1. The Black Sea Grains Agreement was interrupted by Russia, what must happen in your opinion for it to be resumed?

Given Russia's constant blackmailing, Ukraine no longer needs to hope for another "gesture of goodwill" and the reopening of the Grain Corridor. In fact, during the term of the Grain Deal, its execution was sabotaged by Russia through various means. Sometimes, vessels could not pass JCC inspections at all, which paralysed the work. Grain exports from mid-July (after the closure of the Grain Corridor) to early November 2023 were extremely difficult, but a solution was found - a humanitarian corridor coordinated by the Ukrainian Navy, which began operating in September and continues to operate as of today.

In our opinion, there is no point in resuming negotiations on the extension of the Grain Deal at this time. Russia has set unacceptable conditions for the continuation of the Grain Deal, such as the resumption of the work of the ammonia pipeline to Europe and the connection of banks to SWIFT. A compromise on these issues cannot be reached, as Ukraine is not ready to make concessions to the aggressor. Moreover, Ukraine has managed to open the Black Sea on its own, so the issue of reopening the Grain Corridor is not currently on the Ukrainian agenda. Over the period of the humanitarian corridor's existence, more than 200 vessels have left Ukrainian ports, exporting a total of 7 million tonnes of cargo.

2. Does the possible unblocking of Ukrainian Black Sea ports reduce the pressure on the transit of grain through frontline countries, including Poland? Is the market paying attention to what is happening in Ukraine, or is the war already over?

The temporary corridor from Odesa ports significantly reduced the degree of tension regarding the export of Ukrainian goods and reduced the congestion of the Danube ports and the Western borders. However, exports through the Odesa ports cannot reach the level of pre-war exports in times of war due to a number of factors: limiting the number of vessels that can simultaneously load within the temporary corridor, military risks of loading in Odesa ports, delays in vessel entry or exit due to active hostilities, etc.   In any case, Ukrainian farmers and traders will not be able to completely refuse deliveries by land transport via neighbouring countries. Establishing logistics across the western borders has been and remains a priority for our government and business. In our opinion, in this situation, the only reasonable solution to reduce the pressure is to reach a compromise at the highest level of both countries.

3. Is it profitable for Ukraine to invest in storing its agricultural produce at the eastern border and in the railway fleet?

Investments by business and Ukraine in the development of new logistics routes, railway connections and the construction of warehouses on the western borders are certainly promising and beneficial for all parties. The most attractive investment projects are those involving the storage of goods and the construction of terminals close to the western borders, which makes it possible to relieve border congestion and store goods in safer locations. Accordingly, businesses are looking for options to expand storage capacity near the border, in neighbouring countries or in neighbouring ports (Gdansk, Gdynia, Konstanza).

4. Who makes money on the export of grain and agricultural products from Ukraine, the state, agroholdings?

Agribusiness is currently the main and fundamental segment of the Ukrainian economy, generating income and turnover for all market participants and the state. When exporting agricultural products, all members receive preferences and income: 1) farmers and agriholdings that grow and export their own products, which makes it possible to reinvest in new crops and harvests 2) traders who can sell the goods at marginal prices 3) the state of Ukraine, which receives taxes 4) related industries that work together with agribusiness (ports, terminals, logistics companies, carriers, shipowners, insurance companies, surveyors, etc.) 5) people who get jobs and employment. It is worth noting that Ukraine is strengthening control over the budget revenues from agricultural exports by creating new rules for the verification and reporting of exporters. Ukraine's policy is aimed at maximising revenues from agricultural exports, which is the main working sector of the economy at the moment.

