1 How does an individual become taxable in your jurisdiction?
According to Ukrainian law, an individual can be considered a tax resident of Ukraine if he or she meets the Ukrainian tax residency criteria, which
are as follows:
• if the individual has a domicile in Ukraine;
• if the individual also has a domicile in another country, the individual is deemed a resident of Ukraine provided he or she has a permanent place of residence in Ukraine;
• if the permanent place of residence is also available in another country, the individual is deemed resident of Ukraine provided his or her centre of vital interests is situated in Ukraine (eg, the place of the permanent residence of the members of an individual’s family or the place of an individual’s registration as a business entity);
• if it is not possible to determine the actual centre of vital interests, or if the individual does not have a permanent place of residence in any country, the individual is deemed to be tax resident of Ukraine if he or she stays in Ukraine in excess of 183 days during a tax (calendar) year;
• if it is impossible to determine tax residency on the basis of the above provisions, then the individual will be a tax resident of Ukraine if he or she is a Ukrainian citizen;
• a person who fails to qualify as a Ukrainian tax resident will be considered a ‘non-resident’ for purposes of the Tax Code;
• the Tax Code also provides for a self-recognition procedure, according to which an individual can voluntarily elect to be a Ukrainian tax resident; and
• in conflict cases, the rules of the relevant double taxation treaties may be applied.
2 What, if any, taxes apply to an individual’s income?
In Ukraine, individuals are subject to personal income tax, regardless of whether they are tax residents or not. Individuals as tax residents of Ukraine are taxed on their worldwide income, while non-residents are taxed on their Ukraine-sourced income only. Ukrainian laws determine Ukraine-sourced income as income derived by an individual as a result of any business activity performed in Ukraine, which, inter alia, includes remuneration for work performed in Ukraine, whether paid by a Ukrainian
or a foreign company.
Both resident and non-resident individuals are taxable at the same tax rates, being 15 per cent and 20 per cent applied as follows:
• the 15 per cent rate applies to monthly income up to a threshold of 10 minimum wages per month (since 17 September 2015, 13,780 hryvnas);
• the 20 per cent rate is applicable to monthly income in excess of a threshold of 10 minimum wages per month.
The individual’s income is taxable whether it was obtained in cash or in kind. Taxable income includes employment income (with in-kind benefits), income from trading or professional activities (including operations with intellectual property), income from the alienation of property, winnings and prizes, insurance payments, interest and dividends, investment income and contributions to unqualified pension plans made on behalf of a taxpayer by another person or employer.
3 What, if any, taxes apply to an individual’s capital gains?
The general rate applied to employment income is 15 per cent (to monthly income not exceeding 10 minimum wages) and the 20 per cent rate applies to monthly income exceeding that threshold.
All passive income (including royalties, bank deposit interest, but excluding dividends, except for those paid out by joint investment institutions), and investment income is taxed at a 20 per cent rate. Dividends, paid out by resident CPT payers are taxed at a 5 per cent rate, and those paid out by non-residents at 15 per cent. Winnings and prizes are subject to 30 per cent tax by both residents and non-residents, except winnings in the state lottery and those received from a gambling organiser. As an exception, cash winnings in sports (other than remuneration to athletes) are subject to the standard 15 per cent and 20 per cent tax rate.
Gains derived from the sale of a real estate are not subject to tax if the sale takes place once during the year, provided the owner has held legal title for at least three years before the sale (the three-year ownership period does not apply to inherited property). The rate is 5 per cent if the taxpayer makes more than one sale per year. Gains derived from the sale of moveable property by a resident are subject to a 5 per cent rate; gains derived by a non-resident are subject to a 15 per cent or 20 per cent rate. As an exception, income derived by the taxpayer from the sale (exchange) during the year of one of the objects of personal moveable property, such as a car or motorcycle, is not subject to taxation. Sale of two or more motor vehicles by the same person during the year will be taxed at rates of 5 per cent for residents, and 15 per cent and 20
per cent for non-residents.
4 What, if any, taxes apply if an individual makes lifetime gifts?
In Ukraine, funds, property or property rights, and the cost of work or services presented to the taxpayer as a gift shall be taxable in the same way as inheritance.
Inheritance (real estate, chattels, securities, corporate rights, cash, insurance, etc) and gifts are taxable at the following rates:
• zero per cent if the recipient is a resident defined as a close relative (parent, spouse, children, etc);
• 5 per cent if the recipient is a resident not qualified as a close relative; and
• 15 per cent (or 20 per cent on income which exceeds 10 minimum wages per month) if the recipient (non-relative) is a nonresiden but the testator was a resident (or vice versa).
Please find the full chapter by clicking on the link below.
International disputes in the agrarian sector have always developed as a separate legal service segment. The international rules and institutions governing this area enjoy an incredible level of credibility and enforcement. Recent political changes affect agrarians and the nature of disputes that are unusual for Ukraine. Disputants expect and demand more from their legal advisors, especially when it comes to unsuspected difficulties and consequent losses. The UJBL tackles the recent state of play with arbitration challenges with AGA Partners, a bright Ukrainian team focused on sectoral legal assistance. What does the firm face in its client workflow, and how does it respond? We asked three partners:Aminat Suleymanova, Ivan Kasynyuk and Irina Moroz. This is what they told us.
UJBL:You are known for your sharp focus on international arbitration, especially soft commodities arbitration practice (agrarian sector). Can you tell us about recent developments in such arbitrations?
