As part of comprehensive arbitration law reform in Russia, the new Russian Arbitration Law (Domestic) has come into force and become better aligned with the UNCITRAL Model Law. Several aspects of the new Arbitration Law need to be kept in mind when executing new arbitration agreements and enforcing existing ones.
Indeed, since September 1, 2016, parties have a number of new issues to consider while executing arbitration agreements under the Russian law.
The Arbitration Law now explicitly stipulates the arbitrability of corporate disputes – a major step forward, considering that previously the issue was unclear. Furthermore, the Law for the first time systematically specifies cases where recourse to arbitration is not permitted, including, inter alia, insolvency cases, disputes over refusal or avoidance of state registration, and certain disputes involving intellectual property rights. The list, however, is not exhaustive.
Nevertheless, there are still some uncertainties regarding the arbitrability of other disputes, such as inconsistency in Russian high court positions regarding disputes on immovable property foreclosure.
In addition, certain formal requirements for arbitration clauses have been eliminated. An arbitration agreement may be reached by an exchange of legal process documents (e.g., the claim and statement of defence, in which one party claims there is an arbitration agreement, and the other party does not object), or by its inclusion in a trading platform or clearing rules.
In the case of corporate disputes, an arbitration clause shall be agreed by a company, all its shareholders, and other persons who are claimants or respondents to the dispute in question. Alternatively, it is now possible for an arbitration clause to be agreed upon in a company’s charter.
The courts, which have, in practice, interpreted arbitration clauses quite expansively, are now explicitly instructed to do so: if there is any doubt, an arbitration clause shall be interpreted in favour of its validity and enforceability.
Another notable change, eliminating a previously controversial court practice, is that where there is a substitution of the person in the obligation, the arbitration agreement now applies to both initial and new creditors and debtors.
Additionally, attention should be drawn to the difference between the express agreement of the parties and the rules of the arbitration institution included in the arbitration agreement by reference to such rules. Both options constitute an arbitration agreement, but the Arbitration Law sets forth a number of instances when a departure from its rules is possible only if the parties have expressly agreed so (e.g., the possibility to agree on the finality of the award, the exclusion of oral arbitration proceedings, etc.).
Existing arbitration clauses may be affected rather unpredictably. Therefore, it may be worth revising them to ensure that the agreements serve their purposes.
As a minimum, it is recommended to observe the choice of arbitration institutions closely. The Arbitration Law introduces an authorization-based procedure for the permanent formation of arbitral institutions, which can be established only within specially-authorized non-profit organizations. Therefore, most existing domestic permanent arbitration institutions will be going through re-registration procedures, although there is a special exception for the most established Russian arbitration institutions – The International Commercial Arbitration Court and Maritime Arbitration Commission at the CCI of Russia. Foreign arbitration institutions may also acquire permanent arbitration institution status in Russia by obtaining special government authorization.
In practice, this reform raises a question: What will happen if a previously-chosen arbitration institution fails to obtain the required authorization? The Arbitration Law allows already authorized arbitral institutions to act as successors to those who fail to obtain authorization (predecessor institutions). If there is no successor institution, a dispute can be resolved under an existing arbitration agreement, but the chosen institution will be considered as an ad hoc tribunal, which may have significant implications for the parties to arbitration agreements. Ad hoc arbitration may not consider corporate disputes and parties to ad hoc tribunals are deprived of the right to appeal to state courts for assistance in obtaining evidence. Furthermore, parties to an ad hoc arbitration clause may not agree on the finality of an ad hoc judgment – i.e., parties retain the right to appeal the judgment to a state court.
In conclusion, it should be noted that only certain major aspects regarding Russian arbitration reform were mentioned here. Although previously-existing arbitration clauses are still considered valid, the reform can lead to some controversial consequences for parties to them. On the other hand, the reform brings Russian arbitration more in line with international standards. Hopefully, the reform will drive further market improvements and a wider use of Russian arbitration institutions.
By Svetlana Seregina, Partner, Eldar Mansurov and Alla Geyfman, Associates, Peterka and Partners, Russia
This article was originally published in Issue 3.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.