Investments Control

There is an emerging conversation around foreign investments in strategically important companies — is it a path towards modernization and development or a threat to national security?

So we decided to discuss the idea of introducing a screening mechanism aimed at controlling foreign investment in particular areas of strategic importance for the economy and national security of Ukraine. In particular, the Ministry for Development of Economy, Trade and Agriculture of Ukraine has developed a draft law on such a screening mechanism. Svitlana Panaiotidi, Deputy Minister, Galyna Zagorodniuk, partner at DLA Piper Ukraine and Oleksiy Pustovit, partner at Asters, shared their views on the details and the pros and contras.

Olga Usenko (O. U.):  So what are your thoughts on attracting foreign capital into companies that are of strategic importance to Ukraine?

Svitlana Panaiotidi (S. P.): There is no doubt that attracting foreign capital into the Ukrainian economy is vitally important. Foreign investments mean modernization, development, access to new technologies and financing, they drive jobs and economic growth. However, when it comes to companies which are of strategic importance, those operating in the defense sector, telecom, infrastructure and some other sectors, it is quite natural for the state to understand and control what is happening in these industries and who those investors who enter the Ukrainian economy are.

If we consider defense, Ukraine’s desire to occupy a proper place in the international security landscape is logical and understandable for the international security community. From Ukraine’s perspective, it is not just about the development of military-technical cooperation. It is joint work on the architecture of both European and world security, and, of course, joint projects and investment cooperation.

We strive to contribute to collective defense in Europe and we understand that we must be strong inside the country: thus, we implement reforms, strengthen our defense capabilities, carry out agreements with partners, and above all, work together with G7 and NATO experts.

The screening of foreign investments in this context is one of the main components of the security architecture of Ukraine, which affects the international security environment. In our country’s case it is important to understand whether the investment does not come from the aggressor country, whether there are mechanisms to prevent technology transfer, ensure stable operation of infrastructure and so on.

Galyna Zagorodniuk (G. Z.): Mirroring Svitlana’s words, I agree that any state has a natural right to define the rules of the game on its sovereign territory and, as such, may establish various mechanisms which control the entry of foreigners up to a ban on entry. The state, therefore, may define which areas should be closely monitored and establish special rules which require transparency of information regarding an investor and planned investment as well as introduce additional barriers for entry if the state sees certain risks.

The point is that such state actions should be formalized by legislation, carried out by an authorized state agency and applied equally and fairly. Foreign investors that come to Ukraine must be informed of the existence of a special screening regime.

Oleksiy Pustovit (O. P.): The Tuzla Island conflict back in 2003 was an eye-opener, that there was a real threat advancing from a very powerful neighbor. The attempt was followed by long-term hybrid aggression which was mostly based on economic and political interference. Nevertheless, 8 years after Ukraine celebrated its 20th anniversary of independence with two gas conflicts, but even closer ties with Russian business. Ukraine still has no effective mechanism of dealing with national security issues arising out of investments, while some new threats have appeared on the radar over the course of the last decade.

By contrast, many Western countries have not only had a screening mechanism in place for years, but are now actively remodeling national legislation by introducing  stricter and more comprehensive investment control. The Ministry’s initiative is very timely, as it is obvious that control of national investment is inevitable. Investor-wise, one more bureaucratic formality, provided it is clear and easy to observe, is more attractive than the de-facto one in existence, but as yet unarticulated and enforced in an unclear manner policy, as with the well-known case of Motor Sich.

O.U.: How is the issue of capital screening resolved in other countries? Is there a “role model” for Ukraine? 

G. Z.: It should be said that the screening of foreign investments exists in many countries, both developed and developing. The screening mechanism includes monitoring, analysis, assessment, a permit which sometimes can be conditional, prohibition of investment, and sometimes even abolition of foreign investments that have already been made. The rules differ from country to country, but they are aimed at protecting national security, public order, while sometimes the purpose is protecting national production or attracting investments in high-tech or other industries. The screening mechanism exists in the US, Canada, the UK, Australia, in 14 EU countries, including France, Germany, Italy, Spain, the Netherlands, Austria and Poland. It also exists in China, Russia and other countries. Going back to Europe, the EU provides for recommendations to member countries regarding spheres and the mechanism of screening and requires annual reporting on those mechanisms which are in place and the respective practice.

The Association Agreement signed between Ukraine and EU came into force back in 2017. Under this agreement Ukraine took on a commitment to harmonize and approximate its national legislation with EU regulations in certain fields such as customs, sea transport, public procurement, competition, etc. The Association Agreement is silent about bringing the foreign investment legal framework into line with EU regulations (apparently because in the EU itself screening is a decentralized process which falls within the competence of member states). Given the political course of Ukraine, it is likely that if Ukraine introduces screening mechanism, it will be based on the EU legal framework in material respects.

S. P.: In general terms, in order to avoid the concentration of foreign capital in certain defined industries, investments are evaluated on such aspects as the country of origin of the investments, assets to which foreign investments are directed, the type of investment agreement (direct / indirect, acquisition / or partial participation), threshold values of shares acquisition of national companies by a foreign investor.

In the majority of EU member states, the Ministry of Economy is the authorized body responsible for conducting inspections of foreign investment. Thus, the decisions on approving or blocking foreign investments or agreements are made at the level of the Cabinet of Ministers or the President.

G. Z.: Screening in other countries is performed by various state bodies, such as ministries, by competition authorities (in the UK, Russia, Australia) or by specially created inter-agency commissions (in Canada and the US).

O. P.: The way in which the control is enforced abroad varies significantly, we can hardly find a system that matches Ukraine and there is no simple copy-paste solution. Special attention is required to those areas covered by investment control and the ease of approval ensured by the Law.

As in many countries, the most recent Draft Law contains a detailed list of the industries which are subject to control, which is valuable in terms of predictability. However, the idea of screening is to address the threats which, in turn, can evolve and are not easy to foresee. By way of illustration, one of the hot trends is public health. The UK recently extended its control to investments in businesses critical to combating pandemics to address COVID-19 and similar threats in the future. There are examples of non-exhaustive lists of controlled industries within the EU that can also be an option for Ukraine, since it ensures greater flexibility and more effective investment control.

S. P.: The strictest verification system by far is the one that exists in the United States. Their Foreign Investment Committee (CFIUS) is an interagency body that has the authority to evaluate investments in defense, transport infrastructure, telecommunications and technology, as well as financial services and the processing of confidential personal data. In Ukraine, however, there is currently a lack of a legally prescribed procedure for the preliminary assessment of foreign investment in terms of national security. On  the contrary, when additional control mechanisms are introduced, they usually provoke resistance.

O.U.: How do you deal with such resistance? 

S. P.: That said, the Ministry of Economy pays considerable attention to the development of a screening system in Ukraine in order to provide verification and prevention of foreign direct investment impact on national security and strategic sectors of the economy.

For this purpose experts from the Ministry analyzed the legal framework and activities of the Committee on Foreign Investment in the United States (CFIUS). We have also reviewed the measures taken in the European Union to coordinate the verification of investments from outside the EU in strategic sectors to ensure that they do not pose a threat to security and public order. Finally, we have conducted analysis of Ukraine’s current legal framework.

O.U.:  What were the conclusions? 

S. P.: As a result of the work carried out, it became clear that in Ukraine there is no special legislation to regulate the implementation of international investments that are of strategic importance for the economic security of the state. Neither is there a system for identifying, preventing and eliminating risks in the areas of national security that may be caused by foreign investment.

In order to regulate these issues, taking into account the best international practices, the Ministry of Economy has developed the Draft Law On Screening Investments aimed at:

— introducing an assessment system of the impact of foreign investments;

— avoiding in the concentration of foreign capital in areas of strategic importance;

— provide companies of strategic importance with the opportunity to cooperate with investors who have an impeccable business reputation;

— provide foreign investors with a transparent mechanism for assessing the impact of their investments and to agreed contracts with strategically important enterprises.

As mentioned before, Ukraine does not have a system for identifying, preventing and eliminating risks in foreign investments. This law is the first step towards creating such a system. In order to create an efficient mechanism for investment assessment the Law should be supplemented with proper secondary legislation.

The crucial piece of secondary legislation is a Commission for Foreign Investment Impact Assessment Mandate. On the one hand it should give enough authority to perform their duties but, on the other hand. it should provide accountability and transparency for all the Commission’s activities.

