Genova - The case of the Sovcomflot owned oil tanker "NS Champion" which was due to dock at the Flotta oil terminal in the Orkney Islands earlier this week accelerated the UK Government’s intention to consider banning Russian ships from UK ports. At the time the UK government stated that: “At present the vessel cannot be refused permission to dock”, the same spokesperson added that Westminster was considering plans to restrict Russian ships’ access to UK ports. Sovcomflot is part of the SCF Group, a company of which the Russian state is the majority shareholder. The UK Government spokesperson added that: “We are aware of concerns about Russian-connected ships potentially docking in the UK and we are working rapidly to explore a range of measures to restrict access for them.”
A search of port schedules indicated that, despite the intensifying trade embargos against Russian businesses and state entities, at the time there were a number of Russian vessels scheduled to dock at British ports, a situation that was mirrored in a number of European ports and terminals. A series of decisions were rapidly introduced in both the United Kingdom and a number of European nations leading to a situation where Russian vessels have been barred from entering ports. The decision to restrict Russian vessels’ access to British and European ports raises a number of complex legal issues, but the complications do not end there, further considerations include goods already in transport on Russian owned or operated ships and cargo destined for transport by companies that might be targeted by sanctions.
To better understand the complexities I posed a few questions to Enrico Vergani, the Head of the Shipping & Transport Focus Team at leading international law firm BonelliErede.How complex is the question, what do governments need to establish and how long could this take?
"An official note from the Secretary of State with responsibility for transport and ports was issued on 28 February 2022 to all the Port Authorities of the United Kingdom, with effect from 1 March 2022, in relation to the ban on accepting ships flying the Russian flag, registered in Russia, or that are connected to Russian interests regardless of the identification of such interests as referable to SDN - Special Designated Nationals and therefore subject to specific sanctions. The same communication expresses the will to help the British Port Authorities in the difficult task of evaluating the cases in which to deny port entry and announcing a specific provision on the matter to be issued shortly."
What constitutes a vessel subject to sanctions?
"Ships and Shipowners who are SDN are certainly subject to sanctions. This is a special and sufficiently clear precept. The note of February 28, however, goes much further, addressing concepts such as "has reasonable cause to suspect" and extending in an undifferentiated way to ships controlled, chartered or operated by subjects connected to Russia."
How can this be established?
"This is a huge problem that places a great responsibility on the Port Authorities and the subjects called to decide on the right of access for a ship. Criteria on which to base this assessment have been announced by the British government and the hope is that they will be clear and unambiguous in their application."
Very often there is no clear distinction between the public and private sectors in Russia, what type of problems could this cause?
"With the dissolution of the Soviet Union, three large fleets (the Baltic Sea, the Black Sea and the Azov Sea) were transferred to various companies which took over the management. The legal problem, the subject of numerous and fiery disputes before the Italian and United Kingdom Courts, was whether this management also corresponded to the transfer of ownership or whether, instead, the three companies had the management of assets that, substantially, remained public but had been transferred from the dissolved Soviet Union to coastal countries, one of which was Ukraine. The question was not irrelevant since it affected the possibility for the creditors to take actions against the ships in cases where there were claims raised against the companies operating the fleet. In any case the convergence of public and private is a phenomenon that still exists in Russia and could lead to a radical extension of the sanctioning system."
Looking at the bigger picture, what impact would the banning of Russian vessels from British and European ports have on the maritime transport sector?
"Taking into account the enormous amounts of credit that circulate in the shipping sector, where the level of certainty and security of trade must be guaranteed, the impact is potentially disruptive. Uncertainties of interpretation and application should not exist in this sector as well as, more generally, in the conduct of international traffic. The interests of third parties must also be taken into account which are completely outside the contractual regulations on sanctions or on the involvement of the ship carrying out the transport contained in the contracts for its use. A holder of a clean bill of lading is a subject that holds a secured credit in their hands. It is difficult to think that the legal certainty of a holder or endorsement of a credit security could be undermined by a decision taken on the basis of ‘a reasonable cause to suspect’."
Moving to the Black Sea, under the 1936 Montreux Convention in times of war Ankara can block some warships from countries involved in the conflict from accessing the Black Sea. Are there any provisions in the Convention for restrictions on merchant vessels?
"The Convention governs the passage of military ships and cannot be invoked to prevent or restrict the transit of the merchant fleet, so historically the principle of ‘free innocent passage’ applies. Especially in a case where the safety of the coastal country, a prerequisite for invoking the application of the Convention, has to be demonstrated."
Would merchant vessels be subject to inspections before entering the Bosphorus and Dardanelles Straits?
"There are cases in which it is possible for coastal states or even for military ships of a country employed in patrol or security missions to carry out on-board inspections and also to stop merchant ships. Examples of this type, some even quite striking ones, occurred off the coast of Libya during the period of the so-called 'Arab Spring' and the military operations that followed. However, they are instruments of absolute exceptionality that should be invoked and applied with particular caution."
What are the other key issues that you see as potentially damaging to the shipping sector?
"The transport and logistics sector was resuming its growth and development after the great challenge of Covid-19, a period that was successfully handled by the logistics sector thanks above all to the sacrifices and self-denial of the people who work in the sector. The sanctioning measures envisaged and their application seem to be characterised by the total absence of predictability and will certainly be of considerable damage to the sector. Beyond some hypotheses of potential profit, even enormous profits, from niche activities, shipping and transport will pay a very high price. Seafarers, formally key workers, will be exposed to situations of profound risk and uncertainty and risk from the points of view of their own safety and of managing to conserve their jobs and therefore decent living conditions."
What should companies do and what should companies be concerned about in terms of insurance, ship arrest, goods in transit, crews and so on?
'The Liberian Naval Register, one of the largest registers for merchant ships, has launched an initiative on the sanctioning discipline called 'Compliance Culture.' This has its place in the context of a social responsibility that must be shared among all operators in the sector. But what culture of compliance can be developed in the face of legislation which, by admission of the same administration that issued it - and I return to the note of the British Secretary General of State of 28 February - will be the object of attempts aimed at determining its scope and the interpretative canons? How can compliance with the reference legislation on sanctions be planned as a 'guiding star' in the planning and development of a business activity, in the fulfilment of one's obligations towards others as well as the relevant economic interests and, finally, in the exercise of the duty of care towards workers if this legislation is still being defined in its applicational details?
*Pyramid Temi Group