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The Buzz: July - September

The Buzz: July - September

The Buzz
Typography

In “The Buzz” we interview experts on the legal industry living and working in Central and Eastern Europe to find out what’s happening in the region and what legislative/professional/cultural trends and developments they’re following closely. Because the interviews are carried out and published on the CEE Legal Matters website on a rolling basis, we’ve marked the dates on which the interviews were originally published.

Austria (July 18)

Political Developments of Significance

An “exciting election” has marked the Austrian market over the last few months, according to Alexander Petsche, Managing Partner of Baker & McKenzie in Vienna. “We had an election of the President of the Federal Republic that was annulled recently by the Constitutional Court due to formalistic misbehavior during the election process,” Petsche explained.

According to Petsche, Austria allows voting by post, and the two issues raised before the Constitutional Court were that the members of the committee responsible for counting these “votes by letter” started the counting process too early (despite, Petsche says, the existence of several rules setting forth when the letters should be opened and when the counting should commence), and that, in some regions, not all the members of the committee were present when the counting started. “It was a very large trial with over 90 witnesses being heard. It has never happened that an election of a President was challenged and, while the court found no evidence of manipulation, it did argue that theoretically it could have happened, which was sufficient to annul the election.”

Staying within the political realm, Petsche pointed out that Austria has a new Chancellor, as the previous one stepped down “mainly due to the failure of the left wing party to have a successful presidential candidate.” The new Chancellor was described by Petsche as a “typical manager,” who acted as the CEO of Austrian Railways in the past. This change has brought forth a “New Deal” that has some legal impact: it mainly aims to make it easier for companies to be set up in the country. At the moment, Petsche explained, the foundation of a new company is “very complicated in Austria” and the goal is to lessen the amount of red tape. This initiative is also going to be complemented by “a start-up initiative, with more than EUR 185 million put aside towards supporting start-ups.” 

Turning to legal industry, Petsche noted an increase in the amount of investment arbitrations taking place in Vienna involving CEE countries. Petsche – himself a Board Member of the International Arbitral Centre of the Austrian Federal Economic Chamber – mentioned that the arbitration function of the organization has been considerably busier in the recent period. 

Speaking about the legal market, Petsche highlighted two developments. The first is an increasing number of boutique firms opening in the country: “Ten years ago no one would have left a large firm as a Senior Partner – you just made your career and would have been in a position to maintain that. I assume it primarily relates to either a matter of decision making within law firms or to the fact that sometimes senior lawyers do not want to invest part of their time on administering a firm. From our perspective, they don’t necessarily pose a threat, as they work in a different segment.” The second development was that of PwC Legal’s entrance into the Austrian market on July 1. Petsche noted that, surprisingly, it wasn’t PwC Austria that initiated it but rather PwC Legal Germany that expanded into the country. He described PwC Legal Germany as a very strong player in Germany and its arrival in Vienna means that KPMG is the only of the Big 4 without a law firm arm in Austria.

Belarus (August 19)

Between a Rock and a Hard Place

Squeezed as it is uncomfortably between Ukraine and Russia both geographically and economically, Belarus continues to suffer from the ongoing crises in and conflict between the two, according to Sorainen Belarus Managing Partner Kiryl Apanasevich, as well as the indirect but continuing effects of foreign sanctions imposed on Russia, its closest trade partner and largest investor. Apanasevich points out that Russia has traditionally provided about 50% of Belarus’s foreign trade and foreign investment, with Ukraine usually also among the top in trade. As a result, and in light of the circumstances in which all three countries find themselves, he sighs, the status of the Belarusian economy and market again “shows negative trends so far this year.”

The first quarter of 2016, in particular, Apanasevich reports, was “pretty dreary.” There were very few transactions in corporate/M&A or banking/finance, and Real Estate, he says, “was totally down.” The GDP was declining, he said, and resulted in a declared drop of approximately 4% in 2015. Q2, he conceded, was a bit better, with international financial institutions starting to show some activity. He also pointed to several completed transactions, mainly in the IT industry, including Facebook’s acquisition of Belarusian app developer Masquerade Technologies (which his office advised on) as significant, and “already a sign of a maybe a slightly growing market.”

“Nevertheless,” he said, still referring to Q2 “GDP was down by another 2.5% over last year – which itself was already down from the year before. Real Estate remains dead, with no transactions of any significance, and Banking/Finance work has changed, with less work coming from trade finance and almost no project finance work, and instead more requests coming related to securitization and financial restructurings – which, he noted, “means that many corporate borrowers do not feel healthy.”

