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Guide to Regional Arbitration (volume 6 - 2018)

Whitelist / Institutions Worth a Closer Look – Eastern Europe

17 November 2017

For such a big area, eastern and central Europe is home to few tried and tested local arbitration providers. But there are reasons for this.

The concept of arbitration was alien to the Soviet Union (except, to a slight degree, at the interstate level). After the Berlin Wall came down in 1989, it took a while for some states legalise it (and they took missteps along the way).

Others – chiefly Russia – embraced it, but with such a bang that a free-for-all occurred that probably did more harm to faith in the concept than good.

In Russia, in those days, anyone could start an arbitral institution – and many did. The result was a lot of sub-standard arbitration whose results were often overturned by courts. The context was different too. Arbitration wasn’t competing with a gridlocked court system (in the way that it was in the Middle East and Latin America and which led to its wide adoption for domestic disputes). Quite the reverse: eastern European courts are, most of the time, fast and cheap.

So there is less of an arbitration scene, even now, in the former Eastern bloc. Nevertheless a few provider organisations do stand out.

White List

  • International Commercial Arbitration Court at the Russian Federations’ Chamber of Commerce and Industry (ICAC (MKAS))
  • Court of Arbitration at the Polish Confederation of Private Employers Lewiatan
  • Court of Arbitration at the Polish Chamber of Commerce

Worth a closer look

  • Russian Arbitration Association
  • Istanbul Arbitration Centre (ISTAC)

White list

INTERNATIONAL COMMERCIAL ARBITRATION COURT AT THE RUSSIAN FEDERATION’S CHAMBER OF COMMERCE AND INDUSTRY (ICAC (MKAS))

So why is the ICAC worth putting on the white list?

ICAC has its detractors, but as one source had it, the ICAC is the best game in town if you really want a provider in Russia. Russians themselves have a preference for sending anything major or complicated abroad, to institutions such as the LCIA, the SCC and the ICC.

And from a socio-legal perspective, ICAC is a good example of a certain style of centre prevalent in the region.

What’s less than great about it?

The grumbles are those one hears more broadly in the region about arbitration: namely, that it’s a very quick and brutal version. Cases are decided largely on the basis of documents. There’s a hearing, but it’s always abbreviated, and parties only get one real chance to make their case – at the outset – in the statement of the claim or its reply.

But if there’s a hearing, isn’t there an opportunity to elaborate more?

You’d think so. But the reality is hearings are booked around the availability of the ICAC’s hearing rooms and the arbitrators. So sometimes even the parties can’t make the date. If they can’t, there’s no chance to reschedule because the hearing rooms are booked solid. That’s why longer hearings are out of the question too.

Why do they do it this way?

It’s an adaptation of local court procedure. Arbitration didn’t exist in the days of the Soviet Union, except at an interstate level, but a quasi-commercial form of court did: the arbitrazh system. When the first arbitral chambers came along (and in Russia that happened in a completely unregulated way, leading to hundreds more than required) they only had the arbitrazh courts’ procedure to draw on when writing their rules. The results at times could be quite wacky (rules allowing arbitrators to compel the participation of third parties, or to amend awards if new circumstances come to light). The ICAC didn’t go that far, but the courts explain much of its character.

Which parts of its character?

Why it’s so fast and why it strives to be so cheap. It has to be, because the courts are. An average Russian court completes each case in under three months. The appeal only takes another two. And they cost next to nothing to use.

Unfortunately for the ICAC and others, keeping up with the arbitrazh system makes upping its game difficult.

Why’s that?

Mainly it’s about the arbitrators and how much the institution pays. Russian lawyers view accepting an appointment at the ICAC as tantamount to pro bono work, so they don’t really want appointments. International names feel much the same.

Who gets appointed?

Academics who are very happy to subsidise their university income. Or sometimes members of the ICAC’s staff.

Why do people continue using it?

You can argue that they don’t. The local court system (the arbitrazh courts) turns around 800,000 matters a year; in comparison ICAC received 271 new cases in 2016, which is a fairly typical level. Still, 300 cases is a healthy amount. It turns out that for the right case, ICAC is actually quite good.