5. How can the frontline countries make money, if at all, from trade in agricultural produce with Ukraine?

In our opinion, it is possible to make a profit from trading agricultural products with Ukraine if stable and partnership-based trade relations are maintained. Ukrainian goods are highly competitive in terms of quality and price. Ukraine is one of the key exporters of raw materials to the EU, Africa, Asia, and India, which creates benefits for neighbouring countries.  Neighbouring countries can earn substantial income if they increase port, transshipment, storage and logistics capacities for Ukrainian goods. For example, the transshipment capacities of foreign ports and railways do not reach the level of Odesa ports. Currently, there is a large demand for agricultural exports in transit through neighbouring countries and ports, but neighbouring countries do not have sufficient capacity to meet this demand. In addition, the situation is complicated by long queues and blockades at the borders. Ukrainian traders and manufacturers are constantly looking for new logistics routes. Neighbouring countries that can offer improved logistics and increased exports of Ukrainian goods in transit could generate significant revenues and new investment opportunities for the development of railway, port and warehouse infrastructure.

6. Transport costs have recently become much more expensive, which also affects the trade in agricultural raw materials. What does it look like in Ukraine?

Due to complicated logistics, there is a gap between the prices for Ukrainian grain in international contracts and the price received by producers domestically.  Today, however, Ukrainian producers and traders operate on a "grow/trade or die" basis. Producers sell their goods knowing that they will not make a profit this year. If they don't grow and trade, hundreds of companies will stop, and the entire industry will feel the impact.  Therefore, farmers continue to work in extremely difficult conditions, looking for ways to diversify their business, grow new crops and optimise costs.

7. In your opinion, regardless of whether the Polish border was open or closed to agricultural products from Ukraine, grain imports in the current season would remain marginal, mainly for purely economic reasons? – We are unable to answer this question due to the difficulty of forecasting this situation. This question should be addressed to price analysts in the agricultural sector.
8. The transit of four agricultural products from Ukraine, i.e. wheat, corn and rapeseed, is still being carried out, although in the meantime there has been a breakdown in diplomatic relations between Poland and Ukraine and a unilateral blockade. How does this conflict affect trade, if at all?

First of all, we would like to point out that there is no diplomatic conflict, as Poland and Ukraine continue to negotiate and find a way out of the situation at the state level. The situation is different with the organisations that actually initiated the blockade - their demands are ultimative, and in such circumstances, the possibility of reaching a compromise is reduced to zero.

It is worth recognising that the blockade of the border has a huge impact on trade not only in agricultural products, but also on the economies of both countries, especially Ukraine. In November, the losses incurred by the Ukrainian economy due to the border blockade were estimated at more than €400 million.

Even when goods are transported in transit, they cannot be delivered to their destination on time due to the border blockades, which creates additional costs in terms of transport downtime, non-fulfilment of export contracts, and deterioration in the quality of goods.  In such a scenario, there is only one outcome - contracts are not fulfilled, and losses increase in multiple amounts, which demotivates Ukrainian exporters to use the western borders for exports.

9. Do you agree with the opinion that it was not the import ban introduced in May by the EC to five frontline countries that led to a decline in imports of Ukrainian grain, but the market situation made Ukrainian grain no longer competitive. How do you rate it?

We do not agree with this statement. The main factor behind the decline in exports of Ukrainian goods is the blocking of transport for Ukrainian companies. Ukrainian goods are competitive, and Ukrainian traders are even more interested in transit exports across neighbouring borders. If transit is blocked, it significantly reduces the amount of exported goods.

For example, before the war, the largest share of exports was carried out via sea routes - 49.5 million tonnes in 2021. Since the Russian Federation withdrew from the Grain Agreement in July 2023, sea exports began to recover only in October this year, with 5.6 million tonnes in October. Taking into account the situation on the western border, Ukrainian suppliers are now actively working to solve these problems and looking for new markets.

Exporting Ukrainian grain is a matter of logistics, not quality.

10. Is Ukrainian agriculture able to quickly transform to EU standards, e.g. in the context of the consumption of active substances recommended in the EU?

In accordance with the Association Agreement with the EU, all EU requirements for the quality and safety of agricultural products have been incorporated into Ukrainian legislation. This is confirmed by the fact that Ukrainian farmers have already been quite successful in exporting their products to the EU, where they are checked for compliance with EU legislation. For full adaptation, Ukraine still needs to develop an internal mechanism for monitoring compliance with the above-mentioned norms.