Q3 so far, “has been the most positive in terms of the micro-economy.” Apanasevich explained that inflation is going down, the State implemented a local currency denomination on July 1, and recent forecasts refer to an expected 1% growth for the next year. IT remains the most active sector, and international institutions seem to be showing more interest in Belarusian companies as a result of difficulties of various kinds they’re encountering in neighboring countries. There’s also, Apanasevich reported, “a new wave of privatization-related issues,” including in the banking industry, and he refers to the contemplated privatization of Belinvestbank (the country’s fourth largest) with the participation of the EBRD and recent announcements that the Belarusbank – currently 100% owned by the Belarusian state – will potentially be looking for a foreign investor to take a minority share (perhaps 20%-25% in the next few years). Apanasevich referred as well to various anticipated infrastructure projects which “should generate work for lawyers and also have an impact on the economy of the country in general.”

Finally, Apanasevich is able to smile at the shifting alliances and associations that have dominated news in the neighboring Baltic legal markets for the past 18 months, reporting that lawyers at firms in the Belarusian market, which is much calmer and more stable, are enjoying “taking popcorn and watching the show.”

Czech Republic (July 4)

Controversial Changes to The Execution Procedure

Zdenek Tomicek, Partner in the Czech office of CEE Attorneys, turned first to the intended amendment to the Execution Procedure Act proposed by the Czech Ministry of Justice, which could oblige creditors to provide monetary guarantees of costs of the Court Executor in the proceedings – which would then be forfeited if execution turned out to be impossible.

“I understand the reason for this amendment,” Tomicek said, “but the problem is, this will also be applicable to B2B creditors, who are not always aware of debtor assets, and public sources are very limited [in] this respect.” As a result, creditors who win their claims – which should, after all, put them in a better position – will have to provide guarantees to the executors, providing additional risk to them.

Tomicek said this will, on top of everything else, have a significant effect for lawyers and law firms who also provide debt collection services, who will have to explain to clients that yet another fee is required of them.

Tomicek also agreed with previous The Buzz sources who expressed frustration with the Czech judiciary, noting that judges – especially at the lowest level – are simply not regularly trained and from time to time fail to refer to the judicial practice of higher courts in reaching their verdicts. Tomicek rolled his eyes, saying “sometimes it’s frustrating.”

The legal market itself is strong at the moment, Tomicek said, especially with the continued rebound of the real estate and financial services markets. There’s a continuing need for international or regional firms in the Czech Republic, he said, but the particular kind of firms needed is changing. The major international players “from the 1990s” are too expensive, he said, pointing out that one or two seem to be closing their doors and withdrawing from the country every year. They’re being replaced, he reported, by smaller regional players, staffed by lawyers who trained at major international firms during the big-payday years but are now able to offer their services at considerably lower prices. As a result, “small Czech law firms are more and more involved in the market,” which Tomicek called “a good thing for the Czech market – better if Czechs are successful here than just foreign lawyers.”

Finally, Tomicek referred to the comments about the changing demands and expectations of young lawyers that were made in the article about the Hungarian Round Table that appeared in the April 2016 issue of the CEE Legal Matters magazine. He said his colleagues are witnessing an identical phenomenon in the Czech Republic: new lawyers who “come out from law school, know nothing about the practice, but ask when they can go home.” He called it a “sad question,” and explained, “I understand asking about money – but when to go home?” He agreed with the comments by Zoltan Lengyel of Allen & Overy in that April 2016 Round Table that it’s up to the law firms to adapt, and asked, simply, “but how?”

Estonia (July 22)

Changing Legal Market Remains Primary Subject of Conversation

“In terms of the legal market,” said Toomas Prangli, Sorainen’s Managing Partner in Estonia, “times have been very turbulent the last 15 months. Many Baltic alliances are being broken, and new ones are emerging.” He pointed, by way of illustration, to the recent split of the Estonian part of Tark Grunte Sutkiene from that pan-Baltic alliance, which replaced it with Varul’s Estonian office – which in turn triggered the dissolution of that firm’s alliance in the region.

Sorainen, Prangli said, has been following the developments closely from the sidelines, although “the changes don’t really affect us directly.” Nor does he believe the consolidation and shake-up of alliances in the Baltics has stopped yet, noting that there is “still a lot of pressure, especially on second- or third-tier law firms, to merge to stay in the race.” “The small-sized law firms have to decide if they want to be close to the first tier” – by merging or aligning with others to increase headcount and practice group coverage – “or stay smaller, which can also be a perfectly good choice for them and many clients.”

In terms of business, Prangli said, “things have been very busy this year.” The bigger Estonian firms, he reported, have been very busy, with M&A, financial transactions, and real estate practices all strong. “Existing businesses are reevaluating their positions, and new ones are entering,” though he conceded that “it’s hard to generalize why, exactly.” He referred to research showing that local investors in Estonia are much more active in buying up foreign capital than their counterparts in other Baltic markets. He expects Q3 and Q4 to stay profitable as well, in the absence of any disrupting financial event. 

