Doing business in Crimea—should you revise your contracts?

Doing business in Crimea—should you revise your contracts?

Commercial analysis: What effect has Russia’s annexation of Crimea had on those doing business with Ukraine and Crimea? Glib Bondar, partner at Avellum Partners in Kiev, explains the impact of the current situation on those with business interests in the region, and advises that all existing contracts with Crimea/Ukraine should be checked.

Recent activity should trigger a review of contracts with any Ukraine/Crimea-based interests. How does the legal status of a country impact a contract, if at all?
As far as Ukraine as a whole is concerned, no change in status has occurred. Contracts with Ukrainian counterparties should generally remain unaffected, except that the recent events (including civil disturbance, the partial mobilisation announced by Ukraine, events in Crimea and the territorial changes that ensued, changes to legislation, etc) may trigger force majeure or material adverse event clauses of certain contracts.

The situation is more complex with respect to Crimea. The Russian Federation now views Crimea as part of its territory and effectively exercises its jurisdiction over the Crimean territory. Ukraine, however, does not recognise this and still views Crimea as a part of the Ukrainian territory, which is temporarily occupied by a foreign state. This significantly affects legal order in Crimea and the ability of counterparties to perform contracts with Crimean interests. For example, as a result of developments in Crimea, contracts with counterparties or in respect of assets located in Crimea may not be enforceable.

The transition period seems short, will there be a change in the applicable law and regulations affecting any businesses conducting an activity in that region?
As far as Ukraine as a whole is concerned, there will be changes to the applicable law—however, it is difficult to assess how fundamental such changes will be. These include temporary anti-crisis measures (including more stringent currency control regulations).

On the other hand, Crimea is experiencing fundamental changes in the area of law. With the alleged accession of Crimea to the Russian Federation, from the Russian Federation’s perspective,

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About the author:
Kathy specialises in restructuring and cross-border insolvency. She qualified as a solicitor in 1995 and has since worked for Weil Gotshal & Manges and Freshfields. Kathy has worked on some of the largest restructuring cases in the last decade, including Worldcom, Parmalat, Enron and Eurotunnel.