Maritime arbitration: overview and recommendations

All the rivers run into the sea, yet the sea doth not overflow. Ecclesiastes

Due to recent events including changes in logistics routes in the agricultural sector and the blocking of seaports, there has been a significant increase in the number of disputes in the field of merchant shipping, especially in relation to transportation on the Danube River. This article discusses the peculiarities of resolving such disputes through arbitration, the advantages and disadvantages of various arbitration institutions, and practical aspects to be taken into account when concluding cargo booking notes.

What should be taken into account when choosing a venue for merchant shipping disputes

Merchant shipping disputes may be considered by state courts. However, given that in most cases one of the parties to the dispute is a foreign counterparty, in order to avoid the need to apply to foreign courts, the parties often agree to submit such disputes to arbitration. The advantages of arbitration in this case are as follows:

• consideration of the dispute by a neutral and independent arbitration institution, as the parties have the right to choose the arbitration institution they trust;
• the right of the parties to nominate an arbitrator to consider the dispute, choose the place of arbitration, the language of arbitration, and the law under which the dispute will be considered;
• a unified procedure for the recognition and enforcement of arbitral awards in accordance with the New York Convention of 1958, to which more than 160 countries are signatories.

This approach is also shared by lawmakers, since Article 8 of the Merchant Shipping Code of Ukraine (the “MSC”) provides that a property dispute related to merchant shipping involving a foreign legal entity or individual may be referred to a foreign court or arbitration by agreement of the parties. At the same time, the same article of the MSC primarily directs the parties to refer disputes to the Maritime Arbitration Commission at the Ukrainian Chamber of Commerce and Industry (hereinafter – UMAC) in case of agreement of the parties to the dispute, which is recorded in the relevant arbitration agreement/arbitration clause.

At the same time, it should be kept in mind that arbitration in Ukraine is regulated by the Law of Ukraine “On International Commercial Arbitration”, which makes it possible to submit disputes on merchant shipping to any international commercial arbitration, not only the UMAC.

There are two permanent arbitration institutions in Ukraine, both of which are affiliated with the Ukrainian Chamber of Commerce and Industry: the International Commercial Arbitration Court (ICAC) and the UMAC. The ICAC is better known and annually accepts 300-500 new cases for consideration, which is one of the best indicators among arbitration institutions in Central and Eastern Europe. The number of UMAC cases fell to a critically low level (1-3 cases per year) after the annexation of Crimea, as the main clients of UMAC services were located on the peninsula. Both institutions deal with disputes in the field of merchant shipping.

However, in practice, referring disputes to the UMAC offers more advantages:

• UMAC registration and arbitration fees are lower than those of the ICAC;
• the UMAC is the only international arbitration institution in Ukraine that can consider disputes between residents of Ukraine, as it is expressly provided for in the UMAC Statute, which is Annex 2 to the Law of Ukraine “On International Commercial Arbitration”. In all other cases, in the absence of a foreign element in the dispute, the dispute may be considered by domestic arbitration rather than international commercial arbitration;
• only the Chairman of the UMAC has the right to issue an order to attach a vessel or cargo in the Ukrainian port. This right is provided for in both the aforementioned UMAC Statute and the MSC;
• at present, there is no ruling in the Ukrainian register of court decisions to set aside a UMAC decision.

Foreign arbitration institutions can also be chosen to resolve this category of disputes, especially if the dispute is to be resolved in accordance with English law, such as the London Maritime Arbitrators Association (LMAA), which is a leading arbitration institution specializing in maritime disputes, or the London Court of International Arbitration (LCIA), the German Maritime Arbitration Association (GMAA), etc. However, the cost of arbitration proceedings in such institutions will be higher and none of them has the right to attach a vessel in their jurisdiction, which remains the sole prerogative of state courts.

Wartime challenges

Since the beginning of Russia’s full-scale invasion, one of the main challenges for business has been the disruption of traditional logistics routes for the supply of goods, primarily due to Russia’s blockade of the Black Sea, which in turn has led to improper fulfillment and non-fulfillment of contractual obligations to supply goods and a sharp increase in disputes in the field of merchant shipping.

The London Maritime Arbitrators’ Association (LMAA) reported a significant increase in the number of applications in 2022 and 2023, with 3,268 new appointments and 1,845 applications in 2023.

