The dispute arose out of a DAP contract under which our client had to deliver the goods to a Polish border station using railway transport. Our client submitted the applications to the electronic railway system to book the railcars for delivery. The said applications had to be approved by a Polish railway with the assistance of a buyer and its consignee. Some of the applications were approved, allowing our client to successfully deliver part of the goods. However, some of the submitted applications were rejected by the Polish side. As a result, the client could not deliver the remaining contract quantity of the goods within the delivery period.
The client insisted that the performance of the contract was prevented by the buyer’s omission, i.e., failing to facilitate the approval of shipment applications by a Polish railway. As a result of this omission, the client incurred substantial default damages, as the non-delivered goods were re-sold at a much lower price. Because the buyer refused to compensate for these damages, the client decided to initiate the FOSFA arbitration proceedings.
During the arbitration, the buyer insisted on the absence of his fault. The buyer stated that under a classic DAP contract, it is a seller who is responsible for the delivery of the goods until the place of destination, bearing all the risks. Our legal team, in turn, referred the Tribunal to numerous contractual provisions which expressly mentioned the buyer’s obligation to facilitate the delivery of the goods and acceptance of the shipment applications. In addition, numerous pieces of evidence were submitted (witness statements, excerpts of Ukrainian legislation, etc) proving that a buyer is playing an important role in the delivery process from Ukraine to Poland.
After a long-lasting exchange of written submissions between the parties, the tribunal fully satisfied the client’s claim awarding the damages in the amount of about USD 2 mln together with interest. The Tribunal in its award admitted that while under a common DAP contract, a seller indeed bears all the risks related to the delivery of the goods to the destination, in the present case the parties in the contract expressly placed additional obligations on the buyer. This decision reminds us once again to carefully study the contractual provisions before signing agreements with counterparties.
The Claimant filed a lawsuit against a Chinese corporation, claiming that the agreement for a bank guarantee was invalid and any disputes arising out of the guarantee are to be settled under Ukrainian law at Ukrainian courts. However, such a position was contradicted by the fact that the bank had signed an arbitration agreement, which provided that English law applies and disputes should be resolved under ICC Arbitration Rules.
As a result, the first instant court remained the claim without consideration, because the parties had agreed to settle any disputes through arbitration instead of going to court.
Nevertheless, the appeal court overturned the previous court's decision, stating that one of the defendants was in bankruptcy proceedings, therefore the dispute is non-arbitrable and shall be considered by the Ukrainian court.
Disagreeing with this outcome, AGA Partners filed a cassation to the Supreme Court, drawing attention to the fact that the appeal court wrongly ignored the binding arbitration clause, under which arbitration proceedings had already been initiated. This violated the Law of Ukraine "On International Commercial Arbitration" and the Commercial Procedure Code of Ukraine (hereinafter referred to as the "CPCU"). The appeal court also made a mistake in concluding that the dispute under the guarantee in non-arbitrable.
The Supreme Court upheld our client's position and completely overturned the appeal court's decision, leaving the first-instance court's ruling in force. The Supreme Court noted that:
"...the appeal court erroneously prioritized individual provisions of national law over the provisions of valid international treaties of Ukraine in the disputed legal relations, and unjustifiably interpreted the absence of special provisions regarding the implementation of an arbitration agreement by the debtor in a bankruptcy case as a basis for applying analogies of law instead of applying the mandatory provision of Article 226, Part 1, Section 7 of the CPCU".
It is an important decision, demonstrating the court’s support for arbitration dispute resolution in Ukraine. The decision of the Supreme Court can be found at the following link.
In this case, the seller undertook to supply 25,000 mt of Ukrainian corn and wheat in October 2022 under two CIF contracts.
From 29 October to 2 November 2022, russia suspended its participation in the Grain Deal. Because of this situation, the seller referred to the blockade of the grain corridor and requested a free extension for the later performance of the contract. The buyer did not accept that request and the goods were not eventually shipped within the agreed period.
In these circumstances, the buyer declared the seller in default for the failure to perform the contract and initiated arbitration to recover damages.
The seller’s main defence was that force majeure excused it from liability for the breach. The arbitral tribunal held that there was no force majeure for the following reasons:
- The contracts were concluded more than six montns after the russian invasion. The seller assumed the possibility of delays and should have planned for this in advance of the shipment period.
- To take advantage of a force majeure clause, the seller had to make a clear reference to the force majeure event. Instead, it merely requested a free extension in its letter.
- The seller did not prove that there were issues with the cargo and difficulties with vessels.
On this basis, the arbitrators awarded our Turkish client ~USD 1,300,000 in damages.
This case vividly illustrates that obstacles to contract performance might be treated as force majeure only if they directly prevent the shipment of the goods. Mere difficulties (even grave ones) will not suffice.
And the waiting is over! But… whether the government’s decision resolves the existing issues?