O.U.: Do you have any examples?

S. P.: For example, the Ukrainian defense industry or infrastructure are potentially attractive for foreign investors because of the scientific potential, qualified specialists, and the availability of a developed infrastructure.

Screening the impact of such investments on national security is extremely necessary. It is impossible to control the attraction of such foreign investments without a systematic approach to the issue of building a system of control over foreign investments.

We believe that we have to implement a transparent approach of verification of investments from foreign investors. We also believe that the decision of this Commission will give them guarantees that their investments will be safe in Ukraine. And we understand that it will enable us, as a country, to avoid the situations when the state needs to control certain transactions, but there is neither the proper authority which could take responsibility for it, nor the proper mechanism. It’s harmful for the economy and relationships with strategic partners. Implementation of this Law should be taken very positively in our international cooperation with strategic partners, and will pursue further development of our economy.

O.U.: Do you think now is a good time to introduce screening?

G. Z.: This is, indeed, a very important question. According to the 2020 World Investment Report published by UNCTAD for 30 years in a row, the trends regarding control of foreign investment differ radically in developed and developing countries. Developed countries like the US, Australia, Japan and others are strengthening their screening laws. For example, they increase the number of areas that are subject to screening and reduce the financial or shareholding thresholds of those transactions falling within the scope of control so that more and more transactions are caught.

At the same time, the trend is in reverse in developing countries; they aim to liberalize their laws, attracting more foreign investments to ensure further development. Developing countries compete for foreign investments trying to soften their requirements (where they exist) or refraining from introducing new restrictions and barriers.

Another important factor is COVID-19. Again, taking into account UNCTAD conclusions, the COVID-19 crisis will cause a dramatic fall in foreign direct investments throughout the world. It is forecast that global foreign direct investments flows will decrease by up to 40% in 2020. A further decrease is already being forecast in 2021 with a slight hope of recovery in 2022. The outlook is extremely negative for vulnerable economies.

Ukraine can hardly boast of large volumes of foreign investments. Careful consideration should be made as to whether this is the proper time to introduce a new law on screening of foreign investments which may affect the intention of investors to enter the Ukrainian market.

My opinion is that if the state does, indeed, aim to control foreign investments it should first introduce a properly drafted bill, empower a particular state body to deal with screening and provide for clear, transparent and non-discriminatory rules. Because we are currently observing a certain bias: Ukraine has a need to control certain investments, maybe a need to condition them with certain commitments, set restrictions or even prohibit investments. But it lacks the mechanism to do so in a civilized manner. Instead, it has no choice but to act through those authorities which are not intended to perform such functions, namely the Antimonopoly Committee and law-enforcement bodies.

O. P.: Can there be a good time for another approval procedure? Definitely not, and this initiative is likely to face opposition from business. I very much agree with Galyna. The law should provide sufficient comfort to investors by limiting the review period, setting a clear notification requirement, ensuring a transparent review and reducing paperwork. The consultations held between public authorities and foreign investors as well as an effective appeal procedure are extremely important.

It is unclear what number of investments would have to be reviewed; judging by the current Draft Law, it could trigger quite a few cases. To deal with this, the Ministry can act as a pre-screening body vested with powers to promptly clear non-problematic investments and to grant comfort letters with respect to voluntarily notified investments. The latter resolves many issues where the screening requirement is not perfectly clear or the investor simply seeks compliance comfort.

O.U.: What about your expectations as to adoption of this Draft Law?

S. P.: We are in the process of analyzing the comments which we have received from other ministries and are going to prepare the upgraded version in the course of next month. The next step is to work with Parliament.


Mindset Shift

The Velvet Revolution which took place in Armenia in 2018 changed the country and society. After a period of calm watching the course of the new political leaders in power, international investors are confirming strong interest in the country. The legal market went through a clear out, which is irreversible when healthy,as intense competition takes place. Vardan Stepanyan, managing partner of K&P Law Firm, explained the background of ongoing changes in Armenia, which obviously come from a shift in mindset rather than purely legislative reforms.


Olga Usenko: How would you describe the legal market in Armenia? How competitive is it?

Vardan Stepanyan: In my opinion, the market has not yet shaped itself to the full extent. I would describe it as one that is still developing: there are quite significant gaps to be filled; and there is a range of services for which there is still no demand. New players rarely appear lately. Earlier, new “starlet” firms entered the market, which immediately forced intense rivalry on the market.


O. U.: Were they local law firms?

V. S.: Yes, they were local firms and associations. Sometimes they appeared through hidden lobbying on the part of state authorities and by various big companies and corporations.

But the last five years showed greater stabilization. New players rarely appear, while influential law firms demonstrated sustainable growth. If you look at the ratings of leading agencies for the past five years, you will see the same companies getting there, and their places remain virtually unchanged.

Moreover, one of the main characteristic features of our market is the complete absence of international law firms. There are no renowned international brands here that would create a competitive advantage in the eyes of foreign clients merely by their presence. At the same time, the Armenian market is multi-levelled, and competition is carried out within these levels.

It is worth noting that competition has been quite tough lately. However, we do not really feel that other companies are aggressively soliciting our clients, just the other way around. In the context of fair competition, everything is developing quite steadily.


O. U.: Are there Russian law firms on the market?

V. S.: No, there aren’t. There are local companies which have offices in Moscow, but they operate on the Armenian internal market. Their presence in Moscow is just an additional bonus, as they don’t have a recognized brand outside of Armenia.


O. U.: If we talk about the legal departments of audit firms, to what extent is competition observed on their part?

V. S.: The ‘Big Four’, Grant Thornton and BDO are represented in Armenia. Some of them, for example, Grant Thornton and EY, have sufficiently professional legal units. Nevertheless, the main direction of their business activities is still audit and accounting services, taxes, consulting, other services in the financial sector. We are aware of their presence, but they do not enter the market of purely legal services. For example, we are currently involved in a large project where we are responsible for the legal part, and one of the international audit firms is responsible for the audit and financial ones. By and large, they provide legal services in unison with their core audit services. A minor exception could be made regarding Grant Thornton, which displays particular activity but it is still quite small compared to purely legal companies.


O. U.: What changes after the Velvet Revolution of 2018 would you draw attention to?

V. S.: In fact, the revolution changed the country to a great extent, from the political, social, and economic points of view.

Naturally, these changes could not be left unnoticed by the legal market. Before the revolution, the market was mostly free and of little interest to the top state authorities and oligarchs. Therefore, the changes were not so dramatic compared to other fields.

These can roughly be divided into two types. Firstly, after the revolution, the legal market is still in a state of cleanup of all kinds of unscrupulous players. There was a considerable layer of lawyers who participated in corruption transactions, which was within the framework of the then regular rules of the game. Currently, they are simply left without work as the level of corruption has fallen quite drastically. We rarely hear about corruption in courts and the executive authorities. Recently, for example, it took us only five days to carry out basic registration of a property division.  This was unthinkable earlier without making arrangements or issuing an appeal to a court.

There was another pool of unscrupulous firms that had strong competitive advantages as a result of protection from top government echelons. But now they’re forced to compete with the others on an equal footing without any special privileges. In my opinion, this shakeout has had an extremely positive effect on the market.

As for the other part of changes that took place, they are due to changes in the economy. Following the revolution, the market became freer. For example, earlier certain privileged businessmen had the right to import certain goods, and the system was built in such a way that if someone dared to import the same goods, such person would have “problems”, for example, delays at customs. Everything was divvied up. Following the revolution, this issue disappeared itself. Everyone imports whatever they want. The Customs Service works relatively quickly and without any particular issues. This is because Armenia is not a big country, and it needs no essential effort to provide impetus from above to allow everyone to work as they should. All monopolists who enjoyed preferences and who, basically, only formally required legal services, turned into ordinary market players without any advantages over other participants. Therefore, if a business operates in a competitive environment the services of lawyers become highly demanded. Consequently, the demand for legal services in the commercial sector has grown. I would even note that not only on the part of large businesses, but also on part of medium and small businesses.

Moreover, I would draw your attention to the great demand for criminal lawyers. Many cases have been initiated, some of which are high-profile ones. For example, related to the former president of Armenia. Our client had an inquiry on a criminal case when, as a result of misappropriation and abuse by employees, company property suffered losses. We tried to find a criminal lawyer, but they were all overloaded with work. Therefore, many colleagues who worked in the civil area went through retraining for criminal cases. We also had to work in the criminal field, although this is not our profile.