When asked about the effects of the Brexit, Prangli said so far they are minimal in Estonia, which he described as not as exposed to the UK markets as other countries in the region, which have proportionally bigger trade with Great Britain. “We’ll just have to wait and see until Article 50 is invoked and negotiations are clear.”

There are a few “hot topics” in terms of legislation, Prangli reported. The first is related to e-residency. A year and a half ago Estonia initiated a residency program allowing anyone from anywhere in the world to register for an Estonian ID card, providing access to Estonia services, programs, and agencies online. “At last count 11,000 people from outside the country have taken advantage of this,” he said, though he explained that many of the related legal issues – from possible double taxation issues to money laundering concerns – remain unresolved. “How to make sure the system is not misused,” he said. Parliament has acknowledged the problem and is already drafting a framework to address many of the issues. In the meantime, law firms such as his are encouraging some clients to take advantage of the program, which is designed to make life simpler for them.

Another area that is “quite active,” according to Prangli, is the Estonia start-up sector, booming both in the number of start-ups and start-up accelerators. “As always, legislation lags behind,” Prangli says, but changes enacted last year are making things better, and people are talking about it. Estonia has a strong history of tech start-ups – with Skype being the most famous example – and Prangli suggests that the small size of the country can actually function as an advantage, forcing start-ups to think about cross-border and multi-lingual functionality at early stages in the process. “Small is good, in that sense.”

Finally, Prangli commented on the “bottleneck” in employment tax – especially in social insurance tax – which can discourage companies from hiring highly paid specialists. “That’s an issue,” Prangli notes, but “on the other hand, clients see the value of stability in taxation, and one of our clients has said they watched the income tax structure for ten years, and only now are confident in its stability enough to invest in the country.”

Greece (July 7)

Successful Review Encourages Hope in Greece

“First of all,” said Nicholas Papapolitis, Managing Partner of Papapolitis & Papapolitis, “there was a very big debate, and a very big pause, on everything that had to do with investment in Greece and Greek businesses up until the completion of the first Review by the Troika.”

That first Review happened in May, after which, Papapolitis said, “there was some real positivity, including a sense of new interest, specifically by foreign capital.” The demonstration by the Greek government of its ability to make the necessary reforms has created a real “change in atmosphere,” he said, and a real increase in interest.

There’s also been a significant amount of legislative reform as well, Papapolitis noted, particularly in the Greek Civil Code, which has been amended “in order for the enforcement to become faster for lenders who have lent money in the Greek market.” In addition, Papapolitis, said, “we have created a new framework for the acquisition, servicing, and management of non-performing loans.” All of this is “towards the positive,” he said, “for the first time in a long time.”

Also, he said, the ECB has announced that Greek banks have received a waiver, resulting in almost a half billion euros of increased liquidity for the banks. And now there are discussions to have Greece – if the country successfully completes the Troika’s second review in October 2016 – to also be included in the ECB program of quantitative easing.

Papapolitis is unquestionably enthusiastic about the changes, but he warns that the effects of the Brexit on the Greek economy are difficult to predict, leading to yet another period of uncertainty.

Business for law firms is “definitely” picking up as a result of interest from foreign credit institutions and financial investors purchasing assets from banks, and M&As are slowly picking up as well, with his own firm preparing to announce its involvement in a major M&A in the next few weeks. Papapolitis explains that the large firms suffered a great deal from the recent years of crisis, and some laid off of people as well, and while that process seems to have concluded, he’s not seeing any rebound in headcounts just yet. In addition, he sighed, the government has recently instituted a new pension scheme for “freelance professionals” (which includes lawyers, doctors, and engineers), increasing insurance payments made through the public pension fund five times.

Hungary (July 19)

Competition for Quality, Not Fees

A change in the way law firms compete in the Hungarian market was highlighted by Eszter Kamocsay-Berta, Managing Partner of KCG Partners, who explained that while law firms have tended to compete on fees in an otherwise saturated market over the last few years, there is now a trend of “moving beyond price competition.”

Kamocsay-Berta argued that, instead, it is now a competition of quality, with clients “expecting and appreciating value added, cutting-edge knowledge, and smart and tangible solutions with clients finding it critical for law firms to understand their perspective.”

