The issue of the Maritime Law Journal covers the whole year 2023. We traditionally summarize the statistics of commercial maritime disputes considered by commercial courts.

The characteristics of this period is the adoption of the Resolution of the Plenum of the Supreme Court of the Russian Federation No. 15 dated 01.06.2023 “On Some Issues of Adoption by Courts of Measures to Secure a Claim, Interim Measures and Preliminary Defense Measures”. The said act, in particular, clarifies that in certain cases arrest may be imposed on the property owned by a person who is not a defendant in a lawsuit, and as an example the norm of subpar. Paragraph 4 of Article 390 of the Russian Merchant Code (hereinafter – MSC RF) (paragraph 22), according to which a ship may be arrested if the responsible person is its charterer.

Cases heard in courts of cassation instance (court of districts)

In 2023, 51 maritime cases were heard in the county courts. 41 cases deal with maritime private law issues and only 10 cases with public law issues. In the period under review, there is no category of cases in the cassation courts that significantly prevails over others in numerical value.

Below is a table with the distribution of cases among the courts of cassation instance.

Cases heard in courts of appellate instance

114 maritime cases were heard by the Courts of Appeal in 2023. 38 cases deal with maritime public law issues and 76 with maritime private law issues.

In private law, disputes most often arise as a result of non-performance or improper performance of contractual obligations. However, there are disputes which are based on the infliction of harm (for example, cases No. A51-18689/2022, No. A40-143512/2022).

Below is a table showing the distribution of cases among the courts of appeal.

Cases heard in courts of the first instance

In 2023, 409 maritime cases were heard in the courts of first instance. Of these, 289 relate to private law and 120 to public law.

In the area of maritime private law, as in previous years, claimants mainly recover debts under various contracts (time charter, bareboat charter, cargo carriage, agency). In the field of public law, the dominant part of cases is dedicated to illegal crossing of the state border.

A total of 574 maritime dispute cases were heard by the Commercial Courts in 2023. Of these, 406 cases dealt with private law issues and 168 with public law issues. The majority of cases, as in previous years, arose from non-performance or improper performance of contractual obligations.

Separately, it is worth briefly reviewing a few noteworthy disputes and positions of the courts.

Remarkable cases and opinions

1. Crew member salvage (No. А32-25678/2022)

Facts

Due to the illness of a crew member (heart attack), the vessel gave a distress signal to send the crew member ashore for medical assistance. The nearest vessel belonging to Morspassluzhba responded. The representatives of the salvors stated that the transport of the crew member ashore was a reimbursable service and demanded that the shipowner’s agent issue a letter guaranteeing payment in favour of the salvors in accordance with their calculation. Otherwise, salvors refused to carry out the transportation. The agent issued the said letter of guarantee and subsequently paid approximately RUB 1,250,000 in favour of the salvors. Subsequently, the agent claimed to recover the funds paid due to the imposition of unfair contractual terms by the salvors.

Position of the court of first and appellate instance

The Court of first instance, whose judgment was upheld by the Court of Appeal, found in favour of the defendant in full.

The Courts motivated their position by the fact that the claimant did not give a proper SOS signal and did not send any medical reports on the existing threat to the crew member’s life and health. Based on this, the courts concluded that in this situation, not a salvage contract was concluded, but a contract for the removal of a crew member from the vessel, therefore, the provisions of Art 346 of the MSC RF on the prohibition of remuneration are not applicable in this case. The courts also pointed out that the arguments on the intrusion are not substantiated and do not correspond to reality.

The service of removing a sick crew member could have been performed not only by the defendant, but also by other organisations; nothing restricted the claimant’s ability to conclude a contract on other terms, including with other counterparties, but the claimant turned to the salvors.