Aminat Suleymanova: AGA Partners has always occupied a unique niche in the legal services market. Indeed, we focus mainly in the agrarian industry, advising Ukrainian and international grain traders in the course of exporting agricultural commodities and resolving disputes that arise under sale contracts. In the last few years we have noticed a rise in the number of more complex cases in the agricultural sector, which entails a high standard of legal services and specific requirements to the role of legal adviser in resolving international disputes. The types of claims have also been in a state of flux: earlier, cases mostly concerned non-delivery or short delivery of goods, which are seen as quite common, and currently, cases have become more intricate, that is predetermined by recent legislative and geopolitical changes. Along with Ukrainian integration into the EU, agribusiness should satisfy high requirements to the quality of exported commodities, which often causes disputes. There are also a growing number of cases based on force majeure clauses, that arose after occupation of the Crimean Peninsula, introduction of restrictions on import of soft commodities to the Russian Federation, hostilities in the eastern part of our country. Moreover, the geopolitical situation in the world is unstable and a great number of sanctions introduced by the USA, the EU, Switzerland and other European countries cause complications in executing sale contracts and international money transfer. As a consequence, this gives rise to new types of disputes that arise under legislation on sanctions. Therefore, we can notice new categories of cases unusual for our jurisdiction, like peculiar force majeure, related to military conflicts and constant unpredictable political and economic changes in Europe and Asia. As a result, legal advisors should go in step and broaden their knowledge in order to comply with recent developments in the field of international trade and arbitration and be more flexible.
UJBL: What are the most typical requests made by your clients in this regard?
A. S.: Cases on non-delivery, short delivery and non-payment for the delivered goods remain the most common ones. The growing number of companies working in the international field of agribusiness causes an increase in supply and demand and huge market competition. Consequently, when traders are not satisfied with the initial contract price, they have more options in reselling the goods to the other party, and this leads to disputes. We have to point out that Ukrainian agricultural market players become more familiar with the principles of English law, which is most commonly applied in international trade and, consequently, it leads to an increasing number of more complicated disputes. The wide range of inquiries relate to whether a contract was actually concluded, as it might be concluded even without the signing of a single document by the parties. Moreover, we are often approached by our clients to give our opinion on whether the complicated political situation in Ukraine and hostilities in the eastern part of the country can be considered as force majeure. Of course, each such case has its peculiarities and each contract should be analyzed separately. The reasons for relying on force majeure regarding hostilities in Ukraine are very constrained. The trend shows that clients, while submitting cases to GAFTA and FOSFA arbitration, want to have constant legal advice of the highest quality.
UJBL: Does the current situation in Ukraine affect the number of applications to GAFTA and FOSFA arbitration institutions? What kind of challenges did the annexation of Crimea and occupation of the East bring to arbitration practice?
Ivan Kasynyuk: The current situation in Ukraine has no direct influence on the number of applications to the mentioned arbitration institutions, but we noticed a spike in the number of cases immediately after the annexation of Crimea in 2014. The general position under GAFTA and FOSFA contracts is that despite the difficulties in political and economic situation in Ukraine, changes in exchange rate, difficulties with the Ukrainian banking system, contracts shall be fulfilled and the parties should keep to their bargain. The parties can be discharged from their contractual obligations in very limited situations and under exceptional circumstances. Therefore, GAFTA and FOSFA arbitration institutions do not afford easy relief and/or remedy just because of the difficult current political and economic situation in Ukraine.
Irina Moroz: However, we have to point out that the annexation of Crimea imposes new challenges to resolution of investments disputes. We had a number of inquiries from clients that lost their assets in Crimea after its occupation, and we are pursuing new and efficient mechanisms of investment dispute resolution related to the compensation of financial losses sustained by legal and natural entities after expropriation of property in Crimea.
We expect the number of claims to investment arbitration institutions to rise, as it is obvious that there are a significant number of investors who suffered huge damages after the annexation of Crimea and many of them are now in the process of drafting claims to submit them to international arbitration institutions.
UJBL: Which cases have been the most significant for your firm to date, and why?
A. S.: We have no particular case we consider the most significant, as all our clients and all cases we had are very important to us, but we can provide two examples to illustrate the importance of our legal role on the market. The first is the contract with an overall value of USD 26.5 billion between the State Food Grain Corporation of Ukraine (SFGCU) and China National Machinery Industry Complete Engineering Corporation (CMCEC) on cooperation in agriculture. Our company advises SFGCU, the largest state-owned company, under the contract of inter-government significance. The contract was concluded with the approval of the Chinese and Ukrainian governments to guarantee food security of the Republic of China and it is one of the most important contracts for the Ukrainian government.
The second one is the High Court of Justice case in a dispute between PC Rise and Nibulon S.A. The majority of grain industry players in Ukraine remember late 2010 well, when the Ukrainian Government introduced grain export quotas and subjected grain export to licensing. The quota allocation rules and procedures were changing on a daily basis, often at the last minute and in a very impracticable manner for business. As a result, only a few companies were able to obtain export licenses; the majority, including the largest international trading houses, were unable to do so and could not perform their contractual obligations, which led to a wave of terminations and cancellations of contracts.
A case arose at GAFTA where Nibulon S.A. claimed damages for non-delivery of corn due to prohibition of export from Ukraine. The GAFTA Award was reviewed at the High Court of Justice, where the relevant judgment was issued in 2015. The importance and the high role of this case is due to the fact that this matter has fundamentally influenced trading practice in the Black Sea region and we are proud to be involved in such a significant case.
UJBL: It is known that the arbitration award not always guarantees it will be executed. What experience do you have in the recognition and execution of arbitration awards?
