Date of publication: 23 January 2025
Sergey Nedelko, Attorney at Law, Counsel, Head of Odesa Office
Source: Center for Transport Strategies
For many years, the combination of words ports, environmentalists, detentions, and arrests of sea vessels was commonly associated with Ukrainian port workers, shipowners, and maritime lawyers – unfortunately, in a negative way. However, in late 2019 and early 2020, the newly appointed leadership of the State Environmental Inspectorate of Ukraine initiated a series of regulatory changes aimed at addressing long-standing issues in environmental control procedures at ports. These reforms sought to fill legislative gaps, reduce pressure on the industry, and, in some cases, eliminate outright arbitrariness and extortion by unscrupulous officials – practices that had tarnished Ukraine’s reputation and hindered maritime activity at its ports.
As a result of legislative changes, the number of “environmental” cases has significantly decreased since the beginning of 2020. However, the State Environmental Inspectorate and law enforcement agencies seem eager to compensate for this reduction by seizing every opportunity to “enhance the quality of their oversight”. Using our case as an example, it is evident that the approach taken by civil servants was so “effective” that, after the vessel’s release, the shipowner decided to exclude all Ukrainian ports from the future plans of its fleet. Furthermore, the vessel’s insurer – one of the world’s largest P&I clubs (Protection and Indemnity Club) – expressed its intention to “recommend other club members (shipowners) refrain from sending vessels to Ukrainian ports”. Translated from English insurers’ diplomatic language, such a recommendation effectively bans all Club members from calling at Ukrainian ports. The only exception would be cases where the shipowner agrees to pay a special (and significantly increased) insurance premium for the vessel’s stay in the port. This additional financial burden not only diminishes the commercial attractiveness of such voyages but, in many cases, makes them entirely economically unviable.
In addition, a notice with similar recommendations was placed on the desks of the club’s top managers, addressed to the International Group of P&I Clubs. This organization unites 12 of the world’s largest insurance associations, collectively covering approximately 90% of global ocean tonnage.
The reason for such a strong reaction was the detention and arrest of a foreign vessel for nearly three months due to a palm oil spill during unloading at a Ukrainian port. Although all spilled oil was promptly collected from the port waters and the costs of clean-up and disposal were fully covered by the shipowner, the response from Ukrainian authorities was unprecedented. Globally, incidents involving minor spills of vegetable oil during cargo operations are relatively common and typically resolved without severe repercussions. Such occurrences even happen at specialized terminals in Ukraine. However, in our country, such incidents are treated as acts of ecocide, with all the accompanying legal consequences. As a result, the ship and its crew effectively become hostages in the hands of officials and law enforcement agencies. This rigid and punitive approach by government agencies has profoundly negative consequences for the shipping industry, especially during a full-scale war. At a time when the Ministry of Development (formerly the Ministry of Infrastructure) and the Armed Forces have worked (and are working) tirelessly to establish and safeguard the “Ukrainian Sea Corridor”, the state is actively urging shipowners worldwide to support the Ukrainian economy by using its ports.
This case of such magnitude allows us to identify and spotlight several systemic issues within the industry and draw critical conclusions. Conducting a thorough and effective post-event analysis is essential for our survival in a war of attrition. Below is a concise after-action review and key findings.
Conclusion 1: The State Environmental Inspectorate disregards Supreme Court rulings and issues decisions prohibiting vessels from leaving the port.
In 2020, in the context of administrative case No. 420/4129/19, the Supreme Court issued a clear and unequivocal decision. It stated that the State Environmental Inspectorate’s claims, combined with a shipowner’s refusal to pay voluntarily, cannot serve as a legal basis for prohibiting a vessel from leaving the port under Article 91 of the Merchant Shipping Code of Ukraine. However, despite the binding nature of the Supreme Court’s conclusions and common sense the State Environmental Inspectorate continues to disregard this precedent. In the absence of a clear regulatory procedure for issuing, cancelling, or suspending such decisions, the Inspectorate arbitrarily interprets the Merchant Shipping Code. It persists in issuing decisions that prevent port captains from granting vessels permission to depart “until the full amount of damages is paid”. Through such actions, this state body effectively bypasses the judiciary, undermining the institution of judicial arrest for maritime claims.
