by the Arbitration Association

Obtaining of permission by foreign arbitral institutions

February 5, 2019

In accordance with new law enacted during arbitration reform, foreign arbitral institutions shall obtain special permission of the Russian government in order to administer arbitration in Russia.

This new requirement attracted interest from foreign arbitral institutions and raised the questions:

- In what circumstances obtaining of such permission is necessary?

- What are consequences of refraining from obtaining of such permission?

- What is a procedure of obtaining permission?

In case a seat of arbitration is located not in Russia, but abroad, a general rule is that obtaining of permission by the foreign arbitral center is not necessary. It is worth reminding that a seat of arbitration is not equal to a place of hearings. Russian law explicitly provides that a place of arbitration and a place of hearings may differ.

It is highly recommended to pay special attention to the following types of disputes: 

- to corporate disputes, part of which may be resolved only with a place of arbitration in Russia and under special corporate disputes rules (see the scheme below). In other words, obtaining of permission is obligatory for a foreign arbitral center in order to administer those disputes;

- to domestic disputes between Russian companies, which, as some Russian courts believe, can not be referred to arbitration in foreign arbitral centers and/or stipulate as a seat of arbitration other country than Russia (see the famous case re Russian-Singaporean arbitral center, case  А40-219464/16-52-430). The main reason for such approach is an attempt of the courts to stand against bad faith Russian arbitral centers which try to imitate foreign arbitral centers in order to circumvent requirement for obtaining of permission and administer cases without permission.

If dispute falls into a category of cases which can be administered only by the centers with permission, absence of permission causes risks of refusal of enforcement of a corresponding arbitral award in Russia.

In other cases arbitral award of the foreign arbitral institution which does not have permission is treated as ad hocaward in Russia.

In accordance with law, foreign arbitral institutions enjoy favorable treatment and may obtain permission only based on widely known international reputation of such institution.

In practice, however, those foreign institutions, which planned to apply for permission, faced additional requirement – obligatory presence of a subsidiary or a branch of an institution in Russia. This requirement is now included into a draft amendment arbitration law number №350176-7. This draft has passed one round of discussions out of three in State Duma of the Russian Federation in April, 2018.

Mentioned requirement is unachievable for the most foreign arbitral institutions.

Therefore, amendments into draft law №350176-7have been proposed. Those amendments “are connected with the elimination of the burdensome requirements for opening of independent subsidiaries in the Russian Federation for those foreign arbitral institutions who do not administer domestic disputes”.

In other words, if those amendments are approved, foreign arbitral centers which do not handle domestic disputes will not have obligation to register their subsidiaries or branches in Russia.

Currently those amendments are not approved; there is a chance that they may be approved during the fall 2018.

To the best knowledge of the author, several foreign arbitral institutions follow closely the outcome of those amendments in order to apply for permission after those issues are solved.

As was mentioned by those centers, obtaining of permission is planned in order to show respect and attention to the Russian parties and to prove existence of interest in administering cases with the Russian participants.

The shceme "Arbitration of corporate disputes regarding companies incorporated in Russia under Russian law (as of 04.09.2018") you can find on page 21 Issue #2.

Anna Grishenkova

KIAP attorneys-at-law, Moscow