In this new edition of ASAP Agri’s collaborative series with AGA Partners, we delve into the rising practice — and legal complexities — of involving guarantors in international commodity trade. Yurii Bedenko, Senior Associate and Attorney-at-Law at AGA Partners, and Maksym Fesenko, Associate at AGA Partners, team up with ASAP Agri’s Chief Analyst Kateryna Mudriian to examine a recent arbitration stemming from CIF deliveries to Egypt. The dispute — triggered by a guarantor’s refusal to pay the demurrage despite being named in the contract — offers a compelling case study on enforcement risks, contractual privity, and how tribunals approach guarantor liability in practice.

Kateryna: Are guarantors becoming a new norm in commodity contracts — or are they still more of a safety net for risky counterparties? What trends are you seeing in how and why they're being used to secure performance?

Yurii: We are currently observing a notable increase in the use of guarantors, typically parent companies, within commercial contracts, especially on the buyers' side. This growing practice gives sellers greater confidence that contractual obligations will be fulfilled. At the same time, buyers often benefit by structuring transactions through legal entities registered in tax-efficient jurisdictions, helping them streamline operations and reduce overall business costs.

Kateryna: Is there a typical delivery basis where guarantors tend to appear more often in contracts — or is this now across the board?

Maksym: Most frequently under the CIF delivery basis. This is because CIF places the burden on sellers to arrange carriage and insurance up to the named port, while buyers provide additional assurances by a parent company guarantee their obligations under the contract.

Kateryna: Sounds simple in theory — but what legal pitfalls do companies face when it comes to enforcing guarantees?

Yurii: The central issue is the doctrine of privity of contract. In practice, we often see guarantors who did not sign the underlying agreement later claiming they are not bound by it and unaware of its existence. This raises complex questions about whether a party not formally joined to a contract can still be held liable. Additionally, guarantors frequently argue that their liability is merely subsidiary, meaning any claim should first be brought against the contracting party (buyer or seller), and the guarantor should only be pursued if that party fails to meet its obligations.

Kateryna: What’s the most striking or unusual dispute you’ve worked on involving a guarantor?

Maksym: One case involved a Ukrainian agricultural producer that entered into two CIF contracts for deliveries to Egypt. The contracts were governed by English law. For tax efficiency, the Egyptian trading group proposed that its UAE-based subsidiary be named the ‘buyer’. However, in both contracts, the Egyptian parent company was explicitly named as a guarantor for the buyer’s obligations, including demurrage liability.

The complication arose because the Egyptian guarantor never signed the contracts, and all communications were conducted via brokers. As a result, our Client never received emails from a domain associated with the guarantor. While both the buyer and guarantor acknowledged liability during negotiations (again, through brokers), they ultimately refused to pay the demurrage, prompting arbitration. Interestingly, the guarantor’s legal representatives attempted to bifurcate the dispute, arguing that the claim against the guarantor should fall under Egyptian law, while the dispute with the buyer was subject to English law.

Kateryna: And how did the tribunal ultimately rule in that case? What tipped the scales?

Yurii: The tribunal ruled in favour of the seller, holding both the buyer and the guarantor liable. The Arbitrators relied on the seller’s submissions, which showed:

1. The contracts expressly stated that the guarantor was responsible for supporting the buyer’s performance.

2. The tribunal found the buyer and guarantor jointly and severally liable, meaning the seller could recover the award from either party.

3. Evidence revealed that the guarantor received the goods in Egypt, and that the same individuals acted on behalf of both the buyer and the guarantor throughout the transaction. At arbitration, it became clear that all correspondence related to the contracts came from both the buyer's and the guarantor's domains, confirmingThis evidenced the guarantor’s involvement and knowledge of the contract terms. This was material factor in the tribunal’s decision in favor of our client.

Kateryna: What legal logic or precedents did the tribunal rely on to make that decision?

Maksym: The tribunal referred to Stellar Shipping Co LLC v Hudson Shipping Lines [2010] EWHC 2985 (Comm), which confirmed that a guarantor may still be bound by an arbitration clause even without signing the contract, if the clause forms part of the main contract. Hamblen J, in that case, emphasised the “one-stop shop” principle from Fiona Trust & Holding Corp v Privalov [2007] UKHL 40 (17 October 2007). That principle holds that, where a contract includes a guarantee and no alternative forum is expressly agreed, all related disputes - including those involving the guarantor – should be resolved in accordance with the dispute resolution mechanism set out in the main contract. It is based on the assumptionthat rational commercial parties would intend all related disputes to be resolved in a single forum to avoid fragmentation and conflicting outcomes..

Yurii: In addition to legal precent, the tribunal also relied on the facts of the case, including:

1. The guarantee clause was incorporated directly into the main contracts, and no separate dispute resolution clause was agreed for the guarantee, meaning the arbitration clause from the main contracts to be applied.

2. The guarantor had actively participated at all stages — from negotiations through to performance — and received the goods.

3. The guarantor’s overall conduct, including the acceptance of commercial benefits under the contracts, was sufficient to establish that it had agreed to be bound by the terms, even in the absence of a formal signature.

Conclusion:

In international trade, including a guarantor in a contract is not a mere formality — it is a strategic tool to increase confidence in the reliability of performance. However, the effectiveness of a guarantee hinges on how it is structured and documented.

Best practices include:

· Clearly drafting the guarantee provisions;

· Formalising them in writing with the guarantor’s signature;

· Conducting complex due diligence — verifying the guarantor’s authority, using proper corporate communication channels, and ensuring explicit evidence of consent to be bound.

However, even when a formal signature is absent, a guarantor’s active involvement in the contract’s negotiations, execution, or benefit — particularly in CIF contracts, where risks, obligations, and financial exposure are intricately linked— may be sufficient to establish enforceable liability under English law.

In today’s arbitration landscape, tribunals are increasingly guided by commercial reality over technical formality. When correctly structured, guarantees are not only protective — they offer a competitive advantage in navigating the legal risks of global commodity trade.

ASAP Agri continues its joint series with leading firm AGA Partners, offering practical legal insights from real-world disputes to help our clients navigate legal risks in commodity trade.