Comment

The requirement of remuneration in connection with salvage service carried out to save life is expressly prohibited by the Salvage Convention of 1989 and the same provision contains in Article 346 of the MSC RF. Consequently, the very fact of demanding a salvage reward in the above situation raises questions. At the same time, the court’s decision that the salvos rendered common services and not salvage regarding the transportation of a crew member with a heart attack to get medical assistance is also questionable. Even assuming that the Marine Rescue Service could demand a reward, the sum of RUB 1,250,000 for transporting one crew member to the shore to provide medical assistance seems clearly disproportionate to the effort expended.

Additionally, Morspassluzhba’s vessels do not undertake international voyages and the organisation itself is primarily engaged in salvage and operates within the territorial waters of the Russian Federation. It usually means that they are able to arrest the property salved. The practice of the Morspassluzhba overstating its possible reward and then reducing it through litigation or negotiation, arresting vessels on claims for the claim of such overstated reward and hoping to satisfy overstated claims because the salvors have arrested salvaged property and the owner cannot use it and wishes to release such property as soon as possible is a typical Morspassluzhba’s behaviour.

2. Ship salvage (No. A51-761/2020)

Facts

On 24.09.2019 a fire occurred on the vessel Pyotr Zhitnikov, and therefore an incident signal was given. It was received by five rescue vessels. One of the vessels, the MSB vessel Atlas, belonged to the FGBU Morspassluzhba.

A salvage contract was concluded between JSC Holding Company Dalmoreproduct (the owner of the wrecked vessel) and FGBU Morspassluzhba.

Article 5 of the Contract defined the remuneration upon achievement of a useful result in the amount of USD 200,000. Article 6 of the Contract also stipulated that irrespective of the achievement of useful result the shipowner shall reimburse the salvor for the expenses incurred for the operation of the MSB Atlas at the rate of 750,000 roubles for each day. The terms of the article cannot be challenged in court, nor can they be revised downwards in terms of the daily rate of the MSB Atlas operation.

After the Contract is entered into, MSB Atlas started salvage operations. On 01.10.2019 the works were completed the fire was eliminated and the vessel’s seaworthiness was restored.

According to the information of FGBU Morspassluzhba, the total duration of the work of the MSB Atlas belonging to it, taking into account the time of the vessel’s return to the home port, was 7 days 23 hours 50 minutes. Based on the time spent and the above provisions of the Contract, the price of services rendered by FGBU Morspassluzhba totalled 19,082,730 roubles.

Holding Company Dalmoreproduct refused to pay for the services of FGBU Morspassluzhba, in connection with which FGBU Morspassluzhba appealed to the court.

In turn, JSC Holding Company Dalmoreproduct, believing the amount charged to be overstated, filed a counterclaim to invalidate Articles 5 and 6 of the Agreement.

Position of the courts of the first and appeal instances

The court of first instance came to the conclusion that since the amount of remuneration and compensation of expenses of the rescuer are defined in the Contract, the norms of Articles 341, 342 of the MSC RF on the procedure and conditions of encouragement of the rescuer are not to be applied to the disputed legal relations. In the court’s opinion, the claimant could refuse the services, however, having voluntarily concluded the disputable contract in its own interests, thereby expressed its readiness to pay for the services rendered, taking into account the achieved useful result.

As a result, the court of first instance satisfied the initial claims and dismissed the counterclaims. The Court of Appeal upheld the judgement, adding that the claimant’s argument that the payment under the contract was excessive was unsubstantiated.

Position of the Court of Cassation instance

Within the meaning of Article 343 of the MSC RF the expenses and losses incurred by the salvor are subject to separate reimbursement to him as a special compensation only if he was unable to earn remuneration under Article 342 of the named Code. Consequently, FGBU Morspassluzhba is entitled only to remuneration under Article 342 of the MSC RF.

At the same time, proceeding from the principle of ensuring the balance of rights of the parties and in order to encourage rescue operations, the said remuneration is paid taking into account the criteria defined in the law.

The District Court pointed out that the conclusion of the court of first instance on the inapplicability to the disputed relations of the parties of the provisions of Articles 341, 342 of the MSC RF on the grounds of agreement by the parties at the conclusion of the Agreement other rules for determining the price of services is erroneous. The parties at the conclusion of such transactions cannot objectively foresee the final result of the salvage operation, as well as the amount of contribution of the salvor in preventing damage to the wrecked vessel.