O. U.: Do you see increased attention on the part of international investors in the country following all these events?

V. S.: The situation is that they never rush, but calmly observe how the market is developing and what risks they might bear. I remember very well that we had a slack period regarding international projects for half a year after the revolution. Even those projects that were about to be initiated were postponed. It was because they carefully observed the new leadership, where it will go, whether there will be internal disturbances.

But the situation has stabilized now. Our activities in the past 7-8 months support the idea regarding both our current cases and the number and quality of new requests. If nothing supernatural happens to Armenia this progress will continue over the next few years.


O. U.: Do local law firms grow due to such increased demand?

V. S.: Right now, we are ready to hire 3-4 lawyers, but there is simply no supply. We cannot find the lawyers we need. And this is a common problem for our entire market. There is competition for qualified personnel, preferably having a Western education, and these are really rare. Therefore, even if we wanted to expand, it would not be an easy task to accomplish. There are a lot of ordinary mid-level specialists, but we are interested in people who can manage projects independently and can make decisions.


O. U.: If we mention reforms, how do they affect your work? Are law firms involved in the relevant processes? Is there the practice when Armenian firms draw up laws and lobby them in every way?

V. S.: In fact, there have been no significant changes in legislation over the past two years. This is related to the fact that the problems of Armenia were not down to bad legislation, but because the latter was poorly applied and not implemented. The current authorities focused their efforts precisely on solving problems by applying all the good laws we have.

The operational profile of law firms in Armenia is, as elsewhere, such that we have to monitor changes constantly, even some kind of draft changes. But Armenian law firms don’t have sufficient resources for active and ongoing participation in the drafting of legislation. For example, if we are asked to draw up a law we like, I can’t imagine how we will manage this in terms of time. Ten years ago we had an experience when an international company asked us to come up with a draft law, but back then it was a paid job and we had resources for such legislative activity.

I think that legislative drafting by law firms in Armenia should be lobbied, and partially paid by market players affected by these changes in one way or another. We, just like other law firms, simply cannot physically allocate any resources just to make the country better.

We had a case, just at the beginning of last year,  when the government initiated the introduction of changes to the Tax Code, following which all providers of legal services became subject to VAT. Currently, companies become subject to VAT if their turnover exceeds a certain set sum, while small and private lawyers are exempt from this tax.  This discussion caused a tremendous response from the public, organized reaction on the part of lawyers, including companies that work with VAT. However, they should have benefited from these changes as they deprive lawyers that do not pay VAT of a competitive advantage. This advantage is especially noticeable if you work with foreign companies for which intra-Armenian VAT is a complete waste of money. However, colleagues showed solidarity, the response was severe, and the government was forced to repeal this change. It can be said that if the matter concerns the specific interests of lawyers who are attorneys, they become very active. But when it comes to other industries and no payment for legislation drafting services and amendments to it, legislative changes are usually introduced without the participation of law firms.


O. U.: What services are the most sought after? What do you expect in the near future?

V. S.: Currently, the services of legal representation in civil, administrative and, in particular, criminal proceedings, are in special demand. We can say that changes in the judicial system and its increased credibility entail a higher number of appeals to courts. Earlier, especially for large-scale cases, parties tried to persuade each other through the authorities or to solve the issue directly. And now we see a clear tendency to transfer disputes into the legal channel – to the courts.

This is because the forecasts for attracting foreign investment are, in general, quite positive. Accordingly, there will be demand for legal advisers in M&A and corporate law areas.

There is also great potential in Armenia for growth in the securities market, and this issue is being discussed in government to create a powerful tool for attracting foreign investment. There are very few highly specialized lawyers in the securities market. The demand for such specialists will sky rocket.

I would like to note that over the past two years, the Armenian real estate market has grown quite dramatically. It is the result of the industry’s deregulation. Therefore, along with the market’s development, the demand for specialists in real estate transactions will also grow.

O. U.: You mentioned that there are many administrative disputes in the country. How often does the corporate sector go into litigation with the state, and what is the outcome of such cases?

V. S.: Quite serious changes have also taken place. We have recently communicated with colleagues. Their client had an audit conducted by the tax inspectorate, following which the client was charged an absolutely fantastic amount of money. They challenged the amount not even in court, but in the tax inspectorate itself, namely, in its appellate instance. The tax inspectorate cancelled its act by 90% of the sum. It was impossible earlier, except by using not entirely legal mechanisms.

I recently found interesting information about the administrative court’s workload, and its workload is full till the end of 2021…

Everything is logical: when the judicial system’s credibility increases, the number of lawsuits also increases, especially against the state.

O. U.: With which law firms do Armenian lawyers have to work most often: from Russia, CIS countries, USA or the United Kingdom?

V. S.: We cooperate with almost all major markets – that is, the EU, USA, China, CIS countries, including Russia.

State corporations and banks represent Russian business in Armenia, and they work with the same persons. Nevertheless, we work more often with branches of international companies located in Russia. For example, there were several projects with Dentons and Herbert Smith Freehills, which are quite active. Since international companies are not represented on our market, if they face Armenian issues, they resolve these through their Russian offices.

Over the last year, the number of requests from China has risen. But I cannot help but note that they look for the cheapest option, and even before they agree on the amount, they already require some preliminary advisory opinions, after which they may not even hire. We had several projects with the Chinese a long time ago, and all of them exceeded the cap initially specified by us.

Companies from the USA are currently quite active. Americans are very comfortable to work with. They are friendly, committed, have a ‘pay on the same day’ basis, and always follow the arrangements precisely. For example, we have a project with a state corporation as well as several financing programs in Armenia.

Talking of Europe, we work a lot with the United Kingdom and France, which are quite active on the Armenian market. In particular, we currently work with a large French hypermarket and a large Austrian-German investment fund.


O. U.: What about Ukrainian clients? Do you get requests from them?

V. S.: Unfortunately, we do not have much work from Ukraine. Since we, represented by me, are present in Ukraine, we cooperate in the main with Ukrainian companies on projects in Ukraine itself. And I should note that this is very successful experience.

To be honest, the last time we received a work request from Ukraine in relation to projects in Armenia was three years ago.

Armenia and Ukraine are countries that accept investments themselves, but do not invest in other states. Nevertheless, I think we have potential due to historical ties and the considerable turnover in goods. There are many Ukrainian goods in Armenia: Roshen, by the way, is our number one in its sector (ed. – laughs), vodka products are also in high demand. And since there is trade, there will be legal cases sooner or later.


O. U.: What was the most interesting project in your practice lately in terms of legal work?

V. S.: Perhaps it would sound standard, but it was a project for the Menu Group company in Ukraine – acquisition of a Ukrainian company. It was a very interesting transaction, as it involved lawyers from six countries at the same time – Cyprus, Lithuania, Ukraine, Armenia, the United Kingdom, and Latvia. This was due to the fact that both the seller and the buyer had rather complex corporate structures. Although the buyer himself was historically from Armenia, his company was registered in England.

We communicated with all the lawyers at the same time and received various kinds of interesting information on particular aspects. Moreover, any project related to Ukraine is always somehow special for us.

More Than Just Business


During his first visit to Ukraine, Paul Rawlinson, Global Chair of Baker McKenzie, told UJBL readers in a special interview of his vision of the balance between local independence and a global strategy, partnership policy and innovation, as well as the global challenges facing the legal marketplace during celebrations to mark the 25th anniversary of Baker McKenzie-Kyiv.


What is Baker McKenzie’s strategy? How does the firm meet the challenges of the global legal marketplace?

Paul Rawlinson: Baker McKenzie is an international law firm that operates in 47 countries with 77 offices. How is that organization relevant to today’s economy? The firm was set up, obviously with the different economic and different client needs, so we are always looking at how we can be responsive to  what our clients are asking for. And the strategy of the firm is to really partner with clients, to help them navigate these risks. You look at the risks of doing business in different markets, and also risks of changing the regulatory environment in different sectors: financial sector, energy sector, consumer goods or pharmaceuticals. You`ve got different issues which clients face in terms of doing business internationally. So our job as lawyers is to do M&A deals, to help them with the IP protection, to help them when they get litigation. Typically now we are working with those clients in terms of their business strategies, to help them before these issues arise, and to help them to manage those risks. When we talk about the role of Baker McKenzie, we are moving from a more traditional view of the lawyer to one that`s partnering with clients through industry knowledge, a real understanding what the client business agenda is, helping clients to navigate those risks. What does it mean? It means that we need to equip our lawyers with those skills, not to just be good technical lawyers, but to be able to really understand the industry, how that client operates in this sector, what the challenges are, and to be comfortable talking to the client about the business issues. So when they come back to the office with a mandate, the client wants to do, they have got a much better understanding about that client and the needs of work to be done.