This time, Dmytro Izotov (Senior Associate) and Viktor Pasichnyk (Associate) of AGA Partners, together with Inna Stepanenko, Chief Analyst at ASAP Agri, examine a complex arbitration over DAP delivery by railway – where the stakes included delayed approvals, contractual misunderstandings, and a dramatic shift in awarded damages.

Inna Stepanenko: Are there any trends regarding DAP contracts you have observed recently?

Dmytro Izotov: Yes. We have observed a decrease in the number of disputes arising from DAP contracts over the last year. Two years ago, more than 30% of the disputes we handled concerned DAP contracts; now their share is around 25%. This is explained by the increase in sea exports, due to Ukraine's ability to secure a safe route for shipments through the Black Sea despite Russia’s withdrawal from the Grain Deal. As a result, land exports via Ukraine’s western border have become less attractive.

However, DAP contracts remain an important tool, especially for exporters to the EU who have no grain terminals, fleets and other infrastructure that make selling on CIF/FOB terms more viable.

Inna Stepanenko: What types of disputes usually arise from DAP contracts?

Viktor Pasichnyk: The most frequent types are the same as for CIF and FOB contracts – non-payment and non-delivery. However, DAP contracts tend to involve more disputes concerning non-acceptance, often due to specific transportation regulations. This is especially true for contracts that stipulate cargo delivery by railway.

Inna Stepanenko: Can you tell me more about these railway delivery regulations?

Viktor Pasichnyk: Of course. Ukrainian Railways, the state-owned rail transport monopoly, has a set of quite complex rules for international cargo delivery. Cargo deliveries are arranged via Mesplan – a cargo transportation management system, which requires the following procedure:

1. The consignor submits cargo transportation plans to Ukrainian Railways;
2. The seller notifies the buyer of the submitted cargo transportation plans and requests that the buyer arrange for the consignee to confirm readiness to accept the goods at the place of delivery;
3. The buyer instructs the consignee to confirm its readiness to accept the goods at the place of delivery to the respective foreign railway authority;
4. Ukrainian Railways submits a request to the respective foreign railway for approval of the transportation plans;
5. The foreign railway approves the transportation plans if the consignee has confirmed acceptance or rejects them in the absence of such confirmation;
6. Depending on the foreign railway’s confirmation, Ukrainian Railways either approves the plans and allocates wagons or rejects the plans and refuses to proceed with the transportation of the goods.

So, the consignee’s confirmation is crucial – without it, delivery is impossible.

Inna Stepanenko: What was the most interesting dispute you have recently handled related to these issues?

Dmytro Izotov: One notable case involved a dispute between a leading Ukrainian agricultural company and a major Swiss trading house. The conflict arose from a DAP contract for the sale of 6 KMT of Ukrainian sunflower oil, with delivery specified by railway to the Mostyska/Medyka station on the Ukrainian-Polish border.

According to the contract and its addendum, the goods could only be dispatched after the consignee confirmed their acceptance to the Polish railway and the transportation plans were subsequently approved in the Mesplan system. The contract also explicitly required the buyer to “actually procure the acceptance” of the seller’s transportation plans.

The seller submitted six transportation plans via the Meslan system. The consignee approved only two and failed to confirm the remaining four. As a result, the Polish railway refused to validate the unconfirmed plans. Consequently, Ukrainian Railways rejected those plans, leaving the seller unable to proceed with delivery within the agreed timeframe.

Despite this, even after the delivery period had expired, the seller offered the buyer an opportunity to arrange approval of new transportation plans. However, the buyer did not make use of this chance and continued to assert that the seller was at fault for partial non-delivery of the goods. As it became clear that the buyer had no intention of performing its obligations, the seller declared the buyer in default and initiated FOSFA arbitration to recover damages for the buyer’s non-acceptance of the goods.

Inna Stepanenko: What were the findings of the arbitral tribunal?

Viktor Pasichnyk: The first-tier arbitral tribunal upheld the seller’s claim, concluding that the buyer was obligated to procure the consignee’s confirmation of readiness to accept the goods, and had repudiated the contract by failing to do so. The tribunal determined that the default date was the date on which the seller accepted the buyer’s breach (approximately one month after the contractual delivery period had expired) and awarded the sellers around USD 2 million in damages.

Inna Stepanenko: Was there anything else particularly interesting in this case?

Viktor Pasichnyk: Yes. The buyer appealed the award to the FOSFA Board of Appeal. While the board upheld the first-tier tribunal’s finding that the buyer was liable for default damages, it took a different view on the date of default. The appeal board ruled that the default occurred on the first day after the expiry of the contractual delivery period. This conclusion was based on a recent English case of Ayhan Sezer v. Agroinvest, which was decided after the initial award.

To summarize, in the Ayhan Sezer case, the court clarified that a breach of contract occurs at the moment the contract is actually broken, not when the other party formally accepts the breach. So, even though the seller in our case attempted to keep the contract alive by offering additional opportunities to arrange new delivery plans, this did not change the fact that the breach had already taken place.

The board of appeal, therefore, determined that the default date was the actual date of breach – when the buyer put the seller in a groundless default immediately after the delivery period expired, not when the seller formally accepted this breach.

As a result, the awarded damages were significantly reduced – from around USD 2 million to approximately USD 600,000.

Inna Stepanenko: What are the broader implications of Ayhan Sezer v. Agroinvest for commodity trading?

Dmytro Izotov: It’s a very relevant question. The most immediate impact is that the number of cases in which the date of default would be considered to be the date of its acceptance will be much smaller, especially if that acceptance occurs long after the initial breach.

Practically speaking, this gives the breaching party greater control over the potential damages they might face. The innocent party can no longer delay acceptance of a breach in hopes for a better market price or more favourable conditions.

In today’s legal landscape, when facing a repudiation, the innocent party must act promptly: either accept the breach and proceed with a resale or conclude a substitute transaction. If, instead, the innocent party attempts to preserve the contract through negotiations, it assumes the market risk – and any negative price movements or losses that occur as a result of delay in reselling or securing a substitute transaction may not be recoverable.

