I COMMERCIAL OVERVIEW OF THE SHIPPING INDUSTRY
The register of Russian seaports lists 67 seaports, which are on 12 seas, three oceans and the Caspian Sea. They are distributed around five sea basins that are divided by territory: the Black Sea basin, the Baltic basin, the Caspian basin, the Pacific basin and the Northern (Arctic) basin. Some of these seaports have a particularly important role in seaborne exports and imports. The basin under the most development is the Northern (Arctic) basin.
All Russian ports have been developed significantly during the past 10 years or so and a lot of different types of cargo now pass through them. The cargo-handling capacity of seaports of Russia increased by 3.8 per cent in 2018 as compared with 2017 to 816.5 million tonnes. This was largely as a result of the politics of the Russian government focused on the development and construction of new infrastructure in seaports of in the Arctic basin.
Russia is developing the northern seaway (in the Northern basin) as the shortest route between Europe and Asia. The volume of cargo turnover through ports of the Northern Sea Route was 92.7 million tonnes in 2018 – an increase of 26.4 per cent from 2017.2
II GENERAL OVERVIEW OF THE LEGISLATIVE FRAMEWORK
Russia is a signatory to a number of international conventions and it has some influence on legal disputes related to the shipping industry. Generally, Russian courts are governed by national legislation that is the same across the entire territory. The principal rules are set out in the Russian Merchant Shipping Code of 1999, but if any foreign company is involved in a dispute or a court proceeding, then international conventions can be applied and will prevail over domestic law and regulations.
The customs regulations also influence the shipping industry in Russia. They were slightly changed when the Customs Code of the Customs Union came into force in July 2010 and replaced the Russian Customs Code.
The Federal Law on Seaports in the Russian Federation of 2007 regulates the structure, mechanisms and rules of operation of all seaports in Russia.
III FORUM AND JURISDICTION
The Russian court system does not have any specific courts for shipping cases. Any disputes related to the shipping industry may be heard by one of the following forums:
- the Constitutional Court, which deals only with constitutional issues;
- the courts of general jurisdiction, which hear criminal, administrative and civil cases;3 and
- the state commercial courts, which now operate at four levels: regional commercial courts, regional appeal commercial courts, federal commercial circuit courts and the Supreme Court of the Russian Federation.4
Russian law governs all disputes in Russian courts
In February 2014, a law was passed to merge the Supreme Court of the Russian Federation and the Supreme Commercial Court of the Russian Federation. The new Supreme Court of the Russian Federation was duly established and since 6 August 2014 has been the apex court in Russia.
ii Arbitration and ADR
Arbitral tribunals are a popular forum for foreign companies because the proceedings in these courts are relatively quick, the court fees are acceptable and they are independent of the state.
There are two main, well-known forums in Russia that are generally used by foreign companies: the International Commercial Arbitration Court in Moscow, which deals with general commercial disputes, and the Maritime Arbitration Commission in Moscow, which deals mostly with maritime disputes. Both were established at the Chamber of Commerce and Industry of the Russian Federation in Moscow in the early 1930s.
The activity and establishment of international arbitral tribunals in Russia is governed by the Law on International Commercial Arbitration of 7 July 1993. Further, international arbitration is governed by a number of international conventions that relate to arbitration and the enforcement of foreign arbitral awards. Russia is a party to the European Convention on International Commercial Arbitration of 1961 and the New York Convention. Russia has bilateral treaties with some other countries that include provisions relevant to arbitration and the enforcement of arbitral awards (such as the Treaty on Trade and Navigation with Austria of 17 October 1955).
iii Enforcement of foreign judgments and arbitral awards
In practice, foreign companies usually prefer to have disputes with Russian counterparts in their own jurisdictions, or jurisdictions other than Russia. It is nevertheless important to be familiar with the enforcement procedure applicable in Russia. The decisions of any arbitral tribunal in any country in the world presume that the losing party will pay voluntarily and if a Russian company lost a dispute and refused to pay, then the foreign claimant would face the problem of obtaining enforcement in Russia. Before 1 September 2002, this procedure was carried out in the courts of general jurisdiction and was governed by the Decree of the Presidium of the Supreme Soviet on Recognition and Enforcement in the USSR of Decisions of Foreign Courts and Arbitral Tribunals of 21 June 1988 and by the Law on International Commercial Arbitration of 7 July 1993.