The final amount of remuneration should be determined in each particular case depending on the result achieved by the salvor, taking into account all the criteria stipulated by Paragraph 1 of Article 342 of the MSC RF. In addition, the amount of remuneration should take into account the contribution of each of the salvors to the salvage of the vessel.

Additionally, the district court noted that the lower courts did not take into account that by virtue of Paragraph 1 of Article 337 of the MSC RF the parties are not entitled to exclude by their contract the application of Article 339 of the MSC RF, according to which the contract or any of its terms can be recognised as invalid or amended, not only in case of its conclusion under the influence of danger, but also if the fee provided for by the contract is excessively high or low in relation to the actual services rendered.

As a result, the district court quashed the acts of the lower courts and sent the case for a new trial.

Final Act

On 14.06.2023 the court of first instance rendered a judgement. The initial claims were partially satisfied: RUB 2,343,845 and 48 kopecks were recovered (the court made the calculation on the basis of Article 342 of the Customs Code of the Russian Federation). The counterclaims were satisfied in full: Articles 5, 6 of the Contract were declared invalid as contradicting the International Convention on Salvage of 1989 and the MSC RF.

Conclusions

Provisions of Articles 341, 342 of the MSC RF are imperative and cannot be changed by agreement of the parties. The amount of remuneration should be determined in each particular case depending on the result achieved by the rescuer, taking into account all the criteria stipulated by paragraph 1 Article 342 of the MSC RF.

3. Refusal to conclude the contract on oil spill cleaning (No. А32-44596/2019)

Facts

Kontur SPb LLC filed a claim against Morspassluzhba in connection with the fact that the salvors had refused for several months to enter into a contract for oil spill response operations. Kontur SPb could not fulfil its obligations under the ship bunkering contract without an agreement with the Morspassluzhba and incurred losses because of it.

Position of the Court of first and appellate instance

The Courts dismissed the claim.

General comment to the cases Nos 1, 2 and 3

The relevant case and cases Nos A32-25678/2022 and A51-761/2020 demonstrate that although this organisation is a budgetary institution, i.e., a non-profit organisation, it acts as a typical monopolist. In an attempt to inflate its remuneration or obtain more contractual fees, Morspassluzhba, taking advantage of its position on the market, imposes unfair conditions on shipowners. The idea of creating a public organisation that would provide salvage and ensure maritime safety and protection of the environment deserves support. However, its implementation in the form of a monopolist imposing its conditions on market participants, being in constant litigation and arresting any property that comes up at least disputable.

The position appears from time to time that Morspassluzhba is putting a sum of money into its remuneration to maintain its activities, and not just a salvage fee, a kind of tax. It does not resolve the question of the activities of Morspassluzba and the principles of such activities but rather reinforces them. If additional tax deductions or levies are necessary to support the activities of the federal budget state institution, such levies can be collected as part of the port and other dues directly rather than being implemented into the salvage remuneration. In our opinion, as a result of these changes, the activities of the budget institution may become more open.

4. Recovery of unjust enrichment from the shipowner by the charterer (No. А59-6112/2021)

Facts

It was a claim made by the bareboat charterer against the shipowner in connection with the fact that the part of the hire under the bareboat charter with a buyout option was the purchase value of the ship. As the vessel was damaged and then utilised, the bareboat charterer claimed the relevant sums paid as a part of the unjust enrichment since it did not receive proper counter-performance.

Final position of the courts

The Courts found in favour of the charterer. First, they considered the buyout sums as unjust enrichment. Second, they recovered the relevant sums in favour of the claimant.

