Blockade of the Ukrainian seaports: which problems shipping and trade faced

• Transport & Logistics
• Ports and Terminals
• International Trade

It is impossible to detach a business industry that was largely unaffected by full-scale military invasion of the russian federation on February 24, 2022.

However, it is difficult to argue that transport industry suffered perhaps the most severe shocks. Trade industry also challenged a serious strike since it critically depends on the ability to deliver goods quickly and cost-effectively to any necessary points both within the country and abroad.

There are several objective factors related to hostilities and having a detrimental effect on the Ukrainian transport market; however, if we single out sea transportation industry, the most significant factor will be blockade of the Ukrainian seaports.

The business has faced problematic situations and commercial disputes – consequences of the war and blockade of the 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, Interlegal lawyers 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 Interlegal team for the past few months from outbreak of a full-scale invasion.

Accepted, but not recognized! 

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 Interlegal Clients (a seller under the contract on FOB terms) shipped cargo on board of sea-going vessel after 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, vessel master rejected to issue 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 Interlegal 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 of the vessel. Such rejection is illegal, both from the legal aspect and from aspect of fixed merchant shipping traditions.

With regards to the shipowner’s obligation to issue 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 on binding the shipowner to issue Bill of Lading.

To retain someone’s property for receiving your own one

In the next situation, the circumstances turned out to be even more complicated: there was also international delivery of cargo on FOB terms, whereunder Interlegal 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 national (Ukrainian) and international law, Interlegal experts stated that there are no grounds for legal lien on cargo by the shipowner.

Arrest along for the ride 

After outbreak of a 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, Interlegal Client faced a situation where its cargo was blocked on board of the vessel arrested in the framework of criminal proceedings.

Despite the fact that the Client was not a party to criminal proceedings, while the cargo was not seized, in practice it is extremely difficult to secure discharge of the goods from a vessel being 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 arrest, with pretrial investigation bodies, as well as with port authorities which directly authorize any work at the seaport territory.

As we can see, the problems caused by the 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 for a special approach to their settlement. Not so many problematic situations, as described above, require for 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 for themselves.

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.

Karyna Gorovaya

gorovaya@interlegal.com.ua

Viacheslav Solodenko

Solodenko@interlegal.com.ua