In the legal business, like in sports, there are no half-measures. The most important thing in a competition is not just participation, but victory. An ambitious law company will never be satisfied by silver ratings. Therefore, there's constant motion in the law business: in human resources, functionality and practise. And as a result, its expertise sharpens steadily. Because if it's a competition, it's a victory. If it must be a stadium, then a stadium it shall be.
Ihor Kravtsov, managing partner and head of dispute resolution practice at Evris Law Firm, became the hero of the cover of the September magazine issue of "Ukrainskyi yuryst". In his interview, he reflects on new and promising markets, Ukraine's investment attractiveness for national and foreign investors, and shares the news that will start the new business-season.
The new Business-Season
With the advent of autumn, traditionally, a new season begins in the world of business. September 2019 was marked by the start of the new parliament and government. This change in the country's political paradigm is bound to lead to a change in the system of legal coordinates. The legal market cannot ignore these developments and thus needs to coordinate its strategic activities in accordance with the new challenges. Evris is enthusiastic about the new business season. We are also implementing certain changes. There are some plans we'd like to share. But first, let's talk about nation-scale changes, which are approaching unceasingly.
Abolishing a Moratorium
The moratorium on the alienation of land plots in the format established by the Land Code (LC) of Ukraine is a relic that has persisted only in a few countries, which can be counted on the fingers of one hand: Ukraine, the Democratic Republic of the Congo, Venezuela, Cuba and North Korea. This market should be opened not only with due regard to the need to restore the violated rights of our citizen landowners, but also because of the necessity to increase Ukraine's investment attractiveness and to implement the state's international obligations. In fact, the violation was quite clearly determined by the ruling of the European Court of Human Rights in the case of Zelenchuk and Tsytsyura vs. Ukraine, in which the court stated that the presence of a moratorium in Ukraine for such a long period of time contradicts the European Convention on Human Rights and fundamental freedoms.
The new administration has pledged to abolish the land moratorium by the end of the year. Given a political will, this process is technically not complicated and only requires the annulment of one legislative provision – the 15th paragraph of the Ukrainian Land Code's transitional provisions. With the current balance of power in Parliament, the people's representatives can swiftly implement any legislative request. Consequently, the lifting of the moratorium is a simple matter, and the rest will depend on which model of the free land market is chosen.
The ideal Model
In the previous Supreme Council of Ukraine several drafts of land market laws were supposed to be submitted. However, not a single one of them was put to the vote, the "public opinion study" is still in progress. As far as I'm concerned, it's best to begin by ending the moratorium on the alienation of land owned by citizens. Due to the fact that individuals cannot freely dispose of their property, their shares, and Ukraine receives not enough profit on an annual basis. Then we should proceed to take care of state owned land, of which there's a lot, but it's apparently not used as efficiently as it should be. For a time, courts had to deal with a multitude of law enforcement agencies' claims regarding the legal relations that have developed around state-owned land. This situation was provoked by the absence of a legal model and a real demand for cultivating such land. What is state-owned land? These are land estates of science academies, ministries, military training grounds or state-run enterprises. For objective reasons, most of them cannot be used for their designated purposes like conducting military exercises or, say, growing rare crops. For that reason, these lands have until recently been cultivated by interested parties, and legal relations are often accompanied by unlawful economic operations, criminal acts against officials, and the like.
So at the very least, we must establish an efficient and fast procedure for leasing state land, and perhaps even more – open such land for purchase and sale. That's where I see both a meaning and great opportunities. Inefficient use of state land creates a lot of corruption risks, the system fails to produce economic results and is heavily bureaucratized. All these factors impede the development of certain industries and the country's economy as a whole. Briefly: first we open the private sector of the land market, then the public sector.
A lot of debates have been going on around the necessity of establishing restrictions for the free land market – in terms of the range of buyers, the maximal amount of land plots and their area, and so forth. In my opinion, any restrictions will have a negative impact on the land market and market relations. There certainly must be some reasonable boundaries to prevent manipulation, but they must have a certain foundation. The draft laws on the land market, which were previously presented to the public, were to some extent contradictory. For example, a law that allows no more than 500 hectares to be sold to a single buyer, and only to physical persons. Does this law have anything to do with proper market conditions? In 2018, the total export of agricultural products reached a record-breaking 40%. Most of these exports were provided by large and middle-sized agricultural companies that work with more than 1000 ha. To comply with such bad legislative prescriptions, companies will have to hire an army of physical persons acting as nominal buyers. For lawyers, undoubtedly, this may be interesting – to accompany the process of constructing such a cumbersome structure. However, in terms of common sense and economic goals, it's a road to nowhere.