So the strategy of the firm is to look more at an industry focus, to equip our lawyers with business skills as well as legal skills, and also to continue to stay ahead of the developments in the market. The market is moving quite quickly, so using artificial intelligence, using innovation to help us deliver legal services more efficiently or price competitively is also what our clients want to have because clients are pressed with their needs, with a fixed legal budget they need lots of things to happen. But before this happens we have to respond in a more innovative approach to the way of a pricing services, to the way as we deliver our services using different means of mechanisms to do that.


What is the geographical strategy of Baker McKenzie? Do you see any opportunities in the emerging markets like Ukraine, and other CIS countries?

P. R.: We have been in Ukraine for 25 years and even longer in other emerging markets in the region. Right now our strategy isn`t to open new offices unless it’s really strategic. We`d love to be in India, but we can’t be because of regulatory reasons. We certainly look at Africa as  it is  a great opportunity because  our clients are increasingly looking to invest in that continent where we have presence in three offices: Cairo, Casablanca and Johannesburg. Africa is a huge area. Although we are not looking at opening offices in more countries right now we have a real understanding as to how we can continually adapt our services in all the markets which we have a presence. Take Ukraine as an example, we are looking at what are the business needs of our clients today. We just had a meeting with a number of business leaders in the Ukrainian community, talking about the need to encourage investment, how can we help that. They need to improve anticorruption laws and how can we help with them. They need to help with a labor market in terms of employment rights and obligations and how we can navigate that. These are the issues that clients want to talk to about, to help them manage those issues and help them ultimately succeed in this market. So our lawyers here, in Ukraine, are looking for ways to improve the connectivity with what the clients want. At the same time, still be an excellent lawyer and technically gifted for people to do the work to a high standard.


Since the financial crisis, clients have become cost-sensitive and put pressure on the pricing of law firms. How did you feel it in Baker McKenzie?

P. R.: The clients want value for money, like all businesses. They want to know when they are getting the best value, and they want to have an excellent service but they want it for the right price. Typically clients started to become unhappy with the notion of billable hours. Sometimes that can be a right model but more often now we talk to clients about the overall value of the matter. So they give us an M&A deal, or they give a tax assignment or whatever, we can teach them about pricing much more innovatively, both sides being more creative. We can have a sense of how long it will take, and what sorts of resources we need, what a client is uncertain about. When you have a client that is giving you lots and lots of different pieces of work, it is easy to do that because you can look at the relationship as a whole, with some issues you handle  more efficiently than others, while sometimes there will be unexpected events in a matter which no-one could predict. The more you can keep them away from the client the better, and just keep a client happy with the uncertainty of a feeling that next you will start to sort a really good relationship with clients.


Baker McKenzie is known for giving lots of independence to its offices at local level. What is the advantage of such an approach? What is the secret to maintain this balance of local independence and global strategy?

P. R.: It is a very good question. As a global law firm we have many global clients who expect consistency across markets, and we have process and proceeds in play to manage our global clients in a consistent way. And all the offices in the firm know what that means. We have relationship partners, people who manage those accounts, and there should be no differences in the service level wherever clients use us. At the same time, we encourage local offices to have a certain amount of work which is domestic work. We don`t need to manage that because they know what the market needs but if you are acting for a global client, we are very integrated. It`s getting the balance right between offering a global service, offering in the same format, in the same standard, but having lots of flexibility so the local market can adapt to the needs of domestic clients. It is not something that we are uncomfortable with because we’ve got used of operating like that. The shift is more towards  global work because more of our business is international. Even here in Ukraine a significant  proportion of work does have  an international element. So more and more of our work requires multiple offices to work together and collaborate.


What is your partnership policy? As far as I know from the history of the Kiev office, here the partners were promoted internally, from within the firm. Do you hire external partners at your other offices?

P. R.: Yes, we do. We have the good quality people coming through. And generally speaking, it’s a really good thing to have lots of people coming though the firm who train with us,  understand the firm, the culture of the firm and to grow people to become our future partners. So that is still very much the norm with all the advantages I’ve mentioned.  You get a real consistency of people coming through with in built  loyalty to the firm.

But with lateral partners they are also very beneficial because they bring something different. Besides  you may not able to grow if you don’t have the right people in the right area. You do need to supplement this with laterals. And we have increased our lateral hire rate particularly in the financial area, where we need to improve our numbers generally and get bigger. The  answer to this question is you need a healthy mix of both home grown and lateral talent. It’s not a policy issue here in Kiev. If you have the luxury of having good people coming through then you don’t need to hire laterals, that’s fine. If you have an area where you still have lack of expertise, then sometimes you have to bring people in from outside. If you are growing at a rate where your people coming through is just not enough to sustain the growth you need.


Your firm is known for its diversity policy. What is the reaction of your clients? Do they appreciate this approach?

P. R.: They do love that. I mean they are driving it. Because they ask us to make sure that not just when you do the pitch, but when you do work, that they have a diverse range of people, not just gender but also different perspectives. Gender is the key one for many of our clients. They want us to have diversity in a good sense of the range of perspectives. It also reflects on the way the clients look and feel as well. And they feel more comfortable with a mix of different types of people around the table from agenda, ethnic and angles of cultural basis. We’ve got a way to improve, but I think we’ve had a good track record of tackling that issue, seriously introducing gender targets. Last year we had 40% female partners promoted globally across the board. It doesn’t improve the imbalance right away and  it will take some time to work through the system, before we could equalize overall. Our ambition is to meet our global inspirational targets.


You have already touched upon the legal tech. How do you introduce innovations in Baker McKenzie? Do you invest in artificial intelligence, special programs or applications?

P. R.: AI means different things to different people. The way we look at it is looking at innovation as the topic, having a group of people looking at it, recommending that we invest in certain things — certain technologies, certain skill sets, and may be even buying an expertise from other areas in the future. What we’ve done so far is invest  in different technologies, and train people how to use them to be more efficient in the way they deliver services.

So if you are involved with a major piece  of litigation and you need to review a million documents historically you have needed a major team to get involved. Now we have a tool that pre-selects that number down to maybe 10,000 documents and then turn that over to a  human mind to look at them. Sophisticated AI can achieve that through  key search terms, and things like that.

If you have an M&A deal, and you are doing some due diligence, checking contracts, you can also use another product we’ve rolled out to make sure you are not wasting time on the relevant documents. So again, searching through against the large volume of documents to make the lawyer’s job quicker, easier, faster, and more efficient.

These technology tools need to be integrated with the way you work, always making sure you understand how to use them and understanding the limits they have  so that the human intervention can be appropriately used once the  first cut of document review is complete. Two examples of the way in which innovation and AI can help to reduce the costs to the clients, making them more efficient, and also making lawyers job more interesting. It’s all about gaining efficiency and getting value added. So when the client sees the bill they know that the lawyer spent quality time on their matters and not including  hours without good reason.


We have seen that Baker McKenzie went under slight rebranding recently. How does it affect the positioning of the law firm?

P. R.: It’s important. So for me it’s not about the visual identity of Baker McKenzie. Yes, it is a bit of a visual boost. I think all companies have that, every now and again. But what sits behind that? I think it’s a modernization of the way we work.

So we are developing these ways of working that we might call the New Lawyer. What does the New Lawyer look like? The New Lawyer is socially mobile, an agile worker probably with a millennial, different way of working, comfortable with technology, probably speaks multiple languages, is comfortable talking to clients about business and legal issues. So, the rebranding is, if you like, a reflection on a modernized view on what we expect of our people, and also what our clients can expect of us, rather than some other law firms being more distant, maybe even arrogant, and don’t really listen, not good communicators. That is not us. So, the brand we want to project is a modern, young version of who we are. Very international, very global, very comfortable with clients, very accessible and mobile, and comfortable across cultures and markets. For me it wasn’t so much about a flashy sign, it’s more what was sat behind that, and what reflects our values.