Another trend in Hungary Kamocsay-Berta identified was that of small- and mid-sized firms looking to join or build their own law firm networks in CEE: “We don’t really expect to see more international firms expanding into the country, but we do see more and more of these international alliances shaping up. The latest example of that is the that of the former Kinstellar team announcing it co-founded a new regional network.” This focus on building a regional alliance is, in part at least, responsible for another direction of the evolution of law firms in the country, according to Kamocsay-Berta: “In a world where building these kinds of regional cross-border alliances is becoming a priority, it is of enormous importance for law firms in Hungary to focus on enhancing their exposure and visibility in the market. This has led to increased attention being dedicated to law firm marketing and communications, and we see that the legal services market is slowly evolving towards opening up and communicating more.” 

This acknowledgment that law firms are competing with one another for business, Kamocsay-Berta observed, may also be what’s behind the increased buzz in the market about the possibility of a new act on the legal profession. The KCG Partner said the final form of this update – if, indeed, it comes to pass – is not yet known, but she hopes that it will further this evolution towards a fully functioning and commercial market. 

Turning to the legislative front, Kamocsay-Berta spoke of a general tendency towards modernization and innovation. She pointed to Hungary’s newly enacted public procurement law, new civil code, and ongoing reform in the civil procedure as examples of this. The last of these, she said, were the updates enacted “in order to restore trust in the financial markets.” Following a scandal involving brokerage firms that led to several high-profile criminal cases, the new updates include elements such as an increased liability and personal liability of the main officers or supervisory board members of financial services providers.

Kosovo (July 13)

Reason for Hope in Kosovo

Law firm business is decent in Kosovo, according to Visar Ramaj, the Managing Partner of Ramaj & Palushi, but it’s currently dominated mainly by simple transactional/commercial work with local companies making business connections primarily in trade (distributorship agreements, etc.). There are also a growing number of disputes – the result of increasingly active tax administration and regulatory agencies.

But Ramaj believes business should pick up substantially in the next few years, thanks to an ever-improving legal framework, projected economic growth, and a series of major development projects expected to affect the country’s major industry and infrastructure.

Kosovo is known for being a “dynamic legal market,” Ramaj reported, explaining that the country’s legal framework changed frequently in the 17 years since the Kosovo War concluded. This resulted in an improved legal environment for business and a resulting increase in the need for legal services. As evidence, he pointed to three major legislative changes in recent years. The first, he said, was the Law on Obligations enacted in 2012/2013 which made Kosovo a stronger and more appealing business environment, especially in the area of Contract law. The second development of significance was the “complete change in the tax regime” that took place in the second half of 2015, including a new Law on Value Added Tax, Corporate Income Tax, Personal Income Tax. Finally, Ramaj said, the country’s Law on Public Procurement came into force earlier this year, digitalizing and simplifying the relevant procurement procedures while also guaranteeing that foreign and local investors would be treated the same in tenders. Ramaj described the three changes as “positive … with impact on the legal industry,” though he conceded that the country was still in a “period of uncertainty,” waiting for a formal practice to be established under the new laws.

Ramaj also drew attention to the new EU-funded Code of Civil Law, which has been in the drafting process for almost two years and which is expected to unify the current patchwork system, with various laws drafted by American and EU experts under different grant programs. No public draft has been released yet, so it’s difficult to predict the eventual success of the project, but he’s hopeful.

Ramaj then turned the conversation to current major projects that bring with them the potential for significant work for lawyers in the country, but he started with a disappointment: the recent failure of the Brezovica privatization – one of the very first PPP projects contemplated in the country – for a ski resort widely regarded as the best in the Balkans. The tendering process lasted some two years, but it failed because the French investors failed to provide guarantees for the first stage of the investment (approximately EUR 164 million), sending the entire project back to square one. Ramaj noted that another major project, the apparently-successful privatization of the Kosovo Post & Telecommunications services, had also failed for several reasons, including a breakdown of the political process in Parliament, turning the effort into what Ramaj described as “a major failure to the country.” The resulting dispute is now before ICSID arbitration panel.

Still, Ramaj emphasized, there are a number of encouraging projects in process. First he referred to the creation of a new coal-based power plant (sponsored by the World Bank, the Kosovo Government, and Contour Global). An MOU was signed and the contract should be signed soon, Ramaj said, noting that the project will inevitably create a need for legal expertise.

Ramaj also referred to the disposal of the Trepca mining complex. Kosovo is widely considered one of the richest countries in terms of minable resources, Ramaj reported, including coal, lead, and other minerals. The Government has initiated a feasibility study to see whether Trepca requires reorganization or liquidation and to review possibilities for infusions of private capital to revitalize the mining industry. The results of the study, Ramaj claimed, will be important for the development of the country and will provide a lot of work for lawyers.

Finally, Ramaj said, the country is exploring the development of its railway system following a EUR 50 million grant from the EU and a EUR 50 million loan from the EBRD. The law accepting the loan was passed in February. This project as well will involve many local companies and various transactions with local enterprises, requiring more local legal expertise.

