This article provides an overview of the law applicable to ship arrest in the Russian Federation (hereinafter “Russia”), and outlines the basis for jurisdiction of Russian courts to decide matters pertaining to ship arrests, as well as the procedures followed by claimants and the courts in petitioning for and determining issues of arrest respectively.

There are several procedures that a claimant may follow in order to procure the arrest of a ship from a Russian court, whether a court of general jurisdiction or a State Arbitrazh Court[1]. The two predominant methods, which are discussed in further detail in this article, are procuring arrest as an injunction measure in action proceedings, and procuring arrest based on a maritime claim as set forth in Merchant Shipping Code of the Russian Federation dated April 30, 1999 (hereinafter “Merchant Shipping Code”).

Applicable law

Russia is a party to certain international conventions pertaining to the arrest of ships and to maritime liens and mortgages. For instance, Russia is a party to the International Convention for the Unification of Certain Rules relating to the Arrest of Maritime Ships concluded in Brussels on May 10, 1952 (“1952 Convention”). Russia joined the 1952 Convention on January 6, 1999 through issuance of the Federal Law “On the Russian Federation Joining the International Convention for the Unification of Certain Rules Relating to the Arrest of Maritime Ships” subject to the following reservations. Specifically, although Russia joined the 1952 Convention, it reserved the right to not apply the provisions of the 1952 Convention as follows[2]:

· to warships, war-subsidiary and other ships owned by the State or used by the State solely for non-profit purposes;

· to arrest of a ship under a maritime claim arising from disputes involving the title to or ownership of a ship, disputes between co-owners of a ship regarding the ownership, possession, employment, or earning of such ship (Article 1, Items “o” and “p” of the 1952 Convention). Russia further reserved the right to apply Russian legislation to such claims;

· to not apply Article 3, Item 1 of the 1952 Convention to the arrest of a ship within the jurisdiction of Russia pursuant to claims arising from a ship mortgage (Article 1, Item “q” of the 1952 Convention).

Russia is also a party to the International Convention on Maritime Liens and Mortgages, concluded in Geneva on May 6, 1993 (the “1993 Convention”). It joined the 1993 Convention on December 17, 1998 by issuing the Federal Law “On the Russian Federation Joining the International Convention on Maritime Liens and Mortgages of 1993” without any reservations.

Russia is not a party to the International Conventions for the Unification of Certain Rules relating to Maritime Liens and Mortgages concluded in Brussels on April 10, 1926 and May 27, 1967. Russia is also not a party to the International Convention on the Arrest of Ships concluded in Geneva on March 12, 1999 (“1999 Convention”). Although not a party to the 1999 Convention, Russia has implemented some important provisions of this Convention, including its list of maritime claims, in its own domestic maritime legislation, specifically, the Merchant Shipping Code.

Thus, the main domestic Russian law that deals with ship arrests under specific maritime claims is the Merchant Shipping Code. Procedural requirements are contained in the Code on Arbitrazh Procedures of Russia (hereinafter “Code on Arbitrazh Procedures”) and the Code on Civil Procedures of Russia (hereinafter “Code on Civil Procedures”).

The Merchant Shipping Code defines arrest of a ship as any detention or restriction in movement of a ship within the jurisdiction of the Russian Federation, carried out under a decision of a court, Arbitrazh Court or maritime arbitration court authorized by law to impose arrest on a ship to secure a maritime claim, except for seizure of a ship effected in execution of a decision of a court, Arbitrazh Court or arbitration tribunal which has come into legal force. The legislation establishes that a ship may be arrested even when it is ready to sail.

Under the Merchant Shipping Code procedure, a ship against which a maritime claim[3] has arisen may only be arrested under the following circumstances: a maritime claim against a ship owner is secured by a maritime lien on a ship and is among the list of claims established by merchant legislation; a maritime claim is based on the mortgage on a ship or duly registered encumbrance of the same nature; a maritime claim relating to the right of ownership or possession of a ship; other cases when owner (bare-boat charterer) of a ship is liable for a maritime claim and owns a ship (is its bare-boat charterer) at the moment arrest procedure commences.

In accordance with the Merchant Shipping Code, a sister ship is any other ship that is owned by the person/entity liable under a maritime claim who was, at the time the claim arose, the owner of a ship against which a maritime claim has arisen, or the bareboat charterer, time charterer or voyage charterer of such a ship. The Merchant Shipping Code allows the arrest of one or more sister ships under a maritime claim procedure. In order to arrest sister ships, a claimant must prove that there is a connection between the ship against which a maritime claim has been asserted and the entity (physical person or legal entity) liable for the maritime claim (at the time the claim arises, the person/entity who is the owner of the ship, or its charter under a bare-boat charter, time-charter or voyage charter), and between the sister ship and this person/entity.

