Leave a request

Transport Monopolists, Ecologists and Sunken Property. What court cases will the industry be remembered for in 2021?

Date of publication: 30 December 2021

Sergey Nedelko, Attorney at Law, Head of Odesa Office
Mykola Skvortsov, Attorney at Law

Source: Ports of Ukraine

Most often, in Ukrainian business realities, you have to work not because of, but rather in spite of, based on the principle “A journey of thousand miles begins with a single step” or the words from Taras Shevchenko’s Kobzar “Battle on – and win your battle!”. Therefore, when negotiations reach a dead end, the most effective and sometimes the only way to fight for your rights is referring for the court protection. We bring to your attention a list of cases notable for the industry in 2021, including from our firm’s practice.

Tonnage dues collection features

This case is relevant for the operation of sea and river terminals, the geographical location of which implies the transit passage of vessels through Mykolaiv and Kherson seaports.

To protect the interests of the shipowner, we filed a claim against the Ukrainian Sea Ports Authority for the collection of tonnage dues in the amount of more than UAH 2 million paid by the client for ship passage through the ports during a number of years. In its decision, the first-instance court came to the conclusion that the transit passage through the water areas of Mykolaiv and Kherson ports within the vessel’s passage is not a basis for the charging and collecting tonnage dues. In addition, the court confirmed the conclusion regarding other cases – carrying out cargo operations in the port is a mandatory condition for the calculation of tonnage dues.

We expect that the decision will “stand” in the higher-instance courts and the Ukrainian Sea Ports Authority will follow their conclusions in the future. It is clear that the problem is pending, as evidenced by the recent statement of the Anti-Monopoly Committee of Ukraine on the initiation of an antimonopoly investigation into the double collection of tonnage dues during the transit passage of vessels through the water area of Mykolaiv port, initiated by the Nibulon Agricultural Limited Liability Company and marine agents.

“Ship-to-ship” services agreement, or wishful thinking

The Anti-Monopoly Committee of Ukraine is increasingly becoming a “battlefield” against the abuses of transport monopolists, and its decisions are used for subsequent litigation proceedings. As far as we know, in 2019 the Committee recognized as imposed the Ukrainian Sea Ports Authority service under the agreement on the provision of “ship-to-ship” service.

In October 2021, the Commercial Court of Appeal in the case under the claim of the Ukrainian company against Ukrainian Sea Ports Authority referred to the Committee’s decision and confirmed that the real subject of the agreement on the provision of “ship-to-ship” service is the granting of a permit to conduct loading and unloading operations, and not the provision of the service at all. The court declared the agreement invalid, having charged damages from Ukrainian Sea Ports Authority.

Who will pay for the demurrage of railway cars?

And once again, the focus is on the Mykolaiv port, which plays a special role in the industry in many aspects. Our client, the largest operator of the Mykolaiv port, which is part of the group of companies of the world’s leading agricultural trader, has actually become a hostage in the conflict between the Ukrainian Sea Ports Authority, Ukrzaliznytsia and the company to which the functions of operating railway siding at the Mykolaiv-Freight Railway Station were delegated. The conflict led to the temporary blocking of the railway tracks of the port, the accumulation of railway cars and entire train sets both at the port station and its the approaching ways.

The situation with the activity of such an intermediary on the territory of the port, which carries out the supply / collection of railway cars, is unique and exists only in Mykolaiv port. However, the problem of abandoned trains on approaching ways to port stations is well known to grain terminals and other ports.

As a result, Ukrzaliznytsia immediately filed as many as 14 claims against the client for a total amount of over UAH 17 million for the use of railway cars and storage of cargo in them. To date, there are no relevant court precedents in similar disputes, so court decisions under these claims will have preceding nature and will be indicative in terms of “state monopolist vs private investor” confrontation.

“In vino veritas”

To comprehensively protect the client’s interests, within the framework of the previous case, it was decided to initiate counter claims and appeal against acts of the general form GU-23, drawn up by Ukrzaliznytsia to confirm the delay time of the railway cars.

In this case, the court issued a decision acceptable to the client, making the key conclusion that when imposing fines for demurrage of railway cars, Ukrzaliznytsia is obliged to prove the guilt of the consignee (the owner of the railway siding, port, or enterprise). The decision was not appealed by the parties and will have pre-judicial effect when 14 claims of Ukrzaliznytsia will be considered.

Prohibition of vessel’s departure by the ecologists’ decision: to be, or not to be?