On 31 October 2023, the Cabinet of Ministers of Ukraine issued Resolution No. 1132 "On the Implementation of an Experimental Project on the Verification of Subjects of the Agro-Industrial Complex under Martial Law" (“Resolution”). This act fundamentally changed the procedure for the export of agricultural goods from Ukraine.
In plain words, the Resolution provides that only legal entities that are included in the verification list of Ukrainian exporters and meet the established criteria are entitled to export agricultural products. All procedure of verification is carried out by Ukrainian authorities.
But, delving deeper, the established rules apply to the export of agricultural products under UKTZED codes 1001, 1002, 1003, 1004, 1005, 1201, 1205, 1206 00, 1507, 1512, 1514, and 2306.
Thus, an exporter of the goods under the said codes must meet the following requirements:
1. an exporter must be a VAT payer at the time of submitting an export application and as of 23 February 2022;
2. an exporter has no tax debt for the payment “Penalty for Violation of Settlement Deadlines in Foreign Economic Activity, Non-Performance of Obligations, and Penalties for Violating Currency Legislation” (payment code - 21081000);
3. an exporter has documentary confirmation from the bank that from 23 February 2022 to 27 October 2023, an exporter conducted at least one successful export operation with a return of foreign currency revenue;
4. an exporter has not been subjected to a tax authority decision regarding the absence of a registered location;
5. an exporter is not subject to the bankruptcy proceedings and is not in the liquidation.
As an alternative to the verification procedure, the Ukrainian Government provides a licensing procedure for the export of agricultural products.
So now, a new bureaucratic stage has been added to the export process (which is unlikely to please any of the traders) – the formation of a list of verified agricultural entities. Each of the entities that now wish to export Ukrainian agricultural products without hindrance must undergo this verification procedure.
But whether existing restrictions and established rules can be treated as a prohibition of export or other event that exempt sellers from liability for non-delivery of agricultural products. The question is still open.
It is not yet entirely clear how this innovation will work in practice and how realistic the requirements of Ukrainian legislation are. Hopefully, the market will return to normal, traders will adapt, and the goods will be delivered to buyers!
For additional information, please contact Mr. Ivan Kasynyuk, Partner at AGA Partners, email@example.com; Mr. Oleksandr Zub, Associate at AGA Partners, firstname.lastname@example.org; or Mr. Viktor Romaniv, Associate at AGA Partners, email@example.com.
AGA Partners team constituted of the partners Iryna Moroz and Ivan Kasynyuk, senior associates Yurii Bedenko and Pavlo Lebediev, associates Anastasiia Shevchuk and Vasyl Radetskyi have successfully cancelled the arrest nine days after the interim measures were imposed. Eventually, AGA Partners law firm have returned the amounts paid on the deposit account of the court to the shipowners.
Senior associate Yurii Bedenko comments: “Imposing an arrest on the sea vessel considered in ex parte court proceedings may cause huge damages for the shipowners. The courts of Ukraine may impose an arrest even in the situations where the maritime claim is not clearly visible. That is why is important to act fast to reduce shipowner’s losses caused by arrest”.
Senior Associate Ievgen Boiarskyi will be a guest lecturer on "Drafting Arbitration Agreements and Arbitration Clauses" within the course "International Law and Arbitration" organized by the Business Consulting Academy (BCA).
AGA Partners' Partner Ivan Kasynyuk, Senior Associate Pavlo Lebediev and Associate Anastasiia Shevchuk delivered a seminar on the latest challenges in commodity trade in the Black Sea region. Active interaction with the audience resulted in a great discussion. Pavlo Lebediev also spoke at the panel "Price Assessment, Contracts and Insurance in International Trade" together with other speakers of the conference.
After the CIF sale contract between the parties had been performed, the dispute emerged with respect to demurrage due from the buyer to the seller, accrued due to a delay in discharging operations.
The crux of the dispute was the weather at the port of discharge. Under fundamental rules of the laytime calculation, time does not count for the period of bad weather (rain, snow, storm, etc.). The position of the buyer was that most of the relevant time at the port of discharge there had been raining, that prevented conduct of discharging operations. Accordingly, the final demurrage amount was rather insignificant. At the same time, the sellers’ position was the opposite. They alleged that there had been almost no rain during the relevant time period, so that all this time should be counted as laytime, increasing the amount of demurrage.
In support of their positions both parties provided various pieces of evidence, including, from witness statements of the port workers, meteorological reports, statements of facts regarding other vessels in the relevant period of time and weather expert reports.
After a long-lasting exchange of written submissions between the parties, the tribunal dismissed the seller’s claim in its entirety, confirming the calculations submitted by the buyer. As a result, the buyer had to pay only one-seventh of the sum initially requested by the seller.
The Order of St Sophia is awarded to women who, through their professional, charitable and social activities, contribute to the development of all spheres of modern life in Ukraine, are informal leaders in various fields and have a positive impact on the country's public life.
- Managing market volatility in grain markets
- Exchange traded contracts for grain derivatives after the Black Sea conflict
- The role of OTC instruments
In this case, the Ukrainian organic producer initiated London arbitration with the claim to recover the debt for the delivered goods. On behalf of the buyers, AGA Partners disputed this claim on both substantive and procedural grounds.