Ambitious Agenda

The policy makers of post-Soviet states as well as prominent thinktanks and independent researchers constantly refer to the exceptional case of Georgia. This country, located in the heart of the Caucuses, has much in common with Ukraine, but has definitely moved ahead with its reform ambitions and transformations.

Alexander Bolkvadze, founding partner of BLC Law Office, answered questions which are very sensitive for Georgian lawyers, and shared insights of the IBA ECA Forum to be hosted by his firm in Tbilisi in November.


Olga Usenko: How has the Georgian legal market evolved over the last few years?

Alexander Bolkvadze: The Georgian legal market is on a constant evolution path: we are witnessing the appearance and some disappearance of law firms: Dentons has replaced DLA Piper, Dechert has left the market and was replaced by the Georgian firm MG Law. Few new Georgian law firms have appeared with the ambition of having their own slice of the market. Law practices of auditing firms are growing bigger. As for us, we are happy to have our position for many years now in the first tier according to international legal guides – Chambers Global, Legal 500.


O. U.: What lags behind current developments?

A. B.:It is worth mentioning that for years the government conducted tenders for legal services unfairly and unjustly. Namely, all government contracts for legal work were given to one or two economic agents – internationallaw firms. Georgian law firms were left in the cold with nothing. Please note that these international law firms were paid from the state budget, from Georgian taxpayers money. Our law firm came with the initiative of rebuffing such (in our view) unlawful practices. We are united in this fight with other Georgian law firms through the Georgian Law Firms Association.


O. U.: Yes, but international law firms are usually hired for legal work of a cross-border nature that local law firms cannot offer without hiring firms in other jurisdictions. How do you envisage  changing this?

A. B.: All legal matters that are connected with Georgia contain local legal elements, whether this is transactional or dispute resolution work. Accordingly, Georgian law firms have to be considered for a chunk of work. In addition, leading Georgian law firms have developed solid partnership networks with international law firms. Accordingly, if Georgian law firms are involved, they will be able to find a proper international law firm as a partner for specific work. It would be more cost effective and fair as far as distribution of work is concerned. Furthermore, please note that in the past the Government would give a lucrative contract to an international law firm through the so-called “direct and simplified procedure”. This administering of Government money is unlawful and raises a lot of corruption related questions.


O. U.: Which legislative changes in your country do you consider to be the most important?

A. B.: Georgia has very modern laws. The process of legal reform took place at the beginning of this century. Nevertheless, currently, in order to adhere to the requirements of the Deep and Comprehensive Free Trade Agreement with the EU, we are bound to undertake approximation measures. That is, to bring Georgian law to EU standards. Bearing this in mind we have undertaken Pension Reform, amended the Labor Code, drafted amendments to the Competition Law, State Procurement Law, Bankruptcy Law, etc.


O. U.: What are the main sources of client work for your firm?

A. B.: Our firm has been developing along with the Georgian economy by following the demands of the market. Up till now, several areas of practice have been dominant: real estate and construction, banking and finance plus capital markets transactions, energy (especially hydropower development) and litigation. Therefore, in this line, these practices are the most developed in our firm. Nevertheless, our firm is a general practice law firm, and we provide services in all areas of law. We currently have 23 lawyers, which makes us one of the biggest firms on the market.


O. U.: What is the geographical breakdown of inbound investment?

A. B.: If we take countries of the former Soviet Union as a region, where people can communicate in Russian, we have Kazakhstan and Russia as the leading investors. They have invested heavily in the energy and infrastructure sectors. Apart from this region, Turkey is a standalone leader. Turkish companies have invested massively in the hospitality business, real estate and construction. They were initially very active in hydropower development sector, though to a lesser extent now. There are also a fair number of European investors in the retail/distribution sectors, etc.


O. U.: Do you have requests from Ukraine?

A. B.: Unfortunately, not many. We work in the main with Arzinger, where Lana Sinichkina is the main contact. We would appreciate more communication and work with Ukrainian law firms.


O. U.: It’s a good point to get to know the Ukrainian legal community. By the way, this autumn your firm will once again host the IBA ECA Forum in Tbilisi. What is its main purpose?

A. B.: Yes, indeed. We are happy to say that the Georgian legal community is hosting IBA Europe – Caucasus – Asia Forum this year. This event will take place on October 31 — November 2 in Tbilisi. Our firm is part of the Host Committee, where there are also other Georgian Law firms: BLB, BGI Legal, Nodia, Urumashvili & Partners, and Gvinadze&Partners. The agenda of the conference is very, very interesting. I call on all law firms in the region (especiallythe former Soviet Union) to participate in this event. We will discuss important aspects of cooperation, rule of law, interrelationships. The aim of all this is to improve communication and develop business. Please note that the President of IBA – Mr. Horacio Bernardes Neto will be present at the Forum.

All participants need to register through the IBA for this particular event. We are keen for this event to be a success.




Crime Time

European criminal practice varies from state to state. But general trends are rather clear. On the eve of the International Criminal Law Forum, which takes place in Kyiv on 5 April, Olha Prosyanyuk, managing partner of AVER LEX attorneys at law, invited us to join the conversation with Jaime Campaner, managing partner of Campaner Law, and member of the Advisory Board European Criminal Bar Association.[1]

Olha Prosyanyuk (OP): Today, white collar crime is one of the most dynamic practices in Ukraine. It is the result of changes in economy and legislation, as well as increased pressure on business, a sense of impunity on the part of law-enforcement agencies, provoked corruption, and elimination of unwanted personalities by the “system”. Jaime, how would you describe the current state of White Collar Crime in Europe?

Jaime Campaner (JC): I would say that it is increasing and getting more complex along with the growth of the complexity of our society and contemporary business. Criminal codes are mirrors in which societies are reflected. Each new white collar crime is a new failure of society in the sector of the most qualified social classes, and definitely a failure within the core of the economic drivers of a country.

OP: When we cooperate with our partnering European law firms, namely British, Swiss, and Portuguese ones, we face differences in the ways, principles and terms of defense of client interests. Does the practice of defense in criminal proceedings differ among European countries, in your opinion?

JC: Yes, in my experience in criminal defense in cross-border cases (like in mutual legal assistance, the mutual recognition of decisions, extradition or European arrest warrant) the practice in European countries is rather different.

A very interesting issue can occur when the UK requests a citizen who has been previously acquitted in the UK using “new and compelling evidence”. In Spain it is never allowed, in any event, to retrial an acquitted defendant. It would breach the rule of double jeopardy. However, I am aware that nowadays that could be possible in UK. So my question is: are we going too far with the principle of mutual recognition?

OP: Both Ukrainian legislation and the UN Basic Principles on the Role of Lawyers provide for independence of legal attorneys and prohibit interference and obstruction to legal actions. However, in our country criminal attorneys regularlyface pressure from the state and law-enforcement authorities to causerough violation of attorneys’ rights. I mean denial of an attorney, forced removal from a proceeding, criminal prosecution based on professional practice. On top of that, unfortunately, in recent years we saw cases of threats of physical abuse, cars being torched, and murders. Is there anything similar in European countries?

JC:To the best of my knowledge this is not happening, as a general rule, in European countries. At least not in the original fifteen Member States of the European Union.I have been aware of some complaints in Poland but I have not witnessed them at first hand and, therefore,I cannot swear to the existence of this situation, much less as something permanent.

OP: What if the European Criminal Bar Association (ECBA) becomes aware of local cases of violation of professional rights of attorneys, what would be its reaction? Does the ECBA monitor the situation in Eastern European countries?

JC: The ECBA aims to promote the fundamental rights of persons under investigation, suspects, accused and convicted persons across Europe (including Eastern European countries). The independence of attorneys is one of the preconditions of the right to a fair trial in Article 6 of the ECHR, most particularly in terms of the right to legal advice at any stage of a criminal proceeding. So when the ECBA sees violations of professional rights on the ground it reacts by issuing recommendations and statements. For example, I remember an open letter from the ECBA to the Minister of Justice of Belarus after reports that he initiated and endorsed restrictions and the disbarring of several lawyers who undertook the defense of persons suspected or accused of participating in protests that took place in Minsk. The ECBAexpressed its deep concernsto him about attempts to prevent attorneys in Belarus from carrying out their professional duties and that the individuals arrested after the protest, including four former presidential candidates, had been unable to access their legal counsels, and requestedthat the Ministry confirm to the ECBA in writing that it would cease taking such actions against the legal profession in Belarus, and would ensure that arrested individuals were permitted to access their attorneys.


