Reforms to arbitration law in the Russian Federation have been in contemplation for several years. On 29 December 2015 the Federal Law No. 382-FZ on Arbitration (Arbitral Proceedings) was signed and will come into force on 1 September 2016. The law sets rules with regard to arbitral courts in the Russian Federation and regulations for their organisation and procedures.
One of the reasons for the new law is to prohibit the use of what are known as “pocket arbitrations”. This is where disputes are resolved by arbitral institutions which have in fact been created by one of the parties to the dispute and which lack objective impartiality. Such arbitral institutions have been stalwarts of big Russian organisations such as Sberbank and Gazprom, which have used their standard form dispute resolution clauses to refer contracting parties to them.
Operation of arbitral institutions
Arbitral institutions will have to be created as non-profit organisations and only those which have been granted permission by the government of the Russian Federation will be able to create an arbitral court. In recognition of the existing good working relationships they have forged over the past 80 years exceptions have been made for two members of the Russian Federation Chamber of Commerce and Industry:
- The International Commercial Arbitration Court (Международный Коммерческий Арбитражный Суд (МКАС)); and
- The Marine Arbitration Commission (Морская Арбитражная Комиссия (МАК)).
All other existing arbitral institutions will need to obtain licences. It appears this is designed to put an end to pocket arbitrations. However, in addition, foreign arbitral associations that wish to carry out activities in the Russian Federation will also need to obtain permission. The criteria will be to show they are both held in high regard and are widely respected. It remains to be seen but this could well be regarded as a hindrance to all but the most prominent international arbitration institutions.
In order to be considered for a licence recommendations are to be provided by the Council on Improvement of Arbitral Proceedings (Совет по совершенствованию третейского разбирательства). The council will be composed by representatives of public authorities, the All-Russian Association of Employers, chambers of commerce and representatives of the legal, business and scientific community. The following requirements have also been set out as a guideline:
- Composition of a recommended list of at least 30 qualified arbitrators;
- Provision of accurate information on the founders;
- Good reputation, scale and nature of activities.
Arbitral institutions which are not granted the appropriate licenses will not be allowed to administer arbitrations seated in Russia.
Rules for the resolution of ad-hoc arbitrations
There is a clear preference given to arbitral institutions with strict restrictions being imposed upon ad-hoc arbitrations. These restrictions prohibit them from considering corporate disputes or requesting evidence from state courts, and agreements to waive the right to appeal an ad-hoc arbitration award are not enforceable.
Another problem of the current law is that Russian courts have persistently tried to carve out corporate disputes (which are disputes relating to the creation or governance of a legal entity in the Russian Federation) from the jurisdiction of arbitration. In an attempt to guard against this practice the reformed law explicitly specifies that corporate disputes may be resolved by institutional arbitrations, but not by ad-hoc arbitration tribunals.
Under Article 225.1 of the Arbitral Procedure Code (Статья 225.1 Арбитражный процессуальный кодекс Российской Федерации) most corporate disputes may be submitted to institutional arbitration. However, the new arbitration law continues to exclude certain specified issues from arbitration, reserving these to the courts. These exceptions include:
- Ownership of shares and equity;
- Corporate governance;
- Challenging acts of state bodies;
- Legal entities imperative for national defence.
The list also includes examples of non-corporate disputes which cannot be transferred to arbitration. It should be noted this list is non-exhaustive and can be added to by further legislation at a later date which means there will be continuing uncertainty.
Appeals and Applications
Grounds of appeal of foreign arbitral awards are limited to those set out in the New York Convention 1958. Russian courts have been known to widely refuse recognition of awards on public policy grounds, which have been interpreted broadly to refuse enforcement of awards against Russian parties.
Domestic and international arbitration are governed by separate statutes and pre-reform there was no right for domestic arbitral tribunals to request court assistance. The reformed law provides that all parties (except parties to ad-hoc arbitrations) will have the right to appeal to the state courts for the resolution of queries, such as:
- The appointment of arbitrators (where previously unspecified);
- Review of an application for the disqualification of an arbitrator from a single arbitration;
- Review of an application to terminate an arbitrator from practising in the Russian Federation.
It is clear that the reforms do address many problems with the current law and one would hope it will make Russia a more attractive place to arbitrate. At the same time many of the most important provisions have a lingering hint of ambiguity that will only be resolved following the law coming into force.
A second reading of the draft law is anticipated this autumn when further amendments are due to be made.