I. K.: From the initial stage of our engagement, we think on the process of award execution, as we clearly understand that obtaining an arbitration award does not always mean real refunding to our client’s bank account. In this regard, our legal support always consists of a detailed action plan, including seeking of preliminary measures aimed at securing a claim where it is available and handling the arbitration process in a manner that guarantees unimpeded execution of arbitration award in any jurisdiction. As our experience shows, in 80% of cases companies voluntarily execute GAFTA and FOSFA arbitration awards. Besides, we have experience of successful recognition and enforcement of arbitration awards in Switzerland, Germany, Poland, Turkey, Russia, Ukraine and other jurisdictions.
UJBL: Your firm has considerable practical experience in the field of arbitration. Do you take part in the development of new legislation or new trade rules?
I. M.: Yes, we understand we should use our experience to help develop and improve the legal regulation of the agricultural sphere. Accordingly, we actively participate in enhancing trade rules and developing national legislation. For instance, our partner Ivan Kasynyuk is a member of the GAFTA Trade Committee and participates in elaboration of new legislation on cargo quality standards. Moreover, recently he became a member of the working group of the Ukrainian Ministry of Agrarian Policy and Food with the primary task to make improvements to Ukrainian legislation on transfer pricing.
I. K.: Our firm regularly participates in enhancing international trade rules and their unification at the request of international trade associations, in particular GAFTA, as well as at the request of our clients, who use these rules in their daily work.
UJBL: Currently Ukraine is on its path to integration with the EU, which opens up new markets for Ukrainian business and introduces new standards for producers of agricultural commodities. What are the most typical requests made by your clients in this regard?
A. S.: Ukraine’s integration into the EU poses new challenges for both the Ukrainian authorities and the agriculture business. We are constantly improving and deepening our knowledge of legislation on European integration and establishment of free trade zone, new quality requirements to exported goods, new standards and technical regulations. Our company shares its cumulative experience with its clients in order to make Ukrainian agribusiness meet EU standards and make their daily work in entering European markets easier.
UJBL: How do global arbitration developments affect Ukrainian cases? How did they shape your practice?
I. K.: It is an international trend to resolve international disputes that arise from the contracts of agricultural commodities at London-based arbitration institutions. Despite this, we can notice that resolution of disputes in other spheres tends to be replaced with arbitration institutions in Asian countries, which is explained by the growth of Asian economy and rising number of contracts for import and export of commodities concluded with Asian companies.
I. M.: While earlier London, Paris and Stockholm arbitration institutions were the most commonly pursued in the event case of international disputes, now we can see the tendency for contracting parties to refer disputes to arbitration institutions in Singapore and Hong Kong.
Our company supports the trend to meet the new needs of our clients in expanding their trade with Asian countries, and that is why we have started to step up our presence in this region.
UJBL: In September 2015 AGA Partners celebrated its 10th anniversary. What are your team’s main achievements?
A. S.: AGA Partners law firm has been included in the list of the leading companies in its practice fields from the moment of its establishment. We have had many achievements over the course of 10 years. We have significantly expanded the number of our clients, increased the number of our employees, and with their help, got into gear and work with a larger number of cases. We have carried out the restructuring of our company and changed the partnership structure. Our firm has also expanded by having a presence in new jurisdictions.
We are proud of the fact that the biggest Ukrainian based agribusiness companies are among our clients, and it is great achievement for AGA Partners to be the first Ukrainian law firm to be invited as speakers to GAFTA training courses.
I. K.: Moreover, Aminat Suleymanova, ma- naging partner, is acknowledged and recommended as one of the leading Ukrainian lawyers in agriculture and land legal practices. She was also named by the annual legal rating Ukrainian Law Firms. A Handbook for Foreign Clients among notable practitioners in the field of agribusiness, international arbitration and international trade. The firm is invariably ranked among the leading Ukrainian law firms in the areas of International arbitration, International trade and agribusiness.
AGA partners has been constantly developing not only its practice in GAFTA and FOSFA arbitrations, but also in other professional arbitrations. We recently expanded our activity with a private clients’ practice advising on international business structuring and taxation.
I. M.: Besides, the recognition of our firm’s legal practice in the field of international family law can also be considered a big achievement. Aminat Suleymanova was the first member of IAML (International Academy of Matrimonial Lawyers) from Ukraine. She is currently an active member of this organization. Besides, the our firm’s lawyers are often asked to contribute to the world’s leading legal editions on private clients’ practice and international family law. Notably, AGA Partners team has contributed to the Ukrainian jurisdiction in Private Client 2015, prepared in cooperation with the acknowledged foreign publication Getting the Deal Through, published by Law Business Research, to the Ukrainian jurisdiction in Family Global Guide, to the Ukrainian and Russian jurisdiction in IBA Surrogacy Newsletter, and Jurisdictional Comparison on Children Relocation covering Ukrainian and Russian jurisdictions.
UJBL: What is the strategy of AGA Partners for tomorrow?
A. S.: We now live in time described by many as a crisis, but we believe it’s a time for opportunities. The crisis is a challenge, which we are happy to accept. Perhaps those law firms that previously specialized in almost all areas of law, must now identify the main specialization in order to convince a client in their exceptional services. We think that the company’s development strategy now should be clearly defined and more than ever bold and innovative.
In our work, we abide by several of our fundamental principles, including the principle of pragmatism, — law for the sake of the client, rather than law for law’s sake. Moreover, our specialists are always concerned about the long-term consequences of the solutions that we propose, which is one of the key rules for a modern lawyer. AGA Partners has been guided by these rules without fail ever since it was established.
Talking about our self-improvement, we can mention that providing high quality services was always the core of our company’s strategy. We believe that our employees’ high level professionalism is a guarantee of the company’s successful development. For this reason, we have strict requirements of our employees’ education and are continually trying to provide them with opportunities to broaden their knowledge by participating in internship programs, attending international training courses.