At ASAP Agri, we work closely with legal experts to help clients stay one step ahead of risks — because grain trading isn’t just about price, it’s also about knowing what to do when things go wrong. In partnership with AGA Partners, we take a closer look at one of the most common — and often most contentious — issues in agri trade: getting paid.

Drawing on real arbitration practice, Vladyslav Kapustynskyi (Associate) and Pavlo Lebediev (Counsel) of AGA Partners, together with Kateryna Mudriian, Chief Analyst at ASAP Agri, explore a high-stakes dispute that began with delayed barges and ended in a million-dollar arbitration award — secured through sharp legal strategy and cross-border asset freezes.

This case shows how smart enforcement can tip the scales — and why clear, well-structured contracts are not just a formality, but a vital line of defense.

Kateryna Mudriian: What types of disputes do you see most often in arbitration? 

Pavlo Lebediev: We recently compiled internal statistics for 2024, and disputes over payment for goods clearly topped the list — accounting for roughly 28% of all arbitration cases we handled. That said, this category is far from uniform. It includes everything from cases of total non-payment to partial underpayment of the balance due under the contract.  These disputes often arise from the buyer raising counterclaims — typically relating to quality, demurrage, or previous contracts.

Kateryna Mudriian: And what was the most memorable payment dispute you worked on last year?

Vladyslav Kapustynskyi: Among all the arbitrations, the most dynamic case concerned an FOB shipment of 10 KMT of corn from the port of Reni. The cargo was to be loaded onto barges, which the buyer was obliged to present gradually over the delivery period — no more than two barges per week.  

However, the buyer failed to arrange the barge supply in advance and instead nominated six barges with a deadweight of around 9 KMT in the final five days of the delivery window. Over the following two weeks, the seller managed to load only about 5 KMT onto the barges.  

Complicating matters, the seller was unable to receive payment because their bank did not accept transfers from the buyer’s country. To resolve this, the seller assigned their right to payment under the contract to a third-party company by way of an additional agreement.  

Meanwhile, delays in loading the balance cargo continued. Several barges never berthed within two weeks after the delivery period expired. As a result, the buyer cancelled their nomination and started claiming demurrage for the alleged delay.  

When the seller refused to pay demurrage, the buyer unilaterally offset the demurrage claim against the unpaid portion of the goods. Eventually, the buyer took the position that, following the assignment, the seller had no right to claim payment at all.

Kateryna Mudriian: That’s quite a mess! So, whose side did the tribunal take in the end?  

Pavlo Lebediev: The tribunal awarded the seller approximately 1 000 000 USD for the value of the goods, 200 000 USD in default damages, and 100 000 USD in arbitration costs.

Here’s why:

• Assignment did not preclude the seller from claiming payment. Despite the formal assignment, the tribunal found that the transfer was made solely to facilitate payment collection through a third party. Neither side treated the assignee as a substitute for the seller under the contract. This award is a striking example of the arbitrators’ commercial and pragmatic approach to resolving trade disputes, free from excessive formalism.
• FOB basis allows loading after the delivery period. Under FOB terms, the delivery period usually relates to the buyer’s obligation to present vessels within the agreed time — not the seller’s obligation to complete loading within that period. Many standard forms of grain contracts permit loading to continue after the delivery window has expired.
• Cargo must be loaded within a “reasonable” time. What constitutes a reasonable period depends on the facts of the case. Here, the tribunal considered a two-week loading period to be reasonable, given that the buyer nominated an excessive number of barges at the very end of the contractual window.

Kateryna Mudriian: Winning the case is great — but was the seller actually able to recover the money?

Vladyslav Kapustynskyi: That’s a critical point. Enforcement of arbitral awards can indeed be a real challenge, especially when the respondent is a company with limited assets. Being aware of this risk, we took proactive steps and sought to secure the buyer’s assets even before the award was issued. 

Ultimately, we managed to obtain asset freezes over the buyer’s goods located in Ukraine, as well as over land plots and warehouse facilities in one of the Balkan countries.  

These multi-jurisdictional asset freezes prompted the buyer to enter into settlement negotiations. In the end, the parties agreed on an instalment plan in exchange for lifting the arrest.

Kateryna Mudriian: That’s a strong result. What practical advice would you offer to our readers based on this case?

Pavlo Lebediev: I’d sum it up in three key recommendations:

1) Be careful when agreeing on third-party payments. The contract must clearly specify whether the seller — or a third-party recipient — retains the right to claim payment. At the same time, from the buyer’s perspective, it’s equally important to ensure that any payment made to a third party is explicitly deemed contractual. Clear and unambiguous wording is critical to avoid disputes in arbitration over who holds the right to claim payment.

2) Delays in loading under FOB contracts are tricky. Since FOB terms usually do not fix a deadline for loading itself, buyers must be proactive. If the seller is slow to load, the buyer should issue formal notices with specific loading deadlines. Without doing so, cancelling a nomination may expose the buyer to default claims.

3) Arrests can be an effective tool. Securing an arrest is not easy — the procedure varies significantly between jurisdictions and depends heavily on local law. Still, in non-payment cases, we often advise clients to consider this remedy as a strategic way to exert pressure on the debtor. If successful, an arrest can provide strong bargaining power in settlement negotiations and, ultimately, recovery of the debt.

Aminat, today you are the managing partner and leader of the successful Ukrainian law firm, AGA Partners, which provides legal support for the most high-profile cases of leading global companies, international businesses and private clients. Please tell us about your journey to get here.
How did your law career begin? What made you choose to practice law?
I am the managing partner of a leading law firm and one of the most famous lawyers in Ukraine. This almost 30-year-long journey began when I decided to become a defence lawyer at the age of 16. By the time I got into the law academy, I had already realised that I wanted to be a person who protects the rights of others. I started practising when I still was a student. Later, after graduating from the academy, I moved to Kyiv, where in 6 years, having worked in both small and large Ukrainian law firms, I founded my own — AGA Partners.