In accordance with the Arbitration Procedure Code of the Russian Federation of 14 July 2002, the procedure for enforcement of international arbitral awards and decisions of arbitral tribunals with a location in Russia is through the state commercial courts. Presumably, the recognition and enforcement of awards by foreign courts and foreign arbitration awards will still take place through the courts of general jurisdiction (there is currently no official interpretation on this matter, but the legal procedure is roughly the same).
A petition for the enforcement of arbitral awards must be signed by the claimant or its representative and should be submitted in written form to the regional commercial court at the place of the debtor's business or the location of its property (if the place of the business is unknown). The judge of the regional commercial court should make a decision within a month of the date the petition was submitted. The judge should notify parties of the date and time of the hearing, but the matter will be judged regardless of whether the parties attend.
The list of grounds on which enforcement can be denied is set out in the New Arbitration Code, which corresponds to the New York Convention and the European Convention on International Commercial Arbitration of 1961. The regional commercial court can deny the petition if the defendant proves one of the following:
- the arbitration clause (agreement) is invalid on the basis provided for by Russian federal law;
- the defendant had not been properly notified about the arbitration or appointment of an arbitrator;
- the award was made regarding a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the arbitration;
- the composition of the arbitral tribunal or arbitral procedure was not in accordance with the agreement of the parties or Russian federal law; or
- the award has not entered into force or was suspended by the commercial court or another Russian or foreign court.
The regional commercial court will reject a petition on the enforcement of an award if it finds that the subject of the dispute is not capable of settlement by arbitration under Russian federal law or the award is in conflict with public policy. The reasons for rejecting the enforcement of awards are very similar to those for setting aside arbitral awards.
The decision of the regional commercial court can be appealed to the federal commercial circuit court by the claimant or the defendant party participating in the arbitral tribunal within one month of the date of the decision.
The writ of execution is made out by the regional commercial court in accordance with its decision. Normally, the decision of the regional commercial court becomes effective within one month of the date the decision was made or the date of the decision of the federal commercial circuit court. The writ of execution is effective for three years. The next step is to file the writ of execution with a court bailiff at the place of business of the debtor (or its property) and he or she will carry out an enforcement procedure.
IV SHIPPING CONTRACTS
After the collapse of the Soviet Union, the shipbuilding industry declined and has been operating at a very low level until recently. However, steps have been taken to rejuvenate the industry and a programme for continuing development through to 2030 has been adopted by the Russian government. There are about 150 ships under construction in Russia and the government expects them to operate under the Russian flag.
Russian legislation has no particular regulations regarding shipbuilding. All shipbuilding contracts are constructed in accordance with general rules of the Russian Civil Code. The title on a vessel under construction should be registered from the date of keel laying. The harbour master of the nearest port to the shipyard keeps a register of the vessels that are under construction. The construction should be done under the supervision of the approved classification society, which is the Russian Maritime Register of Shipping.
ii Contracts of carriage
The Merchant Shipping Code regulates the carriage of goods by sea. Chapter VIII of the Code regulates all aspects of maritime carriage and it is stipulated therein that any contract of carriage must be in written form. The evidence that the contract of carriage has been concluded may be proved by a bill of lading. Russia is a signatory to the Hague-Visby Rules, one of the few international conventions that have been signed by Russia in the sphere of the carriage of goods by sea. However, many rules from the various international conventions that have not been accepted by Russia are nevertheless reflected in the Merchant Shipping Code of 1999, which states that any transshipment of goods in cabotage can be done only by Russian-flagged vessels. The maritime carrier has rights to exercise a lien over the cargo until it has discharged all freight and received payment for cargo expenses.
iii Cargo claims
There are various situations that can cause problems regarding cargo delivered into Russia. These can be organised into two main types of problem; the first relates to problems created by the Russian authorities, and the second concerns problems that arise all around the world between carriers, shippers, receivers and shipowners.
