Compensation for the unlawful arrest and detention of the Arctic Sunrise and its crew

Arbitral Tribunal orders the Russian Federation to pay a little under 5,4 million euros to the Netherlands

On 18 July 2017, almost two years after that an Arbitral Tribunal (Tribunal) found that the Russian Federation must compensate the Netherlands following the wrongful arrest of the Arctic Sunrise and its crew, the Tribunal handed down its Award on the issue of compensation.

Background

Before looking at this recent decision in more in depth, the history of the dispute will be laid out. Starting on 18 September 2013, when Greenpeace activists tried to enter the Russian offshore oil platform (the Prirazlomnaya) in order to protest against attempts to begin exploiting oil and gas resources in the Arctic. One day later, the Russian Federation boarded and arrested the Arctic Sunrise and detained its crew. Subsequently, the vessel was brought to the port of Murmansk and the crew was charged with having committed a range of administrative and criminal offences, including acts of terrorism and hooliganism.

The Netherlands initiates Proceedings before an Arbitral Tribunal 

Some two weeks later, on 4 October 2013, The Netherlands, being the flag State of the Arctic Sunrise, started proceedings before an Arbitral Tribunal that was established pursuant to Annex VII of the 1982 Law of the Sea Convention. The Russian Federation refused to participate in the Arbitral proceedings that were initiated by the Netherlands. The position of the Russian Federation was, that this type of dispute was beyond the jurisdiction of an international court or tribunal, due to a declaration it had made at the time of becoming a party to the 1982 Law of the Sea Convention. However, the proceedings went ahead, despite the non-participation of the Russian Federation.

The Netherlands requests Interim Measures from the ITLOS

On 21 October 2013, the Netherlands requested interim measures from the International Tribunal for the Law of the Sea (ITLOS). According to the Netherlands, the Russian Federation had to immediately release the Arctic Sunrise and its crew, after the posting of a bond, upon which they would be free to leave Russian territory as well as any maritime areas under its jurisdiction. ITLOS gave an Order on interim measures on 22 November 2013. Initially, the Russian Federation did not comply with the Order of the ITLOS – eventually, however, the vessel and crew were released in late November 2013. The Russian release of vessel and crew was based on its national laws, the Order of the ITLOS played no decisive role in this, according to the Russian Federation  – as it happened, the effect of the national laws and regulations on which the Russian Federation relied, coincided with what was set out by the ITLOS in its Order containing interim measures.

Arbitral Award on the Merits

One of the main substantive issues on which the Arbitral Tribunal was asked to rule during the merits phase, was the (un)lawfulness of the response of the Russian Federation to the presence of the Arctic Sunrise and its crew. The gist of the argument of the Netherlands was that, as the flag State, it had sole jurisdiction over the ship and the crew on-board during the entirety of this incident (Article 58 of the 1982 Law of the Sea Convention). On 14 August 2015, the Tribunal released its Award on the merits. The Arbitral Tribunal found that the Netherlands had exclusive jurisdiction over the Arctic Sunrise whilst it was operating in the exclusive economic zone of the Russian Federation. This means that the Russian Federation could have only lawfully initiated steps against the vessel that was flagged to the Netherlands and its crew with the latter’s consent. After coming to this conclusion, the Tribunal went on to state that the Netherlands had to be compensated.

Arbitral Award on Compensation

In its recent Award on compensation, the Tribunal set the total amount of compensation owed by the Russian Federation to the Netherlands at a little under 5,4 million euros. This sum was arrived at by adding up the damage that was done to the Arctic Sunrise (EUR 1,695,126.18); compensation related to the unlawful arrest, prosecution and detention of its crew (EUR 600,000); a variety of other damages incurred by the Netherlands, including the failure to release the vessel and crew in a timely manner (EUR 2,461,935.43); costs made by the Netherlands in issuing a bank guarantee (EUR 13,500); and lastly, the Netherlands had to be reimbursed for paying the full amount of deposits required by the Tribunal (EUR 625,000) – meaning that the Russian Federation had to pay the half it owed of the costs that were needed for the proceedings to be initiated. Although the Russian Federation is required under international law to abide by the ruling on compensation, whether it will actually do so remains to be seen.

 

The Global Santosh and the Vicarious Performance of Third Parties

The Supreme Court today (11 May 2016) handed down its decision in NYK Bulkship (Atlantic) NV v Cargill International SA (The Global Santosh) [2016] UKSC 20.

Simon Rainey QC, visiting fellow of the IISTL, was brought in to argue the SC appeal and represented the successful appellants, Cargill.

The decision of the Supreme Court is a landmark one in relation to a contracting party’s responsibility for the vicarious or delegated performance by a third party of its contractual obligations, both in the common charterparty and international sale of goods contexts.

Overview

The Global Santosh was time chartered on terms that the vessel should be off-hire during any period of detention or arrest by any authority or legal process, unless the detention or arrest was “occasioned by any personal act or omission or default of the Charterers or their agents.” She was arrested as a result of a dispute between the receiver of the cargo and a party who appears to have been a sub-sub-charterer, and which had nothing to do with the owners or the ship. The question which arises on this appeal is whether the arrest can be regarded as having been occasioned by the time charterer’s “agents” in the sense in which that word is used in the proviso.

The meaning of the common term “or their agents” in this charter context raised far-reaching issues as to the extent of a party’s responsibility under a contract for the acts of a third party who vicariously performs some aspect of the party’s contractual obligations or to whom performance of the obligation has been delegated by the creation and operation of a series of sub-contracts.

These issues, previously only canvassed at first instance and open to debate, have now been addressed in full by the Supreme Court.

Summary of the Supreme Court’s Decision

  1. In general terms, in deciding whether a contracting party is liable or responsible for some act or omission done by a third party in performing that party’s obligation under a contract, the correct approach is to define what obligation has been delegated to the third party and to what extent that party is vicariously acting as the contracting party in acting or omitting to act.
  1. In the specific context of a time charterparty off hire clause, the question as to who bears responsibility for delay occasioned by an arrest by or involving such a third party is one of construction of the clause.
  1. But the use of the concept of charterer’s “agents” in such a provision (and others) is to be approached in just the same general way.
  1. In particular, there is no over-arching concept of ‘spheres of responsibility’ which would treat any party who becomes involved in the chain of contracts around the charterparty which result from the charterer’s trading of the vessel and its commercial or trading arrangements (such as a sub- or sub-sub- charterer or a buyer or seller of cargoes) as its “agent” by being on the charterer’s ‘side of the line’.