A popular stereotype is the fear that foreign nationals may be buying up all Ukrainian land. In order to meet the interests of the state in this sector, there is even no need to pass a new law – the current versions of Articles 81-82 of the Land Code of Ukraine already prohibit any foreign individual and legal entity to own agricultural land. It is more profitable for the national economy if foreigners would strengthen their corporate structure here by starting companies, thus also paying taxes in Ukraine.
The Public Sentiment
Interestingly, the majority of the population, especially in rural areas, are against opening the land market and lifting the moratorium. They are most likely victims of populist politicians' propaganda, comfortable with the current state of affairs. People like that simply parasitize on people' s emotions.
It's also noteworthy that large agricultural holdings have become consistent advocates of the open land market. Although it should seem beneficial for them to rent land at a lower price. They actually see an opportunity to obtain hard collateral and thus to attract cheaper funding for their business. Leasing will always be a weaker, less effective right than property. This makes it way more difficult for agricultural companies to attract investments under the existing legal conditions vs. the ones that could be established by opening up the land market.
After the opening of the land market, the role of agricultural holdings won't undergo any changes in the short term, but may even intensify. Because at first, either they or their affiliates will be the primary buyers of land. After all, it is highly unlikely that a company that has never dealt with land before will invest millions in its acquisition. Land is an asset that is of interest to those who know how to manage it efficiently. Now agricultural holdings and mid-sized agricultural enterprises do a good job of managing land. In my opinion, their importance will increase over the near term, which is why these very entities will be the setters of trends, prices and developments.
But over the long term, this is very likely to change. As the world's experience shows, global structures are not always efficient due to high costs of transactions, organization, and logistics. Let's look for example at the U.S. – a country with a significantly larger area, an open land market and a strong democracy and economy. Now, there are virtually no agricultural holdings in America, and small or medium sized farmers are the most efficient providers of agricultural goods capable of accumulating power, knowledge, skills and resources in one hand. The average amount of land "in one hand" that generates the most profit in the U.S. belongs to farms with plots of land with an area of somewhat more than 1,000 ha. Ukraine is still very far away from this, but perhaps we will pursue this path as well.
The international community is particularly interested in opening up the Ukrainian land market. Ukraine is a huge market, and not only an agricultural one. New opportunities for investment will arise with the opening of the land market for foreign partners, corporations, organizations and institutions. This will make Ukrainian products in the long run closer, more affordable and understandable.
Yes, Ukraine is facing certain risks, that prevent a rapid growth of investment attractiveness. However, the more powerful players enter the market, the more they invest, the harder it will be for other players to behave in bad faith. They will bring a new quality of behavior and create a healthy business climate. Don't assume that foreigners are so naive that they are willing to invest their funds in our country with no specific assurances. No. They will work with international institutions to protect their investments. National and international courts, investment- and commercial arbitrations – these days we have more and more mechanisms for an efficient protection of violated rights. Ukraine should be interested in civilizing the land market – it may be possible to do it one step at a time, but this is something that has to be done.
In my opinion, our national court practice does not fully tackle the challenges which arise with further development of legal relations in the land market. There is a certain paradox here: Ukrainian courts, in particular the Supreme Court, are producing revolutionary, well-reasoned and fair rulings in light cases, whereas when it comes to complex decisions, the court distances itself from taking responsibility. Perhaps even more significant is a certain amount of pressure and political influence on the judicial sector. This is not an indication of a jurisdiction in a country with a developed legal system that is brave enough to resolve any legal situation with fairness.
A striking example in this context is the recent decision of the Grand Chamber of the Supreme Court of 15 May 2019 (case № 227/1506/18) on the claim of the Prosecutor's Office to recognize the contract of land exchange as invalid during the period of the ban on alienation of land plots. The Grand Chamber of the Supreme Court noted that the aforementioned decision of the European Court of Human Rights could not be interpreted as a special permit for unrestrained circulation of land plots. But that conclusion didn't emerge from the narrative of the case at all! It seems as if the Court has removed itself from the resolution of the core question, shifting all the responsibility on the shoulders of the lawmakers. Ultimately, the very existence of an ECHR decision is already a signal that the national judicial system does not react to the challenges of time.
The Need for consequent Changes
As I said, abolishing the land moratorium is technically not complicated. Theoretically, the market should initially be able to function without passing a special law on the land market – the market will establish independently its own rules of conduct. Ultimately, we still have a whole array of legislative regulations in force. This industry is already regulated quite well.