What area of law does your company mainly specialise in?
Our unique specialisation is international business and resolving cases in international courts and arbitrations.
In addition to business legal support, we are globally known for unparalleled counsel in resolving the private affairs of our clients.
The practice of private clients was born from our communication with owners and CEOs of large businesses. Our approach is built on reason, sound judgement, balancing harm and benefit, and the ability to wisely resolve sensitive cases. In private matters, the personal qualities of the counsel are key. People want to receive support from a smart, intelligent and experienced person who can understand all the intricacies of the personal situation and is able to help their client through a crucial stage of their life, offering them support as well as wise and professional advice.
How big is the AGA Partners team, and what main areas of law are within the scope of your company’s activities?
This year AGA Partners celebrates 20 years in business. We have three partners, three counsels and about 20 lawyers. Businesses from Ukraine, Europe and Asia trust us. We provide legal counsel to international and intergovernmental organisations, UNICEF.

Learn more about the biggest achievements of our private client practice team:

Aminat Suleimanova:
• Leading Lawyer in Private Client Practice: Legal500, 2018–2024
• Leading Lawyer in Private Client Practice: Legal Awards 2020, Yurydychna Praktyka
• Top Lawyer in Family Law in Ukraine: Legal Awards 2017, Yurydychna Praktyka
• Among the TOP-3 women who influenced the development of the legal business in Ukraine: Ukrainian Women in Law 2018–2021, 2023, Yurydychna Gazeta
• Leading Lawyer in Ukraine in Family Law and Dispute Resolution Practice: Best Lawyers 2022
• Included in the TOP-5 Best Partners of Law Firms: Legal Awards 2021, Yurydychna Praktyka
• Leading Lawyer in Private Client Practice: Ukrainian Law Firms, 2021–2022, 2024
• Listed in TOP-15 effective managing partners in law firms: Market Leaders. Law Firms Ranking 2022–2023, Yurydychna Gazeta

Olena Sibirtseva:
• Leading Lawyer in Ukraine in Family Law: Ukrainian Law Firms, 2022, 2024
• The international award of the Order of Saint Sophia for outstanding professional achievements and public activism, 2023
• Leading Lawyer in Ukraine in Family Law: “Client’s Choice 2023, 2024”, Yurydychna Gazeta

Oleksandr Gubin:
• Rising Star in Private Client Support Practice: The Legal500 2020–2024
• New Generation Lawyer: The Legal500 2019
• Leading Lawyer in Ukraine in Family Law: Ukrainian Law Firms, 2022, 2024

Client Reviews.
“This is a team of leaders with a deep understanding of family law and international affairs.”
“Legal field in Ukraine can get rather tricky, and having experienced local lawyers is the key to success.”
“I wholeheartedly recommend the AGA Partners team. They are true professionals, among the best in family law in the country. They are highly motivated and fully committed to each case.”

What are the most complex issues you resolve as part of family law practice?
People most often come to us to formalise “family papers”. Having developed a vision for a particular family, we get to work on specific documents such as a marriage contract, a will, a parenting agreement, as well as design roadmaps for doing business and form an overall vision for a particular family. We use a range of legal tools and offer legal counsel on private affairs.
Family lawyers are more than just people who practice law. A family counsel would be a more accurate description of our work with a client. Strategy development, ongoing
support, both personal and professional, through the highs and lows of marriage — this is what we do for our clients.
Most of our practice deals with international cases and procedures related to the development and well-being of the family. As you might know, having left Ukraine and staying in another country for more than six months, a person falls under the jurisdiction of the host country. This means that in the event of any disputes or requests for a peaceful settlement within the family, it is important to comply with the laws of this country and act in accordance with its legislation.
Numerous proceedings such as divorces, parental disputes, property disputes, which in peacetime would take place in Ukraine, are currently being considered in foreign courts. We offer counsel in such cases, including providing expert opinions on Ukrainian law for foreign courts.
An important area of our services is preparation for choosing the most favourable jurisdiction. For instance, if you plan to move abroad, we will analyse legal considerations for the family, involve foreign colleagues and prepare a “legal plan for family life” in a specific country.
Our expertise includes support for cases of international child abduction to protect the rights of the child and parents in disputes within multinational families. After all, the law stipulates that one of the parents cannot arbitrarily take the child abroad for permanent residence.

Some believe that a marriage contract kills romance in relationships. What do you think?
This is a myth. A marriage contract is about trust and an adult, responsible attitude towards your family. Property and financial issues will affect family life either way, so you should discuss all expectations, fears and a general vision of the family budget at the initial stages.

Are there differences in approaches to marriage contracts in Ukraine and abroad?
Sure. Some countries might not take the marriage contract into account at all during a divorce in court, while others prioritize it in determining the status of the spouses’ property.
It all depends on the local laws and customs of a particular country. This is a major point to be considered by any couple planning to get married and live in several countries and build assets there. While in Ukraine a marriage contract covers only property issues, in some other jurisdictions it may also regulate personal obligations such as going out, taking care of the dog, washing dishes, etc.

What are the key terms and conditions most often included in a marriage contract?
In Ukraine, a marriage contract can only stipulate property-related conditions. It cannot contain any provisions on marital obligations, upbringing and place of residence of children.
We recommend always discussing marital debts and the division of responsibility for them. After all, debts that arose in marriage are joint debts.
Another area of concern is moving certain property to the joint ownership of the family and the procedure for deciding the fate of this property in the event of divorce.
Finally, a common section in the marriage contract is financial support for one of the spouses and children. For example, stipulating the financial support the wife will receive during pregnancy and after childbirth, or each of the spouses in case of serious illness and disability.
As for children, a marriage contract covers child support and additional expenses, that is monthly baseline financing of children’s livelihood and large expenses such as education, recreation, medical insurance, etc.

Can marriage contracts be challenged in court? On what grounds?
Indeed. Such cases are common in those families where the assets are distributed between spouses with imbalance. The law is clear that a marriage contract cannot put the other spouse in an extremely disadvantageous financial position. In simple words, a marriage contract cannot allocate 90% of the property to one spouse and 10% to the other.