OP: How would you assess the current criminal justice reform in Ukraine?

JC: I think the creation of the State Bureau of Investigations is an interesting initiative but we have to wait how it works in practice, and what kind of problems arise, to give a properevaluation of it. On the other hand, I view positively the new Law On Misdemeanors, but I should warn that even though speedy trials have been a satisfactory experience in European countries there is a serious risk of loss of guarantees for the defendant due to the increasedprotagonism of the Police and limitations to the proper right of defense due to the summary nature of the proceedings.


OP: I could add regarding “extramural” pre-trial investigations and legal proceedings. This is really important, as in the face of “reforming legislation in accordance with international standards” there are attempts being made by representatives of law-enforcement agencies and courtsto simplify criminal prosecutions. The brightest example is the attempt to exchange the requirement of putting a person on the Interpol international wanted list for conducting extramural legal proceeding on issuing an order on search by the investigator. In this case, the latter is authorized to do so only on the basis of a short-term absence of the person on the territory of Ukraine, and following few formal nuances.

By the way, I would like to draw your attention to another Ukrainian trend. Today,  casesare not rare when a suspect is not yet aware of a criminal investigation and the announcement on his arrest, while the board of law-enforcement bodies has already published the news in social media. Or, when a search has not been completed but its results are being published in the media. It has an especially negative effect in politically motivated cases, as the public and judges form their opinion without counting the arguments of the defense and the research on facts from both sides. In these situations it is reasonable for the criminal attorney to work with the media in order to let the public assess the arguments of both sides and make an informed opinion. This can contribute to some difficulties for the defender, meaning not only representing interests in court but also before the general public. How should an attorney respond to public opinion?

JC: It is an undeniable reality that the principle of open justice has mutated into a principle that everything should be made public in the media on a permanent basis, which damages the proper functioning of the administration of justice. But in my opinión, it doesn’t mean that an attorney should participate in the media parody. The defense counsel, just like the suspect or defendant, should speak and act in a court and should be impermeable to public opinion, despite the fact that sometimes the client does not understand this silence. I sincerely believe that in the long run it works in favor of the client. As always, there are exceptions: if it is a case before a jury, it is sometimes advisable to respond to public opinion (when theprosecutor makes public statements).


OP: The ways of committing crimes are evolving in unison with the introduction of legal acts, multi-jurisdictionality of legislation and technological progress. In your view, how will the practice of the Criminal Law and Process develop over the next few years?

JC: In point of fact, those factors require deep knowledge of new technologies and the lawyer must know perfectly how to obtain and serve electronic evidencein a courtroom. Otherwise, that hard work may not bear fruit.

In my opinion, it is essential to create co-workingteams that include lawyers from each jurisdiction that is involved, precisely because of the great differences between the systems of each country, even in the European Union. Just like a few years ago it was inconceivable that an attorneycould not work on any specific case (civil, criminal, labor, administrative), and today there are  specializations by subject matter; in a few years it will be unthinkable that a single lawyer from one jurisdiction will be able to solve a case without working closely with attorneys from other jurisdictions involved as part of a joint team.

[1] The translation of the interview is published in the Yuridicheskaya Practika Weekly:

Evolving Role

English law is a key export of the UK to post-Soviet countries, including Ukraine. Every year legal practitioners from both countries gather for English Law Day in Kyiv. We met Christina Blacklaws, President of the Law Society of England and Wales, to explore the development of the legal profession, the evolving role of women in law and UK market trends.

UJBL: Your Presidential year is dedicated to the empowerment and leadership of women in the legal profession. How would you describe the situation in the profession in general. And particularly in England and Wales?

Christina Blacklaws (CB): As the centenary of the 1919 Sex Disqualification (Removal) Act, this is a landmark year for women in the profession. It denotes a historic moment; 100 years since women won the right to practice for the very first time.

This is a time, of course, to reflect on the considerable progress that’s been made. However, we must also acknowledge that there is so much work left to do. We know that 60% of new entrants into the profession have been women, but women only represent 30.8% of partners in private practice.

That’s why over the past year, we have focused on uncovering the hidden barriers that hinder the progression of women in law. We’ve held over two hundred roundtables and conducted the largest ever international survey on this topic. Nearly 12,000 women and men have taken part.

As a result, we have been able to outline three primary obstacles to progression: unconscious bias, the gender pay gap and a lack of flexible working. If we are to enable more women to reach positions of senior leadership, we must be willing to get to grips with those issues as we strive towards building more inclusive and flexible workplace cultures.

UJBL: What are the current policy trends across UK law firms and globally?

CB: Law firms based in the UK and global law firms with substantial operations in the UK, play a central role in the UK’s successful service sector. English law and legal services emanating from the UK are a key export and, as a result, large law firms take an increasingly global view of the legal services market. That’s why the most successful firms are placing an emphasis on modernization, particularly the need for innovation in the provision of legal services. They are making maximum use of legal tech, an area where the UK leads the world. Keeping up the pace with these trends is amongst the primary challenges for UK firms and those operating in the UK.

We at the Law Society are devoting substantial efforts to promoting achievements in this field, to ensure that UK law firms continue to be leaders in a competitive global market.

UJBL: How would you comment on the situation that there is a substantial gap in compensation even in Magic Circle law firms?

CB: The Gender Pay Gap reporting requirement has been an effective policy as it has shone a light on this issue and, often for the first time, firms have been looking at their reward information through the lens of gender equality. The fact that many law firms have larger than average gender pay gaps is concerning, and something which I hope is getting real attention in those firms.

We have produced a Gender Pay Gap Toolkit which enables firms to identify and then address any pay gap issues. We are also encouraging firms to include their partners in their gender pay gap reporting and to report on their ethnicity pay gap as well.


UJBL: What can the Law Society of England and Wales do to increase the role of women? Can you give us some examples of your recent achievements and share your plans?

CB: Historically, the work culture in law firms has been set by men. Transforming those cultures has to be a prerequisite to unlocking more opportunities for women in the profession. By exposing the challenges, we hope to support firms in creating that change.

Firstly, there must be an acknowledgement and willingness to address unconscious bias. In our research this emerged as the biggest barrier to women’s career progression – 52% of respondents feeling it prevents women from reaching senior leadership positions, yet only 11% receive consistent unconscious bias training at work. I have spoken to many women who believe they have been held to different standards of behavior opposite male colleagues.

60% of respondents in the Law Society’s survey reported being aware of a gender pay gap in their organization, but only 16% saw visible steps being taken to address this. We want to empower women to be able to have “difficult” conversations about pay equality without simply being labelled “pushy”.

Finally, 91% of respondents in the Law Society’s survey saw flexible working as key to improving diversity in the legal profession, but only 52% work in organizations where flexible policies are consistently enforced. Firms must consider introducing flexible working patterns to show that it is the quality of work, rather than the number of hours spent in the office, that matters.

We are encouraging law firms to fall behind this vision of a more positive and inclusive environment. As a profession which strives to uphold justice, the legal sector must be at the forefront of the fight for equality in the workplace.

We are holding aninternational symposiumon Thursday 20 – Friday 21 June 2019 in London.I hope that as many colleagues from Ukraine – menas well as women – will attend.


Competitive Environment

Australia is often called the remote continent even though its market is mature and highly integrated with the Asia-Pacific region. Inbound investment is leading to the arrival of global players, and technological developments within the country also boost its highly competitive environment. Right after the IBA Annual conference in Sydney, we visited the office of Australian law firm Henry Davis York and asked its managing partner, Michael Greene, to tell us about the current state of play in this market. The conversation is very timely and relevant as the firm recently merged with Norton Rose Fulbright.


Australia is remote from the other world and we don’t really know much about its legal market. How would you describe the current Australian legal landscape?

Michael Greene: The landscape is very competitive in terms of the number of law firms and the number of lawyers, but the market itself has lots of opportunities.

So there are some areas of law in Australia and in particular in Sydney and New South Wales that are very busy and there’s a high demand for legal services.

This includes anything to do with projects, infrastructure and real estate. At the moment there is a lot of development taking place in Australia in relation to infrastructure of all types, transport infrastructure and port facilities, hospitals and schools. Social infrastructure is a very busy and growing area. That is a positive trend in terms of the law firm environment. We have seen, as is reported often in Australia, a lot of different types of law firms starting new types of offerings…. It’s quite a crowded market that makes it more competitive and so it’s very important for law firms to differentiate themselves.

