Karyna GorovayaSenior Lawyer, Interlegal, Ukraine

One of the most popular global business activities is international trade. Ukraine is also engaged in such process. Official statistic data show that Ukraine, as the agricultural state, ranks among the top global exporters of grains and oilseeds.

From early marketing year 2016/2017, over 40 million tons of grains were shipped from Ukraine for export, which exceeds the export volume for the last marketing year nearly by 13%.

As we know, export process follows the commercial contract conclusion and setting logistic processes aimed at goods flow and delivery to the consignee.

The parties engage in the process of commercial contract performance a large number of participants. Each participant performs its own tasks aimed at achieving the single goal: proper delivery of the goods under the terms prescribed by the contract and receiving the duly remuneration.

Relationship between participants to the process (forwarders, carriers, agents, terminals, guarantors) shall be governed by relevant contracts who may contradict to each other in the absence of proper legal expertize of trade and logistic scheme of the goods flow. It may result in conflicts between the parties to the deal and level up the possible legal mechanisms aimed at prompt defense of the parties’ interests.

Besides the need in clear governing functions performed by each engaged participant and fixing the moment of transferring risks and responsibility for the goods, another important factor is a correct choice of substantive law and jurisdiction for settlement of disputes which may arise from each contract.

If the goods flow till the moment of shipment for export takes place in Ukraine where the Ukrainian contractor is involved, the task it quite simple – probably it is reasonable to subordinate contracts to the substantive law of Ukraine with the Ukrainian court jurisdiction. If necessary, such set of law instruments facilitates obtaining a court decision quite quickly, followed by its enforcement in Ukraine.

But now there are quite popular trade schemes under which the goods of Moldavian origin are imported to Ukraine, followed by further export shipment from the Ukrainian ports. Convenient logistic outcome, port infrastructure and industry of logistic/forwarding services facilitated attractive platform in Ukraine for shipment of the goods not only of the Ukrainian origin.

Such trade deal category requires special attention from the parties concerned. It is important to set the correct chain of relationship between engaged persons and to take into account different law systems of the states via the cargo is transported.

Case study from our recent practice

Since our company is specialized mainly in rendering legal services in transport and international trade, our lawyers made expertize of similar schemes from the aspect of commercial risks and provide their own recommendations upon correct execution of contractual relationship and transportation documents.

Our lawyers made expertize of the trade scheme under which the Swiss company purchased grain of the Moldavian origin from the company registered and making business in the Trans-Dniester Moldavian Republic. Apart from the goods, the Seller, by means of subordinated forwarder, terminal and carrier, provided the goods delivery in Ukraine for shipment on board of the sea-going vessel.

Three principal contracts were supposed: Sales Contract governed by the English Law with an arbitration clause on dispute settlement by the GAFTA Arbitration; Cargo Storage Contract with the Trans-Dniester terminal subordinated to the Seller; Freight Forwarding and Carriage Contract with the Ukrainian carrier subordinated to the Seller.

It is a common fact of the seller’s rendering a full set of forwarding, carriage and storage services. Eager to propose to the buyer the most profitable terms of cooperation, large trader, apart from their principal activity (i.e. trade), also develop business in related services. Meantime, attractiveness of such complex approach for the buyer depends on the moment of transferring risks on the purchased goods.

In this case, under principal agreements between the parties, the title and risks on goods were transferred from the moments of the goods acceptance for storage by the Trans-Dniester terminal subordinated to the Seller, simultaneously with making major payment for the goods.

Under such trade scheme, the Buyer’s principal risk provided absence of actual control over the goods. Obviously, payment against warehousing documents issued by the terminal subordinated to the Seller does not serve as proper guarantee that the goods will be shipped in due time and delivered to the destination point agreed with the Buyer – one of the Ukrainian ports.

Although the terminal is an independent business entity owning the property (an integral property complex on the basis whereof the terminal is functioning) and bears independent responsibility under its obligations, the fact that the seller and the terminal owner are functioning at the territory of the Trans-Dniester Moldavian Republic caused serious doubts regarding effective defense of the buyer’s interests.

Instead of conclusion: guarantees are the upmost

As we know, the Trans-Dniester Moldavian Republic has a regular conflict with its neighbour – Moldova and is not recognized by the majority of states.

The Trans-Dniester Moldavian Republic has no effective court system; enforcement of foreign court and arbitration awards causes a lot of problems, while decisions made at the territory of Moldova are unenforceable a priori. Therefore in such case bringing delinquent debtors to responsibility has no prospects.

With regards to such terms it was obvious that a positive GAFTA Arbitration award against the seller registered in the Trans-Dniester Moldavian Republic does not serve as guarantee of control over the goods. The possibility of prompt and effective prosecuting the terminal, if the latter refuses to transfer the goods, is also doubtful.

This example shows brightly the importance of making correct trade scheme, proper risk assessment and development of risk mitigation mechanisms. Like any business activity, trade shall be made at one’s own risk. Sometimes such risk is justified and, for instance, is repaid by the more profitable price, sometimes no. Anyway, it is important to bear such risk consciously, i.e. to understand when it shall occur.

With regards to engaged persons, under analysis of logistic scheme and development of risk mitigation instruments, the lawyers faced several law systems and jurisdictions at once: English, Ukrainian, Moldavian and Trans-Dniester.

Within the above trade and logistic scheme, lawyers managed to do the puzzle of law system and jurisdictions and to propose optimal terms for each contract. In addition they also proposed alternative ways of securing obligations concerning pledge of property located in the Trans-Dniester Moldavian Republic and personal guarantee of one of the seller’s beneficiary.