In September 2016, new Russian arbitration legislation came into force addressing the arbitrability of corporate disputes in relation to Russian companies. Before this, there had been a number of Russian court decisions that had cast doubt over the arbitrability of corporate disputes so the new legislation was seen as a good thing, even if some of the provisions were not entirely clear.
Three years on, this blog looks at the changes that were made and what they mean for parties drafting and negotiating arbitration clauses for Russia-related contracts.
The revised regime
For the purposes of the legislation, corporate disputes are essentially disputes in relation to incorporation, management or membership of a company. The changes only apply to companies incorporated in Russia; they do not affect company structures involving a foreign-incorporated holding company owning a Russian-incorporated operating company with assets in Russia. This means that the legislation does not apply to Russian businesses that use offshore companies and holding structures.
In broad terms, it can be said that the changes created three categories of corporate disputes:
- Non-arbitrable corporate disputes.
- Corporate disputes that are arbitrable subject to certain conditions.
- Arbitrable corporate disputes.
Category one: Non-arbitrable corporate disputes
Generally speaking, non-arbitrable corporate disputes are disputes which, for reasons of public policy, cannot be arbitrated and can only be referred to a state commercial court. Within this category are disputes relating to companies of strategic importance for Russia (as defined by law) and disputes relating to the acquisition of more than 30% in public listed companies. There is a full list of non-arbitrable corporate disputes in Article 225.1(2) of the Commercial Procedure Code of Russia.
Category two: Arbitrable corporate disputes subject to conditions
Broadly, this category covers “internal” company disputes, where one party to the dispute is the company itself, or its management bodies, and the dispute has an impact on the interests of all members of the company as a whole.
This category includes:
- Disputes in relation to the incorporation, reorganisation or liquidation of a company.
- Members’ claims for losses caused to the company or for declaring company transactions invalid.
- Disputes in relation to the powers or liability of current or former managers of the company.
- Disputes in relation to the issue of new shares.
- Claims challenging company decisions.
This category also includes disputes arising out of shareholders’ agreements, although the conditions for arbitrating shareholder disputes have been relaxed since the legislation was first introduced, as explained below.
Conditions for arbitrability
In order for disputes in this category to be arbitrable, the following conditions must be satisfied.
- The arbitration agreement must be entered into by the company itself, all the companies’ shareholders and all other parties to the dispute.This is one of the conditions that has been relaxed since the legislation was first introduced for disputes arising out of shareholders’ agreements (and indeed for members’ claims challenging company transactions). As from 29 March 2019, it is sufficient if there is an arbitration agreement between the parties to the dispute.
- The seat of arbitration must be in Russia.
- The arbitration must be administered by an arbitral institution that is recognised as a permanent arbitration institution by the Russian Government.For the purposes of corporate disputes, there are currently four permanent arbitration institutions recognised by the Russian government. There are three Russian institutions: the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation (ICAC); the Russian Arbitration Center at the Russian Institute of Modern Arbitration (RAC); and the Arbitration Center at the RSPP (RSPP). On 25 April 2019, the list was joined by the first foreign arbitration institution recognised by the Russian Government, the Hong Kong International Arbitration Centre (HKIAC). The Vienna International Arbitration Centre (VIAC) has also applied for recognition and is likely to receive formal recognition in July 2019.
- The permanent arbitration institution must have special rules for the arbitration of corporate disputes. Currently only the three Russian permanent arbitration institutions (ICAC, RAC and RSPP) have special rules for the arbitration of corporate disputes. This means that, to date, no foreign arbitration institution satisfies both requirements.
This is another of the conditions that has been relaxed since the legislation was first introduced for disputes arising out of shareholders’ agreements. With effect from 29 March 2019, there is no longer a requirement that the arbitration of shareholder disputes must be administered by a permanent arbitration institution that has special rules for the arbitration of corporate disputes.
Impact for drafting arbitration clauses
The major effect of these conditions for those drafting arbitration clauses is that the seat of the arbitration must be in Russia and the choice of arbitral institution is limited to the three Russian permanent arbitration institutions: ICAC, RAC or RSPP.
For shareholders’ disputes, the seat of the arbitration must still be in Russia, but the parties have a slightly wider choice of arbitral institution. In addition to ICAC, RAC and RSPP they could choose HKIAC and (from July) VIAC.
Category three: arbitrable corporate disputes
In broad terms, category three covers “external” disputes between individual members of a company, or members of a company and third parties which do not involve the company itself.
This category includes:
- Disputes in relation to the ownership of shares, the creation of encumbrance over shares and the exercise of ownership rights.
- Disputes arising out of sale and purchase agreements.
- Disputes in relation to enforcement against shares.
- Disputes arising out of depository’s activities in connection with their obligations to keep shareholders’ registers.
Conditions for arbitrability
Disputes in this category are arbitrable subject only to the requirement that the arbitration be administered by a permanent arbitration institution. There is no requirement that the seat of the arbitration be Russia.
Some practitioners consider that the term “permanent arbitration institution” includes a permanent foreign arbitration institution not recognised by the Russian government, provided that it conducts the arbitration outside of Russia. The rationale for adopting this view is that there is no requirement that the seat of the arbitration be Russia and the law on the recognition of permanent arbitral institutions by the Russian Government only applies to arbitrations in Russia. If this view is correct, it would give parties a greater choice of foreign arbitral institutions. However, the position remains unclear and the safest option is to assume that it only includes permanent arbitration institutions recognised by the Russian Government.
Impact for drafting arbitration clauses
If parties do not want the seat of the arbitration to be Russia, they should choose a permanent arbitration institution that can administer arbitrations outside Russia. Both the HKIAC and (when formally recognised) the VIAC can administer arbitrations outside Russia. However, the rules of the Russian institutions vary. The ICAC Rules provide that the seat of arbitration can only be Moscow (Article 21). The RSPP Rules provide the seat of the arbitration will be Moscow unless the parties have agreed otherwise (Article 30). The RAC Rules provide that the parties may at their discretion agree on the seat of arbitration (Article 22).
The recognition of the HKIAC (and imminent recognition of the VIAC) as permanent arbitration institutions by the Russian government has broadened the options for parties wishing to arbitrate corporate disputes relating to Russian companies. It will be interesting to see whether any other foreign arbitral institutions will seek accreditation in order to access this type of dispute.
