Maritime law in Ukraine

• Shipping
• Litigation & arbitration

The brief review of maritime law

Ukraine is a maritime state on Black sea and Azov Sea coasts, which has its own fleet, shipbuilding and ship repair facilities, 18 sea ports and 11 river ports on two rivers, the Dnieper and the Danube, open for navigation. Ukraine is one of the world’s leading grain and sunflower oil exporters and generally is an important gate for import and export of commodities and goods. In times of the USSR the Black Sea Shipping company (BLASCO), set up in 1833 and based in Odessa, was one of the largest shipping companies in the world and the largest one in Europe. Although the deadweight of the fleet under the Ukrainian flag shrank by 6 times since then, a great number of shipping companies do business in Ukraine as operators, shipbrokers and charterers. Among major shipowners are “Ukrrichflot” and Ukrainian Danube shipping company.  Ukraine is also ranked as the 5^th supplier of seafarers to the world fleet market providing some 75000 officers and ratings.

Main features of maritime law

Commercial vessels, operated by companies incorporated in different jurisdictions daily cross the oceans and seas, under charterparties and bills of lading imposing duties and liabilities on all parties concerned. Vessels are built by hundreds of shipbuilding facilities and have to comply with a multitude of international, regional and national regulations in order to call safely at commercial ports. The purpose of the world’s commercial fleet, the main reason why vessels are built, registered, chartered and insured is not maritime at all. Vessels sail to carry goods bought on the market to be sold on another. The real purpose of the entire commercial shipping industry and its regulatory and contractual framework is to make international trade possible, safe and efficient.

When an international dispute comes out of a maritime contract or incident such as a collision or grounding, it is necessary to consider which law applies to the dispute; which tribunal has jurisdiction to resolve the dispute on merits; if there is any time bar or whether the claimant can obtain security for the claim. Maritime Law has several basic features which are reflected in everyday practice within this area.

One feature is its international nature which pleads for international uniformity in maritime law. This necessity has been satisfied internationally l by implementing   a number of international conventions or agreed rules like the Hague-Visby Rules which unifies certain rules of law relating to Bills of Lading or the York-Antwerp Rules fixing the grounds for general average assessment. In some jurisdictions and in Ukraine in particular the provisions of such conventions are implemented in the local laws such as Merchant Shipping Code or similar. The widespread use of standard form documents as the basis of most contracts of carriage (like GENCON, SIINACOMEX, NYPE or BPTIME3) also has the effect of unification. 

The second obvious feature of maritime law is that contracts for carriage of goods by sea fall to be performed in specific and often hazardous conditions in which it is practically impossible for one party to supervise over the other party’s work on a daily basis. This factor is the key instrument in development of the sea carrier’s general duties and legal grounds for them including the duty to provide a seaworthy ship and not to deviate from the route stipulated by the charter party as well as other carrier’s duties connected with the sea voyage. It also influences those parts of the maritime law dealing with the shipper’s duty to disclose the dangerous nature of goods shipped the master’s powers of jettison and other extraordinary powers conferred on the master of the vessel in the event of an emergency. 

The third notable feature which is affecting the nature and the practice of maritime law is that shipping regulated by such maritime law is directly dependent on other commercial activities. Contracts for the carriage of goods by sea are not made in commercial isolation. They are typically entered onto in order to sell goods or to give effect to a previous sale. This means that contracts for sea carriage often reflect direct interest of both, sellers or buyers, under the sales contract. Third parties may become involved in the carriage of goods in other ways. Even when a cargo remains in the ownership of single shipper throughout an ocean voyage it is quite possible that the whole or part of the contract (loading or discharging the cargo, for example) may actually be performed by someone other than the party who originally contracted to carry and deliver. This leads to complex questions about who can sue and who can be sued. In the absence of a contract provision dealing with the particular problem, the main role in such cases plays the governing law of a carriage contract which is English law for majority of sea carriage contract forms or local law as the law of the place of incident.

Use of standard forms of contracts

The use of standard forms is a great point of maritime law practice. This use   in itself constitutes an important feature of the overseas trade. Biggest part of the maritime law consists of settled interpretations of common clauses and agreements. Such interpretations are fixed in certain court decisions as it is usual for common law countries, or in particular law provisions together with different kinds of resolutions/recommendations/authorities’ orders in the countries with continental system of law like Ukraine.