In terms of trends, there is a pressure on pricing in relation to law firms and clients expectations have certainly increased in relation to what they expect their lawyers to provide both in terms of price but also quality of service and experience.

In relation to areas of growth, there is a lot of foreign investment coming to Australia, a lot of investment in agriculture, in Australian businesses. So that’s an area of focus.


Some sources have reported that there is a decline in demand at present for the services of law firms in Australia. Do you feel this in your firm?

M. G.: There has been a slight decline in client demand for some legal services but I don’t think there has been a decline across the whole sector. You wouldn’t say it has been rapidly growing as a whole but there are certain areas that have been growing quite a lot, like infrastructure, projects and construction. Another growth area is providing services to the Government. So our sectoral focuses are Infrastructure, Government and Financial Services.

All three of those areas are growing and show high demand for legal services. So looking at infrastructure in relation to providing services to government, that continue to increase both at a local, state and a federal level.

And in relation to financial services, the nature of some of the legal services has changed to banks and to financiers. Of course, there is some tradition lending and recovery work. But increasingly those clients also need legal advice on risks, regulation and compliance. These are growth areas as well which we are focusing on.

The regulation and compliance basically across all sectors, but particularly the financial services sector. There are a lot of external scrutiny by government and by agencies and regulators on that sector.

Thankfully, from Henry Davis York’s perspective, we have competitive offerings in all of those areas. So at the moment we are experiencing the benefits of increasing work in those areas.


Is it true that the market is currently overcrowded with lawyers?

M. G.: No, I don’t think it is overcrowded but it is certainly crowded. There are more law firms now than before. And there are more lawyers now than before. From a clients perspective that’s a good thing.

Successful lawyers are constantly analyzing the clients’ needs. Because if you don’t you wouldn’t be competitive, you wouldn’t be able to win the work. And certainly it’s getting harder to differentiate yourself from other firms. That’s the constant focus of the law firms now — to be successful — is how you differentiate yourself from your competitors.


How would you comment on the situation between local and foreign law firms. Do you feel increasing competition from foreign law firms in Australia? How do you meet this challenge?

M. G.:  Yes, there is certainly increased competition and part of that has been an inflow of foreign law firms. So there is more competition on the market. Some of those foreign law firms have quite specific offerings, looking on one particular practice area or another.

How do you compete with them? It’s ensuring that you provide the same or better level of service or offering something different. And it’s obviously maintaining the current client relationships that you have.

In our case, as you know, our response has been to enter a combination with a successful full service global law firm. We looked at a range of opportunities for our law firm and decided that a combination with Norton Rose Fulbright was in our interest and in the interests of our clients and our people.

As I’ve said before, it’s about being competitive and to be able to continue to offer our clients a high level of service and expertise and a good price. But also, to be able to draw upon knowledge and experience and the expertise of a truly global firm. To be bigger in Australia and bigger globally, which means that we can offer our clients a breadth and depth of expertise across the key areas. We think it makes us more competitive.

For example, we will now be better positioned to respond to a tender for a very large infrastructure project, perhaps in the energy or transport sectors.

Through the combination with Norton Rose Fulbright we will have access to both world-wide expertise and experience, and expertise of the Norton Rose Fulbright Australian partnership.

And we will take that expertise and capability to our clients and say this is how we can service you in energy, aviation, transport, health. We will have a greater breadth and depth of expertise that we think will make us more competitive.

And that is a good thing from our clients perspective because they get the benefit of that high level of service, real depth of the expertise and resources that we need to work effectively. And it’s great for our people because they will be working on the largest and the most significant projects and matters. So that’s why we are doing it.


What transformation do you expect with regard to this recent merger because usually it’s big stress for law firms?

M. G.: It’s a big job that obviously takes many months. We have very complementary practice areas. The areas of our focus — financial services, government and infrastructure — are also areas of focus for Norton Rose Fulbright. We have a very complementary client base. We have a quite a few clients in common and those clients are particularly excited about us coming together and providing legal services in the one firm.

In terms of operations of the firm and all of our various policies, we obviously need to align those, there are a number of different work streams working to bring those together and it is all coming together.

It’s our intention to commence the newly emerged firm at the beginning of December.


Do you feel competition from the alternative legal services providers like legal practices of the ‘Big Four’ audit companies and from in-house counsels, internal legal departments?

M. G.: Absolutely, when we talk about the competitive market that is all of those factors. They are building out their internal legal capability to offer their clients presumably a full suite of service.

Did they increase competition on the market for us? Absolutely, yes.

It means we need to be on our game to offer our clients something that is competitive and, hopefully, better.

I think where lawyers do have an advantage is particularly helping our clients to navigate risks and regulation. That is what lawyers do. So I think we need to make sure that we can offer our clients insights and bespoke solutions that make us competitive with the accountancy firms.

Large Government departments, and our banks and large corporations now have very large and effective and very experienced in-house legal teams. So the opportunity for law firms is to make sure you really partner with those in-house teams to help them to perform their role. So it’s not competitive. It’s actually us assisting them to assist their business or their agency with its operations or its strategy.

And the other part of the market are “the new law offerings”, which is boutique and niche firms, sometimes very technology based legal services delivery platforms, and small specialists firms. So offering a different kind of focus or service, but again we have some competition with them as well.

Our main competitors are the large national law firms or global law firms in Australia but I think increasingly we will see more competition from the accountancy firms.


You have touched upon the question of technology. How do you implement technologies in the everyday work of your lawyers?

M. G.: Yes, that’s a big focus of ours and that’s a focus of most businesses.

It really is looking at ways to enable our people to have access to all the tools and information they need to be able to perform their tasks as lawyers.

Online subscription services for legal research but also to communicate with their clients, but mostly also to be more mobile, to be able to work in clients premises, be able to work from home, be able to work flexibly, which is a very important thing in a modern workforce.

So, we have invested in technology, we provided each of our employees including, administrative staff, with a Surface Pro. It gives them great mobility, and access to technology wherever they might be, traveling, working from home, working with them in the office.

That has been a very positive thing for us, but really it’s about making sure that you’re aware of what developments are taking place with technology and keeping up to date with those, which we are doing.

But also one of the big advantages of being part of the Norton Rose Fulbright network will be that we take advantage of their every substantial investment in technology. And they have been making significant investment in technology to help them be a more efficient business but also to be able to serve their clients in a more efficient way. So it was very impressive to see what they’ve done. So we will get the benefit of that as well.


Who is responsible for business development right now in your company: partners, business development managers?

M. G.: It is a combination. It’s my view and the view of my partners, that business development has to be principally led and driven by partners and by the lawyers, but with the assistance of some very good business development professionals. So this is definitely a role for both working well together. We have a business development and marketing team that provide the resources and skill sets that we need. But business development primarily is the responsibility of partners, assisted by those professionals.


What do you expect in the near future on the legal market globally, and in Australia?

M. G.: I think that Australia will, as it has in the past, follow and be part of those trends. It won’t be immune to those trends, and it won’t do anything necessarily different.

I think that there will continue to be consolidation of the market in Australia and also globally. I think that there will be further consolidation where there are a handful of large, truly global law firms. I also think the global accountancy firms will continue to increase their investment in legal teams as they have done today.

I think there will continue to be an increase in “new law”, smaller boutique firms will continue to increase as well. So, there will be consolidation and the market will move in those two directions, into the smaller niche type legal service offering or larger consolidated offerings. That is where I think the market is going.


And the last question. Have you ever had projects with Ukraine?

M. G.: I’m not aware of any Australian legal project involving Ukraine. I am certain that Norton Rose Fulbright will have had an active presence in your jurisdiction (probably in its oil and gas practice) but I am not aware of any Australian project in Ukraine that HDY has been involved in.


Full International Role

The stable and certainly comfortable business environment in Canada boosts its business opportunities. After a series of mega-mergers across the globe, the legal market of Canada has been empowered with big international players. Tom Houston, partner of Dentons’ office in Ottawa, shared his views on the market landscape and the evolving needs of clients to play an international role.


Olga Usenko: How would you comment on the current situation on the legal market in Canada? What is the balance of power between international law firms present here like Dentons, for example, and local firms?