11. What are the current prices of cereals, rapeseed and sunflower in Ukraine? – We are not quite competent to answer this question, so you should ask your brokers.
12. Can I ask for data on how many agricultural products Ukraine has managed to export since the beginning of this season? And what countries were they? –

According to the Ministry of Agrarian Policy and Food of Ukraine, in 8 months of 2023, Ukraine exported over 41.1 million tonnes of agricultural products, including over 30.7 million tonnes of grains and over 3.8 million tonnes of oilseeds. 59% were exported to the EU, 15% to the Middle East, 12% to Asia, and 7% to Africa.

Iryna Moroz, partner at AGA Partners
Vladyslav Kapustynskyi, associate at AGA Partners

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Almost each and every trader, who works with the Black Sea market, has faced a dramatic increase in the number of disputes when procuring grains. A company had to be lucky enough to perform even one contract without any challenges as most transactions are significantly affected by the unprecedented turbulences in the region. The Russian invasion of Ukraine, the imposed sanctions and the flawed operation of the Black Sea Grain Initiative – all these factors together with unpredictable natural conditions had and continue to have a significant impact on the supply chains and commodities contracts. As a result, there have been a vast number of disputes that traders had to handle in their business.

Specializing in commodities trade, AGA Partners were actively involved in resolving hundreds of those disputes. As the turbulences on the market generated genuinely novel situations, this article is designed to provide a ‘helicopter view’ of the recent cases and basic recommendations on how to address the challenges in the Black Sea trade. 

UKRAINIAN BLACK SEA PORTS: AGAINST ALL ODDS

Within the last two years, the trade through the Ukrainian Black Sea ports has gone through a critical transition which was marked by numerous disputes between the market players. 

1. The first stage: The blockade of ports. Before the Russian invasion, ~96% of Ukrainian commodities were exported through the Ukrainian Black Sea ports. However, the situation changed critically with the beginning of the full-scale war when Ukrainian Black Sea ports were blocked by Russia. Ukrainian exporters naturally were not able to live up to their commitments and claimed force majeure under the contracts. Because of the harsh effect of the invasion on Ukrainian business, buyers mostly accepted the cancellation or suspension of sale contracts and there were few cases as to their non-performance (they mainly concerned the payment for the lost goods). At the same time, many vessels that had called the Ukrainian ports before the Russian invasion were blocked there. This triggered disputes on detention and payment of hire under the charters as well as gave rise to insurance cases on constructive total loss of those vessels.
2. The second stage: The grain deal. After the Black Sea Grain Initiative was reached on 22 July 2022, the export of Ukrainian commodities from the major Black Sea ports resumed. But the unique mechanism introduced by the Grain Initiative inherently posed serious challenges to the delivery of grain from Ukraine. Because of the delays in inspections of vessels by the Russian side, buyers were often not able to timely tender vessels for loading the cargo while sellers struggled with shipping the goods within the agreed periods. These delays also caused disputes between shipowners and charterers on detention costs which accrued while awaiting inspections. The peak of the tensions happened when Russia withdrew from the Grain Initiative (both in October 2022 and July 2023). Such a development, of course, led to claims as to the impossibility of the performance of concluded contracts.
3. The third stage: the humanitarian corridor. In August 2023, Ukraine launched the humanitarian corridor for the export of commodities with the route set as close as possible to the Romanian and Bulgarian borders. As of the time when this article was written, several vessels have already called the port of Chornomorsk for shipment of grains bound for Africa and Asia. While it remains to be seen whether this route will operate at a full scale, any format of shipments from the Ukrainian Black Sea ports – either through the humanitarian corridor or under the revised grain deal – is still likely to involve challenges in the performance of supply contracts.

So, it is advisable for buyers of Ukrainian commodities to revise their contracts and adjust them to the peculiarities of deliveries from Black Sea ports (whether it be agreed on a political level or not). The primary focus should be on the transfer of risk and title, payment terms, insurance, and the order of the contract execution. The contract should clearly address the consequences of events preventing its performance and provide your company with adequate remedies. 

