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22 January 2020

The third party litigation funding law review – edition 3

Source: The Law Reviews

I Overview

Third party funding is not regulated in Ukraine. Accordingly, there are no limitations or prohibitions on funding the claims in the civil and commercial proceedings before the Ukrainian courts and in arbitration proceedings seated in Ukraine.

At the same time, third party funding is not known on the market and in practice it is not used in proceedings before the Ukrainian courts and in arbitration proceedings seated in Ukraine.

Some Ukrainian parties resort to third party funding from non-Ukrainian funders to pursue their claims in foreign jurisdictions, including in the United Kingdom and in arbitrations seated outside Ukraine.

In any event, as regards a party wishing to use third party funding in Ukraine, the Rules of Professional Conduct contain a requirement that when representing a client an attorney practising in Ukraine may not take into account instructions from other parties. Furthermore, an attorney intending to share any privileged documents or information with a third party (i.e., a funder) must obtain the client’s consent.

Although strictly not third party funding, it is a rather common practice in Ukraine for lawyers to handle cases under conditional fee agreements. The Rules of Professional Conduct expressly allow this way of structuring the payment to an attorney.

However, recently the Supreme Court stated that a provision of a contract between a client and an attorney allowing a conditional fee is void. In the view of the Supreme Court, the outcome of litigation may not be the subject of a legal services contract.

Not all judges of the Supreme Court agreed with this position and there was a dissenting opinion that a conditional fee agreement does not in fact breach any mandatory rule of Ukraine.3 Therefore, further developments in Ukrainian court practice on conditional fee agreements can be expected.

Ukrainian procedural rules for civil and commercial litigation, as well as the Arbitration Rules of the International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry, provide for the standard rule of ‘costs follow the event’, which can help reduce the financial burden suffered by a party to a dispute.

Notwithstanding this, in August 2019, the Supreme Court expressed the view that a court is not obliged to award the winning party the full amount of any attorneys’ fees if, on the basis of the principles of fairness and rule of law, the court finds that the fees agreed by the client and attorney are (1) excessive in view of the complexity of the case and the time spent on it by the attorney, and (2) inconsistent with market prices for legal services.

There is also a market in Ukraine for acquisition of non-performing loans and distressed debt in general. Factoring companies, debt collection companies and other financial companies frequently purchase claims from corporates and banks and then enforce them in their own name. However, we do not consider this to constitute third party funding.

We continue to follow developments in this sphere in Ukraine.

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