All things in moderation
Moderate business activities and slow, but sustainable, economic growth have predetermined legal business trends in Ukraine at the regional level. Lawyers acknowledge growing interest on the part of foreign investors and law-enforcement agencies. While the former interest is very positive, the latter is hardly good. The reforms implemented in the country and changes in the legislative landscape have influenced the allocation of forces in the regions. Medical law and the real estate market are developing. IT is in great demand too.
Despite the well-known wayward nature of the weather in the capital of Halychyna, the climate of "legal Lviv" was quite favorable in 2018.
According to Andriy Hrynchuk, managing partner at Hrynchuk & Partners LF, 2018 was a successful one for the economy in general and for the legal business in particular. He believes that growth indicators are much higher than official statistics show. According to him, small and medium enterprises in Ukraine (which are the foundation of the economy in Western Ukraine) responded predictably to the release of administrative pressure from fiscal authorities by the increase in cash flow. "Therefore, quite paradoxically, the more precise economic growth indicator is not evidenced in official GDP growth statistics, but traffic congestion in cities and between regional centers. It is growing significantly. In the event that a friendly environment for the economy appears the lawyers servicing it will find themselves in favorable conditions", Mr. Hrynchuk emphasizes.
As far back as last year the expert talked about "juvenilization" of the legal market. Then the tone became noticeably restrained when describing the quality of services provided by the younger generation. Nevertheless, the new players influenced the pricing policy through dumping. One year on and the problems remain the same. Anton Podilchak, managing partner at Advice Group, notes that in Western Ukraine small and often inexperienced providers of legal services appear, following the national trend. "This is a normal thing, but they become bottom-feeders of an already weak market, and this is wrong", Mr. Podilchak notes.
However, he finds nothing critical in this, as the main challenge (though our commentator hesitates whether it really is a challenge and not just the state of things as they are) is the problem of the absence of a civilized market. "Local business is not ready to pay for legal work and is more prone to pay exclusively for a positive result, and this is a traditional paradigm", Anton Podilchak admits.
According to Andriy Hrynchuk, the outgoing year was featured by preservation of the harmful habits present in law-enforcement agencies acquired in the latter part of "Yanukovych's time". Furthermore, they have creatively improved their methods of extorting money from the business sector. "Thus, today it has become a standard to declare that the service portfolio of a law firm provides for functions in assisting businesses struggling with insatiable law-enforcers. In Lviv this standard is supplemented by declaring the servicing of tech companies. You're welcome to all we have", the expert adds in his comments.
Despite proximity to the EU, remoteness from the Donbas front line and obvious interest on the part of foreign business in a large market in the heart of Europe, we cannot say that lawyers have managed to transform interest into volumes of foreign investments on a large scale. "My modest personal forecast is as follows: Until White Collar Crime practice is the leading one for business attorneys, there will be no queue of foreign investors", Andriy Hrynchuk predicts. For that reason, according to him, the above-mentioned volumes of economic growth were first of all ensured by the help of internal sources, which were ultimately fueled by consumer demand as a result of money inflows from migrant workers, currency earnings earned from exporting IT services and a cash flow containing a "taste" of grey import.
Last year we recorded that striving of big business towards implementation of compliance policy is setting certain trends for the legal market. Anton Podilchak believes that it is too early to talk about influence of compliance on the market in Ukraine, at least in terms of selection of advisor by the client. "But the fact is, in recent years everyone is promptly becoming compliance and White Collar specialists. However, I am sceptical about the sincerity of declarations about transparency and the decency of market players who offer such practices without a sincere understanding and observance of the high culture or ethics in the history of their development (especially of those firms which had been practicing dispute resolution for more than 15 years)", Mr. Podilchak notes.
As to the most requested practices, according to Anton Podilchak, there is development in customs practice, there are already some good results, and clients are starting to believe in justice, court, law and common sense. At the same time, tax disputes have almost vanished, first of all because those companies which pay taxes properly have no problems with the State Fiscal Service, and non-payers are looking for a "solution to an issue", and not legal assistance. "Taking into account significant improvements in administrative procedures and institutions, we discovered in a new light the construction practice, permits practice, which resulted in an increase in the scope of work regarding agreements, verification of decency and spending power of counterparties", Mr. Podilchak adds.