In light of these major projects planned for Kosovo, the Government has drafted a Law on Strategic Development which would allow it to negotiate directly with investors rather than following the strictures of the Public Procurement Law. This has raised many concerns and caused some controversy, Ramaj reports, but he notes that the “Government is pushing hard,” for the Law, which would also provide tax breaks and subsidies for major investors.

“The current level of development in Kosovo is very low,” Ramaj concedes. But with more investment expected soon and projected economic growth leading to increased activity in local business, he’s expecting “an increased need for legal services.” As a result, he says, “the legal industry is optimistic about the future.”

Latvia (July 6)

The Solidarity Tax Under Fire

The most controversial legislative development in Latvia in recent months, according to Klavins Ellex Managing Partner Filips Klavins, is the so-called “Solidarity Tax” that went into effect in January 2016.

The tax applies to individuals with the highest incomes in the country – estimated as affecting only those with incomes in the top 0.5%. Many people are complaining it’s unjust, Klavins reports, as it represents an unreasonable reach into the pockets of those who, acting honestly, are already paying the most tax, instead of those who have, by participating in the so-called shadow economy, avoided paying tax altogether. A challenge to the tax was just filed in the Constitutional Court last week, Klavins reports. 

The Solidarity Tax is not creating much billables for lawyers in the market yet, though Klavins reports that executives of clients “are raising questions about it.” Attorneys are paying close attention to and discussing the issue, as in Latvia, “by quirk of law,” they are considered sole proprietorships and self-employed. As a result it’s not clear yet whether they will be affected by the new tax or not. 

Another “hot topic,” according to Klavins, is the recent legislative proposal to expand the rights of notaries by requiring all Real Estate conveyances to be performed under the Notarial Act, based in part under the assumption that notaries would be able to evaluate the pricing of transactions to ensure they’re not set artificially low to avoid accompanying taxes. Klavins described the notary association in Latvia as being well-organized and good at lobbying, but said the proposal “just didn’t make sense,” especially for more complicated transactions with multiple moving parts. Although the debate over it was heated for the first six months of the year, the proposal is fading now, Klavins believes. 

In general, business is good in Latvia, following several years of 4% growth. The Brexit has put everything on hold for a couple of weeks while people try to evaluate its consequences, but he expects things to pick back up soon. M&A is not as strong this year as it was last year, but finance work and regulatory work are up. The process for Latvia’s May 2016 accession to the Organization of Economic Cooperation and Development has resulted in the levying of fines against some Latvian banks which hadn’t been paying full attention to their AML obligations, providing a source of work for banking lawyers in the country. Real Estate is strong as well, with shopping malls and construction developments underway. “Things are good,” Klavins reports, while also pointing out that his firm’s dispute resolution team is active, with cross-border work both in the form of arbitrations and in Latvian enforcement of foreign judgments keeping them busy.

As for the Latvian legal market itself, Klavins believes more consolidation is likely later this year, from smaller firms joining forces to increase their ability to compete with the major players. It’s time-consuming to grow organically in the country, Klavins reports, and there’s not that much lateral movement, so significant expansion is likely to come in the form of mergers and consolidation.

Macedonia (June 28)

Courts on Strike 

“Let’s start with the bad,” said Valentin Pepeljugoski, the Managing Partner of the Pepeljugoski Law Firm in Macedonia, who reported that the strike of Skopje court administration employees that began at the end of May was “not good for bar members.”

The strike, which started when administration employees were not included in the recent 35% salary increase received by judges, public prosecutors, and officials in the public prosecutor’s offices, is, according to Pepeljugoski, “really bad for the rule of law, for clients, etc.” He concedes, however, that the salaries of court administration “are really very low” – he called them “beneath human dignity” – and he emphasized that, “if you ask me I fully approve of the administration.” Matters considered “urgent” which can’t easily be postponed – including requests for injunctions, bankruptcies, and IP matters – are being heard, but the solo practitioners and smaller law offices that focus their practices heavily on litigation are being really hurt by the delay in most matters. Business law firms like his, Pepeljugoski says, are better able to weather the storm.

Otherwise, business in Macedonia is as good as it can be under the circumstances, Pepeljugoski says, “although the political situation is not so good.” He refers especially to the energy sector as strong, as the country’s Competition Authority has begun a process of reviewing agreements in the sector very carefully, providing substantial work for lawyers. The Macedonian energy market is not a “free market,” according to Pepeljugoski, with only state-owned enterprises able to purchase energy from suppliers, who are often badly positioned to sue because of badly drafted agreements. He also notes that the banking sector is strong.

He also refers to an ongoing fight for market share among two trash collecting companies, which spills over regularly into the courts.