Please indicate the company’s achievements, successes, awards, articles, certificates, rankings
AGA Partners is one of the leading law firms in Ukraine, recognised by international and national ratings.
Here are some of the most important awards:
● Leader in Family Law according to the “Market Leaders. Rating of Law Companies 2024”.
● Recognition among leading companies in international arbitration, international trade, maritime, agricultural and land law practices.
● Managing Partner Aminat Suleimanova is listed among the TOP-15 most effective managing partners of Ukrainian law firms.
● High positions in international rankings such as Chambers & Partners, The Legal 500 and Who’s Who Legal.
AGA Partners is renowned for its expertise, winning complicated international cases and setting a high bar in the legal field.

On 15 May 2024, the UK Supreme Court in RTI Ltd v MUR Shipping BV [2024] UKSC 18 ruled that when the charterparty expressly provides for payment of freight in USD, the shipowner has no obligation to accept the charterer’s offer to pay it in EUR to overcome the adverse effects of sanctions. The court made it clear that the scope of reasonable endeavours of the party relying on the force majeure to overcome its effects does not extend beyond acceptance of the contractual performance.

Facts of the Case

In 2016, RTI Ltd (“Charterers”) concluded a charterparty with MUR Shipping BV (“Shipowners”), under the terms of which vessels owned by the Shipowners should have carried bauxite from Guinea to Ukraine, performing regular voyages from 2016 to 2018. The freight payments should have been made regularly in USD.

In April 2018, the USA imposed sanctions on Charterers’ parent and sister companies belonging to the Russian aluminium-producing group Rusal. Several days after this, the Shipowners sent a force majeure notice, stating that although the Charterers were not sanctioned, sanctions against their affiliated companies would preclude or delay payment of freight in USD due to bank compliance.

The Charterers rejected the force majeure notice, offering to pay the freight in EUR and cover additional costs of converting EUR to USD. The Shipowners rejected this proposal and refused to nominate vessels, thereby suspending the contractual performance. By the end of April 2018, the USA allowed the said sanctioned companies to make payments under already existing contracts. The Shipowners resumed the nomination of vessels and accepted payments in EUR with the conversion costs being covered by the Charterers.

However, the Charterers commenced arbitration to recover the costs of affreighting seven replacement vessels during the period when the charterparty’s performance have been suspended. The arbitral tribunal admitted the claim, stating that the Shipowners were not entitled to invoke the force majeure clause since the respective force majeure event could have been overcame by the Shipowners’ reasonable endeavours, namely, acceptance of the Charterers’ proposal to pay the freight in EUR and cover the conversion costs.

The Shipowners appealed the award before English courts. The High Court allowed the appeal. Later, the Court of Appeal overturned the lower court’s judgement and reinstated the arbitral award. The Shipowners applied to the Supreme Court to reverse this judgement.

The Supreme Court’s Judgement

The chief question before the Supreme Court was whether the exercise of reasonable endeavours to overcome the adverse effects of a force majeure event put an obligation on the party declaring force majeure to accept an offer of non-contractual performance from its counterparty. To put it short, the Supreme Court’s answer was “no”. In concluding so, the court relied on the following findings.

First, the objective of the reasonable endeavours provision, precluding parties from relying on force majeure event if they could have reasonably prevented it, is “to maintain contractual performance, not to substitute a different performance”. This provision does not concern any different, non-contractual performance – in this particular case, payment of freight in EUR instead of USD – even if it may result in the same ultimate outcome.

Second, the Supreme Court underscored the supreme importance of the freedom of contract, stressing that this principle “includes freedom not to contract; and freedom not to contract includes freedom not to accept the offer of non-contractual performance”. In reaching such a conclusion, the court relied on the prior case law, in which English courts drew a distinction between the “business options” of parties to opt for certain ways of contractual performance if the underlying contract so allows and their contractual rights not to choose such ways even if it is commercially unreasonable and detrimental for their counterparties.

Third, the Supreme Court found that clear words are needed to forego valuable contractual rights. Applying this approach to the case at hand, the court concluded that the Shipowners would have been obliged to accept the offer of non-contractual performance only if the contract had contained express provisions to this effect.

Last but not least, the court emphasised the importance of certainty in commercial contracts, stating that the reasonable endeavours provision is limited by the charterparty’s wording and that the parties should follow their contract instead of doing what may be reasonable. The court stated that “it is not unmeritorious or unjust to insist on contractual performance, all the more so if being precluded from doing so would introduce uncertainty contrary to the expectations of business people”.

Conclusion

This judgement, despite being well-reasoned, may be surprising for those involved in the grain trade since the court took a legalistic stance, favouring the textual interpretation of contractual provisions over commercial reasonableness. Considering this, the wording of contracts gains even more importance, as courts will consider only offers of contractual performance as those the party invoking the force majeure clause must accept. Offers on non-contractual performance, even those leading to the same ultimate outcome, may not be enough.

On the commercial side, the above-described judgement tends to support the party invoking force majeure, as it will give them more room to rely on force majeure even if an alternative but non-contractual performance is possible. We also expect force majeure clauses to be invoked more frequently since it would be harder to overcome them by offering alternative performance.

Iryna Moroz, partner at AGA Partners

Viktor Pasichnyk, associate at AGA Partners

This article is available in Ukrainian only.

24 February 2022 etched itself on the memory of every Ukrainian citizen. With the beginning of a Russian full-scale invasion of Ukraine, the lives of many changed forever. But not only ordinary citizens were caught off guard by unprovoked invasion – among those affected were commodities traders and shipowners alike. While the Russian attacks were underway, dozens of commercial vessels were anchored in the ports of Berdyansk and Mariupol (Azov Sea), unaware that this place would become one of the first targets of the occupying army.

ASAP Agri: Dmytro, tell us please the core of the problem.

Dmytro Izotov: Among those vessels, one (a coaster) was engaged by our client. Under the sale contract concluded in the first days of February 2022, the seller was expected to deliver Ukrainian milling wheat and barley to the Mediterranean on a CIF basis. While the vessel was loaded with the necessary goods, it simply was not able to leave the port. On the day of the invasion, Russian authorities prohibited navigation in the Sea of Azov. A few days later, the situation deteriorated even more as the Russian military reached the port and took control of it.

