Russian Arbitration Reform: Must Know For Users

Russia is going through a major arbitration reform: as of 1 September 2016, the new legal framework came into force and thus triggered some very substantial changes in this area. The legislator has kept the original dualism in regulating international and domestic arbitration separately. In practical terms, it means that one would have to check whether its dispute falls within the scope of international or domestic arbitration and also whether a particular arbitral institution has the right to hear international or domestic cases, or both.  

Importantly, as before, all civil disputes involving Russian parties can be referred to arbitration, international or domestic, in Russia or abroad, institutional or ad hoc, bearing in mind some legislative restrictions as explained below. 

This note provides some selected insights on the topic. Please seek specific advice in each case.

Arbitral Institutions

Prior to 1 September 2016 there were very few restrictions as to the establishment of arbitral institutions in Russia. As a result, there has been the widespread practice of abuse of arbitration by referring disputes to the so-called “pocket arbitrations” (over 500 institutions at some count), i.e. affiliated with one of the parties to the dispute. The new legal framework is set to eliminate this problem, as well as to enhance the professionalism of arbitral institutions in general.

Starting from 1 September 2016 all newly established institutions are subject to mandatory licensing (permission) by the Government of the Russian Federation as the so-called permanent arbitral institutions. Furthermore, all existing arbitral institutions will lose the right to administer cases starting from 1 November 2017 unless they obtain a license. 

The only exception applies to the International Commercial Arbitration Court and Maritime Arbitration Commission at the Chamber of Commerce and Industry of the Russian Federation (http://mkas.tpprf.ru/en/; http://mac.tpprf.ru/en/). These well-established institutions are not required to obtain a license and will have the right to administer cases without interruptions.

From a practical point of view, if it comes to choosing an arbitral institution in Russia, parties are advised to consult with the webpage of the Ministry of Justice of the Russian Federation to find out whether a particular institution has deposited its rules with the latter, so that it is allowed to administer cases starting from 1 November 2017:    http://minjust.ru/ru/deyatelnost-v-sfere-treteyskogo-razbiratelstva/deponirovannye-pravila-arbitrazha

Foreign arbitral institutions to be able to administer cases in Russia are also required to obtain a license. If not, they will not be able to administer cases in Russia that can be referred to permanent arbitral institutions only, e.g., corporate disputes, and their awards rendered in Russia will be treated as ad hoc arbitration awards.

Ad hoc arbitration is allowed in Russia but it has certain restrictions as compared to institutional arbitration. Thus, parties to ad hoc arbitration cannot: (i) exclude recourse to state courts regarding appointment and removal of arbitrators, challenge of preliminary ruling on jurisdiction and of arbitration award; (ii) ask state courts for assistance in taking of evidence; (iii) arbitrate corporate disputes.

Pending Proceedings

All arbitration proceedings duly initiated prior to 1 September 2016 can be continued (even in case it contradicts the new law) under the rules of administering arbitral institutions. However, if an administering institution fails to obtain a license in due course, starting from 1 November 2017 such pending proceedings will be treated as ad hoc arbitrations.   

Arbitration Agreements

All arbitration agreements duly entered into prior to 1 September 2016 remain valid and thus claims can be referred to an institution as agreed by the parties before 1 November 2017 or to its successor (if any) thereafter.

With regard to the newly concluded arbitration agreements the following should be noted. First, arbitration agreements regarding corporate disputes can be concluded not earlier than 1 February 2017. Second, as of now the only safe option for arbitrations in Russia are the International Commercial Arbitration Court and Maritime Arbitration Commission at the Chamber of Commerce and Industry of the Russian Federation due to their special status set out in the law.

Arbitrability

The new legal framework introduced important changes to arbitrability.

First, all civil law disputes are now presumed to be arbitrable unless explicitly provided otherwise in the federal law.

Second, corporate disputes are declared to be arbitrable in principle. Thus, civil law disputes between contracting parties (so-called internal corporate disputes), e.g., arising out of share purchase agreements, are arbitrable if: (i) arbitration agreement is concluded prior to 1 September 2016 or after 1 February 2017; and (ii) administered by a permanent arbitral institution seated in Russia. Other corporate disputes that may concern the company itself and other shareholders (so-called external corporate disputes) are arbitrable subject to certain additional conditions, e.g., application of special rules designed for such disputes. Finally, the law sets out a list of corporate disputes that are not arbitrable, e.g., compulsory expulsion of a shareholder. It is worth mentioning that the abovementioned restrictions regarding corporate disputes shall only apply to disputes concerning directly legal entities established in Russia.

Third, disputes arising out of public procurement contracts are declared to be temporarily non-arbitrable until a particular permanent arbitral institution is assigned to hear such disputes.     

Options

Historically, there are few arbitral institutions which have gained substantial experience and became popular for Russian (and CIS) disputes: the Arbitration Institute of the Stockholm Chamber of Commerce (SCC) (www.sccinstitute.com), the International Court of Arbitration of the International Chamber of Commerce (ICC) (www.iccwbo.org), the London Court of International Arbitration (LCIA) (www.lcia.org), the German Institution of Arbitration (DIS) (www.disarb.org), the Vienna International Arbitration Centre (VIAC) (www.viac.eu), the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation (MKAS) (www.mkas.tpprf.ru). In addition, some Asian arbitral institutions now offer a modern and efficient dispute resolution, e.g., the Singapore International Arbitration Centre (SIAC) (www.siac.org.sg), the Hong Kong International Arbitration Center (HKIAC) (www.hkiac.org).

Conclusion

Though highly debated, the new legal framework is believed to be a generally welcomed development designed to bring arbitration in Russia up to a new level and finally making Russia more attractive for dispute resolution. The new laws have brought the regulation more in line with the UNCITRAL Model Law, which should also contribute to providing more certainty for users.

To read more on the Arbitration Reform please click here.

To read more on the recognition and enforcement of foreign arbitral awards please click here.

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