Turning to the legal market in Macedonia, Pepeljugoski points out that there are no “big international firms” in the market, as “our law does not allow foreign lawyers to set up classic law firms here as founders,” although he notes that several regional law firms specializing in the former Yugoslavia have “consultant” offices in Skopje. The market is fairly stable, and a few local firms have sprung up recently, started by two or three young lawyers, but in his opinion the traditional firms still dominate the market.

Finally, Pepeljugoski noted, a new Civil Code is in the works and expected to be enacted sometime next year. “For me it is not necessary,” he sighed, “because we already have the law.” He said the decision to create a new Civil Code in the country is following “a trend in CEE,” and said, “for me, it’s not a positive one.” He sighed. “It creates problems when you’re always amending, always revising.” 

Poland (July 26)

Political Turmoil Possibly Overestimated 

There’s still a lot of discussion about the political climate and political upheaval in Poland, according to Wladek Rzycki, Partner at K&L Gates in Warsaw, but concerns about the change in government haven’t yet had any noticeable affect on the legal industry itself, he says, emphasizing that, “I hope they won’t.”

Instead, it’s business as normal, Rzycki reports, with firms in the market “fairly busy.” Corporate transactions are still going on, and foreign investors remain interested in Poland. Real Estate seems a little down at the moment, he concedes, especially in the office development and construction sector, but he also notes that so much office space was built in the country in the last couple of years that people may simply be taking a breath to adjust. And while Private Equity may be a bit down at the moment, as foreign funds may be a bit cautious about the short-term effect of the 2015 elections (which saw control of the government shift to the right wing Law & Justice party), strategic and institutional investors “are still doing stuff, looking [at] things from a long-term perspective.”

Taking a step back, the Krakowian Rzycki noted that Warsaw has become a “very nice place to live” in recent years, noting that while it used to be “quite ugly,” it’s now “really improved, the standard of living is better, and it’s much easier to post people here.”

Turning to the legislative front, Rzycki referred to recent changes to tax laws, particularly relating to tax restructuring – which might, he said, impact transactional work – as well as changes to the Polish Public Procurement law designed to make infrastructure projects easier (though he’s not convinced). 

He also referred to last winter’s crisis involving disputed appointments to Poland’s Constitutional Tribunal, which remains a major point of discussion, although he noted that the controversy “hasn’t really translated into effects yet on corporate lawyers.”

Turning finally to the legal marketplace itself, Rzycki referred to persistent rumors about the smaller and weaker international firms being under increased pressure, noting that Chadbourne’s recent departure may be related to that pressure. “The trend is,” he said, “you need to be bigger to survive.” He described the process as “a sign of a developing legal market,” but also said that “this is a market in transition – there’s lots of disruption in the marketplace.”

Serbia (August 12)

Controversial Announcement by Serbian Bar 

On August 1, 2016, the Belgrade Bar Association published a letter on its website signed by President Slobodan Soskic, asserting that Dragan Karanovic, Senior Partner of Karanovic & Nikolic, had been removed from the Bar’s table of registered lawyers.

According to the letter, Karanovic was expelled based on Article 83 1/9 of Serbia’s Law on Advocacy because he was enrolled as of March 7, 2016, in the court register of the Municipality of Sarajevo. CEE Legal Matters reached out to both Karanovic and Soskic for comment. 

Karanovic, not surprisingly, contested the Belgrade Bar’s decision, which he attributed to the Bar’s “abusing a vague regulatory provision.” He explained that the only statement by the Bar that had merit was “the trivial fact” that he had been a Director of a Bosnian company for 20 days in March this year. He claimed that he is “still in all formal and practical respects a member of the Bar” and said he was never expelled. Karanovic declared that the decision of the Belgrade Bar “is only one illegal step in the illegal process, a process that we expect will not be carried through.” He said that the Bar, ultimately, is “an illegally-formed body, given that the representatives that present themselves as the Board are not elected in a legal manner that passed a decision in a process without due process which is, in its merits, illegal.” Karanovic reported that he would be taking steps to remedy the situation: “We will file an appeal with the Serbian Bar Association and expect the decision to be annulled in a short period.”

In terms of the statements published on the Bar Association’s website, Karanovic said: “I realize that there are some letters on the site of the Bar but we will take steps to find remedies to address this abuse and we expect support from regional and European Bar Associations” – support that he argued would arise out of his and his firm’s “over 20 years of practice where I think we confirmed the highest standards and a stance on moral integrity.” He also noted that he has “already received a lot of support from other law firms and lawyers, in particular young lawyers who see this as a signal for concern for professionals in the field.” Karanovic concluded, “I am not personally targeted as much as I think this is more about what we stand for.” 