What kind of case?

Something uncomplicated and with a pretty finite value – eg, the sale of goods.

Hasn’t Russia started regulating arbitral institutions?

It has – and that’s potentially good news for ICAC. As of September 2016, to crack down on “pocket” arbitration courts (arbitration institutions that appear to be neutral in a matter but aren’t), Russia has required all arbitral providers to be licensed – except ICAC and the Maritime Arbitration Commission. Of 14 institutions to apply, only two have been successful so far. Thus ICAC faces less local competition.

Are there any issues that should be raised?

One or two. Lawyers appearing there will need to present a notarised power of attorney (if the original power of attorney was issued abroad). And this should specify power to engage in all of the most likely amendments to the claim (adjusting the amount, withdrawing it, settling it). This requirement isn’t in the rules but it is common practice. Be aware too that in international matters, ICAC has no neutral nation rule for the chair; rather the chair has to be appointed from the ICAC’s list. Finally, the language of the arbitration is presumed to be Russian unless the agreement says otherwise.

Is that it?

Pretty much. If you want a dinner-party fact, Prime Minister Dmitry Medvedev is on the approved list of arbitrators. However, he is “temporarily unavailable to take part in proceedings”. The list still describes him as Russia’s president, which he hasn’t been since 2012 – so it may not be very well-tended.

COURT OF ARBITRATION AT THE POLISH CONFEDERATION OF PRIVATE EMPLOYERS LEWIATAN (LEWIATAN)

Why’s it white-listed?

Because it’s a good example of a new style of arbitral institution that is starting to be seen around this region.

Why’s that?

It (and others) were founded out of dissatisfaction with existing offerings (see above and below).

What’s different about these newer providers?

They, and the Lewiatan in particular, are a bit more modern all-round. Lewiatan was launched in 2005 but its rules were updated in 2012, and were amended in 2015. They’re pretty reflective of international best practice. They refer to the IBA’s guidelines on conflicts, and the rules on the taking of evidence. It’s also ahead of the curve on use of approved lists.

Ahead how?

It doesn’t use them. Parties have a completely free hand when appointing. If the centre has to make an appointment, then it’s done by the nominating committee, which comprises a number of recognised private lawyers.

Is it popular?

Reasonably. So far it’s handled about 160 cases all told. But there’s an increase in the number of requests nearly every year. The most recent published statistics are for 2014. They show 58 new matters registered.

The secretariat has seven full-time staff and it was voted second most popular arbitration institute in Poland in a survey conducted by local law firm Kocur & Partners, behind the PCC (see below).

How come it’s doing so well?

It’s regarded as a decent case administrator. There’s also dissatisfaction with other providers, and in particular, how they try to control the appointment process. The employers’ federation is more open to appointment on merit.

It’s also been taking steps to increase its international profile. Every two years it holds an event on M&A arbitration. The most recent edition featured a keynote speech by Stephen Jagusch QC.

Who oversees it?

The courts are managed by an arbitration committee, comprising a president of the court of arbitration, three vice presidents and three committee members. The new president is Przemyslaw Schmidt, an investment banker and lawyer who is also president of Polish water company GetFresh. 

He took over from Beata Gessel-Kalinowska vel Kalisz of the law firm Gessel. There’s also an appointing committee, chaired by Bartosz Kruzewski of Clifford Chance. 

Appointing committee? But don’t the parties have a free hand?

They do. The appointing committee steps in only in event of default or inertia.

COURT OF ARBITRATION AT THE POLISH CHAMBER OF COMMERCE (POLISH CHAMBER OF COMMERCE)

Why’s it on the white list?

It’s Poland’s oldest – and still just about biggest – arbitral provider.

How old is it?

Coming up to 70 years. It grew out of the Polish Chamber of Foreign Trade, established on 1 January 1950. Historically it has dealt with about 400–500 cases a year, although there are signs the number is falling. In 2016, it received 143 new cases, of which, 23 cases were international.

What’s its reputation?

It certainly has its fans: a survey by Kocur & Partners (see above) named it Polish arbitration users’ favourite local institution. It’s also the most familiar – in the same survey, 91 per cent of respondents had been there.

