Ship Arrests in Ukrainian Jurisdiction: Annual Review 2020

Ship arrest – one of the most effective tools to secure maritime claims in all jurisdictions. The arrest of a vessel always encourages the Shipowner to take measures to satisfy maritime claims to avoid additional financial losses. The Ukrainian jurisdiction is not an exception, and the arrest of the ship is one of the most powerful methods for reimbursement of bunker supply, ship repair, and charter party disputes, as well on contracts of carriage, disputes on ownership of the ship, insurance compensation and claims of the government authorities.

The Black Sea Law Company annually prepares an analysis of the practice of arrest of ships in the Ukrainian jurisdiction, and 2020 is no exception.

According to the analysis of the procedures of arrest of vessels in different jurisdictions, including Singapore, China, Turkey, Germany, Italy etc., the Ukrainian jurisdiction has a relatively simple legal procedure and there is a convenient jurisdiction to arrest a vessel or release a vessel from arrest.

Ukraine ratified the 1952 Brussels Convention on 16 May 2012. The Civil Procedure Code of Ukraine

Margarita Bendiuha,

Associate, Black Sea Law Company and the Commercial Procedure Code of Ukraine regulate ship arrests in support of a “maritime claim”. Since 2018, procedural legislation (both Commercial and Civil) has been amended to make the vessel arrest procedure clearer and more understandable. The general practice for ship arrests has become more stable. Changes to the procedural legislation have sped up the ship arrest procedure.

It will be appropriate to point out one of the features of the arrest procedure in Ukrainian jurisdiction: parties have the right to apply for the arrest of a vessel at its scheduled port of destination in Ukraine.

According to official data, the vast majority of ship arrest cases are related to claims for the contract for carriage, Charterparty, bunker debts, debts for ship agency services, ship repair, etc. That is, in commercial cases, the arrest of a vessel is more common than in civil cases. It is advisable to separate claims of government agencies (such as the Ecological Inspection). Although such cases will also be considered in the Commercial Courts. Labor disputes (for example, seafarers` wages) and claims for injuries (personal injury, disability or death) are dealt with by Civil courts. In Ukraine, there is no separate specialized “Maritime” court, and all cases of arrest of the vessel will be considered by the court, at the location of the port.

According to our analysis, in 2018-2020 there were 36 civil cases and 75 commercial cases, total – 111 cases. Thus, out of 111 cases, the court arrested the vessel in 48 cases and refused in 39 cases. In addition, in 24 cases the Court returned the application to Claimants.

The reasons why the Ukrainian court refuses to arrest the vessel:

• information on the amount of the maritime claim is not provided

• evidence that the ship is berthed at the port are not provided

• there is no evidence that the ship plans to leave the port

• there is no evidence that the Shipowner avoids liability for a maritime claim

• fact that the ship arrest is the only effective way to enforce a court decision is not confirmed

• documents are not translated

• court fees have not been paid

• no information and evidence of the value of the vessel

• claim is not “maritime claim” under the Convention

• no powers of attorney

• information about the shipowner’s company is not provided

As a rule, the Court may mention several of the above reasons.

According to Ukrainian law, the security for the claim must be proportional (commensurate) to the amount of the claim. However, the “principle of proportionality” does not apply to the procedure of arrest of a vessel. This provision in procedural law means that even the fact that a vessel costs much more than the amount of a maritime claim (for example, a wage claim) is not an obstacle to the arrest of a vessel on a “maritime claim”. It should be noted that such exception is only for the arrest of a vessel.

In 2018–2020, there were several cases when the Court refuses to arrest of vessel or returns the application for reasons contrary to applicable law.

Bank guarantee, Court deposit & P&I Club (LOU)

The issue of providing a P&I letter of undertaking as security against maritime claim deserves the most attention in 2020.

A defendant on the maritime claim can apply to the court for a change of method to obtain security for such claim when the defendant’s vessel is under arrest. As a rule, a bank guarantee can be used as a substitute for an arrest and, generally, Ukrainian courts recognize a bank guarantee as an appropriate form of security for a maritime claim. However, courts will give priority to bank guarantees issued by Ukrainian banks. The bank guarantee must cover all demands of a claimant according to the maritime claim. Recent court practice admits the possibility of using a P&I letter of undertaking as a form of security in commercial proceedings.

The possibility of recognizing the letter of guarantee of the Mutual Insurance Club, issued in accordance with the requirements of the legislation of Ukraine, was reflected in the decision of the Commercial Court of Odessa region dated May 15, 2020, where the letter of undertaking (LOU) of the P&I Club was recognized as a financial guarantee against the State Ecology Inspection’s claim for the first time in Ukrainian practice. The Commercial Court of Appeal rejected the State Ecology Inspection’s appeal claim and confirmed all legal circumstances, mentioned in the appealed court order. This decision is more than important, as previously Ukrainian courts accepted only a court deposit and a bank guarantee.

We can conclude that despite the numerous cases where the court “illegally” refuses to arrest a vessel or there is a wrongful arrest, the practice of arrest of vessels in Ukrainian jurisdiction is changing case-by-case in a positive direction. ■