“Looking at the bigger picture,” Karanovic said, “there are ongoing disputes between the boards of the Serbian Bar and the Belgrade Bar, which saw long campaigns carried out by the Belgrade Bar trying to impede the progress of the legal practice.” “They simply do not recognize that the nature of firms has evolved and there are commercial lawyers in the market now as well who are just as much legal professionals as, say, criminal lawyers.” He also noted that this move by the Belgrade Bar might be part of a pre-election campaign, as elections are due to take place this autumn. 

In terms of what he expects after things settle down, Karanovic said: “We will invest more of our time and effort to engage into changes of the regulations so that they support the highest standards of integrity – which I do not feel is the current situation of the Belgrade Bar. We hope the elections will be a starting point in that direction, and we certainly want to talk to all those involved in the legal profession to organize our profession in a way that gives all of us a way of working in the market.”

Soskic did not respond to repeated attempts by CEE Legal Matters to reach him for comment.

Slovenia (August 18)

Slow and Steady Wins the Race 

This is a stable and steady time for lawyers in Slovenia, according to ODI Law Managing Partner Uros Ilic, who says that the consistent growth of the past few years – he reports 12 straight quarters of growth in the country – shows no sign of abating. Indeed, Ilic reports, although lawyers and clients alike are taking holidays in August, July was “extremely busy” in Slovenia.

NPL transactions – both single and portfolio deals – remain a primary concern in the country, with the highly-publicized IPO of NLB temporarily on hold as a result of the Brexit. Ilic explains that it had been contemplated that the newly-privaticized bank would be dual listed on the London Stock Exchange but that the Brexit puts that in doubt, so everyone’s taking a step back to consider. The privatization is expected to go forward in September, but Ilic shrugs: “Who knows?”

When asked if the Brexit was affecting Slovenia in other ways, Ilic dismissed the idea. “To be honest, if the expected listing on the LSE wasn’t involved in the NLB privatization, there would be no major effect on Slovenia at all.”

Otherwise, the banking sector remains in a consolidation phase, and the RE market is “finally awakening,” particularly in the hotel sector, as Ilic notes that the Hotel InterContinental in Ljubljana currently under construction is adding a new floor every week. 

In Slovenia, as in the rest of the former Yugoslavia, the courts take a month off from mid-July to mid-August (except for urgent matters), and the judges returned to work on August 16, meaning the litigators in the country are now ramping up as well. 

Finally, Ilic says that there are no significant changes to the Slovenian legal market. Fee pressure remains extremely high, Ilic notes, pointing out that fees were not really discussed for several years after the crisis hit and suggesting that the downwards pressure on them, which continues now several years after the crisis has abated, is therefore perhaps not surprising. 

In short, Ilic says, “people are busy, and things are going well – everything is quite stable.”

Slovakia (July 4)

Significant Changes to Slovakian Codes 

According to Jan Azud, Partner at Ruzicka Csekes s.r.o. in association with members of CMS, the new Slovakian government still hasn’t completely settled in following the March 2016 elections, and with summer and the EU Presidency here, Azud says, “everything has stalled a bit.”

The Slovakian legal market deals with commoditization and insourcing like the rest of the region, Azud reports. There are few changes of significance among the leading firms in recent years, nor any real spin-offs of significance, and Azud doesn’t expect the list of international firms in the country to expand anytime soon. One persistent characteristic of the Slovakian law firm market is that it’s highly competitive, and the long-term trend is seeing fees decrease. There’s an increased awareness of the need for value-added services and special products at law firms, Azud reports, as well as the need to invest in law firm marketing, and lawyers increasingly have to be ready to compete aggressively to “get the work you need and to get interesting work.”

Last year was good in terms of the amount of work for the bigger law firms, Azud says, though it’s still difficult to tell whether this year will be successful or not. The trend is positive, and the economy is growing, but Azud reports that “Slovakian business is, to a significant extent, driven by public spending, so the government situation needs to get settled.” He’s optimistic, though, that things will start moving more effectively soon.

Turning to recent legislation, Azud says that Slovakia has expanded its current Civil Procedure Code into three parts, which became effective in July. He described this as a “complete reform of civil procedure” and expects it to have a “significant effect on the legal market” – although, at this point, it’s difficult to predict exactly what form that effect will take. Modernizing the Code “should be a good step forward,” Azud explains, but ultimately “we’ll have to wait to see the actual consequences of its application.”

On July 1 Slovakia began enforcing criminal liability of legal entities as well, bringing the law closer to EU and American standards; previously, only natural persons or individuals could be found guilty of crimes. Azud expects this to increase work for lawyers as well, at least to some extent, helping companies with preparations and compliance, not to mention with formal investigations or prosecutions.