EXPORT THROUGH THE DANUBE: THE BEACON OF HOPE

After Russia blocked the Black Sea ports, Ukrainian suppliers started to explore alternative export routes. While many traders supplied commodities through the Western border by road and rail, these routes were not sufficient (and, in some cases, commercially viable) to export the entire crop from Ukraine.

In such circumstances, Ukrainian river ports in Izmail and Reni became huge export hubs where major traders transferred their facilities. The increase in the export capacity was truly impressive: in 2022, the Danube ports processed three times as much cargo delivered from there in 2021. Such a surge could not help but affect the performance of sale contracts as the infrastructure was not first prepared for the large number of vessels calling those ports. The massive congestion to enter the Danube ports caused and continues to cause many disputes on demurrage and detention. 

The procurement of grain from the Danube ports was further influenced by natural causes. The Sulina Channel, which leads to them, does not work at night and is closed for entrance in case of adverse weather. As a consequence, there were disputes where Ukrainian sellers were not in a position to ship the goods within the agreed timeframe. Another challenge was the seasonal shallowing of the Danube which led to the short loading of vessels. Having faced the problems caused by adverse weather, suppliers were forced to invoke force majeure and claimed excuse from liability for breaching their contracts.

Within the last months, Russia has launched a new wave of shelling which aims at agricultural facilities and port infrastructure. Sadly, there were numerous accidents of damage to cargo stored at the warehouses which also prompted Ukrainian companies to rely on force majeure and frustration of sale contracts.

Despite these challenges, the Danube ports remain the major export hub in Ukraine which is reported to have the capacity to ensure the export of the entire Ukrainian crop. As the export of commodities via this route involves unique features relating to the passage of vessels to river ports through channels, it is important to customize contracts to these specific deliveries. Updated contracts can decrease the number of disputes between the parties as their agreement will contain guidance on how to proceed in case of typical problems.

SANCTIONS AGAINST RUSSIA: CONTRACTUAL SAFEGUARDS

While Ukrainian suppliers mainly suffer from the logistical problems caused by the blockade of seaports, trade with Russian businesses might be complicated by the imposed sanctions. Those restrictions often have a wide scope – they apply not only to companies expressly included in the sanctions list but also to those entities that are controlled by them. Because of this feature, buyers may accidentally conclude contracts with the companies affected by sanctions or face their illegal execution (e.g. carriage of cargo by a sanctioned vessel).

The conclusion of contracts with sanctioned companies will probably have far-reaching consequences as the sanctions may obstruct the performance of contracts. To avoid detrimental consequences, it is crucial to conduct due diligence on your counterparty. The contract should also provide your company with efficient remedies in case you face (or even are likely to face) a problem with the sanctions restrictions. They may include the right to terminate the contract or suspend its performance, reject the cargo/vessel, or demand their substitution.

Another problem widely reported in the mass media was the delivery of Ukrainian grain from the territories temporarily occupied by Russia. Sellers of such grain and, accordingly, buyers upon its delivery received claims as to those goods from the Ukrainian government. This unexpected development caused substantial turbulences in the performance of the contracts as it involved the detention of the vessel carrying that grain.

To reduce the risks connected with such a situation, buyers may include a clause in their template contract that goods shall not originate from the occupied territories and stipulate legal safeguards in case of its breach. In the same vein, it can be envisaged that parties are prohibited from nominating and loading vessels that had previously sailed to the ports in the occupied regions of Ukraine. These contractual mechanisms may assist your company in avoiding disputes connected with the breach of the sanctions regime or illegal deliveries of grain.

INFERIOR QUALITY OF WHEAT: A WILD CARD

Recently, there has been an increase in the number of quality disputes. This trend is explained by a small crop of milling wheat in the Northern Hemisphere in 2023. In particular, Ukraine harvested less wheat of milling grade not only because Russia occupied a large part of its lands but also due to adverse weather conditions. As a result, purchasers of Ukrainian wheat probably will face problems with the quality of grain which might prompt them to refuse to accept the shipments.