The Merchant Shipping Code provides that a ship may only be arrested pursuant to the assertion of a specific maritime claim. There are 22 such claims, which are enumerated in Article 389 of the Merchant Shipping Code, which corresponds to a list of such claims contained in the 1999 Convention. A maritime claim is asserted by filing a petition for arrest with a court.[4] A maritime claim is defined as any claim arising out of:

(b) loss of life or personal injury to a person which occurs either on land or on water, in direct connection with the operation of a ship;

(d) expenses for measures taken by any person to prevent or minimize damage, including damage to the environment, if such a claim arises out of an international treaty of the Russian Federation, law or any agreement, as well as damage which has been caused or might have been caused by such measures;

(e) expenses for the raising, removal and destruction of a sunken ship or its cargo;

(l) supply of provisions, materials, fuel, stores, equipment, including containers, for the purposes of the operation and maintenance of a ship;

(o) wages and other sums due to the ship master and other members of the ship’s crew from their employment on the ship, including costs of repatriation and social insurance contributions payable on behalf of the ship master and other members of the ship’s crew;

(q) insurance premiums, including mutual insurance contributions payable by the owner of a ship or its charter by demise or on their behalf;

(r) commission, broker’s or agent’s remuneration payable by the owner of a vessel or its bareboat charterer or on their behalf;

(t) any disputes between two or more co-owners of a ship as to the use of the ship and the division of earnings;

(u) a registered mortgage on a ship or registered encumbranceof the same nature;

Non-Russian legal entities and physical persons may apply to Russian Arbitrazh Courts or to courts of general jurisdiction for protection of their rights and lawful interests in cases provided for by the procedural legislation of the Russian Federation.

It should also be taken into consideration that the Merchant Shipping Code provides that a ship may be arrested (based on a maritime claim) in order to obtain a security even if, in accordance with a jurisdictional clause or arbitration clause specified in a respective agreement or otherwise, the maritime claim pursuant to which a ship is arrested is subject to consideration by a court or arbitration body of another country. In such case, a Russian court would only have the authority to arrest the ship, but the main dispute would later be considered by the foreign court.

As stated above, an arrest may be imposed on a ship as an injunction measure in Arbitrazh Court proceedings and courts of general jurisdiction. This is accomplished by filing a petition for injunction with a respective court at any stage of the proceedings (such application may be filed on the same date of filing a statement of claim and can even be incorporated into the statement of claim, or filed during the proceedings).

In order to procure arrest as an injunctive measure, the claimant must prove to the court that non-acceptance of the injunction measure (arrest) would complicate the execution of a court’s decision or make the execution impossible. The advantage of this approach is that in accordance with Russian procedural legislation, a petition for injunction must be examined and decided by a court of general jurisdiction on the day of its filing, and by an Arbitrazh Court not later than the next day. This usually means that the request for injunction will be considered by the court without the opposing party having an opportunity to be present in the court. Moreover, a court’s ruling on ship arrest as an injunction measure must be executed immediately.

The initiation of court proceedings in Russia requires a claimant to pay a state fee (to the State). The amount of this fee in property disputes is calculated as a specific percentage of the value of the claim and, therefore, can potentially be rather high. It is possible, however, to later recover court costs from the opposing party should the claimant prevail in the case.

In addition, in Arbitrazh Court action proceedings a court may request a claimant to provide counter-security before deciding on a petition on injunction measures, the amount of counter-security may not be less than half of the amount of the claim. If a claimant does not provide counter-security requested by a court in time, it may become ground for rejection to impose injunction measures. A defendant has a right to provide counter-security in exchange for injunction measures by depositing money in the amount demanded by a claimant into a deposit account of a court, in which case the arrest order will not be granted or will be withdrawn.

2) Arrest in accordance with the Merchant Shipping Code (based on a maritime claim)

Another option for arrest of a ship is to file a petition on arrest as preliminary injunction measure before commencing formal proceeding, based on a maritime claim as outlined above[6], following procedures established by the Merchant Shipping Code and the recently adopted edition of the Arbitrage Procedural Code.[7]

A petition for arrest of a ship under this scenario (as a preliminary injunction measure) is to be filed with an Arbitrazh Court by a place of location of a petitioner, funds or other property in question, or by a place of violation of applicant’s rights. A petitioner is required to provide counter-security for the amount specified in a petition and provide a court with document confirming such. A statement of claim related to a demand on preliminary injunction is to be filed with a court within 15 days from issuance of a court ruling granting arrest of a ship as a preliminary injunction measure. In case of a violation of this requirement, preliminary injunction measures are to be canceled by a court, which originally imposed them.

On the stage of preliminary injunction measures a defendant may plead a court for changing preliminary injunction measures for counter-security (by way of depositing money in amount of demands into a deposit account of a court). Provision of a court with a document confirming making counter-security by a defendant is a ground for rejection of injunction or its cancellation.

