New Russian rules on corporate disputes: a view from London

The question of arbitrability of Russian corporate disputes is an old chestnut. For a few years, it was the subject of lively debate, and a number of academics and practitioners robustly criticised the state courts’ approach to the issue. The central question concerned the proper interpretation of section 33 of the Arbitrazh Procedure Code (APC), which allocated special competence (специальная подведомственность) over corporate disputes (defined in section 225.1 of the APC), to the state Arbitrazh (Commercial) Courts (AC).

Pro-arbitration commentators insisted that the provision allocated jurisdiction only between different branches of the state courts system, but did not affect the ability of a party to submit a corporate dispute to arbitration. The state courts however interpreted the provision as giving the AC exclusive jurisdiction over corporate disputes.

The matter was effectively settled between 2011 – 2012 in Maximov v NLMK. This case provided a series of decisions from the Constitutional Court, the Supreme Arbitrazh Court, the Arbitrazh Court of the Moscow District and a tribunal sitting at the International Commercial Arbitration Court at the Russian Chamber of Commerce and Industry (ICAC at the RF CCI). Those decisions confirmed that corporate disputes were subject to the special competence (exclusive jurisdiction) of the AC.

Against this background, new Russian arbitration legislation (that came into force on 1 September 2016) expressly addressed the question of arbitrability of corporate disputes in relation to Russian companies. It provides that:

  • Certain corporate disputes remain non-arbitrable.
  • A significant number become arbitrable but subject to a number of detailed conditions, including that the seat of arbitration should be in Russia.
  • The remainder become arbitrable provided that they are institutionally administered.

In practical terms, disputes arising from shareholders’ agreements will generally fall into the second category, whereas those arising from share purchase agreements will fall into the third category.

Given the significant number of Russian-related disputes with a London seat, will the new legislation have a material impact on Russian arbitration in London?  The most likely answer is no.  One of the main reasons for this conclusion relates to the corporate structures of typical arbitration-users that choose London arbitration to resolve their disputes.

A typical structure adopted by many Russian parties involves a foreign-incorporated holding company fully owning a Russian-incorporated operating company with assets in Russia. The shareholders in the holding company are typically foreign-incorporated, representing the respective interests of the ultimate beneficial owners.

However, there are innumerable permutations at the holding company level and above, but the main point for present purposes is that this type of corporate structure allows the parties to conclude shareholders’ agreements, framework agreements and/or any other arrangements regarding the ownership and management of the business (including in a joint venture context) at the holding company level outside Russia. The result is that those arrangements do not directly relate to a Russian company, meaning that the new legislation (including the need for a Russian seat) does not apply to those arrangements. The parties can continue to choose London arbitration as before. Indeed, the new legislation might have the effect of reinforcing the rationale for such corporate structures.

There are other reasons why the new legislation is unlikely to have a dramatic effect on Russian arbitration in London. As noted above, there is no requirement for a Russian seat in share purchase agreements relating to a Russian company, so it is likely that disputes under those types of agreements will continue to be resolved in London.

What about existing arbitration clauses providing for a London seat in respect of corporate disputes that, under the new rules, must be resolved in Russia, whether through state courts or Russia-seated arbitration? The answer is that it depends on the proper law of the arbitration clause, which governs the existence, the validity and the scope of the clause (and hence the question of the tribunal’s jurisdiction), which, it must be remembered, does not necessarily coincide with the law of the seat (see Sulamerica SA v Enesa Engelharia SA; and Arsanovia Ltd v Cruz City 1 Mauritius Holdings where an arbitration clause providing for London Court of International Arbitration (LCIA) arbitration was held to be governed by Indian law, meaning that on the facts the tribunal lacked jurisdiction to hear the dispute).

If the law of the arbitration clause is Russian, then a clause submitting corporate disputes to arbitration with a non-Russian seat will be unenforceable (section 13.7 of the Federal Law No 409 dated 29 December 2015) and the tribunal will lack jurisdiction to hear the disputes. If, however, English law applies to the clause, then the arbitrability of a particular corporate dispute will be determined under English law (bearing in mind that English law does not have an equivalent to the Russian law definition of corporate disputes).

So it is possible that a London seated tribunal might have jurisdiction to hear a Russian corporate dispute as a matter of English law, notwithstanding the position under Russian law. While this analysis favours a continued use of London arbitration for Russian corporate disputes, the parties should proceed with caution. The recognition and enforcement of an award may be refused where the subject matter of the dispute is not capable of settlement by arbitration under the law of the country where enforcement is sought (Article V.2(a) of the New York Convention). It is probably a safe bet that the Russian court will refuse recognition of a London award in a corporate dispute, leaving the award creditor with a Pyrrhic victory.

At a more general level, it is likely that London will continue to attract Russian disputes because of its fundamental strengths and through parties’ familiarity. On the flip side, parties will need to see how the new legislation is applied by Russian courts before the effectiveness of the latest reforms can be judged.

King & Spalding Grigori Lazarev

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