The first type of problem is characterised by the peculiarities of the quickly changing requirements of Russian legislation. As a rule, the most frequent cargo problems occur in connection with customs and the Federal Service for Veterinary and Phytosanitary Surveillance (SVPS). These types of problems can occur in any country, but in Russia they excite interest from many third parties who are keen to exploit a situation and to earn money from it – for example, when a cargo is partially damaged by seawater, yet the entire cargo is found by the SVPS to be completely unfit for use as a food.
As regards the second type of problem, Chapter VIII of the Russian Merchant Shipping Code of 1999 regulates cargo claims. The carrier can be liable for loss, damage of the cargo or for the later delivery of it from the moment of the acceptance of the goods until the cargo is delivered to the receivers. There is a one-year time bar for cargo claims in Russia. Situations occasionally arise where cargo damages a vessel or a shore crane damages a vessel by falling on the vessel. In such circumstances, the time bar is usually three years.
iv Limitation of liability
Chapter XXI of the Merchant Shipping Code is based on the LLMC Convention 1976 but does not repeat it and regulates the limitation of liability of shipowners and salvors or persons or companies for whose actions shipowners and salvors are responsible. The insurers can also apply to limit their liability in the same way as insured shipowners and salvors.
Limitation of liability can be applied when claims for the following arise:
- in respect of loss of life or personal injury, or loss of or damage to property, including claims in connection with damage to port installations, water basins, navigable routes and navigational aids, which occurred on board the vessel or in direct connection with the operation of the vessel or salvage operations, as well as claims of compensation for any consequential loss resulting therefrom;
- claims of compensation for loss resulting from delay in delivery during the carriage by sea of goods, passengers or their luggage;
- claims of compensation for other loss resulting from the infringement of any rights other than contractual rights, occurring in direct connection with the operation of the vessel or salvage operations; and
- claims of a person other than the person liable for damage caused by the measures he or she has taken to prevent or minimise loss, for which the person liable for the loss may limit his or her liability in accordance with the regulations set out in the Merchant Shipping Code, and the further loss caused by such measures.
Limitation of liability does not apply in the following claims:
- reward for carrying out a salvage operation, including the payment of a special compensation or contribution in general average;
- compensation for damage from oil pollution from vessels;
- compensation for damage in connection with the carriage of hazardous and noxious substances by sea;
- compensation for nuclear damage;
- in connection with the raising, removal or destruction of a sunken vessel, including everything it has or had on board;
- in connection with the raising, removal and destruction or rendering harmless of the cargo of the vessel;
- compensation for damage caused to human life, health or property of the servants of the shipowner or salvor, whose obligations are connected with the vessel or salvage operations, as well as the heirs of the said servants, persons dependent on them or having the right to maintenance from them, if the labour contract between the shipowner or salvor and such servants is governed by the laws of the Russian Federation;
- compensation for loss of life or personal injury of the vessel's passengers when the shipowner and passenger are entities or citizens of the Russian Federation; and
- compensation for damage caused to the life, health or property of a person in direct connection with the operation of the vessel or salvage operations when the shipowner and the person or the salvor and the person are entities or citizens of the Russian Federation.
i Ship arrest
The procedure for the arrest of ships in Russia is not very complicated, but there are some details that should be noted by the initiating party. The legal basis for ship arrest is the Merchant Shipping Code, which came into force on 1 May 1999, and the Arbitration Procedure Code. Russia also joined the Brussels Convention 1952 in January 1999, and the chapter of the Merchant Shipping Code on the arrest of ships was constructed in accordance with the Brussels Convention and the Arrest Convention 1999.
A ship can be arrested by a court order not only as security for a maritime lien or a maritime claim but also as a security for an ordinary claim. A non-Russian flagged ship located in Russia may be subject to arrest when the arresting party argues before the court that it is the property of the defendant and the court issues an arrest order. That order should be taken to a court bailiff, who will issue a resolution regarding the arrest of the ship indicated in the court order and that document serves as a basis for the arrest. A sister ship can also be arrested if the arresting party is able to provide evidence that both vessels belong to the same legal entity (shipowner).