The lawyers sum up: the regional market is forming in general terms, growing and maturing, slowly but steadily. And this is good.
The vicinity of the Black Sea does not leave much choice for the regional legal market in Odessa. Maritime law is the prerogative of Odessa-based lawyers. This was so in the past and present, and will be so in the future.
According to Gregory Tripulsky, managing partner at De Jure LF, it is worth noting that in this field their competitors are not Kyiv-based, but London-based companies. Development of this practice is facilitated by a revival in the transport field. As noted by Volodymyr Zubar, managing partner at Jurline LF, ports, logistics and agriculture are the traditional core of the region, since the majority of grain that is exported from Ukraine passed through the ports of "big Odessa". Mr. Tripulsky agrees with his colleague: active development of agriculture, increase in crop yield, cargo transshipment via the southern ports required strengthened legal support in 2018.
Changes in the legislative environment and appearance of new institutions predetermined the market’s development (not only regionally) to a large extent. According to Odessa lawyers, adoption of the new law on limited liability companies breathed new life into corporate law. The judicial practice maintains leading positions in the region. Gregory Tripulsky notes that the judicial reform implemented at the end of 2017, changes in court structure, and establishment of the attorney monopoly only increased the load in this area. According to him, the number of protection claims on property rights increased. This was caused by the appearance of an ever-greater number of unfair registrars.
The reforms that took place in the healthcare sector stimulated the development of medical law. "The transfer from the state system to a private one requires the solving of a large number of legal issues caused by the archaic nature of existing legal regulations", Mr. Tripulsky explains.
The criminal law practice is steadily developing too. "It is hard to name large businessmen of the region who have no experience of interacting with pre-trial investigation bodies over the last two years", Volodymyr Zubar comments. The growth of the construction business (housing construction) is one of the new trends. Development of IT is of a certain interest. Mr. Tripulsky notes that the companies in this sector are growing steadily in Odessa Region, develop and requiring appropriate legal services.
At the same time, some practices are yielding ground. According to Volodymyr Zubar, practices in IP and the banking sector became less relevant (this trend has been maintained for more than one year). This is conditioned by the development level of business where these practices are in demand. Gregory Tripulsky adds that the majority of disputes with banks are at the final stage, and new ones are not appearing because of stability in the banking system and the absence of retail lending.
Volodymyr Zubar describes the Odessa market by the development of new local law firms. "I suppose that we will see examples of law firms merging, typical for the Kyiv market, also on the Odessa market in coming years", he predicts.
It seems that the ice has broken in Dnipropetrovsk Region. While 2017 is remembered for its stability and the maintenance of trends from the previous years, then lawyers characterize 2018 as "a year of contrasts and opportunities". Special attention to this is paid by Oleksandr Gladiy, director of Absolut LF.
Yevhen Smirnov, managing partner at Smirnov, Tarasevich & Partners attorneys at law, notes increasing demand in the areas of economy with growth of business activities. Development of the construction market in Ukraine has also influenced the correlation of forces in Dnipro. "With growing construction volumes, the demand for legal services for support of this business segment is on the rise: from receiving all kinds of permits, participation in negotiations and execution of general contractor agreements to further registration of ownership", Mr. Smirnov comments. The range of services provided in the agricultural sector expanded notably. This sector is attracting growing interest from foreign investors. Mr. Gladiy also acknowledges a rise in the number of appeals from clients in the area of land law and real estate related to the activities of developers supporting construction of residential and commercial real estate at all stages.
