3
Core practice areas
- International commercial debt collection;
- Portfolio management and debt restructuring;
- International commercial arbitration and litigation;
- Recognition and enforcement of judgments and arbitral awards;
- Commercial bankruptcy proceedings in foreign jurisdictions;
- Criminal investigation of international frauds and white collar crimes