Comment

This qualification of the contractual relationship is typical of the Russian courts. However, in the situation under consideration, there was a contract between the parties under which the charterer paid the hire. For some reason, the shipowner did not perform the contract. In our opinion, the qualification of such relations as unjust enrichment is questionable. Often, there is a condition in charter parties to return the advance payments under the contract in case of non-performance by the shipowner as well as additional penalties for such non-performance. The application of the rules on unjust enrichment in such situations does not allow the application of contractual conditions, including the limitation of the shipowner’s liability. Creating a choice of a cause of action in such situations is a way to allow the charterer to choose between what liability the shipowner will bear and, accordingly, the amount of such liability. This solution, in our view, is undesirable for the legal order since it creates legal uncertainty and does not allow the shipowner, who cannot fulfil its obligations, to calculate risks from such failure and choose a reasonable model of behaviour.

In this case, the qualification of the relations between the parties as unjust enrichment, at first glance, does not create unjust consequences for the parties. However, in similar circumstances where time or voyage charter is concluded, the situation is different, considering that the shipowner’s liability under the contract of carriage is usually limited, this contract may be concluded in the form of a charter. To give the charterer the choice of the cause of the shipowner’s liability is to make it possible for the charterer to determine the amount of the carrier’s liability by its own will.

5. Collision (No. А12-13685/2022)

Facts and the courts’ position

The dispute arose out of a collision between two ships. The case in question reflects the typical development of collision disputes in Russia. This case does not contain any special legal position and there is no unique interpretation of legal norms. In fact, the dispute boils down to a clash of positions as to the relevance and amount of the damage caused by the collision. In this case, the dispute related to the application of the rule “new for old”. Some of the damaged parts of the vessel were old, new elements were put in their place. In such a case, it is not clear whether the person who caused the damage is obliged to pay for the replacement of the vessel’s equipment/hull in full or in proportion to the damage to the old parts. In the case under review, the collision damages were paid in full.

Comment

The position of the Russian courts in such cases often boils down to whether or not the injured party has suffered the damages claimed. A particular difficulty in this matter is the almost ubiquitous existence of management agreements whereby the costs of carrying out repairs are borne by the ship manager and then reimbursed by the shipowner (often by means of contractual payment offsets). In such a case, there is no proper evidence of the specific costs incurred by the shipowner. In the absence of such evidence, the shipowner’s claim is, according to the position of Russian courts, cannot by satisfied.

The same situation arises in connection with the existence of hull insurance. As a consequence of the payment of the insurance compensation, the claim is transferred to the insurer by way of subrogation. The insurer must therefore bring a separate action/ be a co-claimant in the case. This problem did not arise in the present case.

6. Termination of the charter due to the shipping restrictions in the war area (No. А40-105908/2022)

Facts

In the relevant case, involving the time charter of a vessel, the charterer claimed the termination of an agreement due to the inability to use the vessel caused by the restriction of navigation in the area of contract due to military exercises of the Russian Black Sea Fleet and the further start of hostilities in the Black Sea. The contract between the parties was terminated, but the charterer did not obtain any payments to cover the costs caused by the impossibility of performance and the other party’s refusal to terminate the contract out of court.

Позиция судов

The Court of first instance, whose judgment was upheld by the Court of Appeal, found that the described circumstances were substantial and sufficient to give the charterer the right to withdraw from the contract. However, the sum of the advance payment was considered the payment for the contract withdrawal. It was due to the fact that the shipowner started the contract performance and mobilisation and demobilisation of the vessel and equipment for the ship’s transfer to the charterer.

Comment

The mentioned dispute is interesting first of all because of the way military actions in Ukraine influence commercial relations in the field of merchant shipping. We believe that in the near future, the number of such cases will increase due to the implementation of additional insurance against war risks, restriction of navigation in the area of hostilities and other circumstances.

7. The eternal question of the legal nature of demurrage (No. A51-19414/2022)

There are two mutually exclusive theories on the legal nature of demurrage: demurrage as a regulatory obligation; demurrage as a type of civil liability¹.

The choice of one of the theories is important in practice, as it affects the determination of whether a penalty can be charged on the amount of unpaid demurrage. In the case of the first theory, a penalty is possible, while in the case of the second theory, it is not.

