Ukrainian Closure of Crimean Ports: Issues to Consider

July 2014

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On 16 June 2014, the Ukrainian government issued Directive No.255, entitled “On Closure of Sea Ports” (the “Directive”). Clause 1 of the Directive stated that the Ukraine intended to close the ports of Kerch, Theodosia, Sevastopol, Yalta and Evpatoria. Clause 2 stated that the port administrations of all of these ports would be liquidated and so essentially cease to exist.

This guidance note considers some of the issues which may arise as a result of this action by the Ukrainian government. Members should be aware that every situation should be considered individually, in the context of the specific facts and contractual terms. As such, if Members are ordered to load or discharge a cargo or call for bunkers or any other purpose at a Crimean port, it is strongly recommended that they contact the Club or obtain legal advice.

The following illustrate issues that may potentially arise but are not intended to be exhaustive.

Orders to proceed to Crimean ports

Charterparties generally incorporate a requirement that all voyage orders must be lawful. Under English law, contractual obligations cannot be enforced if performance of those obligations would be illegal under the law of the place of performance.

The question of whether an order to call at a Crimean port is lawful, or whether Owners are entitled to refuse and require Charterers to issue alternative orders is not straightforward.

Although the ports have been closed pursuant to a Directive of the Ukrainian government, the question then arises as to whether the law of the place of performance (i.e. the Crimea) would be that of the Ukraine, or the Russian Federation, which the Crimea is asserted to have joined after the referendum in March 2014. There is no simple answer since this may depend on the forum in which any dispute is being determined and the extent to which it may recognise the annexation of the Crimea.

Orders to proceed to a Crimean port should, therefore, be considered carefully. In light of the potentially serious consequences of such a call (see further below), it may be in both Owners’ and Charterers’ interests to find a mutually agreeable alternative rather than force Owners to formally reject Charterers’ orders.

Charterparty sanctions clauses

Many charterparties incorporate specific sanctions clauses. Such clauses deal with matters such as action parties may take if orders breach sanctions, or if a party involved in a trade or transaction becomes designated by an applicable sanctions regime.

It should not be assumed that such a sanctions clause will apply to the Directive. Sanctions clauses generally refer to established sanctions regimes such as those of the UN, EU and US and not unilateral measures promulgated by individual states which may not be afforded the same degree of recognition, or any, under International Law. Where a sanctions clause may apply is in respect of cargo, discussed below.

Calling at a Crimean port

There may be serious consequences if a vessel does call at a “closed” Crimean port. If the vessel subsequently calls at a Ukrainian port, it may be subject to arrest and legal proceedings may be commenced against both Owners and the crew for breach of Ukrainian law.

It is assumed, notwithstanding the Directive, that ports in Crimea, and their port authorities, will continue to function under local control. The status, and recognition of the latter, may be in issue. This may impact on the validity of and recognition given to, documents issued by the latter or customs documents.

If a vessel does, in any event, call at a Crimean port to load or discharge, there are various other cargo issues which may arise.

Cargo to be loaded at Crimean ports

EU Regulation 692/2014 prohibits the importation into the European Union of goods “originating from” the Crimea or Sevastopol. These are defined as goods which are wholly obtained from (i.e. produced) or that have undergone their “last substantial transformation” (i.e. manufactured) in the Crimea or Sevastopol. Since it is unlikely that Ukrainian cargoes will continue to be shipped from Crimea, the Regulation is likely to be applicable to many of the cargoes loaded, destined for the EU. However, the prohibition does not apply to contracts for sale concluded prior to 25th June, 2014.

Cargo to be discharged at Crimean ports

The principal problem anticipated is ensuring that cargo discharged is delivered to the party entitled to it. It is likely that cargo consigned to Ukrainian receivers may no longer be capable to delivery to them if discharged at a Crimea port and may, therefore, be unlawfully diverted or subject to lengthy delay in delivery with consequent storage costs and/or risk of deterioration.

Summary and Recommendations

It is not known precisely how these latest developments will play out. Members should act with extreme caution in respect of any potential call to Crimean ports, and should seek independent legal advice. Members may wish to consider excluding Crimean ports in trading warranties at present.

We are grateful to Alex Allan and David Myers of Reed Smith for this article.