Property rights to be protected in Crimea: how and when?

• Ports and Terminals
• Corporate & Taxes
• Investment & transactions

Recent events in Ukraine, including the decision by Crimea to secede and join the Russian Federation, raise concerns about protections of property interests of engaged persons.

In Crimea, court cases that have been started under Ukrainian law will be held under Russian legislation. The Chairman of the Court of Appeal of Crimea, Valeriy Chernobuk, advised that, as of 24 March 2014, Crimean courts are accepting only those applications that are based on Russian law. Crimean courts are working now on the Constitution of Russia and Russian procedural laws and norms. As for the cases that have previously been started under the Ukrainian norms, they will be finished, but under Russian law. It is another interesting legal manoeuvre.

The first manoeuvre relates to the fact Crimea decided to ‘nationalise’ Ukrainian energy firms and ports operating within its borders. This decision states that all Ukrainian state property would be transferred into Crimean ownership: ‘All establishments, businesses and other organisations of Ukraine or with Ukrainian participation in the territory of Crimea will belong to Crimea’. First of all, it concerns the state-owned oil company Chornomornaftogaz as well as the oil and natural gas-rich ‘continental shelf and exclusive economic zone’ off Crimea’s Black Sea coast. Also the energy companies Ukrtransgaz and the Feodosia terminal were nationalised. Chornomornaftogaz is the principal energy company in Crimea and has operations in the Black Sea and the Sea of Azov. The company extracted 1.2 billion cubic metres of natural gas in 2012.

The mass media reported that the State Council of the Crimea also ‘nationalised’ the integral property complexes of enterprises located on the peninsula that were previously under the control of the Ministry of Infrastructure of Ukraine and the Ministry of Agrarian Policy and Food of Ukraine. This decision was accepted on 17 March 2014. The following objects are on the list to be ‘nationalised’:

• Kerch ferry terminal;

• Kerch commercial seaport;

• Kerch fishery seaport;

• Feodosia commercial seaport;

• Yalta commercial seaport;

• Sevastopol commercial seaport;

• Sevastopol fishery seaport; and

• Yevpatoria commercial seaport.

Crimea also nationalised the property of the State Enterprise ‘Administration of Maritime ports of Ukraine’ and the state institution ‘Gosgydrographya’. This also means that control over pilotage in the Kerch Strait has been taken. The Ministry of Justice of Ukraine declared ‘nationalisation’ of Ukrainian state facilities in Crimea by the Crimean government as illegal.

Under nationalisation it is usually understood that the process involves taking a private industry or private assets into public ownership by a national government or state. All of the above assets are not private; they belonged to the state of Ukraine.

To what extent property and other interests of private companies are going to be affected by the decisions of the Crimean government are not clear. Therefore, it is too risky to plan any projects in Crimea in the near future. Moreover, it has become risky to perform any commercial operations in Crimea at present as the territory has an uncertain legal status, including in regards to laws that may impact on banking and finance. It is still unclear at which courts and under which laws any disputes will be settled, both now and in the future.

At present, nobody can guarantee the protection of private property. The transition period creates grounds for various speculations and fraud. The recommendation now is to save, at least, all the documents that may be used as evidence in the future.

In order to determine the legal status of property or activities in Crimea, and to provide for the certain legal succession, negotiations could have been the best way for contending parties but this now seems unrealistic. Therefore problems may last for months, if not years.

There is a risk that laws adopted by the Ukrainian Parliament will remain declarative as at present no real opportunity to secure their performance is available. Thus, it is more likely that Russian laws will be implemented.

‘How to secure rights’ and ‘where to claim and under what basis’ are the questions that will require answers in the very near future.

Newsletter of the International Bar Association Legal Practice Division

Arthur Nitsevych

nitsevych@interlegal.com.ua