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Enforceability of a Maritime Arbitration Clause in Russia. Considering Sanctions

Sanctions complicate the conduct of maritime arbitration.

Contracts between Russian and foreign shipping companies usually provide arbitration envisaging that the dispute is submitted to arbitration in London and is considered under English law. Sometimes the parties refer to the rules of arbitration of the London Maritime Arbitrators Association (LMAA).

Today, many English lawyers refuse to cooperate with Russian persons, the mechanisms for paying for the services of lawyers and arbitrators have become more complicated, and the attitude of Russian courts towards foreign arbitrations is also changing.

In 2020, the Moscow Arbitrazh Court enforced the decision of the London arbitration, considered in accordance with the rules of the LMAA against the Russian company ARC Shipping Company LLC at the claim of Silverburn Shipping (IoM) Ltd.

This practice indicates that the Russian courts have not had any prejudice against the LMAA in the process of enforcing arbitral awards against the Russian side until now.

Today, using one of the examples, we may conclude that the Russian court ignored the case considered in the London arbitration, which could affect the decision on the case considered by the Russian court.

In January 2023, a Russian court considered a case for the recovery of damages at the claim of the charterer Nordic Bulk Carriers against OOO Coal Sea Port Shakhtersk, caused as a result of an accident on a vessel. The accident occurred in a Russian port while loading coal.

The shipowner and insurer SKULD (foreign persons) also took part in the case. The shipowner filed a claim against the insurer in London in an arbitration procedure for the payment of insurance coverage for damage to the vessel. For two years of conducting arbitration in London, the disputed issues and the amount of losses have not yet been determined.

A time charter was concluded between the charterer and the shipowner with reference to arbitration in London and English law. Most likely, the charterer was worried that the insurer, having paid the insurance indemnity, would file a recourse claim against the charterer.

Given the expiring statute of limitations for claims for damages, the charterer tried to recover damages directly from the Russian port and thus secure the opportunity to pay the future recourse claim of the insurer. As part of its losses, the charterer took into account the cost of repairing the vessel and the lost freight.

The shipowner sent a motion to the Russian court to suspend the consideration of the Russian case until the end of the consideration of the case in the London arbitration. The Russian court, although it wrote in the reasons for the decision that the results of the case considered in the London arbitration directly affect the issue of losses in the charterer's claim against the port, nevertheless the court did not suspend the consideration of the Russian case.

The Russian court considered the claim and refused the charterer to recover damages, referring to the fact that the amount of damages was not proven. The court also reacted negatively to the fact that the charterer did not apply to Rostransnadzor in order to investigate the accident. The court did not have a Rostransnadzor report that could clarify the issue of damages.

It would have been more reasonable to suspend the consideration of the Russian case on a claim against the port until the end of the consideration of the case in the London arbitration. A different decision indicates that the Russian court showed distrust of the possible conclusions of the English arbitrators on the amount of damages.

In the current situation, when working with Russian persons, we can recommend to:

1) Use the arbitration clauses of neutral countries,

2) In the case of an arbitration under the rules of the LMAA with a Russian element, you might contact the Russian arbitrator so that he or she, along with the English arbitrators, is a member of the arbitration and ensures neutrality,

3) Conduct negotiations, mediation and, possibly, agree on a different way to resolve disputes.

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