This overview highlights recent developments in the approach to international commercial arbitration in Russia and provides a basic summary of the underlying legal rules. During the past year, the courts have analysed various different aspects of international commercial arbitration, focusing on the issues associated with the public policy clause.
Legal framework and major arbitration institutions
The Russian Federation is a party to the New York Convention 1958; the European Convention on International Commercial Arbitration (21 April 1961); and the Moscow Convention on the Settlement by Arbitration of Civil Law Disputes Arising from Relations of Economic, Scientific and Technical Cooperation (26 May 1972). The latter convention was intended for COMECOM countries and rarely applies, but has been used in some cases.
As regards investor–state arbitration, the Russian Federation signed the Washington (ICSID) Convention on 16 June 1992, but has not yet ratified it. The Russian Federation is also a party to more than 50 bilateral investment treaties.
On the national level, the international commercial arbitration rules are set out by the Law of the Russian Federation No. 5338-1 (7 July 1993) ‘On the International Commercial Arbitration’ (the ICA Law), which is based on the UNCITRAL Model Law and the Federal Law of the Russian Federation No. 382-FZ (29 December 2015) ‘On Arbitration in the Russian Federation’ (see below).
The major Russia-based international arbitration institutions include the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation (ICAC), and the Maritime Arbitration Commission at the Chamber of Commerce and Industry of the Russian Federation (MAC). ICAC and MAC act on the basis of regulations annexed to the ICA Law and the rules adopted by the Chamber of Commerce and Industry.
Agreement to arbitrate
The basic legal requirements for an arbitration agreement are set out in article 7 of the ICA Law. Article 7(1) of the Law reproduces the definition of the arbitration agreement from article 7(1) of the UNCITRAL Model Law. Article 7(2) of the Law (as well as article 7(2) of the UNCITRAL Model Law) requires that an arbitration agreement be in writing.
It is also important that the arbitration institution is named correctly by the arbitration agreement. Russian courts have frequently refused enforcement of arbitration clauses on the ground that they have not referred to the correct official name of an arbitration institution.
Involvement of the courts of the Russian Federation
The Russian state courts of both branches – the courts of general jurisdiction and the arbitrazh (ie, commercial) courts – have jurisdiction to deal with arbitration by means of, for example, granting interim relief in support of arbitral proceedings, recognising and enforcing arbitral awards, and setting them aside. However, the courts of general jurisdiction will have jurisdiction over the issues related to an arbitration only where the arbitration dispute did not arise out of economic activities in a broad sense. Therefore, the overwhelming majority of arbitration-related cases are dealt with by the arbitrazh courts.
The arbitrazh courts have four levels: a first instance court; an appellate instance court; a cassation instance court; and a higher instance court, the Supreme Court of the Russian Federation. In this hierarchy, the appellate instance court does not consider disputes as to the annulment or recognition and enforcement of arbitral awards, and a complaint against the decision of the first instance court should be filed directly with the cassation instance court.
Russian arbitration reform
Two new federal laws on international commercial arbitration in Russia entered into force on 1 September 2016:
- the Federal Law on Arbitration in the Russian Federation, which entirely replaced a former law on domestic arbitration and also covered various issues of international commercial arbitration (see below); and
- the Federal Law on Amendments to Certain Legal Acts of the Russian Federation, which introduced amendments to the ICA Law and procedural codes governing proceedings before state courts.
Among other things these laws provide for:
- arbitrability of corporate disputes (with certain exceptions). These provisions will enter into force on 1 February 2017;
- new rules regarding arbitration agreements. For instance, the arbitration agreement may be concluded by way of its inclusion into a company’s charter, clearing rules, etc;
- various rights of Russian state courts to assist arbitration (eg, by appointing arbitrators, resolving challenges of arbitrators, ruling on arbitral jurisdiction, obtaining evidence, etc). The exact scope of these powers may depend on the parties’ agreement, whether the case is before an ad hoc tribunal, etc;
- certain limitations on ad hoc arbitration (eg, ad hoc tribunals may not resolve corporate disputes and seek assistance in obtaining evidence from state courts);
- a licensing procedure for creation of permanent arbitral institutions (save for ICAC and MAC). In order to obtain a licence the arbitration institution should meet various requirements (eg, have rules compliant with Russian federal laws and a list of more than 30 arbitrators with certain qualifications);
- new provisions regarding enforcement of arbitral awards affecting the public registries (of legal entities, immoveable assets, etc). In particular, changes in public registries cannot be made based on an arbitral award only, and require enforcement of the respective award in Russian state courts;
- specific regulations regarding liability of arbitral institutions and arbitrators. For instance, arbitral institutions may be held liable for damages caused by intentional or grossly negligent breach of their duties. An arbitrator may be held liable for damages, but only if he or she committed a crime and a civil claim has been filed against him or her in a criminal case;
- new regulations concerning the legal status of arbitrators. For instance, the arbitrators have immunity from having to testify as witnesses on facts that came to their knowledge in the course of arbitration.