It is not easy to estimate the ruling party's plans for a particular land market model. However, it would be great if any chosen model of an open land market was publicly discussed, with the involvement of experts in the agricultural sector. The most promising scenario for the industry would be the abolition of the current version of the Legislative Code of Ukraine on the moratorium, and the start of the preparation of a draft law on the most appropriate market model. Bylaw regulations can be passed, thus promptly reacting to established legal relations. In the current situation, this should not be a problem as well.
On the one hand, this is good, but on the other hand... the concentration of power in one party is a quite dangerous precedent. Ukrainian society has provided the ruling elite with a huge carte blanche that could undermine the system of checks and balances. At the moment, it is difficult to foresee the new government's behavior, since there has never been such a mono-majority in the history of Ukrainian parliamentarism. However, nowadays civil society is a fundamentally different one – stronger, more powerful and more mature. Now its point of view has to be taken seriously. I hope that civil society will not allow the authorities to cross the boundaries of civility.
Just five or ten years ago it was believed that Ukraine's status as an agricultural country is something negative. Like, we should be innovative, up-to-date and progressive. Modern countries appeared to be very industrialized, so we felt the need to invest in technologies.
These are pretty questionable assumptions. There is no reason for trying to catch up with modern trends, it' s best to find your own niche. It is very difficult to reach the technological level of Japan or China. And if Ukraine is capable of becoming a leader in agriculture (and by some indicators we are such already), if we are an agrarian country, but a developed agrarian country, then why not? The agricultural sector may become the area that will make Ukraine a valued player in the international economic arena.
Re-formatting the Legal Market
Reforms in the agrarian sector will inevitably lead to the reformatting of the legal market. Evris Law Firm handles client requests promptly, and we plan to strengthen our specialization in agriculture. We also consider the possibility of opening a separate branch dedicated to real estate and land relations.
We're trying to be always up-to-date on legal and agrarian events. Our company is a partner of the European Business Association's profile committee, we have extensive work experience on the project of the International Finance Corporation "Agrarian Receipts in Ukraine", which is aimed at attracting additional funds to small and medium agribusinesses. Recently, we have prepared a lawsuit against the Cabinet of Ministers of Ukraine to declare its inactivity regarding the settlement of the issue with the moratorium as unlawful. Each time the Supreme Council of Ukraine prolongs its validity, it obliges the government to develop an appropriate law and submit it to the Supreme Council of Ukraine for consideration. And each time the government fails to accomplish that job. Given the great public interest in these subject matters, it is our wish to make this trial public, although we have absolutely no illusions about the efficiency of the court's decision, even if it turns out to be in our client's interest.
The new Practice
But that's not the only area we're considering to develop. In September, we announced the launch of a new energy practice. The Evris team was joined by Ivan Bondarchuk, a specialist in legal issues on energy law, particularly in the field of alternative energy and natural resources, who also became the head of the practice. This is another promising industry with international and national investors. We have supported energy projects before, but this was usually done by lawyers who weren't mainly involved in the field of energy. We see a necessity not only in servicing ongoing projects, but also in promoting our own expertise, our competence and our services.
Ukraine has a good energy infrastructure and opportunities to develop alternative energy sources. This market is also positively influenced by legislative changes, both made and planned. Changing the game rules on the energy market creates enormous opportunities for lawyers, because no one understands how the new mechanisms will operate. Who else is going to be the one to understand all this, if not them?
Changes in the Partnership Structure
Sergiy Papernyk, Partner, Head of Banking and Finance and FinTech, has left the firm. The practice is now being supervised by Sergiy Benedysiuk, Partner, Head of Corporate and M&A Practice. Sergiy Papernik's contribution to the company's growth is priceless, we are grateful for his collaboration and wish him all the best in his career. He is an exceptionally versatile person and there is no reason why Sergiy wouldn't be able to achieve success in new projects or branches.
In Ukraine, we strive to focus on high-potential industries, that is why our practices are in constantly changing dynamics. In addition to 'internal development', we are also expanding into foreign markets. International clients have been our top priority for a long while now. We believe in Ukraine, its economy and its investment potential, and we are very interested in supporting capital raising projects. Our portfolio includes many successful international support cases, and I am confident that their numbers will grow exponentially.
Just recently we have established a representative office in Singapore. This choice of location is based on certain subjective factors. The Ukrainian business and especially the legal market is interested in the Asian market. Why the Asian market? We have many common interests – agriculture, technologies and energetics. Also, Ukraine is an interesting potential partner for Asian representatives. We share a long-lasting trade relationship, particularly in the field of agricultural exports.
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