According to Oleksandr Gladiy, the process automation and development of network services are activated against the background of stagnation in the traditional business. "The one who undergoes transformation in accordance with modern trends gets to be the winner", he believes. According to him, business centralization in Kyiv that has already been observed for a few years now, predetermined the legal market’s development in Dnipro or, rather, its stagnation. "On the one hand, growth is experienced by small law firms and practicing attorneys and, on the other hand, the judicial reform which currently restrains the resolving of many court proceedings, has made its 'contribution' to the development of the legal market of Dnipro and Ukraine", Mr. Gladiy notes. The coming into force of new editions of procedural codes became an absolute challenge for the judicial practice of law firms and forced them into reformatting for the new realities of judicial proceedings in the shortest possible time for provision of qualitative service to clients in judicial disputes. "At the same time, out-of-court dispute settlement practices are being created and developed, taking into account the trend related to the unwillingness of parties to resolve disputes in court, including due to the significant increase in court fees. The work of these practices of law firms is aimed at fulfilling the functions of mediation that still have no legislative regulation", Yevhen Smirnov says in his comments. Due to adoption of the Bankruptcy Procedure Code of Ukraine and predicted increase in demand for services the need arose for reorganization and strengthening of practices providing legal services in this area.
Mr. Gladiy mentions centralization of the legal business, while Mr. Smirnov pays attention to decentralization of power. "Decentralization has significantly increased local budget volumes, providing local self-government bodies with an opportunity to act independently as a large consumer of various goods and services", Yevhen Smirnov says.
According to him, the practices of business protection, both from illegal actions of supervisory agencies and from the unlawful acts of third parties, are still active. Oleksandr Gladiy also notes the activation of law-enforcement agencies which, in turn, resulted in growing demand for attorney services in criminal proceedings.
As distinct from the previous years, there were no new bright trends on Kharkiv’s legal market in 2018. One positive is that the interest of investors in this region has increased. At the same time, the interest of law-enforcers in business has remained the same, which is a negative trend.
Similarly to the capital, here there is a trend towards enlargement of law firms intending to become the leading ones on the market. According to Maksim Sheverdin, managing partner at Sheverdin & Partners attorneys association, and Roman Moskal, a partner of the association, this year this trend also appeared in the merging of some Kyiv law firms with regional ones. This step has both advantages and risks. Maksim Sheverdin highlights the expansion of practices, appearance of new clients, involvement of high-profile specialists in teams and wider coverage of the territory of Ukraine as advantages. However, there are certain risks. Roman Moskal notes difficulties in the integration of corporate cultures of merging firms, which may occur over time.
Furthermore, according to the heads of Sheverdin & Partners AA, some attempts are being made by regional firms to enter the All-Ukrainian legal market.
Traditionally, one of the main requested practices this year was the criminal law practice. The White Collar Crime & Anticorruption practice is developing especially actively. As noted by Yevhen Shkrebets, managing partner at Shkrebets & Partners Attorneys-at-law, this is caused by the significant number of investigations regarding officials. 2018 is full of high-profile cases. In his opinion, this practice will continue to develop with the start of work of the Supreme Anti-Corruption Court.
Intervention by law-enforcement agencies into business processes cannot but influenced the legal market. "A fairly large number of persons who have suffered from actions by law-enforcement agencies turn to us, as a result of so-called 'mask shows', opening of criminal proceedings in order to put pressure upon a business", Yevhen Shkrebets says in comments. Such actions have negative impact on all areas of business, including the legal business, and reduce the desire of foreign investors to invest in the regional economy. "Nevertheless, there is obvious interest on the part of foreign investors in our region, that, in my opinion, will become a predetermining factor of the legal market’s development in Kharkiv for the next few years", Mr. Shkrebets predicts.
Yevhen Shkrebets also refers to development of the IT law practice. "Since Kharkiv is one of the largest IT centers in Ukraine, this practice will remain in great demand", he says. Within the last few years the number of economic disputes fell due to the quite unstable economic situation and high court fee rates for legal entities, though in general terms the judicial practice is still relevant. The lawyer believes that the big potential of the region in agriculture will lead to the strengthening of the agrarian law practice in the near future, but the absence of a transparent land market certainly hinders its development in some way.
"In general, 2018 can be described as a year without strongly marked new trends on the legal market compared to previous years. The market has, more or less, formed a structure and is developing in line with European legal services markets", representatives of Sheverdin & Partners say, summing up.
A year ago we recorded the fact that the regional market had risen from the bottom and gained altitude. It is pleasant that this was maintained in 2018 and is slowly but steadily gaining ground. However, it is worth fastening our seat belts, since the turbulence zone related to the election process in Ukraine is ahead.