Is it old school or new school?

It certainly tried to follow international best practice, and put parties in charge of the process. Its rules date from 2015 (replacing the 2007 rules). The current president is Marek Furtek. Meanwhile, Maciej Laszczuk is president of the 15-strong council that’s responsible for arbitrator appointments and challenges, and that decides the criteria for inclusion in the institution’s list of recommended arbitrators, etc. It also takes decisions relating to the publication of awards. It has a secretariat too.

Any pitfalls?

In the past there were some concerns about the process of appointing arbitrators.

What were they?

It used to have an approved list system (it still does for chairs and sole arbitrators). There were concerns that the wider Chamber of Commerce exerted too much influence over who was on it (by controlling the committees that manage the list).

And now?

The list is larger than ever, but it still attracts complaints. Some think it’s missing a few obvious names. 


Worth a Closer Look

RUSSIAN ARBITRATION ASSOCIATION (RAA)

How old is it?

It was founded in April 2013, but its rules came into force in July 2014. It’s yet to administer a case.

Isn’t this listing a bit premature?

It always takes a while to secure cases. The point about the RAA is it’s got some very big names on its board (Vladimir Khvalei is chairman, with David Goldberg and Ilya Nikiforov as his deputies). Of course, it will have to obtain a licence from the government now to operate. It has applied for one and should know the result reasonably soon.

What’s it been doing in the meantime? 

It wrote the RAA rules, which have been well received. More generally, it has been issuing a rallying cry to improve arbitration in the country.

Why’s that necessary?

See above. Historically, Russian arbitration has been synonymous with ICAC (MKAS) on the one hand and various “pocket” providers who mug one of the sides on the other. Neither is particularly desirable.

What is the RAA saying needs to change?

It wants to see a greater role for respected practitioners; more transparent fees policies; more attention to conflicts; and, perhaps most importantly, higher arbitrator fees, to attract a better class of arbitrator.

It is also going to train arbitrators in the manner of CIArb so that more Russians become appointable generally (it’s a sad fact that, even when arbitrating abroad, Russian businesses seldom pick Russians as their party-appointee); and make materials on Russian arbitration law and practice more available. Assuming it gets a licence, the RAA has the potential to be a real force for good.

Istanbul Arbitration Centre (ISTAC)

Why is it worth a closer look?

It’s a budding institution with great potential that has just issued its first rules (at GAR Live Istanbul, it so happens).

When was it founded?

The Istanbul Arbitration Centre was established in 2015, after several years of discussion (mainly about whether such a centre should be in Istanbul or Ankara). It’s led by Ziya Akinci – a well-known name in Turkey and beyond – and an international board, whose members include Hamid Gharavi, Jan Paulsson and Bernard Hanotiau.

Is it busy?

It is, given its youth. It’s already got 10 disputes. Three are in fact complete (resolved in under six months). Ziya Akinci announced that it had already completed cases at GAR Live Istanbul 2017.

How international is the work?

To date, every case has had at least one Turkish side. Five have had a foreign element. Sizes have ranged from US$50,000 to US$2 milllion.

Why’s it doing so well? 

In Turkey patronage counts for a lot. So ISTAC received a big boost when just before the launch of its rules, the Turkish prime minister gave it his blessing. Recep Tayyip Erdoğan, no less, has also said in public, “I support ISTAC”. As a result, state-owned entities have been willing to put ISTAC arbitration clauses in their contracts. With lots of major projects going on, including the construction of Istanbul’s third airport, and with Turkish infrastructure businesses active around the region (some call Turkey “the Germany of the Middle East”, there’s unlikely to be a shortage of work.

What are the rules like?

They contain versions of all the latest innovations, including fast-track arbitration and emergency arbitrators. They also expand party autonomy by giving an array of options on how to begin proceedings, and allow you to exclude the jurisdiction of the Turkish courts if you so wish, which some may appreciate.

What’s the best reason for using ISTAC rather than another brand?

An ISTAC award will probably be a bit easier to enforce within Turkey – Turkish judges have been described as “psychologically more comfortable” with enforcing an ISTAC award rather than one from a foreign institution.