Quality disputes are always complex – there is a thin red line between the situations when buyers are allowed to reject the goods because of their poor quality and when they are not. This nuance comes from the rules of English law which frequently govern commodities contracts and provide that purchasers may refuse the cargo only in case of the breach ‘going to the root of the contract’. In other words, the goods usually can be rejected if the cargo is unacceptable for the purposes it was procured. Such vague rules involve a high degree of uncertainty and, for this reason, require a detailed assessment of the consequences for each particular deviation from the specification.

In this situation, the wording of the contract becomes very important as it will point to the level of quality that can be expected from the goods. The quality clause should contain clear a specification that will not lead to conflicting interpretations (for example, as to possible allowances). It is also recommended to include a clause specifying the purpose for which grain is purchased. Additionally, contract terms should provide for safeguards as to the order of quality determination: the right of the buyer to take samples, test them in the laboratory, and dispute the quality results of the seller, if necessary. Such provisions will strengthen the position of the buyer in the case of a dispute.

It is also essential to prudently conduct correspondence as each word written (or even said) might be taken into account during arbitral or court proceedings. From our experience of handling +50 arbitrations in 2023, the correct communication is often determinative as to the chances of the party to achieve success in the dispute.

Conclusion: Contract terms are vital to minimise the risks

In the light above, it can be said that the challenges in the Black Sea trade have reached their peak. In these circumstances, it is of great importance for buyers of grain to keep abreast of all events on the market and revise the procurement contracts accordingly. Such an approach will help your company to minimize the risks connected with the turbulences in this region and cope with the arising challenges.

Pavlo Lebediev, senior associate at AGA Partners

Oleksandr Zub, associate at AGA Partners

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International marriage is not something new in the modern world. Globalization, immigration, and relocation have a great influence on the increasing number of cosmopolitan families. We want to bring your attention to the legal side of such relations.

Below we will touch the most popular points, which both spouses should keep in mind to avoid unnecessary troubles and obstacles.

All about marriage

Registration of marriage is the hottest topic among the persons aiming to create a family. Having numerously met a lot of family-related prejudices in our practice, we have decided to temporarily become Family Law MythBusters.

Thus, please keep calm and enjoy how specified myths are busted by the Ukrainian family legislation. Of course, it is not so easy to officially register the marriage as in Vegas, but still it can be deemed rather comfortable exercise.

Below you may find top 7 bullet points regarding the marriage issues in Ukraine.

1. Ukrainian family law establishes similar requirements for the persons intended to enter a marriage whether they or one of them are foreigners or not. Thus, it is clearly possible for both future spouses to be foreign citizens.

2. Marriage will be valid if it is registered in a public civil status act registration authority, so called “RACS” authorities. It is possible to get into religious marriage in Ukraine, but it will be not recognized as official.

3. Ukrainian family law contains some compulsorily restrictions and conditions for both spouses: marriage age (18 years old generally and 16 years old exceptionally based on court decision); mutual consent; monogamy; no connection by blood; marriage between a child and adoptive parent, natural child and adopted one, between adopted children. For example, natural child and adopted child or adopted children can get married based on the court decision. At the same time marriage between adopter and adopted child is prohibited. Such marriage may be possible only if adoption will be cancelled.

4. List of necessary documents for marriage registration includes the following:

•  passports of the spouses with a certified translation into Ukrainian for foreigner.
• if foreigner has a residence permit, there also is an obligation to provide temporary or permanent residence in Ukraine.
• if fiancé and/or bride had a marriage in the past it is necessary to provide a document, which confirms the dissolution of the previous marriage. As it was mentioned above, all foreign documents must be provided with certified translation into Ukrainian.
• finally, the lawfulness of the foreigner’s stay in Ukraine must be checked and completed by the local State Migration Service.

5. It is worth noting that the foreign documents should not only be supported by their Ukrainian translation, but also contain either apostille or official legalization mark, if the country, where they have been issued, is not a party to the Hague Convention of 5 October 1961, unless there is a legal assistance agreement between foreign country and Ukraine.

