Current trends in Russian arbitration law

1. Current trends in Russian arbitration law By DMITRY DAVYDENKO Ph.D. in law, Senior Associate at MuranovChernyakov & Partners law firm, Editor at Russia & CIS Arbitration Forum

2. Plan • Russian legislative reform on domestic and international arbitration • Recent case law on arbitration-related matters • Enforcement of foreign arbitration awards in Russia

3. Russian legislative reform on domestic and international arbitration The Ministry of Justice prepared a set of measures for the development of arbitration in Russia on the basis of preliminary elaboration with the participation of representatives from the legal community. The key bill of the reform: Federal Law “On arbitral tribunals and arbitration in Russia”. Aim of the reform: solving current problems in Russian arbitration.

4. Currentissuesof Russian arbitration • existence of the so-called ‘pocket’ arbitral institutions; • lack of unified legal requirements for arbitration sufficient to prevent abuse (for both domestic and international commercial arbitration); • lack of uniform qualification requirements for arbitrators; • lack of uniform independent bodies for assistance and supervision in arbitration; • lack of legal liability mechanisms in the field of arbitration; • gaps in legal regulation of the arbitration procedure, something which reduces its (arbitration) effectiveness; and • lack of clear regulation of the issue of the arbitrability of disputes.

5. Possiblechangesofferedbythereform • Liquidation of the dual regime of the rules applicable to both international arbitration and domestic arbitration. • Only non-commercial organisations can establish arbitration tribunals. • Registration of arbitration institutions by the Ministry of Justice. • State control over activity of arbitral tribunals. • Limitation of the arbitrable disputes circle. • Liability of tribunals and arbitrators. • Tax preferences to arbitral tribunals.

6. Criticism of the reform • The procedure of arbitration institution’ registration and state supervision violates the fundamental principles of arbitration and its contractual nature. • Restricting the arbitrable disputes pays against national tribunals because disputes will leak to foreign arbitration fora. • Draft law criticized by the State-Legal Directorate of the President of Russia

7. Case law on arbitration-related matters: trends • Non-arbitrability course of Russian state courts. • Struggle against ‘pocket’ arbitration tribunals. • Awards amounting to an excessive penalty contradicts to Russian public policy. • An award rendered in Russia may not be set aside if the parties have agreed that it will be final. • An arbitral award issued in Russia may not be set aside unless it is contrary to public policy.

8. Resolution of the Supreme Commercial Court No 1567/13 dated 16 July 2013: NO to “pocket” arbitral institutions The Presidium of the Supreme Commercial Court of the Russian Federation continued its “holy war” against arbitral institutions attached to commercial organisations. The court declared that such courts “objectively” (as such) cannot be impartial in disputes involving parties belonging to the same group within such commercial organisation. The court recognised that the guarantees of paragraph 1 of Article 6 of the Convention for the Protection of Human Rights 1950 (to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law) are applicable not only to the proceedings in state courts, but also to arbitration proceedings.

9. Resolution of the Supreme Commercial Court No 16497/12 dated 23 April 2013: penalty shall not exceed losses Presidium of the Supreme Commercial Court of the Russian Federation affirmed relevant lower courts’ decisions to set aside a domestic arbitral award. It found that enforcement of an award requiring the respondent to pay penalty interest in the amount exceeding the losses actually suffered by the claimant violates Russian public policy.

10. Decree of the Federal Commercial Court for Moscow Circuit No А40-125009/12-52-1162 dated 12 March 2013: waiver to set aside the award enforced The court held that an award rendered in Russia may not be set aside if the parties have agreed that it will be final and have waived any recourse against it. The court ruled that in such cases the only remedy available to the losing party would be to object to enforcement of the award.

11. Decree of the Supreme Commercial Court No 6353/13 dated 10 June 2013: public policy – the only ground to set aside the award In 2013 the Federal Arbitrazh Court of the Moscow Circuit formed a stable practice, according to which an arbitral award issued in Russia cannot be set aside unless it is contrary to public policy. Judicial control over it should be exercised at the stage of recognition and enforcement.  Supreme Commercial Court refused to pass one such case to the Presidium for a supervisory review.

12. Resolution of the Supreme Commercial Court No 11535/13 dated 28 January 2014: disputes arising out of government contracts not arbitrable The court has ruled that arbitral tribunals cannot resolve disputes arising out of government contracts. The court quashed the decisions of lower courts granting enforcement of a domestic arbitration award in a dispute between a government agency and a company. The obligations assumed under the government contract concerned the performance of public functions. Under Russian law only civil law disputes may be submitted to arbitration. A dispute which concerned the performance of public law functions could not have been submitted to arbitration.

13. Decree of the Supreme Commercial Court No 11059/13 dated 9 December 2013: disputes arising out of forest block lease not arbitrable The Supreme Commercial Court held that a dispute arising out of a forest block lease contract cannot be resolved in arbitration. The court referred to the public nature of relations connected with usage of a forest. 

14. Information Letter of the Supreme Commercial Court No 156 dated 26 February 2013: public policy exception restricted The Presidium of the Supreme Arbitrazh Court of the Russian Federation approved the Review of the court practice on public policy clause application (Information letter No 156 dated 26 February 2013). The Presidium severely restricted cases of this traditionally popular ground in Russia for refusal of recognition and enforcement of international arbitral awards.

15. Resolution of the Supreme Commercial Court No 8445/13 dated 29 October 2013: NO to party-related institutions The Supreme Commercial Court noted that the award was rendered by a party-affiliated arbitral institution. The court found that the Arbitration Court had been established by Gazprom and Yamalgasinvest, the claimant in the arbitration, is an affiliate of Gazprom. Accordingly, the court held that, as the tribunal was not independent, the award was contrary to Russian public policy, which requires arbitral tribunals to be independent.

16. Enforcement of foreign arbitration awards • According to statistics in more than 50 % of cases Russian courts grant enforcement of foreign arbitration awards. • However, Russian state courts show an increasing willingness to recognise and enforce foreign arbitral awards. • In most cases applicants were foreign entities and defendants – Russian companies, including state-owned.

17. Conclusion The legislative reform has come to an impasse. This may be even better for the arbitration in Russia. The main current course of the Russian courts and legislator is struggle against party-affiliated arbitral tribunals and limitation of the arbitrable disputes circle. Russian courts have become more experienced in the enforcement of foreign and domestic arbitral awards. In near future we will see how the new Supreme Court will approach the cases on enforcement of foreign and domestic arbitral awards.

18. Contactinformation Dmitry Davydenko Ph. D. in Law Address: Bld. 6, 23 Denisovsky Lane, Moscow, Russian Federation, 105005 Telephone: +7495 7953279 Fax: +7495 7950390 E-mail: d.davydenko@rospravo.ru; davydenko-d@yandex.ru Websites: http://cisarbitration.com/; http://www.rospravo.ru/en/; http://iurisprudentia.ru/eng/