The party who initiates the arrest (if it is a maritime lien or claim against the ship) first applies to a harbour master, who has the right to detain the ship for 72 hours (counting only working days) until the claim is brought to court.
The commercial courts provide the possibility of arresting ships in Russia not only as security for a claim that would be tried in the court that issues the arrest order, but also as security for a claim that will be tried in another jurisdiction or court. In such a case, the claimant must present evidence to the judge that the claim was brought before a court in the other jurisdiction within 15 days of the date of the arrest order, otherwise the ship will be released.
The ship can be released from arrest on the provision of whatever type of security is acceptable to the claimant, but if agreement cannot be reached then cash can be paid into a court deposit account. The payment must be made in roubles. The court then issues a release order cancelling the arrest of the ship. The arrested ship can only be released by the court order and that order can be as a result of the provision of security or the result of trying the case in court (including settlement of the case). The release order of the court should be delivered to the court bailiff (as with an arrest order) and the court bailiff must issue a resolution that cancels the arrest resolution. It can take a few days for all these steps to be completed.
The documents that must be presented to the court are the same for both types of arrests; however, the court can require counter-security on the amount of the claim and, if it is not provided, the application for the arrest may be rejected. If the arresting party provides the counter-security at the same time as the application for the security order, the security order will be granted.
A vessel can be arrested only if she called into a Russian port and an arrest order can be delivered to the master of the vessel by a court bailiff.
ii Court orders for sale of a vessel
A vessel may only be sold pursuant to a court decision. The court decision regarding the sale of the vessel should be delivered to a court bailiff, who should issue his or her own order for arranging an auction for the sale.
Russia is a member of most international safety conventions, including SOLAS and the STCW Convention.
ii Port state control
Russia is a member of the Paris MOU and the administration of any seaport in Russia includes a port state control (PSC) office. The purpose of PSC offices is to carry out inspections of foreign vessels by the port state within the framework of the requirements of the Paris MOU. The activity of the PSC is regulated by:
- the Russian Merchant Shipping Code;
- the Order of the Russian Ministry of Transport No. 140 of 20 August 2009 'On approval of the general rules for navigation and mooring in the seaports of the Russian Federation and approaches to them';
- the Paris MOU;
- IMO Resolution A.1052(27) Procedures for Port State Control; and
- the bylaws of the port where the inspection takes place.
iii Registration and classification
The register of vessels in Russia is maintained by the harbour master of each seaport. The registration of vessels is regulated by Chapter III of the Merchant Shipping Code. The Russian government has had a special programme to stimulate and attract more vessels under the Russian flag since the fall in numbers following the collapse of the Soviet Union. There are two ship registers in Russia: the Russian Register of ships and the Russian International Register of Ships.
The classification society is the Russian Maritime Register of Shipping, which was established on 31 December 1913. In 1969, it became a member of the International Association of Classification Societies.
iv Environmental regulation
Russia participates in most international environmental and pollution conventions. Chapter XVIII of the Merchant Shipping Code regulates oil pollution from ships. Environmental issues are monitored by a dedicated government authority that has the right to fine the owners of vessels that have polluted in Russian waters. The shipowners will also be obliged to compensate for the cost of cleaning up the pollution.
v Collisions, salvage and wrecks
The legal basis for regulating the consequences of collisions in the waters of the Russian Federation lies in Chapter XVII of the Merchant Shipping Code and regulates the classification, investigation and registration of emergency situations in relation to vessels at sea. Chapter XX of the Merchant Shipping Code sets out rules on the salvage of vessels and other property. Chapter VII of the Merchant Shipping Code regulates wreck removal.
Chapter XVII of the Merchant Shipping Code is based on the 1910 Salvage Convention and can be applied when a collision involves at least one seagoing vessel regardless of where the collision occurred (whether in international waters or the territorial or domestic waters of Russia). It applies only when damage is caused to a third party on a non-contractual basis.