The Merchant Shipping Code of Ukraine (Articles 80, 81) clearly stipulates that the State Environmental Inspectorate has the right to request the port captain to detain a vessel for up to 72 hours in cases involving a maritime claim arising from violations of environmental legislation. This 72-hour period is designated by law to allow the claimant to file a case with the court to secure the maritime claim through an indefinite vessel arrest. Credit must be given to the captains of seaports and the specialists within the Shipping Administration, who, in most cases, correctly apply the provisions of the Merchant Shipping Code and distinguish between vessel detention and arrest. However, this principled approach is not always appreciated by certain maritime law experts, leading to pressure from both the Prosecutor’s Office and the State Environmental Inspectorate.
Conclusion 2: The State Environmental Inspectorate refuses to accept guarantee letters from mutual insurance clubs to secure maritime claims.
Despite established positive judicial precedents, international practices, and even the Inspectorate’s own prior practices in other cases, letters of guarantee from the world’s largest P&I clubs (Protection and Indemnity Clubs) to secure property claims against shipowners are categorically rejected by government agencies. The primary reasons for this refusal are the lack of clear legislative regulation and a fundamental misunderstanding of P&I clubs’ legal status and operational mechanisms.
For many years, the need to address this issue has been a topic of discussion among leading industry experts and maritime lawyers. In response, the Ministry of Development prepared and submitted draft law No. 11341 to the Verkhovna Rada, proposing amendments to the Merchant Shipping Code (MSC) of Ukraine. These amendments aim to formally recognize letters of guarantee from P&I clubs as sufficient security for maritime claims. They also serve as a legitimate basis for releasing vessels from arrest. Additionally, the draft law seeks to address and correct the misinterpretation of Article 91 of the MSC of Ukraine, as previously discussed. Despite its significance, the draft law has been stalled in the Committee on Transport and Infrastructure since June 2024. There is no clear timeline or prospects for its consideration and adoption. The proposed amendments also aim to eliminate the erroneous interpretation of Art. 91 of the MSC of Ukraine, which were discussed above.
Conclusion 3: Alternative forms of securing claims are neither effective nor efficient in practice.
The Commercial Procedure Code of Ukraine allows for the possibility of applying for interim relief under the initiative of a shipowner and releasing the vessel from arrest by depositing funds equivalent to the claim amount into the court’s deposit account or by providing a bank guarantee for the corresponding amount. Among these options, a guarantee from a Ukrainian bank is perhaps the only method accepted by government agencies to secure property claims under non-contractual (tort) obligations. However, this banking product is exceedingly rare and largely unfamiliar even to top European banks operating in Ukraine. Even when backed by a liquid counter-guarantee from the parent bank, the complex and bureaucratic internal approval processes significantly delay execution. Only a handful of banks in Ukraine have experience issuing bank guarantees for tort obligations. The majority lack both the experience and the inclination to engage in this area, often citing vague compliance policies as a justification. Even with full cooperation from bank specialists, the approval and issuance of a guarantee or counter-guarantee can take months. This protracted timeline results in substantial financial losses for shipowners, often reaching tens of thousands of U.S. dollars per day. This makes this process inefficient and economically burdensome.
Depositing funds equivalent to the claim amount into the court’s deposit account presents several significant challenges and technical obstacles for foreign shipowners. The primary issue is the absence of freely convertible currencies or multicurrency accounts within Ukrainian courts. This long-standing problem has been acknowledged by judges at various levels of economic courts, including the Supreme Court. When funds are deposited in Hryvnia, any subsequent return of the full or partial amount results in substantial financial losses for the shipowner. This is due to ongoing inflation and national currency devaluation. Additionally, during martial law, the National Bank of the Ukraine enforces strict restrictions on the transfer of foreign currency abroad.
In this context, regulatory recognition of letters of guarantee and obligations issued by P&I clubs becomes even more crucial. Such guarantees can be executed in just a few working days, offering a timely and efficient alternative. Moreover, most P&I clubs have well-established financial solvency and reliability beyond doubt.
