It is impossible to detach a business industry from the effects of a full scale military invasion by the Russian Federation of February 24, 2022.
It would be difficult to argue that the transport industry suffered the most severe shocks, but perhaps the trade industry takes first place as it was also seriously challenged since it critically depends on the ability to deliver goods quickly and cost-effectively to any necessary point both within the country and abroad.
There are several objective factors related to hostilities having a detrimental effect on the Ukrainian transport market; however, if we single out the sea transportation industry, the most significant factor would be the blockade of Ukrainian seaports. The business has faced problematic situations and commercial disputes – consequences of the war and blockades of seaports. Such disputes include, in particular, cancellations of export contracts on supply of goods, the carriage whereof critically depends on maritime transport (they include, inter alia, grain cargoes). Cancellations of maritime transportation contracts (i.e. charter parties) are also widespread due to the fact that their terms are simply impossible to fulfill since many vessels were blocked in the seaport water areas
For several months of war and before signing the so- called Grain Agreement, which made it possible to partially unblock vessels staying in Ukraine, we repeatedly studied the above situations.
Business entities (parties of trade contracts, shipowners and charterers) engaged lawyers in order to find the ways aimed at resolving the situation and defense of their interests.
Let us study some typical maritime and trade issues processed by the Interlegal team for the past few months from the outbreak of a full-scale invasion.
Despite blockade of the Ukrainian seaports, not all operational processes were completely stopped.
In ports that did not feel the impact of hostilities so much, loading and discharging operations continued. One of our Clients (a seller under the contract on FOB terms) shipped cargo on board a sea-going vessel after the outbreak of a full-scale war.
As we know, the basis for goods delivery on FOB terms assumes that the seller’s responsibility/risks and obligations shall terminate after the cargo is shipped on board of the vessel.
Having shipped the cargo, the Client quite rightly expected to receive a document confirming shipment, i.e. Bill of Lading, one of the principal documents against which the buyer should pay for the goods.
Despite the fact that the loading was carried out properly, the vessel master rejected to issue a Bill of Lading. The difficulty was that the Client had no direct contacts with the shipowner, since FOB terms imply that the buyer is engaged in vessel chartering.
The reason for rejection to issue Bill of Lading is quite obvious: due to blockade of the seaport, the vessel could not leave the port; therefore, the carrier could not guarantee the voyage completion. As shown by analysis carried out by our experts in this particular case, even blockade of seaports shall not exempt the shipowner from issuing Bill of Lading as the principal document confirming loading the cargo on board the vessel. Such rejection is illegal, both from a legal aspect and from the aspect of fixed merchant shipping traditions.
With regards to the shipowner’s obligation to issue a Bill of Lading, one of the possible legal instruments for the Client or any other cargo owner in a similar situation may be filing a claim to the court binding the shipowner to issue a Bill of Lading.
To retain someone’s property in order to receive your own
In the next situation, the circumstances turned out to be even more complicated. There was also an international delivery of cargo on FOB terms, where our Client acted as seller of the goods.
However, in this case, the buyer, despite the fact of loading the cargo on board of the vessel and issuing all the necessary consignment documents, failed to make proper payment in favor of the Client; therefore, title on the cargo was not actually transferred to the buyer.
Moreover, the buyer failed to pay for services of the sea carrier with whom he entered into Charter Party.
The client (supplier of the goods) feared that the sea carrier would use the right of lien on cargo in order to secure payment for its services.
Lien on cargo is a common tool in shipping that allows the carrier to retain cargo if the carrier’s rights are violated.
However, there are some specifications and limitations that should be taken into account when using lien on cargo. In particular, lien on cargo will depend both on the port in which the goods are retained (either port of loading or port of discharge) and on the applicable jurisdiction.
Having studied the situation from the aspect of national (Ukrainian) and international law, Interlegal experts stated that there are no grounds for legal lien on cargo by the shipowner.
After the outbreak of full-scale war in Ukraine, cases of criminal prosecution of individuals under accusations of direct or indirect financing or other forms of support for the aggressor state have significantly increased.
Such criminal offenses are actively investigated and sometimes may directly affect the trade and transport industry. For example, a Client faced a situation where its cargo was blocked on board a vessel arrested in the framework of criminal proceedings.
Despite the fact that the Client was not a party to the criminal proceedings, and while the cargo was not seized, in practice it is extremely difficult to secure discharge of the goods from a vessel under criminal arrest.
Resolution of the situation requires for comprehensive support of the case by the cargo owner’s lawyers. It is necessary to communicate in parallel with the court that imposed the arrest, with pre-trial investigation bodies as well as with port authorities which directly authorize any work at the seaport territory.
When deciding which legal instrument can be applied to effectively protect your interests in the cases described above, our readers are probably interested in position of the Ukrainian courts.
In particular, the possibility of applying to the Ukrainian court and effectiveness of such an instrument, given that both contracts on carriage of goods (charter parties) and contracts on supply of goods are governed by English law.
Please note that the Ukrainian courts specialized in resolving commercial disputes are aware of essence and significance of international contracts on supply of goods, as well as the fact that most of the international contracts on supply of agricultural products from Ukraine are governed by English law and are drawn up on the basis of proformas recommended by GAFTA & FOSFA.
Therefore, when the supplier and the consignor of goods apply to the Ukrainian court with a claim to the carrier to issue a bill of lading, the Ukrainian court should understand exactly how the rights of the consignor are violated, and why issuing a bill of lading is an important condition for receiving payment for the goods.
As for the practice of resolving such disputes in Ukraine, it is not so extensive, and this is quite understandable. The practice is based on market demands.
In the ordinary course of events, the carrier is interested in voyage performance as soon as possible. Accordingly, procedure for issuing a bill of lading cannot cause resistance, and the interests of the consignor and the carrier in this area will completely coincide.
The situation is quite different when the carrier is unable to leave the port and to perform the voyage due to blocking seaports.
After analyzing both legal grounds and prospects for applying to the Ukrainian court with such a claim, we believe that the applicant has every reason to expect a positive outcome of the case proceedings. At the same time, in all these cases, the Client’s goals were achieved through negotiations.
As we can see, the problems caused by war are not always directly related to hostilities and are not always expressed in destruction of infrastructure facilities or loss of control over certain territories. Sometimes the impact is more indirect, but no less significant for business representatives who may suddenly face a situation that promises significant property losses.
Non-standard circumstances provoke emergence of non-standard disputes that require a special approach to their settlement. Not all problematic situations, as described above, require applying directly to the court or international arbitration. However, a competent legal position allows Clients to predict risks, to refrain from making unfavorable decisions, and to determine the most optimal course of action.
The Interlegal law team is ready to protect your interests by means of the most flexible methods aimed at resolving the conflict as quickly as possible and minimizing your costs.
Blockade of the Ukrainian Seaports: Problems Faced by Shipping and Trade by Karyna Gorovaya, Interlegal Law Firm (Ukraine) https://shiparrested.com/wp-content/uploads/2023/04/TheArrestNews40.pdf