Tom Houston: We have a number of very good law firms in Canada and some of them, like Dentons and Norton Rose Fulbright, are international firms. Baker McKenzie does not have a big presence in Canada, but they are here as well. We also have a number of very strong domestic firms that are primarily headquartered in Toronto. They do a significant amount of M&A work and high-end corporate work in Canada. And we have a number of regional firms that are present in only one city or region of Canada, and we have boutique firms. So, probably not unlike any other country. But in terms of the balance of power if you will, both Dentons and Norton Rose Fulbright combined with large Canadian firms to start off. In Canada our firm used to be called Fraser Milner Casgrain (FMC). The firm has been around since 1839. I have personally been a partner of this law firm for 39 years. I started in our Toronto office and then moved to Ottawa in 1985 to open this office.

But I would say that the two main international law firms in Canada, namely Dentons and Norton Rose Fulbright, both inherited very strong firms to start with and they continue to grow.

We also have strong law firms in Canada that have a few foreign offices but decided not to take on a full international role. They picked their places. For example, some of them have offices in London, some in Beijing and some in the United States.


O.U.: What about Salans? Did they have an office in Canada before this global merger?

T. H.: No, they did not, nor did the other combination partner, SNR Denton.


O.U.: It is very interesting because some law firms complain of integration costs that they face in terms of merger processes.

T. H.: There is no doubt that there are integration costs. The chair of our firm, Joe Andrew, who is based in Washington, said: “You can’t sell what you don’t know”. So in other words, it’s important that you get to know your partners around the world, so you can develop a relationship with them. We’ve had four global partners meetings since our initial combination and in each one, partners continue to develop relationships so they are comfortable referring work to the other regions, and will receive inter-regional referrals back. So, the cost of holding a global partners meeting is obviously another cost of integration, but the feeling is that those costs are outweighed by the benefits.


O.U.: By way of continuation of your answer. How would you describe the benefits of the recent global merger mania and the leading role of Dentons in this area?

T. H.: The reason we decided as a firm to combine with Dentons is that we saw Canadian companies increasingly doing business around the world, and we wanted to be able to follow our clients in terms of the deals they are doing. So this allows us to continue to represent our clients on matters outside Canada. As an example, we were recently asked to do a proposal on carrying out an acquisition for a US company of a Canadian company that has operations in Italy. The fact that we have offices in Italy was a factor for that client in retaining us.

That is one part and the other part is inbound work. By creating a single firm, you are more likely to receive work coming into Canada. What we ideally would like to do is receive referrals of work from around the world.


O.U.: Dentons started its global initiative for local law firms to join its international referrals network. Are you already feeling any benefits from this initiative in Canada?

T. H.: We probably haven’t seen any specific benefits in Canada at this point. However, it makes it easier to identify referral sources where we, at Dentons, aren’t able to do the work.


O.U.: What practice areas are in demand right now? Do you see significant changes in transactional activity and on the litigation front?

T. H.: It’s hard to make broad-based comments. I’d say we are in a reasonably stable state. I think law firms are facing challenges at the present time, because many clients decide to do more work in-house. There is broadly-based declining demand for legal services around the world. We are certainly aware of that, which is why we take certain initiatives in other areas.

But there still is reasonable demand for transactional work. I would say that last year we were hurt by low energy prices. That hit the activity levels in Alberta, which is the main energy area in Canada. Environmental issues continue to hurt our energy sector in terms of pipelines being built in the United States, and also a pipeline to British Columbia so that we are able to export oil and gas around the world.

Other areas are quite strong. Technology is quite strong. For example, in the Ottawa area, a western suburb called Kanata is a big technology centre here. There is demand for litigation and it is ongoing.

Another area of importance is infrastructure, where Canada has a leading role in what we call PPP or public-private partnerships. We’ve done a number of those involving bridges, highways and hospitals. This type of work is important and the Canadian Government earmarks a lot of money or these sorts of infrastructure projects.


O.U.: What about industries in Canada?

T. H.: Canada is a very big country. That’s a challenge we face here.

If we look at the regions across Canada, Alberta and Western Canada as a whole tends to be the energy area with oil and gas as the main industry, along with big-size farming and the fertilizer industry. Moving towards Ontario where we are, we have a strong automobile plant base with many US, Korean and Japanese manufacturers. There are also plants in Ontario, as well as many big-parts manufacturers based in Quebec. Vancouver is very strong in technology as well in terms of number of software companies and entertainment-related ones. Toronto has also been strong in technology but right now is becoming a world leader in artificial intelligence and machine learning. Montreal is an entertainment software-related centre. Eastern Canada is not as strong economically. It is more based on tourism and some energy. In terms of all these trends we really have to keep breaking Canada down into its different provinces because they are focused on different things.


O.U.: How do the policies of American President Donald Trump affect Canadian business and, consequently, legal services?

T. H.: I would say they have not had any negative effects on us so far.

Some Americans are probably looking at Canada quite favorably now because we have a more stable environment. As you may well know, NAFTA negotiations restarted recently. Part of the problem that we have with the current US administration is that many mixed signals have been sent out, so it’s hard to say what they want to do. At one point they say they want to quit NAFTA, and now they say they want to massively change it. We just have to wait and see. But I think they realized that, in fact, Trump is misinformed on trade because he thinks trade hurts the US, though in fact trade helps the US. Mexico is different and Canada is, in many ways, similar to the United States. We have a little different structure here, which is more socialized in Canada than in the US. We have a public healthcare system and similar things. So there are different costs associated with that than in the US. But it’s not like low wage jobs in Canada are similar to those they have in Mexico. I don’t think that Canada poses the same threats to the US as Mexico does.

It’s very interesting watching what’s going on in the US. I’m sure that it is the case for the rest of the world too.


O.U.: The Free Trade Agreement between Canada and Ukraine, which was signed last year, came into force recently. Do you see any interest on the part of your clients towards Ukrainian jurisdictions?

T. H.: It’s hard for me to say as we have 500 lawyers in Canada. I would not say that we do a lot work with Ukraine.

Just in preparation for this interview I made a few enquiries. I talked to one of my trade partners in our Toronto office, and he reminded me that we hosted an event there on trade between Canada and Ukraine. My colleague gave me some statistics from a Government of Canada website. Just as a matter of interest, in 2016 Canada exported USD 265 million worth of goods to Ukraine, and total exports in 2016 were USD 516 billion, so there is not a huge amount of trade between our countries. Interestingly, the main product that we export to Ukraine is bituminous coal, which came to USD 146 million of that USD 265 million. And the next was fish, followed by aircraft. We have a large airplane manufacturer called Bombardier.

We imported USD 107 million worth of goods in 2016. The main import was USD 26 million worth of soya beans from Ukraine. Canada and the US are by far the largest trading partners.


O.U.: What is your forecast for the development of the global legal market? There are a lot of mergers, acquisitions, lots of news from the IT sector and introduction of different IT technologies on the legal market. What is your opinion?

T. H.: Internationally, I think many large international mergers have probably taken place. I don’t think we will see the same pace of mergers.

We’ll see consolidation on local markets. Firms which are not small boutiques are trying to achieve economy of scale, so we may see more domestic mergers.

In terms of the Canadian market, we continue to see opportunities in technology and the Government is very supportive in innovation. So we would like to continue to be seen as a centre of innovation. We do a lot of work with Silicon Valley in California. There are lots of US-based companies that think Canada is a very attractive place to hire engineers and do lots of product development work.


O.U.: How is Dentons implementing technical innovations in its operational activities? What about the trend of introducing artificial intelligence and automation?

T. H.: We are active in this area.  I think you may be familiar with Nextlaw Labs. It’s a fund the firm developed to invest in technologies that are innovative for the legal industry. So we have invested in a few Canadian companies as well as in a number of international companies.

One company we’ve invested in is called ROSS Intelligence. They are one of the companies at the forefront of artificial intelligence in terms of legal research and legal advice, and were initially focused on the area of bankruptcy. The idea is that work is now done by a computer that was historically done by a lawyer.

That will be one of the areas where artificial intelligence is actually doing the legal analysis.

The other thing we’ve developed is a document automation tool, so we started doing a lot more of that in terms of automatically generating documents. For instance, my own practice is in the technology field, so I do a lot of work for start-ups and venture capital.

With documents becoming more standardized, we’ve created standard templates for venture capital financing. And we also have document automation ready for those documents that implement transactions – share provisions, subscription agreement, shareholder agreement, etc.

In this way we are trying to become more efficient and cost-effective so that many early-stage companies can save money.