Saturday, March 2, 2024
 
 

Transcending xenophobia in Ukraine’s courts

A general view of Ukraine's Constitutional Court.

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The latest court session regarding the dispute between TIU Canada and companies controlled by the oligarch, Igor Kolomoisky, seemed to give a slight glimmer of hope that a just verdict may just be possible.

According to case watchers, the approach of the court seemed to have changed, taking on an approach, after a year and a half of litigation in three court jurisdictions, that suggested the seeking of a remedy to this legal conflict.

This was immediately evident by the lead judge who efficiently questioned the lawyers as to the merits of the case, by asking, or rather demanding, what laws were broken when the Kolomoisky controlled companies cut off TIU’s access to the electricity grid, what were the contract breaches, and what recourse was expected by the plaintiffs?

This was surprising to those involved in that this was the first time such an approach was implemented. For up to that point, the litigators had the feeling that the legal decisions that were being made were mostly made as if in a localized legal bubble, mostly unresponsive to the essential facts of the case and without concern for the fate of the foreign plaintiff.

Though the full details may never be known for this sudden change of attitude, a number of sources familiar with the case suggested that the case had finally got the attention of high government officials and that this awareness was now coupled with an ever-growing concern as to how foreign investment entities were being treated by Ukrainian courts.

The attention brought to this case, through direct diplomatic overtures, heightened media coverage in Europe, Canada and the United States, also raised the awareness of the details of the case amongst western politicians, clarifying how this case, in particular, could affect foreign investment in the country, especially in regard of the importance of establishing sound legal precedents and practices in an emerging free market.

Taking all these factors into consideration, the government seemed to have taken notice of the concerns that its western partners had about the investments and treatment of its nationals and how their treatment would influence future investment in Ukraine.

There is emerging evidence, however slight and optimistic, that a new dynamic may be emerging in Ukraine and that this important development on the side of the Ukrainian government is proof that not only are western governments listening to the complaints of their nationals, but that they are prepared to demand of the Ukrainian government just and fair treatment of their investors in Ukraine.

Through this case, Ukrainian officials are also learning that they can no longer take foreign investment in their country for granted, based on the promises of potential. For stable and continued foreign investment, Ukraine’s officials cannot only make promises saying that they will respect foreign investors, but realize that they have a role in effecting the behavior and practices of its legal institutional players to ensure proper legal protection.

But perhaps a greater lesson that is being learned in Ukraine as a result of this case is a growing understanding that economic expansion will not be fueled by foreign investment if Ukraine continues to practice a form of economic xenophobia.

To thrive in a western economic climate, Ukraine must put aside the assumption that it can continue to be governed by its own incestuous legal framework that resists fair, just, transparent and legally objective decision making that denies accepted western investment practices and legal norms and often favors domestic players.

What this case has highlighted is an emerging trend within the country, especially amongst small and mid-cap investors towards economic growth; the Ukrainian economy will not grow and neither will jobs be created if Ukraine does not eliminate this xenophobia towards foreign participation and bias towards domestic players.

In an economy still dominated by oligarchic values, such as disregard for the practice of the rule of law, favoritism of domestic economic players in the courts, Ukraine will soon experience less foreign investment, and may ultimately be discarded from consideration by western sources of investment funds.

Ukrainians should understand this both as a threat and a warning.

Ukraine’s decision-makers should consider themselves at a crossroads. Its economic xenophobia is the last remnant of anti-free market forces and monopolistic tendencies that still permeate the Ukrainian economy, along with a dominant oligarchic mind set. Will the present government show the fortitude to fight these tendencies within its legal institutions?

TIU Canada’s legal action is a direct challenge to this form of economic and legal xenophobia. How this case will be resolved will show the way forward for a new market based Ukrainian economy. It directly and existentially challenges the monopolistic assumptions which deter sustained economic growth and prevent Ukraine from becoming a rules-based society and be in possession of a legally based free market.

One of the most surprising, if not shocking arguments heard was the argument regarding the setting of precedent in this case. Shocking because it had revealed that after seven years of attempting to operate within a quasi-free market, a Ukrainian court had to be reminded that any decisions it would make would be precedent-setting and affect future behavior in conducting business in Ukraine

Surprising because, after all this time, Ukraine has not yet established a legal tradition of what is most ordinary in free-market jurisdictions, judicial decisions based on precedent and on established law as a result of a transparent, fair and just legal process.

Companies doing business in Ukraine, whether foreign or domestic, cannot assume and neither can they find the confidence in an impartial, fact-driven legal setting. This is most disconcerting to say the least, and disappointing at best.

Thus, how can Ukraine’s government, in good conscience, continue to attempt to attract foreign investment, if it cannot guarantee a fair and just legal dispute mechanism that would legally protect investors and engender investment confidence?

Ukraine does not need domestic investment nannies, but rather a concentrated effort that would establish a legally sound legal framework within which business people can operate according to proven western principles and traditions.

The time for Ukrainian officials conveying the simple message to come to Ukraine to invest in its potential is over.

This message is hollow. Western political and economic leaders know Ukraine very well and have learned to discount the promises of Ukraine boosters.

Ukraine’s leaders must face up to a new reality and realize that “image management” is not enough to attract and keep foreign investment. Ukraine’s officials must provide a plausible response to the concerns of its western partners whose message is clear, “Show us change in the courts or investment monies will cease to flow”.

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