We continue to monitor interesting judicial precedents as to the cases related to the ban on the vessel leaving the port based on the decision of the State Environmental Inspectorate of Ukraine in case of a shipowner’s refusal to voluntarily satisfy the claim (according to Article 91(2)(d) of the Merchant Shipping Code of Ukraine).

In other publications for “Ports of Ukraine”, one of the authors stated that, by making such decisions, the State Environmental Inspectorate of Ukraine actually replaces a judicial body, which contradicts the concept laid down in the International Convention for the unification of certain rules relating to Arrest of Sea-going Ships (Brussels, 1952), as well as the Merchant Shipping Code of Ukraine. In the decision dated 19 October 2020 issued in case No. 420/4129/19, the Supreme Court concluded that the amount of damage caused by environmental pollution is not a fixed charge, fine, or other payment. Therefore, according to a comprehensive interpretation of Article 91 of the Merchant Shipping Code of Ukraine, the refusal to voluntary compensate for damages cannot be the grounds for a ban on departure.

In a similar case No. 420/11931/20 concerning the spill of palm oil in the Pivdennyi Seaport, the State Environmental Inspectorate of Ukraine filed a cassation appeal against the decision of the Court of Appeal. The Supreme Court initiated the proceedings, considering that the Supreme Court had not previously made conclusions on the application of Article 91 of the Merchant Shipping Code of Ukraine regarding the detention of the vessel by the State Environmental Inspectorate of Ukraine on the grounds provided for in part 2 of this article. We expect that the Supreme Court will consider this case and put an end to the issue of law enforcement as early as in 2022.

Transfer of ownership to sunken property

We have already stated about the precedent decision of the Commercial Court of the Odesa region in case No. 916/3815/20, which declared the ownership of the state over sunken Delfi tanker. This is the first case of its kind and therefore it is of great interest to maritime lawyers and industry experts.

The South-West Commercial Court of Appeal upheld the decision of the first instance court, emphasizing that due to the violation by the shipowner of the deadlines for raising the sunken property, the object passed into state ownership under Article 125 of the Merchant Shipping Code of Ukraine as a civil law act. The court also confirmed the correctness of the method of protection chosen by the state by filing a claim for recognition of ownership, which can be used by the owner only in three cases: appeal or non-recognition of ownership, as well as loss of an entitling document.

The shipowner is currently trying to appeal these decisions to the Supreme Court. If the cassation proceedings are initiated, the case will also be considered in 2022, and the conclusions of the Supreme Court will be of binding importance for the courts and will become a reference point for all interested parties.

Arrest and release of the vessel under the club’s guarantee

We continue to develop a positive practice in cases of sea vessels’ arrest, which is inevitably the most effective way to bring a mala fide shipowner to the negotiating table and obtain sufficient security for a maritime claim. This time we represented the interests of a Protection and Indemnity (P&I) club, which acted in favor of a charterer who was the victim of fraudulent actions by the shipowner, which caused damage in the amount of over USD 300,000.

It is good that, using this case as an example, in the process of considering applications for arrest, the courts shift away from their inherent formalism and begin to delve into the essence of legal relations, analyzing maritime practice and the customs of concluding charter agreements and signing other important documents. Almost always, this happens in the most simplified, fast and convenient way, without observing unnecessary formalities.

A few hours after the arrest, the shipowner and the charterer discussed the terms of the vessel’s release. Our client agreed to accept a Letter of Undertaking from one of the UK’s largest mutual insurance clubs, which was also approved by the court when issuing a decision to cancel the arrest. This is another step towards the recognition of “club” guarantees at the legislative level in Ukraine.

Ratification of the Maritime Labor Convention (MLC) 2006 is no longer necessary?

And finally, we could not ignore the interesting and controversial practice of general-jurisdiction courts regarding the application of the Maritime Labor Convention 2006. While the maritime community has been working on ratification of the Convention for several years, the courts have solved this problem with a “stroke of a pen”.

Ukraine neither ratified the Convention, nor objected to it, on the contrary, the document was signed by Ukraine in 2006. This is what motivated the decisions of the first- and appellate-instance courts and jurisdictions, which were also referring to the precedents of the European Court of Human Rights. It should be noted that such conclusions contradict the law on international treaties, and the Convention itself, the provisions of which are not expressly applicable.

Taking this opportunity, we hope for the earliest possible ratification of the Convention, which will not only have a positive impact on the image of the state and help Ukrainian sailors, but also simplify the work of our vessels.