We truly believe that it is this practice that underlies the high esteem and appreciation in which our company is held by our clients and all participants of the legal services market. In our view the rules underlying our operations are a direct reflection of our success and never-ending development.
We are pleased to announce the release of a new edition of IBA Surrogacy Newsletter that is focused on the legal aspects of surrogacy in the world's major jurisdictions. It’s also worth mentioning that partner of AGA Partners Law Firm Irina Moroz, who is an expert in the field of family law, has contributed to this edition by describing peculiarities of surrogacy in Ukrainian and Russian jurisdictions.
Ukraine must not be mistaken for a surrogacy haven
Ukrainian legislation regulating assisted reproductive technologies (ART) favours the individual’s reproductive rights and is considered to be one of the most tolerant in Europe. At first sight, there is nothing to be worried about. A married couple (either Ukrainian or foreign) applies for ART treatment to the clinic of their choice. Once the clinic and the method is approved they enter into a binding agreement with the surrogate mother, a woman aged 20–40, in good physical and mental health with at least one child of her own. The surrogate mother is delivered of a child and the intended parents’ names appear on the child’s birth certificate.
Thus, at first sight, Ukrainian jurisdiction might seem to be a surrogacy haven, but once you take a closer look, you will see a number of traps the intended parents should keep their eye on.
Pitfalls of surrogacy regulation in Ukraine
To be legally recognised as the parents and proceed with a child’s registration, the couple must comply with the basic requirements of Ukrainian Law. Pursuant to the Order of the Ministry of Health of Ukraine No 787 dd. 09.09.2013 (‘Order No 787’), ART is defined as a method of infertility treatment, whereas the intended parents are regarded as patients of ART treatment. In accordance with Article 123 of the Family Code of Ukraine, only married couples may be recognised as a child’s parents and shall proceed with the child’s registration. It means that cohabiting couples, single people and same-sex couples are prohibited from undertaking ART. Furthermore, to be registered as a child’s parents in Ukraine, at least one of the spouses shall contribute his/her genetic material along with the donor’s gametal cells. Donors may be known or unknown.
Before the ART treatment begins, commissioning parents and the surrogate mother enter into a surrogacy and childbearing agreement that stipulates their rights and obligations. Ukrainian legislation does not provide for a specific form of the agreement. Many issues, such as refusal to accept the child and terms of payment, fall outside the scope of the regulation; therefore, the terms of the surrogacy agreement are agreed at the parties’ discretion.
As was mentioned above, the intended parents are deemed to hold the legal status of the child’s parents from the very moment of conception and their names are listed on the birth certificate of the newborn baby. However, so as not to mislead foreign couples, their trespass towards exercising parental rights does not end up with receipt of the child’s birth certificate listing their names in Ukraine. The commissioning parents shall recognise their parental rights in the country of their residence and comply with the legislative requirements of their country in order to bring their child home.
Given what is set out above, Ukrainian legislation requires a number of improvements. In particular, there is a need to provide legal regulation of the surrogacy and childbearing agreement that will cover relations deriving from surrogacy arrangements and will comply with international surrogacy standards. There is also a need to find a solution to the problem of surrogacy treatment for foreign couples who come from countries where surrogacy is prohibited.
Absolute discretion of the surrogate mother to leave the child or hand him or her over to the intended parents
One of the major controversies of Russian surrogacy law is that the surrogate mother holds exclusive power whether or not to give her permission to the intended parents to register a child under their names. The commissioning parents might find themselves in a vulnerable position, being dependent on the surrogate mother’s decision.
Article 51 of the Family Code of the Russian Federation1 explicitly states that the registration of a child by the commissioning parents shall be accompanied by the written permission of the surrogate mother of a child. Furthermore, according to Article 16 of the Law on Acts of Civil Statuses, such permission shall be given only after the child’s birth and certified by the medical institution. In other words, the surrogate mother’s permission given on the child’s birth is a necessary condition for the child to be registered under the names of the commissioning parents. Any other documents, including the surrogacy contract, signed and given by the surrogate mother before the child’s birth, are not acceptable. Intended parents should not be tricked with promissory notes of any kind, even if they explicitly state the surrogate mother’s permission. However, once the permission that complies with the requirements of Article 16 of the Law on Acts of Civil Statuses has been given by the surrogate mother, the spouses’ parental rights may not be contested.
It should be noted that there are no legally binding instruments that might force the surrogate mother to give her permission. If she decides to register the child under her name, the Russian authorities will not prevent her from doing so.
The couple may seek remedy in court, but in the majority of cases, courts are reluctant to award the parental rights over the child to the commissioning parents. In this regard, we would refer to Order No 880-0 of the Constitutional Court dated 15 May 2012, where the court refused to admit the petition of the commissioning parents for recognition of their parental rights, prioritising the rights of the surrogate mother as a woman that gave birth to a child. In this course, the legislators should be guided by the principle of the best interests of the child and amend current laws by putting the rights of the commissioning parents above the rights of the surrogate mother.
Russian law, unlike legislation in the majority of European countries, allows single women and cohabiting couples to undertake a surrogacy programme on the same basis as married couples.5 Furthermore, the costs are comparably reasonable and procedures are simplified. Therefore, notwithstanding the potential risk that the surrogate mother might leave the baby, the Russian jurisdiction is known as being favourable for assisted reproductive technology (ART) treatment.