In the case at hand, the courts of appeal and cassation instances took the second position, denying the claimant the penalty. Thus, the court of the district, motivating its judicial act in the part of refusal to recover penalties for late payment of demurrage, stated the following:

“[By virtue of] the express provision of Article 132 of the MSC RF, demurrage is payable for the demurrage of the vessel during the counter-staleness time, i.e., the basis of the obligation to pay demurrage is the charterer’s exceeding of the agreed staleness time of loading, representing an extraordinary, not expected dynamic of the legal relationship.

Consequently, the payment of demurrage is a protective obligation aimed at satisfying the property interest of the authorised party affected by the violation of a regulatory legal relationship associated with the ordinary actions of its participants...

Proceeding from the interpretation of the mentioned norms of law, the court of appeal instance rejected the arguments of OOO “SDS Shipping”, similar to the arguments of the cassation appeal, concerning the fact that demurrage is an independent civil legal obligation of the charterer, and not a measure of liability...”.

Summarising the court’s reasoning, it can be concluded that demurrage is a measure of civil liability, the basis for the occurrence of which is the Charterer’s exceeding the agreed loading time (an offence). Therefore, the court reasonably recognised that it was impossible to charge a penalty for the amount of demurrage.

8. On authorities with the power to issue instructions to the Harbour Master prohibiting him from granting permission for a vessel to departure from the seaport (No. A32-47658/2022)

In accordance with paragraph 3 Part 1 of Article 80 of the MSC RF, the seaport Harbour Master has the right to refuse to issue a permit for a vessel to leave the seaport in case of an instruction from authorised state authorities.

There are no fixed criteria in the legislation, according to which one can unambiguously answer the question whether this or that authority is authorised to issue the above instructions. At the same time, the answer to this question is extremely important, because every day of the vessel’s idle time causes serious losses for the shipowner.

In the instant case the question arose as to the possibility of issuing instructions by the investigating authorities.

The courts, taking into account the recognition of the vessel as material evidence and the provisions of Part 4 of Article 21 of the Criminal Procedure Code of the Russian Federation, which establish the binding nature of the requirements of investigators and inquirers, came to the conclusion that the officials of the investigative authorities had the authority to issue instructions to the seaport’s Harbour Master.

The cited position is reasonable. However, the above court case does not solve the general problem of determining the powers of other authorities to issue relevant instructions.

For example, does Rosprirodnadzor have the right to issue such instructions? Based on the provisions of the Federal Law of 10.01.2002 No. 7-ФЗ “On Environmental Protection”, Rosprirodnadzor’s Order of 29.09.2010 No. 283, and the Regulation on Rosprirodnadzor², this service does not have such powers.

Unfortunately, this does not mean that the seaport’s Harbour Master will give permission for the vessel to leave the port despite the order from Rosprirodnadzor. On the contrary, it is very likely that the Harbour Master will obey the service and will not issue a permit. At the same time, it will be extremely difficult to explain to the Harbour Master about the illegality of the order, as such uncertainty of legislative regulations gives a huge scope for their interpretation. The captain’s goal, in this case, is to avoid additional liability. The risk of liability on the part of Rosprirodnadzor for failure to enforce the order seems to be more serious than the risk of liability for unreasonable refusal to issue a permit for the vessel’s departure.

9. Cases involving Maersk in Russia after the start of the hostilities in Ukraine (No. А41-49070/2022, А56-107142/2022)

These cases are interesting since they demonstrate how Maersk, one of the largest container owners in the world, continues to operate in Russia despite its announcement to cease operations in Russia and Belarus immediately after the start of hostilities in Ukraine on 24 February 2022. According to these judgements, Maersk LLC continues to act and concludes contracts of carriage, import and export of cargo outside Russia on Maersk A/S’s behalf under the agency agreement. It is interesting that many foreign companies sell their assets to company managers or Russian buyers after leaving Russia. However, Maersk operates specifically through an agency contract. ■

* Review prepared by Bulat Karimov and Alexey Charchenko.

Notes