According to the information provided by the UMAC Secretariat, in 2024, it accepted 21 new cases for consideration, which is 10 times more than in 2023, when only 2 cases were accepted. However, unlike the applications registered by the LMAA, the cases accepted by the UMAC are related to the improper execution of cargo booking notes on the Danube River. This sharp increase in arbitration proceedings was the result of a change in logistics chains in the agricultural sector, when suppliers of raw materials, taking into account the danger of cargo delivery via the Ukrainian sea corridor and the need for military insurance of maritime transportation, as well as the periodic blocking of railway transportation of agricultural raw materials on the border with Poland, preferred the delivery of goods via the Danube River to the ports of Romania.

What should be taken into account when concluding cargo booking notes on the Danube River

The Ukrainian Danube Shipping Company (UDSC) carries out river transportation on the entire navigable section of the Danube River from Ukrainian ports and to the port of Constanta (Romania) and the port of Kielheim (Germany).

When concluding cargo booking notes (CBN) with the UDSC, the following points should be taken into account.

Arbitration clause. As a rule, the UDSC proposes to submit all disputes to the UMAC, which can generally be considered a positive aspect in view of the above. However, the standard arbitration clause also provides that the dispute shall be resolved by a sole arbitrator, the Chairman of the UMAC, which effectively excludes the possibility of selecting other arbitrators to resolve the dispute.

Applicable law. As a rule, cases are subject to the substantive law of Ukraine and the Bratislava agreements. It is advisable to carefully study what these agreements are. The Bratislava Agreements are a number of agreements concluded between Danube shipping companies of the countries on whose territory the Danube River flows. The Bratislava Agreements are neither an international treaty within the meaning of the Law of Ukraine “On International Treaties of Ukraine” nor a secondary regulatory legal act. In fact, they form an agreement on cooperation between private entities, the Danube shipping companies. However, they are crucial when considering the merits of disputes since cargo booking notes themselves state that the Bratislava Agreements apply to all other provisions not provided for in the notes. In other words, the provisions of the cargo booking notes are applied first, followed by the provisions of the Bratislava Agreements, and only then the substantive law of Ukraine.

Demurrage. As a rule, the main dispute with the UDSC is the issue of demurrage payment, i.e. compensation for a vessel’s idle time. As a result of an increase in cargo transportation on the Danube River, the load on the ports of Constanta and Sulina has increased and barge caravans are idle for several days to several weeks on average. At the same time, Article 8 of the Agreement on General Conditions of Carriage of Goods in International Traffic on the Danube River provides that the consignee is obliged to (i) accept the note at any time of the day, and in his absence at the port, the fact that the vessel is ready for loading operations shall be certified on the note by the ship’s agent (port representative); (ii) unload around the clock and every day, including weekends and holidays, unless otherwise provided by the laws or customs of the port in force in the country. Thus, the lion’s share of claims relate to the recovery of demurrage and penalties for violation of the terms of payment.

Penalty. Pursuant to Article 1 of the Agreement on Cooperation of the Danube Shipping Companies, Parties to the Bratislava Agreements concluded on November 6, 1992 (amended in 1997), the Bratislava Agreements within the meaning of this Agreement are, in particular, the Agreement on General Conditions of Carriage of Goods in International Traffic on the Danube River (adopted in Siofok, Hungary, in 1989, last amended in 1997), which is of key importance for resolving this issue. Pursuant to Article 16(6) of the Agreement on the General Conditions of Carriage of Goods in International Traffic on the Danube River, for each day of delay, the party obliged to make payments shall pay a penalty of 0.05% of the amount not paid on time to the date of payment.  The same condition applies to payments related to court or arbitration decisions.

In practice, this regulation of the penalty payment procedure applies both to the accrual of penalties for late payment of freight and to penalties for breach of demurrage payment terms. This regulation differs significantly from the provisions of the still effective Commercial Code of Ukraine, as it allows for the collection of penalties without any restrictions on the period of their accrual, as well as for the accrual of interest on amounts awarded in favor of the claimant by arbitration awards.

Instead of an epilogue

Although the volume of river transportation decreased in 2024 due to lower rates for maritime insurance and the unblocking of transportation from the ports of Greater Odesa, all of the above recommendations remain relevant.

Olga Kostyshyna, counsel, head of international arbitration, for Shipping magazine

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