In particular, our position was that the seller’s claim shall be deemed barred due to its failure to timely pay the arbitration deposit. In response, the seller’s counsel argued that their client was prevented from transferring the funds to the UK arbitral institution by Ukrainian martial law.
To resolve this alleged problem, the arbitral institution exceptionally allowed the seller to pay the arbitration deposit to the bank account of the Ukrainian entity. Nonetheless, the seller did not pay the arbitration deposit.
As a result, the sole arbitrator upheld our objections and declared the seller’s claim barred.
The dispute arose out of three contracts for the СIF delivery of Brazilian soybeans to Turkiye. The goods were loaded with excessive moisture content and further deteriorated while staying at anchorage in Ukrainian waters. Upon completion of the voyage, the surveyors revealed heavy smell, mould and high temperature of the cargo. Our client sought negotiations and made several without prejudice proposals to accept the goods with allowances corresponding to the actual quality of the goods. Failing to reach an amicable solution, the client refused to pay for the delivered goods due to their non-contractual quality and incomplete tender of shipping documents. The seller treated the refusal to pay as default and terminated the contracts.
In arbitration, the seller argued that the quality must be determined at loading and the condition of the cargo at discharge was irrelevant. According to its position, the difference of 0,8% in moisture content at loading was merely a slight discrepancy generally contemplated by businesses in commercial trade. The seller also alleged that it was entitled to payment as the broker received all necessary shipping documents. This argument was supported by the allegation that the client waived the right to reject the goods by suggesting to accept the cargo with the allowance.
Both the first-tier tribunal and the board of the appeal held that the seller was not entitled to payment under the contracts and thus wrongfully terminated them. First, they determined that the moisture requirement constituted a condition of the contracts and the deviation from the maximum limit represented their repudiation. Second, the arbitrators agreed with our position that the seller failed to tender the full set of contractual shipping documents and, hence, did not trigger the payment obligations under the contracts. They did not consider without prejudice settlement proposals a waiver of the client’s rights.
On this ground, the tribunal awarded the client damages of around USD 1 million together with the compensation of interest, legal fees, arbitration and trade representative costs.
In this dispute, the Romanian seller concluded a forward contract on the sale of a large parcel of Romanian non-GMO corn to its partner in Türkiye.
To perform the agreement with its Turkish customer, the seller contracted the goods from regular suppliers in the eastern part of Romania. However, in August 2020, farmers in this region faced hot and dry weather which led to a significant reduction in the yield. The reduced amount of the harvested crop naturally triggered a spike in the prices of Romanian corn. The market fluctuations, in their turn, prompted the seller’s suppliers to deliver the goods to companies paying a higher price for them. As a result, the seller could not procure the necessary amount of corn from its regular suppliers.
There was nothing left for the Turkish buyer but to declare the Romanian seller in default and initiate arbitration to recover the losses incurred due to the increase in the price of the goods.
In arbitration, the seller took the position that the drought in Romania constituted a force majeure which released him from liability for the non-delivery of the goods. In support of this position, the seller’s counsel submitted the reports of the commissions allegedly appointed by the government. Those documents fixed that certain lands in eastern Romania and crops grown on them were damaged by the drought, either totally or partially.
Although the drought made the performance of the contract difficult, both the first-tier arbitrators and the appeal board held that the filed evidence did not allow it to excuse the seller from liability for the non-delivery of the goods.
As a result, the arbitrators supported our position and held that the seller was fully liable for the non-delivery of the goods. The arbitrators satisfied all claims filed in the arbitration – the damages of ∼700,000 USD, interest from the date of default and arbitration costs.
In addition, the AGA Partners team is recognised among the leading companies in the following practices:
✔Agricultural and land law
✔International arbitration/International litigation
AGA Partners was traditionally recognized by the international rating The Legal 500 in three practices:
International trade - Tier 2
Private clients - Tier 2
Dispute resolution - Tier 3
In addition, personal recognition was received by:
Iryna Moroz - Leading individual in the practice of International Trade and Private Clients
Aminat Suleymanova - Leading individual in the practice of Private clients
Oleksandr Gubin - Rising star in the practice of Private clients
Pavlo Lebediev - Key lawyer in the practice of International trade
Yurii Bedenko - Key lawyer in the practice of International trade
Read more about the rating.
War is a time for unity. Looking at the results of the Chambers and Partners study of the Ukrainian legal market, the well-known term "legal front" comes to mind. Firms lined up not from top to bottom, but in a row, which is very symbolic today.
AGA Partners was recognized among the 12 leading law firms of Ukraine in the practice of Dispute Resolution, Ivan Kasynyuk and Iryna Moroz were included in the list of best lawyers in DR - Chambers Europe and Global 2023.
Sincere congratulations to colleagues and gratitude to researchers for such a rating of law firms and lawyers of Ukraine. Together to victory!
Read more about the rating at the link.