Conclusion 4: Law enforcement agencies classify edible oil spills as large-scale environmental disasters.
Unfortunately, law enforcement agencies often open criminal cases, seemingly to apply additional pressure – in this case, to the shipowner. For example, an edible oil spill confined within a containment boom (~50 m²) surrounding a vessel is often classified by law enforcement under Article 243(2) of the Criminal Code of Ukraine. This article addresses “pollution of the sea with substances harmful to human life or health, resulting in death or illness of people, mass death of flora and fauna, or other serious consequences”, with penalties ranging from two to five years’ imprisonment and potential disqualification from certain positions or activities for up to three years.
The paradox is glaring: palm oil, a key component of the global food industry, is widely consumed by both humans and animals. Despite its relatively benign nature, the vessel involved is routinely examined for material evidence. Authorities seek court approval to arrest it for onboard investigative procedures. These investigations often last months. Experienced seafarers with decades of service find the Ukrainian port authorities’ approach to such incidents drastically different from global standards. They frequently express confusion over the allegations, especially given the absence of environmental harm to the marine ecosystem.
Conclusion 5: Officials misinterpret and misapply key international maritime conventions.
One of the most significant international treaties in marine environmental protection is the International Convention for the Prevention of Pollution from Ships, 1973, as amended in 1978 (MARPOL 73/78). This convention comprises six annexes, each addressing specific categories of pollutants discharged during vessel normal operations. These annexes form the core of the Convention, outlining technical requirements, parameters, and mandatory procedures for operational discharges. However, it is critical to note that MARPOL 73/78 does not govern shipowner liability for cargo leakage during transportation.
Although Ukraine acceded to the Convention in 1993, the country still lacks a consolidated official Ukrainian translation, including the six annexes. This raises serious concerns about how government agencies – such as the Ministry of Environment, the Ministry of Development, and the State Environmental Inspectorate – apply the Convention in their regulatory activities and when drafting industry legislation. In the case of the State Environmental Inspectorate, its reliance on a letter from a non-existent state enterprise – which contains selective excerpts from the Convention in Russian – is particularly alarming. This practice leads to fragmented understanding, misinterpretation of key provisions, and distortion of the Convention’s actual objectives, scope, and regulatory framework. As a result, officials substitute internationally recognized principles for their own flawed interpretations, undermining the intended purpose of MARPOL 73/78.
Conclusion 6: Wartime challenges – foreign ship crews often lack real protection during missile and drone attacks on ports.
We remember how, in the summer and autumn of 2024, the aggressor launched massive attacks on port infrastructure. However, not all ship crews have the realistic opportunity to shelter within port territories. The main issue is that most port shelters are in poor technical condition and located far from berths, particularly in state-owned terminals. Given that ballistic missiles from Crimea can reach Great Odesa ports in approximately three minutes, crew members often lack the time to safely disembark and reach shelter.
It is important to recall that, in the event of damage to or destruction of a vessel due to armed aggression by the Russian Federation while in Ukrainian waters, the state guarantees full compensation to charterers, operators, and/or owners of seagoing and inland navigation vessels in accordance with a special procedure. Under these circumstances, state authorities should prioritize expediting all necessary procedures for vessel operations and departures, aiming to minimize port stay durations and reduce associated risks. This issue is particularly critical in cases of vessel detention or arrest, where regulatory measures governing guarantee letters of obligation issued by P&I clubs become even more relevant.
Conclusion 7: Reputational losses and strategic thinking – secondary concerns?
The simplification of ship clearance procedures, the safety of vessels in ports, the mechanisms ensuring compliance by shipowners, the prompt release of detained vessels, and the policy of state authorities toward foreign ships all directly impact not only the maritime sector but also Ukraine’s global reputation and investment attractiveness. Rising port fees and bureaucratic inefficiencies drive up logistics costs for exporting Ukrainian products, ultimately reducing their competitiveness on international markets. As a result, Ukrainian manufacturers and the national economy suffer. Despite these critical implications, government representatives appear largely indifferent to Ukraine’s reputational damage. Instead, they prioritize fulfilling bureaucratic plans and achieving statistical targets – often at any cost.
