REUTERS | Alexander Demianchuk

Will Russian arbitration law reform make Russia a more attractive arbitration seat?

It is no secret that Russia is not among the most popular venues for international commercial arbitration. There may be many reasons for this, including purely logistical ones (such as visa requirements and lack of appropriate hearing centres). Nevertheless, in addition to considerations of convenience, the real reason is likely to be users’ concern regarding the overly interventionist approach of the Russian courts.

The attitude of Russian courts may, at least in part, be attributed to the development of arbitration in Russia. This is particularly so during the last 25 years. While international commercial arbitration was a relatively common feature of cross-border trade even in the Soviet era, following the fall of the Soviet regime and establishment of the market economy in Russia, there was an apparent need for arbitral institutions to administer disputes between businessmen in a domestic context. As a result, there are currently hundreds of arbitral institutions around Russia offering their services in both international and domestic arbitration. How many cases they handle is unknown, but many have been used for fraudulent ends, such as confirming title over immovable property for the purpose of state registry entries, or enforcing non-existent debts for the purpose of bankruptcies.

Needless to say, the courts have treated the awards of such institutions with outright hostility. This could not but affect the overall attitude of judges to arbitration as a method of dispute resolution in general, and international arbitration by implication.

On 29 December 2015, the President signed two bills effecting arbitration law reform in Russia. An unofficial translation of the amended Law on International Commercial Arbitration was prepared by the Russian Arbitration Association. It should be noted, however, that various provisions relevant to international arbitration are contained in other pieces of legislation, including the law on domestic arbitrations and procedural codes). The reform process has been ongoing for over two years. The laws enter into force on 1 September 2016, with some provisions becoming effective at later dates. Among other things, the reform is intended to promote Russia as a place for arbitration.

How the reform intends to tackle the hostility of the courts

There are two types of measures embodied in the reform legislation, intended to change the attitude of the courts.

First, the reform seeks to address what seems to be at the core of the problem, that is the quality and integrity of Russian based arbitral institutions. In this respect the new legislation provides that arbitral institutions must be established by not-for-profit organisations (until now many commercial entities had their own “pocket” arbitral institutions) and should obtain permission from the Ministry of Justice to administer disputes. The law further provides for rather detailed instructions as to the content of institutional rules, as well as the requirement for arbitrators to be included in institution lists. Foreign arbitral institutions will also need to obtain authorisation from the Ministry of Justice to administer disputes in Russia (otherwise, arbitrations administered by them in Russia will be considered ad hoc proceedings).

Second, the legislator sought to limit interference by the courts and, to some extent, their discretion. This is most apparent in rules relating to the arbitrability of disputes and the interpretation of arbitration agreements.

Thus, the reform reinforces the notion that only federal legislation can specify which categories of disputes are non-arbitrable. This seeks to limit recent judicial activism in proclaiming new categories of non-arbitrable disputes. At the moment, the list of non-arbitrable disputes includes, to name but a few:

  • Bankruptcy.
  • Public procurement.
  • Privatisation.
  • Employment.
  • Family.
  • Personal injury.
  • Certain intellecutal property disputes.

As of 1 February 2017, corporate disputes with respect to Russian entities will become arbitrable under certain conditions.

Regarding arbitration agreements, the laws introduce a number of interpretation presumptions with respect to the scope of clauses included in a contract. Most importantly, the laws provide that any doubts with respect to the interpretation of arbitration agreements should be construed in favour of validity and enforceability. So far, Russian courts have been very keen to interpret even minor mistakes as working against the validity of arbitration clauses.

Whether these measures will be effective remains to be seen. The legislation on its own will not be sufficient to change the views of the judiciary. Indeed, attempts to limit judicial discretion seem to be based on the assumption that the judiciary will remain hostile to arbitration and should therefore be controlled by legislative provisions. Nevertheless, the new legislation may become a turning point for creating, overall, a better and more trustworthy arbitration landscape in Russia. This will eventually result in greater trust in arbitration from both users and judges.

Other measures supporting Russia’s bid as an attractive venue

The reform also includes further incentives (direct and indirect) to promote Russia as a seat for arbitration.

As to the direct incentives, some of the most discussed features of the new legislation are the provisions on arbitration of corporate disputes. Importantly, all arbitrable corporate disputes with respect to Russian corporations may only be submitted to institutional arbitration seated in Russia. Likewise, only arbitral institutions authorised by the Ministry of Justice will be able to administer them.

With respect to other attractions of institutional arbitrations seated in Russia, two points are noteworthy. First, the amended procedural rules allow for greater support from the Russian courts in collecting documentary evidence at the request of a Russian-seated tribunal. Second, parties to an institutional arbitration seated in Russia can expressly (in the arbitration clause) agree on the finality of the award, in which case no setting aside proceedings before Russian courts would be available to the losing party.

All in all, it remains to be seen whether Russia will become a more attractive arbitration venue following the reform. The legislative amendments are only one small step towards this goal, but the years to come will show if this was a step in the right direction.

 

Norton Rose Fulbright Andrey Panov

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