6. The marriage usually can officially be registered in two steps within one month. Firstly, the future spouses file a joint marriage application to the civil acts registration authorities. Such application can be filed through representative or another spouse by granting a respective POA. Second and final step – attending authorities in person and completing the official registration of the marriage in one month since the day, when the joint marriage application has been filed. It is also possible to enter a marriage in Ukraine within 24 hours, given that all necessary documents together with translation are in place and State Migration Service has completed the procedure mentioned in point 4 above.

7. Foreign marriages are valid in Ukraine in case its procedure and official registration does not contradict local family formalities, mentioned in the point 3 above. Generally, it is sufficient to have the foreign marriage certificate apostilled and translated into Ukrainian.

Thus, the registration of marriage is not complicated at all. Providing that the future spouses did their homework diligently and in time, the official marriage registration procedure in Ukraine is enjoyable and smooth process. Simultaneously, it is highly recommended to seriously consider the place of spouses’ permanent residence as it can have a lot of consequences for the family, including property and parental relations of spouses.

To conclude or not conclude, that is the question. Marriage contract & contract for civil partnership.

A marriage contract is one of the most popular legal instruments among the legal routine of spouses. Generally accepted that marriage contract is intended to regulate all property relations of spouses and in some countries even more spheres of their life. Ukraine is not an exception in this regard.

It is necessary to understand that a marriage contract is not a must prescribed by the law.

Parties, whether they are both foreigners or locals, enjoy the right to decide whether they want to conclude or sign the respective document.

At the same time, it is important to understand that if there is no signed marriage contract, property issues between spouses will be regulated by the Family Code of Ukraine. That means that all their property is a subject to the regime of joint common property and owned by them in equal shares even if the assets are registered only in the name of one of the spouses. 

However, there is a list of exceptions to the mentioned rule. For example, equal ownership of spouses does not apply to   inheritance, property acquired before the marriage, gifts, property acquired for personal money, prizes, bonuses, things for personal use, and etc.

Generally, a marriage contract minimizes risks of long-term judicial proceedings between spouses and the loss of property as the result of the actions of another spouse.

In a legal sense, a marriage contract regulates only ownership relations between future spouses (when parties had already applied for marriage) or newlyweds (when parties had already married). For the record, a marriage contract can also include clauses regarding alimonies for children and one of the spouses. 

It is important that parties can recognize in marriage contract some assets as their joint common property, while other assets as privately owned by one of them. Another useful feature is that the parties can specifically regulate the issue of debts or loans taken during a marriage and decide on their liabilities in this regard. It is interesting that spouses may also specifically govern the ownership and management of their business and entrepreneurial activities by the marriage contract. In our practice we see a common trend now for the business partners of husband and/or wife to request from them a specialized marriage contract in order to minimize the risks in of property division between spouses.

Thus, we may summarize that the proper planning is also highly important issue for the family assets. It is very essential to choose the most appropriate applicable law for the property of the spouses. This is extremely significant, when the spouses have several places of residence and property located in different parts of the world. 

Mentioned situation requires advice of the legal expert in each involved country because, for example, it is internationally accepted and recognized that the relevant legislation for real estate is the law of the place, where such property is located. Thus, future spouses or newlyweds should analyse all their property (which they already have or plan to acquire) and countries, where it is located. In common, such analysis will determine the content of the marriage contract or even several contracts in different countries, if there is a need.

Finally, it is important to briefly outline local legislation in the sphere of civil partnership or so-called civil marriage. Ukrainian law prescribes that persons cohabitated during a certain amount of time in a civil partnership (as one family), have the same rights for the division of their property as spouses in a registered marriage. The only important difference is that the fact of such cohabitation as one family without registration of the marriage should be separately confirmed and proved in the court.

Ukrainian family legislation does not provide a special type of “marriage contract” for civil partnership, which makes the position of parties more complicated when there is no mutual agreement upon some property. At the same time, civil law guarantees freedom of contract based on which parties can conclude a contract, which will have similar clauses to a marriage contract, with the caveat of being in civil partnership instead of marriage.

In a sense of risks for financial interests of a couple such legal instrument can minimize them and protect from the life-long judicial disputes.

Olena Sibirtseva and Oleksandr Gubin, senior associates at AGA Partners

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