For the whole month, the vessel stayed in the port basically as a hostage with no right to leave. No customs authorities or surveyors were working during this time, making it impossible for our client to procure necessary documents under the agreement with the buyer. In other words, the fate of the contract remained unknown.

Finally, in the middle of March, the Russian military allowed all the vessels staying in the port to leave. For this purpose, they made a corridor lying through the Kerch Strait and convoyed every ship. While arriving at the waiting area, the vessels were forced to stop at the Kerch Strait, waiting for the authorization to proceed further. Again, our client and the vessel’s crew had no idea, what would happen further. Having no clear understanding of the prospects, the client decided to terminate the contract, relying on a special war risk clause. This clause did not contain any deadlines and simply stated that a contract can be terminated immediately if the performance is precluded by any kind of war risk.

After the contract was terminated, the vessel stayed for more than a week at the Kerch Strait until the Russians finally instructed it to proceed to a Turkey port. There the vessel undertook necessary repair work, while the client managed to salvage the goods onboard by reselling them to a new Turkish buyer.

The original buyer during the first days of the invasion demonstrated a reasonable approach not pushing with the performance of the contract. However, after finding out that the client eventually managed to sell the goods in Turkey, the buyer quickly changed his position and initiated arbitration proceedings against our client. The buyer alleged that the client did not have a right to cancel the contract and was in a position to ship the goods to the original destination.

ASAP Agri: What was the outcome of this case?

Dmytro Izotov:  The buyer’s position was that the seller, after leaving the port of Berdyansk, was able to perform the contract and ship the goods to the agreed destination. The buyer, in particular, referred to the fact that the seller eventually managed to sell the goods in Turkey. The buyer’s way of thinking was: “if they were able to resell in Turkey, then they surely were capable of shipping the goods to us”.

The arbitral tribunal, however, disagreed with such an argument:

    The tribunal stressed that a war risk clause (on which our client relied) provided for the immediate cancellation. Thus, to decide whether or not our client had a right to cancel the contract, the tribunal had to answer the following question: “was our client in a position to perform its obligations on the day they decided to cancel the contract?”

    Arbitrators answered this positively. They established that, on the date the contract was cancelled, the vessel was still stationed at the Kerch Strait. Thus, our client was not in control of the vessel and was unable to direct it to the original destination. Moreover, the goods were not customs-cleared and the majority of shipping documents were not issued. Taking into account all the above, the tribunal stated that our client had a right to cancel the contract.

    The fact that the client managed to resell the goods a few weeks later did not change this conclusion. Our client could not predict the future, when deciding whether or not to terminate the contract – all that mattered was the situation on the day of cancellation.

ASAP Agri: What is the main takeaway from this decision?

Dmytro Izotov: I believe this arbitration decision provides a great guideline in interpreting the cancellation clauses.

In this particular case, the contract was terminated with reference to a war risk clause. The wording of such clause can be different from contract to contract. However, in the majority of agreements, it provides (just like in our case) that a contract can be cancelled immediately, without any waiting. The only necessary condition is an existent war risk that does not allow a party to deliver or accept the goods.

Thus, if your contract contains a war risk clause and is affected by any military conflict, you may consider terminating this contract based on such a provision.

ASAP Agri: The war in Ukraine has continued for more than 2 years. Can companies still cancel a contract relying on this ongoing conflict?

Dmytro Izotov: Even now, 2 years into the war, companies continue to be affected by military actions. From time to time, we can see the news about destroyed port facilities or attacks on vessels in Ukraine. So, it is still common to have special clauses (like war risks clauses) that allow the cancellation of the contract in case of military risk. Such risks can also be covered by usual force majeure clauses.

But in either case, you should be very careful and attentively analyse the wording of a contract. To have a right of cancellation, you should always be sure about two things.

First, a military risk should be covered by a contract (in a war risk or force majeure clause). For example, contracts may provide that only an unexpected military attack on the engaged vessel can give the right of cancellation. In such a case, you cannot cancel the contract simply because of the ongoing war. Only even mentioned in the clause can allow you to cancel the contract.

Second, you need to check the time periods for cancellation of a contract. As described above, if you use a war risk clause, in the majority of cases you can cancel the contract immediately. But if your contract only contains a usual force majeure provision,  you should wait for a specified period of time before cancellation. Only if a force majeure event continues beyond this waiting time, you can terminate the contract.

If you terminate a contract ignoring the above two conditions, this can lead to dreadful consequences. In particular, ungrounded cancellation may be considered as a refusal to perform the contract. This will allow your counterparty to declare your company in default and seek compensation for default damages in lengthy arbitration proceedings.

Therefore, you should always check what type of cancellation clauses are contained in your contract, what their scope is and what time periods are prescribed there.

Stay tuned for more insights from recent arbitral awards that could impact your business practices. Understanding these nuances can be the difference between a smooth transaction and a costly dispute.

Dmytro Izotov, Senior Associate at AGA Partners

(exclusively for Asapagri)

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We’re thrilled to introduce the first installment of ASAP Agri's new interview series with AGA Partners, "Arbitration Wisdom: Top 10 Awards in Commodity Arbitration." In our debut article, we dive into an interesting case from 2021 involving Brazilian soybeans that were severely damaged due to delays and storage issues. How was the dispute between the buyer and the seller resolved, and what caused the damage to the cargo? The questions are answered by Pavlo Lebedev, Counsel at AGA Partners, all the details are available here:

ASAP Agri: Pavlo, tell us please the core of the problem.

Pavlo Lebediev: In March 2021, a Ukrainian oil producer purchased a Panamax vessel of Brazilian soybeans for crushing. After a Brazilian seller shipped the cargo at Barcarena port, the vessel arrived in Ukraine where the Ukrainian company faced problems with import. In this situation, it resold the cargo to Turkiye, after the vessel idled near Pivdennyi port for almost a month.