These laws received mixed views from scholars, practising lawyers and the business community. One would need to monitor how these laws are applied in practice to understand their impact on arbitration in Russia.
Recent developments in case law
An arbitral award can be enforced in the Russian courts even if it was reconsidered by the tribunal without providing notice to the parties and holding a hearing
On 31 May 2013, the Maritime Arbitration Commission issued an award ordering a Russian insurance company to pay a certain sum of money to a foreign claimant. However, the defendant then realised that the Commission had failed to deduct the unconditional franchise from the amount awarded. It applied to the tribunal to rectify the error and the tribunal issued an additional award stating the correct amount of money to be paid in favour of the claimant.
The additional award was set aside by the Federal Arbitrazh Court of the Moscow District due to violations of the arbitration procedure: the additional award reconsidered the initial award and was rendered without proper notice to the parties and a hearing in their presence.
Following that, the claimant applied to the Moscow Arbitrazh Court to enforce the initial award. However, based on the fact that the initial award contained obvious calculation errors that were recognised by the tribunal itself, the first instance court refused the enforcement as such enforcement would lead to violation of the basic principle of legality. The cassation court reversed that decision upon reassessing the facts of the arbitration case.
The Commercial Division of the Supreme Court reviewed the case as the second cassation instance and partly upheld the first instance court’s judgment. The Supreme Court agreed that enforcement of the initial award (with no account to the additional award) would violate the principle of legality due to calculation errors in it, and the fact that the initial award was not final as it was eventually corrected.
At the same time, refusal to enforce both the initial award and the additional award would violate the claimant’s right for judicial protection. Therefore, the Commercial Division enforced the initial award as corrected by the additional award. This ruling was upheld by the Supreme Court on 3 July 2015.1
On 1 January 2016 the new Federal Law of the Russian Federation No. 297-FZ (3 November 2015) ‘On Jurisdictional Immunities of Foreign States’ came into force. This Law provides for the functional immunity doctrine. In other words, if a foreign state acts as a subject of commercial activity, it cannot enjoy its state immunity in competent Russian courts. The new Law also sets out the concept of reciprocity according to which Russia may limit the immunity of a foreign state if the latter has restricted immunities of Russia.
There are three types of jurisdictional immunities under the Law: immunity from adjudication, immunity from interim measures and immunity from enforcement. The Law provides for certain exceptions from these immunities (eg, a foreign state does not enjoy immunities from interim measures or enforcement if it has allocated or designated the asset for satisfaction of the claim).
The author would like to thank Yan Kalish, an associate at Quinn Emanuel Urquhart & Sullivan, who assisted in the preparation of this chapter.
- Decree of the Supreme Court No. 241-PEK15 dated 3 July 2015.
Quinn Emanuel Urquhart & Sullivan LLP
Paveletskaya Square, 2/3
Tel: +7 499 277 1000
Fax: +7 499 277 1001
Quinn Emanuel Urquhart & Sullivan LLP is the largest law firm in the world specialising in litigation and arbitration. The firm represents many of the world’s leading companies in virtually all types of business-related disputes, including contract, antitrust (competition), intellectual property, white-collar, partnership and joint ventures, and numerous other types of matters. We have over 650 lawyers in 19 offices located in nine countries: New York, London, Los Angeles, Silicon Valley, San Francisco, Seattle, Chicago, Houston, Washington, DC, Tokyo, Paris, Hong Kong, Sydney, Mannheim, Hamburg, Munich, Brussels, Zurich and Moscow. Our global capabilities give the companies we represent an edge in transnational disputes. Our record of success in adversarial proceedings is unparalleled: our lawyers have tried or arbitrated 2,559 cases and won 88 per cent.