Ukraine: An evolving legal market

Independent firms have historically dominated in Ukraine, which for many years did not see the influx of international practices that, for example, Moscow witnessed. These leading local players include the likes of Asters, Magisters, Vasil Kisil, Sayenko Kharenko, Arzinger and Grischenko & Partners.

However, a number of major international firms have set up shop as part of their drive to build a practice covering the whole of Eastern Europe. Among them are Baker & McKenzie (the first international firm to arrive and arguably the most established), CMS Cameron McKenna, Chadbourne & Parke, Salans and DLA Piper. Leading Continental European firms such as Germany’s Beiten Burkhardt, France’s Gide Loyrette Nouel and Peterka & Partners of the Czech Republic have also joined the fray.

It must be open to question whether these firms will stay committed to their Ukraine practices – many of which grew rapidly in 2006/07 – or whether the global financial crisis will force them to scale back their ambitions. Significantly, the upheaval in international markets did not deter Clifford Chance in October from opening a 20-lawyer office in Kiev that will initially focus on M&A and corporate, banking and project finance, and real estate with a view to becoming full-service in due course.

Asters' senior partner, Armen Khachaturyan, believes that – assuming the Ukrainian and global economies revive – there is room for further expansion, both for local and international firms and that there could be other new arrivals in 2009 or 2010. “The Ukrainian legal market is definitely still in a very formative stage,” he says. “As more and more foreign law firms enter Ukraine, this could force more local firms that serve foreign clients to merge to ensure their survival.”

Mikhail Ilyashev, managing partner of Ilyashev & Partners, insists that it will be “five to seven years” before most of the foreign firms are able to compete fully with the leading local practices. “Right now, [the majority] simply collect work from their head office or other offices around the world,” he argues.

One clear effect of the arrival of international firms, however, has been to push up legal salaries. “There has been a historical shortage of properly qualified lawyers with the right experience,” admits Alexander Minin, senior partner of KM Partners, although he believes that this is gradually being addressed.

Ilyashev agrees. “Until now the leading firms have had a lot of work,” he says. “The main competition was for the good lawyers, rather than necessarily for clients.”

This, in turn, has had a knock-on effect on charge-out rates. The hourly rate remains the principal charging method, with average rates of €330 per hour for a partner (some will charge up to €500) and €90-100 an hour for more junior lawyers. Whether the changed economic circumstances will have an effect on rates – by inducing firms to lower them in a bid to pick up the fewer mandates on offer – remains to be seen.

According to Minin, the balance of work has been changing as the market has changed. He says his four-partner, 28-lawyer firm, which has particular strength in tax, has seen “steady and continuing growth” in 2008, but then it is less exposed to the downturn in M&A and banking work. “It will be different for firms that focus more on transactions, as they are more influenced by the financial markets,” he claims.

Khachaturyan says Asters’ finance practice has definitely seen some changes in foreign investors’ attitudes. “Three of our private placements were put on hold in the past month,” he says. “Two Eurobond projects were also delayed. We will see whether they will happen next year, and, if so, when. However, we are still getting enquiries about M&A. Deals are still being done.” He adds that restructuring work is also on the rise.