It is also possible to seek the arrest of a ship in a Russian court by way of execution of a commission from a foreign (non-Russian) court. In order to accomplish this, there must be a treaty between Russia and a foreign state providing for execution of commissions within the territory of the Russian Federation. It should be noted that the official procedure of delivery of commissions from a foreign state to Russian courts is via diplomatic channels, and therefore, can be lengthy and complicated.

Russian legislation also provides for the arrest of a ship in a Russian court by way of execution of a relevant decision of a foreign (non-Russian) court. There must be an appropriate treaty between the foreign state and the Russian Federation governing execution of court’s acts. A complete discussion of the circumstances in which a Russian court will enforce a foreign court’s judgment is beyond the scope of this article.

When granting a ship arrest, a court is empowered to request security in the form of depositing money into court’s deposit account from the claimant for possible damage that might be caused to the ship-owner. In addition, if the arrest is later rejected by a court as wrongful, the ship-owner may file a claim in the same court for compensation of damage caused by wrongful arrest of the ship after the decision on rejection enters into legal force.

In order to request relief from the Russian courts whether by injunction or by filing a maritime claim, to monitor the execution of an arrest with bailiffs and to perform other relevant actions, a litigation Power of Attorney from the claimant is required. It should be signed by the claimant’s authorized representative, contain the company’s seal, and be notarized, as well as legalized or apostilled (if a country is a party to the Hague Convention of May 5, 1961) by an authorized person and be accompanied by a notarized Russian language translation.

Due to the fact that Russian courts have the authority to not consider a claim if it is believed that the claim is signed by an unauthorized person, it is recommended that the Power of Attorney be carefully prepared by a Russian lawyer to comply with all requirements.

A petition for arrest, whether pursuant to the Merchant Shipping Code or as a request for injunction measure in action proceedings, should be supported by supplementary documents evidencing the claim, such as contracts, invoices, charter-parties, and letters requesting payment. In order to submit documents to Russian courts, they should be legalized or apostilled by competent authorities, and a notarized Russian language translation should be attached. Usually originals or notarized copies of the documents must be presented to the court. Simple copies will not suffice.

The court may simultaneously issue a writ of execution based on its ruling granting arrest. The writ of execution is then executed by court marshals (bailiffs). In accordance with legislation on execution procedure, the arrest should be made no later than one month from the date the decree on commencement of execution procedure is served to the defendant, or in some cases at the same time it is served. As noted above, if the arrest is granted as an injunction measure, it should be executed immediately.

Based on a petition filed by an interested party, an arrest imposed as an injunction measure may later be reversed or amended to provide for a different injunctive measure. Such petition may be supplemented with evidence confirming provision of counter-security by the defendant. It is possible that the arrest is changed to other statutory injunction measure by the court as a result of petitioning by a claimant or a defendant.

During ship arrest procedure as a preliminary injunction measure, a ship may be released from arrest (and preliminary injunction measures canceled) on the basis of a court’s decision based on a petition from a defendant, upon providing sufficient counter-security by way of depositing money into a deposit account of a court.

As noted above, a claimant seeking to procure arrest in action proceedings must pay a state fee when filing a claim with a court.

Bailiff’s costs may include execution fee, expenses for commitment of execution proceedings and remuneration of a bailiff. These costs depend on individual execution proceedings.

In some firms, attorneys’ fees are calculated on an hourly basis, in others, fees may be based on a fixed sum or contingency basis.

It appears from our recent practice that Russian courts currently prefer to impose arrest on ships as an injunction measure in action proceedings as opposed to using the procedure recently established by the Merchant Shipping Code and Code on Arbitrazh Procedures.

This article is only an overview of ship arrest topics and procedures in

Russia

. For concrete up-to-date legal advice or more information on the subject, please do not hesitate to contact our offices at the coordinates provided in the web-site and letterhead.

[1] The Arbitrazh Court system in Russia should not be confused with private arbitration. The Arbitrazh Courts grew out of the Soviet system for resolution of disputes between State enterprises, and these Courts today have jurisdiction over most commercial disputes between juridical persons.

[2] The below list contains all reservations.

[3] See next section entitled “Maritime Claims” for a list of such claims.

[4] See sections entitled “Jurisdiction” and “Procedure”.

[5] Article 389 of the Merchant Shipping Code.

[6] See sections entitled “Ship Arrest Pursuant to Maritime Claims” and “Ships Subject to Arrest”.

[7] Please note that procedure discussed in this paragraph, specifically, arrest through preliminary injunction measures, is only available in Arbitrazh Courts and is not provided for in procedural legislation regulating courts of general jurisdiction (the Civil Procedural Code).

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SHIP ARREST IN THE RUSSIAN FEDERATION

Introduction

Applicable law