Irina Moroz, Partner in AGA Partners Law Firm
Contracts and background facts
The dispute arose out of three separate contracts for the sale of 158,000 mt of Ukrainian feed corn CPT Nikolayev with delivery pe-riods from September to Decem- ber 2010 (Contracts). Each contract obliged the sellers to obtain “at his own risk and expenses any export license [sic] or any other official document” (Clause 11.3) and in-corporated the terms of GAFTA 78, where such terms were not in con-tradiction with the above. In turn, GAFTA 78 included the so-called GAFTA Prohibition Clause (Clause 17) whereby the contract could be deemed as cancelled in case of “any executive or legislative act done by or on behalf of the government […] restricting export” provided that such restriction prevented per-formance of the contract. Custom-arily for all GAFTA contracts, the contract was subject to English law and GAFTA arbitration in London.
Most grain industry players in Ukraine remember late 2010 well, when the Ukrainian Government introduced grain export quotas and subjected grain export to licencing. The quota allocation rules and pro-cedures were changing on a daily basis, often at the last minute and in a very impracticable for busi-ness manner. As a result, only a few companies were able to obtain export licences; the majority, in-cluding most international trading houses, were unable to do so and could not perform their contractual obligations, which led to a wave of terminations and cancellations of contracts. Unfortunately, sell-ers fell under the unsuccessful category and aimed to cancel the contracts pursuant to Clause 17. The buyers treated the sellers’ ac-tions as a repudiation of contract, held the sellers in default and referred the case to GAFTA arbi-tration in London claiming some USD 26 million in damages.
Arbitration awards and issues for the court
The first-tier GAFTA Tribunal found that the events of Ukraine did fall under Clause 17 and sell-ers could potentially be relieved from liability for non-performance; however, on the facts, the Tribunal had not seen evidence of sellers’ reasonable efforts to perform the Contracts and eventually found for the buyers.
The sellers appealed and took that opportunity to furnish the previously omitted evidence of their best efforts in performing the Contracts to the GAFTA Appeal Board. Consequently, from the Ap-peal Award issued on 23 April 2014 (Award) it followed that the Board of Appeal was obviously satis-fied with the sellers’ evidence of their efforts but made some quite surprising findings on law and construction of the respective con-tractual clauses. Consequently, the Board found for the buyers again, but reduced the sellers’ liability to about USD 17.5 million.
Firstly, in the Board’s view, the sellers’ obligation to obtain export licences under Clause 11.3 was ab-solute, and Clause 11.3 overrode Clause 17, except in the event of a total ban; on the facts, there was no such ban. In support of its conclu-sion, the Board relied on the case of Pagnan v Tradax (1987),2 where the factual matrix was substantially similar to the present case.
Secondly, the sellers could not rely on Clause 17 since they were not “prevented” but were merely “restricted” in making the ship-ments to the buyers.
Thirdly, having reached the above conclusions, the Board nevertheless recognised the ex-treme difficulties, under which the sellers were operating, and stated that if the Board was to have de-cided whether the sellers had dis-charged their duties of best or rea-sonable endeavours in obtaining export licences, the Board would have unhesitatingly decided that the sellers had.
Naturally, the sellers disagreed with the Board’s findings on law and in May 2014 sought permis-sion to appeal from the High Court in respect of the following ques-tions of law:
(1) whether Clause 11.3 over-rode Clause 17 or was qualified by the same;
(2) whether Clause 17 applied exclusively in circumstances of a “total ban”; and
(3) whether the sellers could rely on Clause 17 if they were merely “restricted” rather than “prevented” from shipment.
On 25 September 2014 the per-mission to appeal was duly granted in respect of all three sellers’ ques-tions with the court agreeing that “the Award was open to serious doubt” and the main hearing of sellers’ appeal was subsequently fixed for 4 March 2015.
The matter was heard by Mr. Justice Hamblen, who, by coin-cidence, also appeared as a counsel for the winning party in Pagnan v Tradax, the authority at the core of the appeal from the sellers.
As to question (1), the buy-ers’ main argument was that the two clauses were inconsistent as Clause 17 contradicted the spe-cially agreed terms of Clause 11.3. Hamblen J disagreed. According to the normal principles of contractu-al construction under English law, there is no inconsistency between the contractual clauses unless they cannot be sensibly read together. Pagnan was directly relevant be-cause the Court of Appeal had to deal with the same question of con-sistency between the two clauses, and found that the GAFTA clause simply qualified the obligation to provide an export licence. Moreo-ver, in the judge’s view, the proviso “at their own risk” did not mean the clause could not be qualified by the other contractual terms. Conse-quently, the judge concluded that Clause 17 qualified Clause 11.3, but was not overridden by it.
As to question (2), the judge pointed out several references to “partial restriction” in the word-ing of Clause 17, and found that it plainly applied to a qualifying event “partially restricting” export and, as such, to a partial prohibition or other qualifying event which had a like effect. He also referred to the case of Bunge v Nidera3 where the Court of Appeal made exactly the same observation and concluded that the relieving effect of Clause 17 was not limited by circumstances of a “total ban”.
As to question (3), and in line with previously decided authori-ties, Hamblen J emphasised that the Prohibition Clause requires both proof of a qualifying event (i.e., “an executive or legislative act done by or on behalf of the Government” which had the ef-fect of “restricting export, whether partially or otherwise”) and evi-dence of its restricting effect on the seller’s total or partial ability to perform. On the specific point of prevention versus restriction, the judge made the following observa-tion: “In so far as the Appeal Board are… saying that it is necessary to establish a qualifying event which prevents export that is not correct. What needs to be established is a qualifying event which restricts export. The word “prevent” appears as part of the deeming provision in the clause. It is not part of the definition of the relevant qualify-ing event. However, if the Appeal Board are saying that it is neces-sary to show that the qualifying event prevented performance in the sense that it caused inability to perform then that would be a cor-rect approach.”