The vast majority of standard contracts developed by international associations, in particular, BIMCO (Baltic and International Maritime Council), FOSFA (Federation of Oils, Seeds and Fats Associations) and GAFTA (Grain and Feed Trade Association), contain standard or default provisions on application of English law. So, under the circumstances, Ukrainian maritime law practitioners deal mainly with casualties and incidents, not with contracts. The Merchant Shipping Code of Ukraine of May 23, 1995 regulates all main questions in this respect such as collision, pollution or grounding. Ukraine signed and is a party  to many international conventions, e.g. the International Convention for the Prevention of Pollution From Ships, 1973 as modified by the Protocol of 1978 (MARPOL 73/78), the International Convention on Maritime Search and Rescue (SAR 1979), the International Regulations for Preventing Collisions at Sea  (COLREGs 1972), the International Convention on Maritime Liens and Mortgages (Geneva, of 6 May 1993), the International Convention Relating to the Arrest of Sea-Going Ships (Brussels, of 10 May 1952), etc. A number of conventions are not ratified but implemented into the text of the Merchant Shipping Code of Ukraine, e.g. the International Convention for the Unification of Certain Rules of Law relating to Bills of Lading ("Hague Rules”, Brussels, of 25 August 1924), the International Convention for the Unification of Certain Rules of Law With Respect to Collision Between Vessels (Brussels, of 23 September 1910), the International Convention on Salvage, 1989 (SALVAGE, London, 28 April 1989) etc.

Arbitration versus litigation in shipping

The most popular choice for maritime arbitration is London. The majority of standard form charterparties, international sale contracts, salvage contracts, reinsurance and P&I Club Rules provide for London arbitration and in particular arbitration at the LMAA (London Maritime Arbitrators’ Association). Many bills of lading incorporate the arbitration clause in the charterparty under which the bill is issued.

In Ukraine there is Maritime Arbitration Commission at the Ukrainian Chamber of Commerce and Industry, an independent permanent arbitration institution operating under the Act of Ukraine On International Commercial Arbitration of 24 February 1994, the Statute on the Maritime Arbitration Commission at the Ukrainian Chamber of Commerce and Industry (Annex No.2 to this Act) and the Rules, approved by the Decision of the Presidium of the Ukrainian Chamber of Commerce and Industry No.18(1) of 17 April 2007, as amended by the Decision of the Presidium of the Ukrainian Chamber of Commerce and Industry No.24(6) of 25 October 2012. This tribunal shall settle disputes arising out of contractual or other civil law relationships in the area of merchant shipping regardless of  whether participants of such relationships are  subjects of Ukrainian and foreign law or  exclusively of Ukrainian or  foreign. To tell the truth, the number of cases here is not significant and this forum mainly considers disputes with the engagement of state-owned companies.

Typically, maritime disputes are around:

• investigation of damage to transported goods and ensuing liability attached to the maritime carrier;
• damages to the ship caused by the nature of the carried goods;
• issues of lay days and demurrage including damages resulting from late entry to port or late access to the operative quay;
• damages suffered by the carrier as a result of force majeure;
• issues relating to non-execution of charter parties (for example, non-payment of the charter fee, late return of the vessel or early collection of the ship);
• sale, construction and ship repairs;
• matters relating to salvage at sea; and
• maritime insurance.

Maritime cases are very specific and are very complex. Many of them are connected with casualties. The accidental factor is very strong. Which vessel is guilty when a collision arises? Why is the cargo found wet? Is it because of unfit hatches? To make a right conclusion, one needs to have specific knowledge and expertise. That is why many in shipping favour arbitration over litigation. Arbitrators are more knowledgeable in maritime matters rather than judges which have limited exposure to shipping. They can decide cases based upon the law, their practical knowledge and commercial reasoning. Furthermore, judges may be forced under the doctrine to decide modern-day disputes based on antiquated case law. Arbitrators, however, are not bound by this doctrine and have broad latitude to use their commercial sense of fairness. Neither are arbitrators bound by strict court rules of evidence and procedure.

To be continued in Ukraine

All above are the reasons while despite a long maritime tradition Ukrainian maritime arbitration and court practice are of minor importance for maritime business. The serious drawback of the Ukrainian legislation in the maritime sphere is lack of the unified approach in questions related to maritime activity. The legislation of Ukraine consists of the Merchant Shipping Code, laws and subordinate acts that regulate some specific maritime relations. The legal framework in this respect is imperfect. Ukraine should refuse from regulating shipping by subordinate acts and base mainly on international conventions and traditions. There is a strong necessity to systemize legal norms regulating maritime activity. If positioning itself as a maritime state Ukraine  should follow global trends.

Arthur Nitsevych

nitsevych@interlegal.com.ua