Russia: arbitration-related developments

The end of 2018 saw certain important changes introduced to the Law on Arbitration in Russia (the "Law on Domestic Arbitration"),[1]which also apply to international commercial arbitration proceedings seated in Russia.[2]  The changes will take effect on March 29, 2019. 

As per the changes, the rules for obtaining the license by arbitral institutions in order to administer arbitrations in Russia and the procedure for arbitration of certain types of corporate disputes were simplified. Thus, the license shall be issued by the Ministry of Justice and not by the Russian Government, as is currently the case.  There is also greater certainty with regard to the application process. The changes provide i.a. for a list of documents that a foreign arbitral institution needs to submit with an application for obtaining the license. Among those documents are: a) Note detailing the background and activities of the institution; b) Excerpt from the register or a similar document confirming the legal status of the institution or its founding organization; c) Rules for administering corporate disputes (if the organization wants to administer Russian corporate disputes that require special rules). If a foreign arbitral institution intends to administer Russian domestic disputes, it will need to establish presence in Russia for such purposes (a branch office of the institution or its founding organization).

A significant change has been introduced with regard to arbitrability of corporate disputes. After the 2016 arbitration reform disputes under shareholder agreements have been arbitrable only under the conditions that: 

a)     allshareholders of the company and the company itselfare parties to the arbitration agreement; 

b)    the arbitration is administered by a "licensed" arbitration institution;

c)     the arbitration is administered under special Rules for administration of corporate disputes (which means that information about the dispute is to be published at the website of the arbitration institution); and 

d)    the seat is in Russia. 

As from 29 March 2019 the requirements under a) and c) will be abolished.[3]

Further changes to the Law on Domestic Arbitration concern arbitrability of disputes arising out of or in connection with contracts entered into in accordance with Law on Procurement by State Legal Entities[4]that have been subject of several court cases in 2018.[5]Such disputes having their seat in Russia are to be administered by a licensed arbitral institution.[6]

Among recent arbitration-related developments is the issuance by Russia's Supreme Court on 26 December 2018 of a review of court practice on arbitration-related matters (the "Review").[7]Though not of a binding nature, the Review expresses the position of the Supreme Court on applying relevant legal rules to the disputes related to arbitration. Among the key points of the Review are the following:  

1)    Upholding the enforceability of standard arbitration clauses recommended by arbitral institutions;[8]

2)    Alternative dispute resolution clauses (i.e. which enable a claimant to choose between arbitration and state courts) are valid;[9]

3)    Asymmetrical dispute resolution clauses (i.e. enabling only one party to choose between arbitration and state courts) are invalid because every party is to have the same scope of rights to refer the dispute both to arbitration and state courts;[10]

4)    Any restrictions on arbitrability of civil-law disputes are to be expressly  provided for in the law and not inferred by other means;[11]

5)    Where a creditor submits a claim based on an award in bankruptcy proceedings, the other creditors are entitled to object thereto on the same grounds that are provided by the law for refusing enforcement of the award.  As regards the public policy ground, the Supreme Court found that the public law purpose of bankruptcy proceedings is to ensure the balance of rights and legal interests of all creditors. Therefore, creating an appearance of a private law dispute resolved by an arbitration court to enable the inclusion of a baseless debt into the register of creditors in order to influence the bankruptcy case shall be considered as a violation of public policy.[12] This provision is aimed at preventing claims confirmed by fictitious arbitrations from being submitted to the bankruptcy estate.

Vladimir Khvalei, partner, Baker McKenzie
Irina Varyushina, professional support lawyer, Baker McKenzie

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[1]Federal Law No382-FZ on Arbitration (Arbitration Proceedings) in the Russian Federation dd. 29 December 2015. 

[2]Federal Law No 531-FZ dd. 27 December 2018. 

[3]See Part 7¹ of Article 7 and Part 7¹ of Article 45 of the Law on Domestic Arbitration (as amended by Federal Law No531-FZ dd. 27 December 2018, in effect as from 29 March 2019). 

[4]Federal No 223-FZ dd. 18.07.2011 "On procurement of goods, works and services by certain types of legal entities". 

[5]See, for example, Mosteplostroy JSC v. Mosinzhprojekt JSC, А40-165680/2016, case file at: http://kad.arbitr.ru/Card/692507fe-d800-4152-b90f-77af1b4a9444.

[6]See Part 10 of Article 45 of the Law on Domestic Arbitration (as amended by Federal Law No531-FZ dd. 27 December 2018, in effect as from 29 March 2019).

[7]Review of Court Practice in Connection with Performing Functions of Assistance and Control with regard to Arbitration Courts, approved by the Supreme Court's Presidium on 26 December 2018, available at: http://www.supcourt.ru/documents/all/27518/

[8]Item 5 of the Review. 

[9]Item 6 of the Review.

[10]Item 7 of the Review.

[11]Item 16 of the Review.

[12]Item 25 of the Review.