Facts: LLC “MC “River-Sea”” (Shipowner, Claimant) provided LLC “Vastness” (Charterer, Respondent) the ship m/v “Caucasus” for time-charter.

During the period of the contract, the ship was arrested by the Turkish authorities in the port of Mersin for non-payment of a debt to third parties. The period when the ship was under arrest was 8 days.

In connection with the arrest in the port of Mersin, the ship could not be used for its intended purpose, and the Charterer was unable to fulfill the contract of carriage of goods by sea, which was terminated in this regard.

Subsequently, the ship was returned to the Shipowner filled with fuel.

Under the terms of the contract, in addition to paying of the freight, the charterer was obliged to provide and pay for all types of bunker fuel, agency costs, etc.

In connection with the resulting debt, the Shipowner applied to the commercial court with the claim against the Charterer for the recovery of RUB 657,376.40 fuel cost, RUB 3,092,206.09 freight cost, RUB 70,000.00 in compensation of survey services for the inspection of the amount of fuel, oil, water on board (operating costs) under a time-charter.

In turn, the Charterer applied to the Shipowner with a counterclaim for the recovery of RUB 4,200,000.00 missed profits and RUB 1,931,997.50 expenses for the purchase of fuel for the ship, with which it was fueled at the time of return to the Claimant.

The counterclaims were motivated by the fact that (i) under the terms of the contract, the Shipowner had to ensure the seaworthiness of the ship and the possibility of its unimpeded use, but instead, the ship was under arrest; (ii) the ship was returned filled with fuel, the cost of which is subject to compensation.

Ruling of the courts: by the decision of the court of first instance, upheld by the higher instances, the initial claim was satisfied in full. The Respondent did not dispute the claims of the Claimant.

The counterclaim was satisfied only in part of the Respondent’s expenses for the returned fuel. Meanwhile, the Claimant admitted the fact of accepting the fuel, but asked to refuse to satisfy the claim due to the failure to hand over the consignment note to him for tax refund. At the same time, the court stated that the absence of a consignment note for fuel cannot justify exempting the Claimant from compensation of the specified amount.

The court set off the claims.

The main dispute revolved around the claim to recover the missed profits of the Charterer, which caused the further appeal of the decision by the Respondent in this part.

Refusing to the Respondent to recover the missed profits, the court of first instance proceeded from the fact that it follows from the materials of the case that the ship’s being under arrest during the specified period did not depend on the actions of the Claimant, there is no evidence, there is no evidence that the Charterer’s losses were caused by non-performance or improper performance of the obligation by the Shipowner.

In this case, the courts assessed the decision of the Turkish authorities (court) to seize the ship, from which follows that the arrest of the ship was associated with non-payment of its bunkering, as well as the decision of the First Commercial Court of First Instance (as a maritime court) in Mersin on removal of arrest from the ship m/v “Caucasus”.

As confirmed by the decision of the First Commercial Court of Mersin, the seizure was imposed on the ship by mistake, as a result of illegal actions of third parties (at the request of a company that was not a charterer of the ship).

At the same time, the courts took into account the circumstances testifying to the Claimant’s due diligence in ensuring the seaworthiness of the ship and the possibility of its unimpeded use:

• the ship in a seaworthy condition was handed over ready for loading on all grounds in the port of Mersin, about which the Charterer was given an appropriate notice;

• the Claimant took steps to challenge the arrest in a timely manner;

• the Claimant, prior to the lifting of the arrest, made a guarantee for the release of the ship, despite the fact that the arrest was imposed in order to ensure the fulfillment of the requirements for a person not related to the ship.

The court of cassation concluded that the lower courts rightly did not see the grounds for assessing the behavior of the Claimant as contrary to the obligations accepted under the time-charter and being in causal connection with the losses of the Respondent.

Separately, the court of cassation noted that the International Convention relating to the arrest of seagoing ships (signed at Brussels, on 10 May 1952) and Art. 393 of the Merchant Shipping Code of the Russian Federation, are inapplicable in the present case, since they attribute compensation for damages to the responsibility of the person at whose request the ship was unlawfully or unreasonably arrested.

Comment: this case is significant from the point of view of the fact that both the shipowner and the charterer can bear the risk of the arrest of the ship (and the corresponding losses). Moreover, the distribution of this risk depends on the shipowner, whose actions are subject to judicial review to determine whether he has been given due diligence to avoid arrest or minimize losses.

The most interesting question seems to be what actions the shipowner should take to remove this risk from himself. The court did not consider this issue in sufficient detail, since the circumstances made it possible to resolve the dispute without giving a full answer to it.

At the same time we note that in the considered case the Shipowner (Claimant) really could not foresee that the ship would be arrested, and he also showed a high degree of care – he timely challenged the decision on the arrest and made security for the release of the ship. Therefore, the assignment of the risk of arrest to the Charterer (Respondent) should be agreed.

At the same time the court rightly noted that the provisions of the International Convention relating to the arrest of seagoing ships and Art. 393 of the Merchant Shipping Code of the Russian Federation in any case cannot be applied to legal relations between the Claimant and the Respondent, since these rules establish the responsibility of the person at whose request the ship was illegally or unreasonably arrested. The Claimant is not such a person, his liability is governed by the general provisions on liability for breach of obligations.

We will also make a clause about the necessity to delimit the shipowner’s obligation to ensure the uninterrupted operation of the ship and his obligation to bring the ship to a seaworthy condition and maintain it in such a condition. Some confusion between these obligations under the text of judicial acts can be explained by the wording of § 13 of the time-charter, to which the Respondent refers in support of his claim to recover the missed profits. It appears that the arrest of the ship does not relate to seaworthiness within the meaning of Art. 203 of the Merchant Shipping Code of the Russian Federation.

Another legal position is of certain interest. The court indicated that the shipowner’s obligation to compensate the cost of the fuel with which it was fueled at the time of return does not depend on the presence of a consignment note for this fuel. Accordingly, a consignment note is not the only possible evidence of fuel transfer. This approach seems legitimate and fair.

Since the procedure for calculating missed profits usually causes disputes in similar cases, there is a wish to draw your attention to the position of the first instance court on this issue separately. In particular, the court noted that the Respondent claims to collect income from the transaction for the carriage of goods as a missed profits, while not taking into account that he should has also spent money on fuel, fees, salaries, etc. to fulfill the contract. At the same time the court points out that the Claimant did not prove that the amount of expenses for the execution of this contract exceeded the amount of income. Unfortunately, due to the lack of grounds for satisfying the claims for the recovery of missed profits, the courts did not consider this issue in detail, however, we believe it is possible to take this position into account for the purpose of argumentation on similar issues. ■