Finally, Azud says, the country enacted a new Public Procurement Law which became effective on April 18th of this year, transposing EU directives on public procurement. Reiterating his point about the significance of public spending to the Slovakian economy, Azud reports that, while the actual effect of the law remains to be seen, it is “definitely an important piece of legislation.”

Turkey (August 3)

The Coup’s Consequences 

Eren Kursun, Partner and head of M&A and PE practices at Esin Attorney Partnership, the Turkish member firm of Baker & McKenzie International, concedes that the second half of 2015 and 2016 has been slower for many law firms in Turkey, primarily because of the political environment, but he also emphasizes that the year has been “so far, so good for us.”

When asked about the effect on business of the failed July 15 coup d’état in Turkey, Kursun says: “It’s complicated.” He describes the event as “like a nightmare” and says “during the first few days, to be honest, nobody – including myself – was thinking much about business. We cared first about more fundamental issues.” Still, he emphasizes that business has not suffered as much as many expected. Only one of Esin’s M&A deals was put on hold – and that was at a very early stage to begin with – and Kursun reports that the firm continues to work on IPOs and many other projects. He does not expect to see any real exodus of investors as a result. “Turkey remains open for business and an attractive market for both financial and strategic investors.”

Indeed, Kursun reports, the removal of those in positions of authority associated with Fethullah Gulen, the exiled Turkish cleric accused by the Turkish government of masterminding the coup attempt, “is quickly moving past any sense of crisis.” He continued: “There is of course some political uncertainty, like in many countries, but it’s nothing like as bad as has been reported internationally.” In fact, he says, “many people are seeing the government’s actions as necessary to safeguard the country’s long term future and prosperity.”

Kursun claims that “almost everyone was against the attempt to remove a democratically elected government by force, regardless of individual political views,” and he says the attempted coup has in many respects brought the Turkish people together. The fact that even many Turks who do not necessarily support the AKP did not view the attempted coup as an opportunity to get rid of the government played a uniting role for the people, Kursun reports, which he says “has created conditions for a somewhat peaceful environment.” He also praised the government for its efforts to keep financial markets as stable as possible in extremely difficult circumstances – pointing out that the XU100 is up 7% this year at the time of writing. Clients are now in a wait-and-see mode – a familiar situation across much of Europe, he points out, referring both to the United Kingdom after the Brexit vote, and Spain after its recent elections. “I don’t want to be too optimistic,” he says, “but I think things will bounce back in a couple of months. And, as I said, even now very few deals have actually been canceled; things are just moving a bit more slowly. We have received several RFPs and engagements since the failed coup.”

Finally, the subject turns to the legal market itself. When asked whether the recent police shut-down of YukselKarkin (reported on the CEE Legal Matters website on July 25, 2016) is of concern for the legal market, Kursun says no, describing it as an isolated event, and “not reflective of anything against the legal market.” Kursun points out that ten years ago White & Case, where he himself spent nine years, was pretty much the only international firm of significance in the market, and faced little competition. “But now all the biggest international firms are here: Baker & McKenzie, Allen & Overy, Clifford Chance, and so on. Meanwhile Turkish firms have become more sophisticated.” In part as a result, he says, fee pressure has grown due to tough competition. “The market is ever more competitive. That’s a challenge, but we take a long- term view. You will always find someone buying work by offering big discounts. But that’s not sustainable. Clients want and need quality advice, especially in uncertain times. Just because something’s cheap doesn’t mean that it’s good value. Clients increasingly recognize this important difference.”

Thank you!

We thank the following for sharing their opinions and analysis on the news:

  • Alexander Petsche, Managing Partner of Baker & McKenzie 
  • Kiryl Apanasevich, Managing Partner at Sorainen
  • Zdenek Tomicek, Partner at CEE Attorneys
  • Toomas Prangli, Managing Partner at Sorainen
  • Nicholas Papapolitis, Managing Partner of Papapolitis & Papapolitis 
  • Eszter Kamocsay-Berta, Managing Partner of KCG Partners Law Firm
  • Visar Ramaj, Managing Partner of Ramaj & Palushi
  • Filips Klavins, Managing Partner of Klavins Ellex
  • Valentin Pepeljugoski, Managing Partner of Pepeljugoski Law Firm
  • Wladek Rzycki, Partner at K&L Gates
  • Dragan Karanovic, Senior Partner at Karanovic & Nikolic
  • Uros Ilic, Managing Partner of ODI Law
  • Jan Azud, Partner at Ruzicka Csekes in association with CMS
  • Eren Kursun, Partner at Esin Attorney Partnership Turkish member firm of Baker & McKenzie International

This Article was originally published in Issue 3.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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