Finally, in the view of the judge, the Board had not specifi-cally addressed the critical causa-tion question (i.e., whether the ex-port restrictions in fact prevented the sellers from performing), and, on the basis of the findings in the Award, the judge could not confi-dently conclude what the Board’s answer to that question was. Con-sequently, he remitted the matter to the Appeal Board for further consideration and the parties are currently awaiting the revised ar-bitration award from the Appeal Board.
Ukrainian side of the coin
In the meantime, the real drama was unfolding in a totally different place. On 18 September 2014, just a few days short of the sellers’ per-mission to appeal, the buyers filed an application for recognition and enforcement of the Award to the Svyatoshyn district court in Kiev. On 13 November 2014 the sellers provided their objections empha-sizing, in particular, that the High Court in London allowed the sell-ers’ appeal and considered the Award to be open to serious doubt. However, on 30 January 2013 the Kiev district court decided to sat-isfy the buyers’ application for enforcement and issued respective order. Apparently, the Kiev district court was unimpressed by the fact that the high specialized court (Commercial Court of the HCJ) in the most impartial dispute resolu-tion jurisdiction (England), which was the only judicial body statuto-rily authorized to consider appeals from arbitration awards (akin to the Ukrainian concept of a cassa-tion instance), unequivocally rec-ognized that the Award had a flaw and required reconsideration.
Naturally, the sellers immedi-ately challenged the first instance court decision and appealed to the Kiev Court of Appeal, hoping for a more reasonable approach of the appeal judges. Yet, within just over a month, on 5 March 2015, the Kiev Court of Appeal re-confirmed the decision made by the court of first instance. The appeal court was very brief in its analysis of Mr Jus-tice Hamblen’s findings relating to the Award being open to “serious doubt” and effectively ignored the point, calling the sellers’ argu-ments to that effect “unfounded”. One can only speculate as to the reasons why this matter received such speedy consideration and why the decision coincided almost to the day with the hearing of the sellers’ appeal by the High Court, which, for technical reasons, was shifted from 4 March to 6 March 2015. However, from the conduct of the proceedings by the judge at the hearing one could already sensibly see that the sellers’ position ap-peared to be more persuasive. At the end, judge Hamblen promised to deliver his judgment within the “next week or two”; and, at it hap-pened, the proximity of the final decision in this matter had a magi-cal effect on the speed, at which further developments unfolded.
To prevent the decision of the Kiev Court of Appeal from be-coming final and enforceable, on 10 March 2015 the sellers applied to the last resort — the High Spe-cialized Court of Ukraine (HSCU), which had statutory powers to stay enforcement proceedings com-menced pursuant to decisions of lower courts. Indeed, on 17 March the HSCU ordered such a stay. One can just imagine the surprise of the sellers when, three days lat-er and with no trace of compli-ance with the HSCU’s order, on 20 March 2015 the Kiev district court issued a writ of execution al-lowing collection of the full amount of USD 17.5 million against the sellers’ funds and assets.
At the same time, on 24 March 2015, judge Hamblen finally announced his judgment and answered all questions of law in the sellers’ favor, as described above. From that moment the Award was formally remitted for reconsideration to the Board and could no longer be enforceable against the sellers. All would be well if not for a minor detail: on the same day, 24 March 2015, just as the judgment of Judge Ham-blen was being announced, the State Execution Service (Bailiffs) was arresting all sellers’ bank ac-counts and assets pursuant to the execution proceedings initiated on the same day, 24 March 2015.
Eventually, the execution pro-ceedings were suspended as per the HSCU’s order of 17 March 2015 until the HSCU’s final determina-tion in this matter. However the sellers’ funds remain attached to date, irrespective of the fact that (1) the actual Award is currently being reconsidered; and (b) there is a clear order within the Ukrainian judicial system to stay any and all execution proceedings that might have been commenced to date.
The story is notable in three respects. First of all, it shows how (still) remarkably different are the approaches of English and Ukrainian courts when it comes to the administration of justice and dealing with specific issues in the same matter and factual sce-nario. Secondly, it flags the problem of “selectivity” in the Ukrain-ian system of justice, which picks only favourable or suitable legal principles to justify certain deci-sions and completely ignores the obviously relevant concepts, sim-ply because they do not fit the re-quired position. Thirdly, and most importantly, it raises the question as to whether it is worth seeking justice in jurisdictions with strong rule of law, if one is bounced back to the system described by one re-nowned English commercial QC as the “Wild, Wild East”? It is, of course, our choice as both mem-bers of the legal profession and users of the system on whether to keep it as is, run from it or reshape its future. However, it is at least hoped that with the current wind of changes stories like this will slowly but inevitably sink into ob-livion. As they should.
Ivan Kasynyuk, Partner of AGA Partners law firm
Ivanna Dorichenko, Consultant with Clyde&Co
The article is available in Ukrainian only.
1. Can we start with an introduction of yourself and an overview of your company?
My name is Aminat Suleymanova, I am a lawyer. My professional career in law started almost 20 years ago. I have been practicing law since I was a student, combining my studies at a law academy with a legal position in a law firm.
We are happy to announce that this year AGA Partners is celebrating its 10-year anniversary.
The basic idea when I started the firm was to make a boutique law firm, that supports companies engaged in international trade activity with their outbound transactions and investments overseas. Recently we expanded our activity with a private clients’ practice.