Upon arrival in the Turkish port of Aliaga, the surveyor revealed that the cargo had completely deteriorated. In this situation, the seller relied on the quality of goods at loading in Brazil, which was contractual, save for a “slight” deviation of 0.58% in moisture content.

Although the Turkish buyer refused to pay the full price, it attempted to settle the dispute by making a without prejudice offer to accept the cargo with a 50% discount. The Ukrainian seller rejected the offer and, instead, declared the buyer in default for refusing to pay for the cargo.

As the market prices significantly increased, the Turkish buyer instructed AGA Partners to initiate arbitration to recover losses.

ASAP Agri: What did arbitrators decide?

Pavlo Lebediev: They decided in favour of the Turkish buyer because of the following findings:

• Moisture limits represented a condition of the contract. Even a deviation of 0.58% entitled the buyer to reject the goods.

• The buyer did not waive their right to reject the goods by offering a 50% discount. The correspondence was protected by a ‘without prejudice’ mark.

• There were two separate voyages – from Brazil to Ukraine and from Ukraine to Turkiye. The Ukrainian seller had to test the cargo in Ukraine and issue the documents for the second voyage from Ukraine to Turkiye but failed.

• As the cargo was not analysed in Ukraine, the quality was determined by tests in Turkiye which did not show contractual results.

• The Ukrainian seller did not tender contractual certificates for the voyage from Ukraine to Turkiye and, therefore, had no right to payment. The seller’s default declaration was wrongful.

The result: the Turkish buyer was awarded damages of around USD 1 million, plus legal and arbitration costs.

ASAP Agri: What was the main mistake of the seller which led to such a result?

Pavlo Lebediev: The mistake was made while preparing the documents. The Ukrainian seller had to prepare two sets of documents for two voyages – (1) from Brazil to Ukraine and (2) from Ukraine to Turkiye – and then he would have chances to receive compensation from the insurance company.

Also, the Ukrainian buyer did not synchronize the provisions of his purchase and sales contracts (they had different moisture indicators). As a result, the Turkish buyer had grounds to claim compensation from the Ukrainian seller, but the latter had no such right against its Brazilian supplier.

ASAP Agri: what key takeaways can a business get from this case?

Pavlo Lebediev: There are three main lessons a business can learn:

Lesson 1: Quality. Moisture is an essential quality parameter for soybeans. Even relatively minor deviations might allow a buyer to reject the cargo.

Lesson 2: Documents. The payment documents should strictly comply with the contractual requirements. The discrepancies might prevent the seller from claiming the price. So, draft the list of shipping documents prudently.

Lesson 3: Settlement offers. Use 'without prejudice' marks on genuine settlement offers to shield them from being disclosed in arbitration. But remember, this protection is only effective if the correspondence contains a real settlement offer.

Stay tuned for more insights from recent arbitral awards that could impact your business practices. Understanding these nuances can be the difference between a smooth transaction and a costly dispute.

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This article is available in Ukrainian only.

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This article is available in Ukrainian only.

This article is available in Ukrainian only.

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Compensating for damages caused by the Russian invasion of Ukraine has become a pressing issue. Over the past two years, significant efforts have been made both internationally and within Ukraine to develop direct mechanisms for compensation.

General mechanisms

Since 2022, there have been five main avenues for seeking damage compensation:

1. 1. International Register of Losses
   2. Ukrainian courts
   3. Investment arbitration
   4. Courts of foreign countries
   5. European Court of Human Rights (ECHR)

The possibility of filing claims to ECHR ceased to exist after the exclusion of Russia from the Council of Europe. As of the date of this article this tool is already not accessible due to the expiration of the limitation period. The International Register of Losses is still being established, and its operational specifics, especially concerning business claims, remain unclear. Investment arbitration is suited for high-value claims where assets have been occupied and expropriated by the Russian Federation. The main issue with pursuing claims in foreign courts is complicated by issues of jurisdiction and the immunity of the Russian Federation, which is currently recognized by these countries.

While each of these mechanisms warrants a detailed discussion, such an exploration would be beyond the scope of this article. Therefore, we will focus on the mechanism readily available to all Ukrainians: filing claims in Ukrainian courts. Below, we provide a practical overview of this process based on our current practice and its potential outcomes.

Is it possible to pursue claims against Russia in Ukraine?

The short answer is yes. From 2014 (after the annexation of Crimea and “antiterrorist operation” in Donetsk and Luhansk regions of Ukraine) just until spring 2022 there were many attempts of individuals and of companies to bring Russia to justice in the Ukrainian courts. However, before April 2022 the Ukrainian courts mostly (with some exceptions) denied jurisdiction over the disputes against Russia due to the Russian immunity as a state. It is a standard clause in almost all jurisdictions that a state cannot be brought to justice in the local courts unless the relevant convent is given by that state.

From April 2022 the situation in the Ukrainian courts changed and is now been followed by all the courts in the same lien: after the full-scale invasion into Ukraine, Russia has lost its immunity in the Ukrainian courts.

Is it worth going to the Ukrainian courts?

Nowadays there are two possible mechanisms where the positive decision of the Ukrainian court can be used.

1. 1. within the framework of the international compensation mechanism which is still being elaborated.
   2. As a decision to be recognised and enforced in other jurisdictions.

With the first option, we now know for sure that within the framework of the compensation mechanism the Ukrainian judgments will not be regarded as the only necessary and final evidence. Rather it would simplify the work of the commission especially if there would be hundreds of evidences and reports. In this vein we do not know at this stage when the commission will start its work for the business and how the decisions will be made. As well as the timeframes of executing such compensation decisions are unclear.

The second option of direct recognition and enforcement of the Ukrainian judgments also has its pros and cons. From one side, it will be necessary to search for assets in the particular country and to choose the country which would allow enforcement against the sovereign state. In this regard we highly recommend to our clients to add a particular Russian company, which took part in the invasion of devastation of the asset into the co-defendants. This might make the enforcement of the decision in the foreign jurisdiction easier, especially if particular assets of that company are found.

From the other side, at this stage we do not know any “firstcommer” who would successfully use this path of enforcing the Ukrainian judgement.