Parties involved in a collision bear their own losses and are not liable for the damage of others if the collision occurs as a result of force majeure or if it is impossible to establish the reasons for the collision. However, the parties in such a collision can still be liable under Russian civil legislation to third parties who were not a party to the collision but who nevertheless suffer damage as a result of it.
If a collision occurs as a result of the fault of only one of the vessels involved, then the owner of that vessel is liable for all damages resulting from the collision. The damages consist of expenses that all other parties have incurred to the extent required to restore them to their position before the collision. If the result of the collision is the total loss of a vessel, then the owner of that vessel has the right to recover the market price of the vessel as determined on the day of the collision.
If the cause of the collision is the fault of two or more vessels, the liability for damage to each vessel is determined in accordance with the proportion of fault of each vessel. The owners of all vessels involved in the collision are liable for damage to third parties resulting from the collision in the same proportions. If the damage caused was personal injury or death, then the victim or his or her representative can claim from any owner involved in the collision (and thereafter, that owner can claim a proportion from the owners of the other vessel or vessels).
The owner of a vessel involved in a collision is liable for damage resulting from the collision even if the collision resulted from the negligence of a pilot and even if the vessel was in a compulsory pilotage area at the time. The reason for this is that the pilot is an adviser to the master and the final decision must be that of the master of the vessel. (In this situation, the pilot may also be liable in accordance with Russian law but his or her liability is limited.)
The Merchant Shipping Code declares that no vessel or owner involved in a collision can be found liable for that collision until liability is proved by the claimant party.
vi Passengers' rights
The Merchant Shipping Code, at Chapter IX, regulates passengers' rights. The rules set out therein mostly correspond to the Athens Convention as the Russian Federation is a participant in that convention.
vii Seafarers' rights
The rights of seafarers on board Russian-flagged vessels are regulated by Chapter IV of the Merchant Shipping Code and by the Labour Code of the Russian Federation.
The Russian government is continuing to support the national shipping industry. There are a number of state programmes, including those for constructing new vessels and for attracting shipowners under the Russian flag. The Russian government has also created a legal basis for this by issuing Law 460-FZ. As a result of that new law, Article 4 of the Russian Merchant Shipping Code 'Use of vessels flying the State Flag of the Russian Federation for the merchant shipping purposes' was changed at the end of 2017.
Changes to the Russian Merchant Shipping Code entered into force on 1 February 2018, with the exception of the provisions relating to exclusive rights of Russian vessels to transport oil, gas and coal explored in the Russian territory and loaded in the Northern Sea Route, or storage on vessels in the water area of the Northern Sea Route.
The provisions relating to exclusive rights of Russian vessels entered into force one year after official publication of the amendments (29 December 2018). The Law does not apply to transportation by the Northern Sea Route in accordance with international agreements concluded before Law 460-FZ came in force.
The law widens the definition of the term 'cabotage', inter alia, to refer not only to voyages between Russian ports but also between oil and gas platforms and the ports of first destination (even if these are not Russian ports). It was issued to protect the interests of Russian shipowners and to attract more vessels under the Russian flag. Since Russia is currently building new fleet of ice-class vessels (oil and gas tankers), the new law will serve to support that project.
Two new ice-class tankers (Arc4) operating on environmentally friendly LNG bunker fuel were built in 2018 as part of a mutual project between Sovcomflot and Shell. A new LNG bunker tanker was also started to be built in 2018.
1 Igor Nikolaev is the founder of IN Law Office.
2 Statistical information from the official site of the Russian Ministry of Transport.
3 Before 1 September 2002, the courts of general jurisdiction were dealing with commercial disputes when at least one party to the dispute was a private individual (whether Russian or foreign). The courts of general jurisdiction operate at three levels: local courts, regional courts and the Supreme Court of the Russian Federation at the moment. As of 1 October 2019 the courts of general jurisdiction will operate at four levels: regional courts of general jurisdiction, appeal courts of general jurisdiction, federal courts of general jurisdiction and the Supreme Court of the Russian Federation.
4 These courts deal with all commercial disputes between businesses (even when a private individual is a party in the dispute). The jurisdiction of the state commercial courts covers foreign parties.