Today the legal market is saturated with a number of law firms, which I would refer to as “legal supermarkets”. So you can be offered any kind of legal service within one firm. But we have a different concept in the course of rendering legal services. We limited our activities to 3 practices - international trade, arbitration, and family law. To meet the needs of our client, we engage with reputable law companies in England on a cooperative basis. It is worth mentioning that our legal expert report on Ukrainian family law issues was cited in a judgment of the English High Court.
Our primary rule is to approach each client individually. Clients can address any partner at a time of their convenience. For us, legal practice is not just another business, but an opportunity to assist clients in their business or private issues. The greatest reward for us is the loyalty of our clients; we have some clients who have been with us for almost a decade. We are proud to be referred to by our clients as the one who is “always oriented to our main interests.”
We do everything that could be possibly done in every case, and that’s why we can be sure that we are the best in this area.
2. AGA Partners was ranked by Legal 500 as being among the leading law firms of Ukraine in the area of dispute resolution. How did you gain this success?
The thing I like about that is that we weren’t only mentioned in the area of dispute resolution, but we were the only one highly praised for GAFTA arbitration practice (the Grain and Feed Trade Association, a London-based trade organization). Ukraine is one of the biggest exporters of grains on the global level and we have been occupying a special niche in terms of providing legal support to outborder grain traders. That is another reason why this acknowledgment is so valuable to us.
By the way, it was for the first time we’ve been nominated for this kind ranking
3. What law services have been the most in demand over the last year?
Actually it's hard to say because we don't practice everything. Still from year to year we are becoming stronger, more professional and better. Along with rapid professional development of the firm you can witness an increase in the number of our clients every year. And I don’t think that decrease or increase in any particular area of the economy is the main reason for this, it is rather because clients get to be more careful about who they employ for assistance. Clients are always looking for someone, the person who is the best in a particular area of practice.
Let’s use a hypothetical: if you are fond of tea, you are trying to buy it, you will not go to the supermarket, but to the special tea shop, where you will have a possibility to smell it, and ask the seller from where this tea leaves come from.
(P.S.: I chose this example because I am a tea fan myself.J)
We do not assist each and every client who addresses us, we provide our services to those who share our values and our style of work.
4. If you look ahead five years, how do you see the future of AGA Partners?
In a couple of years we are planing to open an office in London, due to the close relation of our practices in both family law issues and international trade, due to the London activities of our clients. At the moment our partners are flying to London at least once per month, so I think in 5 years we shall open a little office in London.
Also we will definitely expand the number of employees, though by not more than 3 -5 more people. But we don’t want to become a big law firm. Personally I want to know everyone in person. We never seek people out, we grow them.
5. Do you believe that "honesty is the best policy?"
What I don't believe in - is lies. I believe that in a particular situation everybody may just say: “I’m not ready to discuss that or those issues…/ It’s too personal for me…”. I feel comfortable with people saying that. If you say it in a soft way, people will understand, they might be a bit shocked at first, because in our mentality it’s not usual, but still it’s a better option.
6. What has been the most important management lesson you have learned?
1) You can't force a person to be happy if they don’t want to be
2) Being a manager myself, I can tell that you don't have the luxury of not being in a good mood. Try to control yourself, even if you are in a bad mood. Remember that people can take it personally.
3) You are not God to judge. You can just make your own choice but must be frank to yourself, and say: “it’s personal”.
Very important - I treat everyone as an equal person, it’s just that we may have different positions.
7. What is your management style? And what qualities do you appreciate the most in people?
I try to make the people around me feel comfortable.
Usually a person straight from the university joins our firm but it’s essential that everyone likes the new person in the company, as we will work together for 8 hours a day. I take into consideration the point of view of every member of our team. I may not always agree but I will definitely listen to what a person has to say. You always need to remember that the look from the outside is important; it can show you something new, something you haven’t seen before and can even help your personal growth. There is always a tutor available from the partners to help the new associate or young lawyer. And you can discuss everything, even personal issues. If needed, they can work from home.
What I appreciate the most in people is a good family background and education. We have to speak the same language and understand each other.
8. How do you keep a healthy balance between your family and career?
My own priority is family. We will always assist on different issues. And everybody in my firm, including myself, can say: “Ok, guys, I need some time for my family. This week I will be out of the office”.
If you have responsibility, you can keep that balance. If all members of the team are honest with each other, we will not have to lie to each other and keep family as a priority. Every year we have our vacations, we don’t hold some corporate meeting for 3 days outside without families, it’s not our style. I think that the best corporate event is to give more time to people to spend time with their families. Family is the priority and I do underline that.
Our working day starts at 10 and lasts till 6. Certainly emergencies can happen, but it doesn’t have to be a rule.
The right manager has to organize an 8-hour working day . Otherwise, you don't organize your job well. Also someone is important for me, in most cases I will make some allowances for them and follow their suggestions. You can ask for respect.
The essence of fraud
It has become a part of common practice in international transactions, when trading companies, due to their own negligence, become victims of fraud. The present scheme of deception is as follows: the buyer, having received a bill (invoice) for payment of the goods delivered by the seller and being sure of its (invoice) authenticity - conducts the appropriate payment as specified in the account details.
At the same time, there may be cases where the buyer sent SWIFT message as proof of payment to the seller. In turn, the seller, having received a confirmation of payment from the buyer, acts in accordance with the contract and releases the original documents proving ownership of the goods.
Thus, the transaction took place, the bill is paid, the buyer confirmed payment in the SWIFT message, and original documents were "released" in favor of buyers. However, in the end, the money for the goods has not been transferred to the seller’s account. So what is the catch?