However, in any case, since the Ukrainian path is now available, we suggest using it at least for those to whom the path of investment cases is unavailable/unprofitable.

What are the benefits of using this option?

Unlike in arbitration, Ukrainian courts do not take the fee for participation in the court against Russia. The legal fees will also be much lower than for participating in any other available procedure.

Moreover, before filing the claim to the court, it would be necessary to gather all the necessary and possible evidence, make all expert and accountant reports, open criminal proceedings, which is 60% of work in preparation of the claim. Therefore, in any case we highly suggest starting the evidence gathering.

What is required for filing the claim?

Filing a lawsuit against Russia requires careful preparation and adherence to legal protocols. Below is a step-by-step guide to ensure your case is properly presented in a Ukrainian court.

First, consider whether your property has been damaged or destroyed, or whether it is located in the occupied territories. In all these three cases there should be gathered and provided different evidence.

Second, determine the venue to avoid delays. Choosing the appropriate court venue is essential to prevent unnecessary delays. Make an informed decision on where your case will be heard to ensure a timely process.

Third, gather relevant evidence to initiate the case. The necessary documentation includes:

Expert Reports: Obtain expert evaluations, especially for real estate. For movable goods, expert reports can serve as supplementary evidence.

Criminal investigation: File an official application to receive an Excerpt from the Unified State Register of Pre-Trial Investigations. Ukrainian courts see the opening of the criminal procedure as a mandatory step before the claim.

• • Evidence of Damages by Russia: establish a clear link between the damages and actions taken by Russia. There should be direct evidence showing that a particular destruction was cause by Russian actions.
  • Evidence of Property Location: Provide proof of the property’s location in the occupied territories.

By following these steps in preparing your evidence, you can effectively file a lawsuit against Russia in a Ukrainian court.

Factual implementation of the decision

AGA Partners has already established groundwork with various experts in this respect. We would be happy to provide advice and recommendations upon your respective requests.

Conclusion

Filing a lawsuit in Ukrainian courts to seek compensation for business damages resulting from the Russian invasion is a viable and practical option for those to whom the path of investment arbitration is closed or is unreasonably high in value.  In any case, we believe that businesses affected by the invasion should already take proactive steps to document their losses.

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Where the problems stem from? 

During the full-scale war, many traders revise the terms of their contracts. For example, under DAP terms, most traders include provisions for quality checks during unloading. This has become pertinent due to falling market prices and issues at the Ukrainian borders. 

Such a practice allows buyers to take samples of the goods themselves, which puts them in a more favourable position. However, sellers in such circumstances often have no control over the sampling process. 

This can lead to situations where buyers assess the quality of goods after unloading them at their warehouses. In such cases, the goods may be mixed with other products, complicating the process of quality determination. 

After performing an analysis of the quality of the goods, buyers may refuse to accept the goods, demand a discount or refuse to pay. In doing so, they argue that the goods do not meet contractual specifications or EU regulations. 

How to solve the problem? 

In order to reduce risks for sellers, it is important to change the terms of contracts, especially those on the DAP basis, by including a provision that the quality of the goods must take place at the time of loading. To do this, independent surveyors should be involved in sampling and analysis in accredited laboratories. Such an approach will ensure the final quality certificates are issued. 

In order to refute a product quality certificate, one must prove the fraudulent actions at the time of its issuance, which is a complex process. This creates flexibility and confidence for both parties. Sellers can confirm the quality of the goods at the time of loading, and buyers receive proof that the goods meet the terms of the contract. 

If the buyer disagrees with the quality of the goods during unloading, sellers may offer to appoint their own surveyor to take independent samples. This is important for sellers, as they will have their own evidence in the event of a dispute over the quality of the goods. 

Do buyers have the right to refuse to pay for the delivered goods if they find deviations in their quality indicators?  

As a general rule, buyers cannot refuse to pay for the goods if there is a complaint about the quality of the goods. Payment for the goods and the quality assessment are independent terms of the contract.  

For example, in many DAP contracts, payment is due upon unloading of the goods without any reference to quality inspection.  

If the contract does not make payment dependent on inspection of the quality of the goods, sellers have the right to demand payment in full upon the due date. If buyers refuse to pay for the goods, sellers should consider filing a claim against the buyers for breach of their contractual payment obligations.  

In the event of minor deviations from the quality specifications of the goods, buyers have the right to claim compensation for damages due to the supply of noncontractual goods. 

However, if the quality of the goods differs materially from the contractual specifications, buyers have the right to reject the goods, in which case no payment obligation arises. 

Is it possible to resell goods on a DAP basis?  

If the buyers reject the goods or unreasonably refuse to pay, the seller may consider reselling the goods on a DAP basis if the goods have not yet been unloaded at the destination and the buyers have not yet accepted them. In this case, sellers have the option of redirecting the goods and issuing shipping documents to any other final buyer.  

If the goods have already been cleared in the European Union, there may be certain technical obstacles to their further resale. Under these circumstances, sellers should respond quickly to the above actions, as there is a risk of losing access to the delivered goods. 

Conclusion. 

The optimal solution is to enter into contracts stipulating that the quality of the delivered goods be assessed at the time of loading. This ensures that buyers are not obligated to pay for the goods until their quality is verified, creating acceptable conditions for both parties. 

If the terms of the contract stipulate that the quality of the goods shall be checked during the unloading of the goods at the destination, the sellers shall appoint their own surveyor who will independently take samples of the quality of the delivered goods. 

Once sellers have accepted the contractual requirements for unloading quality testing, they must monitor the buyers' compliance with these requirements. Any breach of this process by the buyers may result in the annulment of the results of such tests. 

In view of the above, it is necessary to change the structure of contracts, paying particular attention to the quality of goods. Resolving this issue between the parties helps to reduce risks for both parties at the stage of contracting. 

Iryna Moroz, partner at AGA Partners

Andrii Tantsiura, associate at AGA Partners

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This article is available in Ukrainian only.

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This article is available in Ukrainian only.

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This article is available in Ukrainian only.

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