The answer is simple. Parties to the transaction have become victims of fraudsters, who illegally got the information about the transaction (by hacking mailboxes) and faked account. As a result, fraudsters got money, and parties to the transaction - losses and months and even years of criminal litigation and arbitration processes around the world. The reason for that - the lack of minimum precautions during the transaction, and the payment procedure, in particular. Meanwhile, by compliance with those precautions you would significantly reduce the chances of fraud.
Firstly, always check with the buyer, whether he had received the right banking requisites. Make sure where and to whom the buyer paid. If you are a buyer - verify the accuracy of the account details for payment of goods, accuracy of information about payee. Pay attention to the suspicions and inaccuracies in the invoice, contact with the bank and the beneficiary before you make payment, be vigilant and inform your counterparty about all your intentions and actions.
Secondly, we recommend that sellers always "release" all original documents for the goods, especially bills of lading, only upon the actual receipt of money to your account. For this purpose, the contract must prescribe the appropriate provision, which can be formulated as follows: "The original documents, including bills of lading shall be dispatched by the Seller upon the actual receipt of full payment by the Buyer."
If you trade on a FOB basis, do not allow the vessel to leave the port of loading until payment is received.
Thus, guarantee of the buyer’s security – reassurance in correct payment details, as for the security of the seller - safeguarding of the title documents for goods until the actual cash is deposited. By following these precautions, both sides of the transaction – the buyer and the seller - will minimize the risks of fraud and ensure the safe performance of the transaction for the mutual benefit.
Be careful, and remember: the devil is in the details!
Ivan Kasynyuk, Partner
Dmitry Koval, Junior Associate
AGA Partners Law Firm
1 How does an individual become taxable in your jurisdiction?
According to the Ukrainian law, an individual can be considered as a tax resident of Ukraine if he/she meets the Ukrainian tax residency criteria, which are as follows:
- An individual is considered a Ukrainian tax resident if he/she has a domicile in Ukraine;
- If the individual also has a domicile in another country, the individual is deemed resident of Ukraine provided he/she has a permanent place of residence in Ukraine;
- If the permanent place of residence is also available in another country, the individual is deemed resident of Ukraine provided his/her center of vital interests is situated in Ukraine (for example, the place of the permanent residence of the members of an individual’s family or the place of an individual’s registration as a business entity etc.);
- If it is not possible to determine the actual center of vital interests, or if the individual does not have a permanent place of residence in any country, the individual is deemed to be tax resident of Ukraine if he/she stays in Ukraine in excess of 183 days during a tax (calendar) year;
- If it is impossible to determine tax residency on the basis of the above provisions, then the individual will be a tax resident of Ukraine if he/she is a Ukrainian citizen;
- A person who fails to qualify as a Ukrainian tax resident will be considered a ‘non-resident’ for purposes of the Tax Code;
- The Tax Code also provides for a self-recognition procedure, according to which an individual can voluntarily elect to be a Ukrainian tax resident;
- In conflict cases, the rules of the relevant double taxation treaties may be applied.
2 What, if any, taxes apply to an individual's income?
In Ukraine, individuals are subject to Personal Income Tax (hereinafter - PIT), regardless of whether they are tax residents or not. Individuals – tax residents of Ukraine are taxed on their worldwide income, while non-residents are taxed on their Ukraine-sourced income only. Ukrainian laws determine Ukraine-sourced income as income derived by an individual as a result of any business activity performed in Ukraine, which, inter alia, includes remuneration for the work performed in Ukraine, whether paid by a Ukrainian or a foreign company.
Both resident and non-resident individuals are taxable at same tax rates being 15% and 17%:
- the 15% rate applies to monthly income up to a threshold of 10 minimum wages per month (in 2014, UAH 12.180, circa USD 940)
- the 17% rate is applicable to monthly income in excess of a threshold of 10 minimum wages per month.
The individual’s income is taxable whether it was obtained in cash or in kind. Taxable income includes employment income (with in-kind benefits); incomes from trading or professional activities (including operations with intellectual property); incomes from the alienation of property; winnings and prizes; insurance payments; interest and dividends; investment income; and contributions to unqualified pension plans made on behalf of a taxpayer by another person/employer.
3 What, if any, taxes apply to an individual's capital gains?
The taxation of an individual’s capital gains depends on the source of the gains.
The general rate applied to employment income is 15% - to monthly income not exceeding 10 minimum wages and the 17% rate applies to monthly income exceeding that threshold.
Interest income is taxed at a 15% rate. Dividends, including foreign dividends are taxed at a 5% rate. Winnings and prizes are subject to 30% tax, except winnings in state lottery and received from the organizer of gambling by both residents and non-residents. As an exception, cash winnings in sports (other than remuneration to athletes) are subject to standard 15%/17% tax rate.
Taxation of royalties and investment income is at 15% rate (if such income exceeds 12 180 UAH. The amount of such excess is taxable at rate of 17%).
Gains derived from the sale of a real estate are not subject to tax if the sale takes place once during the year, provided the owner has held legal title for at least three years before the sale (the three-year ownership period does not apply to inherited property). The rate is 5% if the taxpayer makes more than one sale per year.
Gains derived from the sale of movable property by a resident are subject to a 5% rate; gains derived by a non-resident are subject to 15% or 17% rate. As an exception, income derived by the taxpayer from the sale (exchange) during the year, of one of the objects of personal movable property such as a car or motorcycle is not subject to taxation. Sale of two or more motor vehicles by the same person during the year will be taxed at rates of 5% and 15%/17% for residents and non-residents respectively.
4 What, if any, taxes apply if an individual makes lifetime gifts?
In Ukraine, funds, property or property rights, the cost of work or services presented to the taxpayer as a gift shall be taxable in the same way as inheritances...