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Guide to Regional Arbitration (volume 8 - 2020)

Whitelist / Institutions Worth a Closer Look - Eastern Europe

23 January 2020

Overview

For such a big area, eastern and central Europe has relatively few local arbitration providers it is suitable to white list. There are historical reasons for that.

Arbitration – as a concept – was alien in the Soviet era (except at the interstate level, and then within a small sphere). When the Berlin Wall fell in 1989, it took a while before the new states legalised it (with many taking missteps along the way that slowed its establishment).

Others – notably Russia – embraced it too eagerly. There was such a “bang” that a virtual free-for-all occurred, which did more harm to the concept than good, and again set trust in its potential back.

When Russia first legalised its use, anyone could start an arbitral institution; and many did. That led to much sub-standard arbitration whose results were overturned in court. Arbitration was competing for users in a different landscape too. It didn’t have the benefit of gridlocked public courts to which it could provide the alternative, in contrast to, say, the Middle East or Latin America where arbitration has become the de facto court system for domestic disputes. Quite the reverse: in eastern European courts have been fast and cheap.

This may help to explain why less of an “arbitration scene” emerged in the former Eastern bloc. But as with everything, this is changing. Foreign parties when entering those markets prefer the idea of arbitration to courts and new arbitral institutions are being formed to meet that need and offer a modern version of arbitration. In time, this white list will grow. But for now, here are our recommendations for eastern Europe. (Note: it omits providers from other regions – the HKIAC and VIAC in particular – now licensed to operate in Russia.)

White List

  • International Commercial Arbitration Court at the Russian Federation’s 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

  • Istanbul Arbitration Centre (ISTAC)
  • Russian Arbitration Centre at the Russian Institute of Modern Arbitration

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 historically 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.

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

Why does it have detractors?

The grumbles are those one hears more broadly in the region about arbitration: 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 it has had to compete with courts in other ways.

What ways are those?

By being very fast, and cheap. An average Russian court completes a case in under three months, and an appeal only takes another two or so. That’s the sort of turnaround the ICAC has to offer if it’s to appeal to the local audience. There, are, inevitably knock-on effects.

Such as?

The tight timetables and minimal fees makes obtaining good arbitrators difficult. Serious Russian practitioners view appointments at the ICAC as tantamount to pro bono work, and aren’t particularly interested. The same goes for most internationals. So that just leaves university professors and other academics who are happy to subsidise their university income, and sometimes members of ICAC’s staff.

Why do people continue using it?

In comparative terms, you could say that they don’t. The local court system (the arbitrazh courts) turns around 800,000 matters a year; in comparison; ICAC received 454 cases in 2018 which is fairly typical (far fewer than the courts). But of those, around 50 per cent are counted as international (exact figures on international cases haven’t been released since 2016, when it was 271 international cases) – which is a respectable caseload.

What kind of case is the right kind of case?

Most people say: something uncomplicated and finite in value (eg, a sale of goods dispute or something of that type).

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, until recently only two had been successful. Thus, the ICAC has faced less direct local competition.

Will that lack of competition continue?

It doesn’t look like it. After a slow start – the government has grown more amenable to licence applications, saying yes to several recently, including by some well-known foreign names. Thus the ICAC now faces competition from among others the HKIAC and VIAC.

Are there any quirks to be aware of when using the ICAC?

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, not to mention being very useable for the right dispute.

Why are these “new style” institutions starting to be seen?

They tend to reflect the dissatisfaction surrounding how an incumbent centre is being run.

For example, Poland has a more established centre – the Court of Arbitration at the Polish Chamber of Commerce (see below). The Lewiatan was launched in 2005 to offer an alternative, by stakeholders who thought vested interests were starting to hold other centres back. Its rules have been regularly updated ever since – first in 2012, and more recently 2015 and 2017. 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.

What’s the main source of dissatisfaction with other centres?

How they appoint arbitrators. Most traditional eastern European arbitration centres use approved lists, and presidents of the centres decide who gets to go on the list. That can lead to accusations of cronyism, etc.

By contrast, the Lewiatan, and some of the newer centres, allow parties a free hand. They can appoint whichever person as arbitrator they wish. 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 at least 160 cases, since inception with sources telling us the number of new matters increases every year (unfortunately it is poor at releasing statistics that bear these reports out – the most recent available arer for 2014. They show 58 new matters).

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. People also like the more meritocratic approach to appointment of arbitrators.

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 Jolanta Nowakowska-Zimoch of Greenberg Traurig.

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 (of which nearly 20% are international), although there are signs the number is falling. The most current figures date from 2016 and show 143 new cases that year, 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. He has assistance from a 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.

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 with 193 arbitrators as of 2017, but it still attracts complaints. Some think it’s missing a few obvious names.

Worth a Closer Look

Istanbul Arbitration Centre (ISTAC)

Why is it worth a closer look?

It’s a budding institution with great potential that issued its first rules in 2016 (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. At GAR Live Istanbul in 2018 (held every June), Ziya Akinci revealed the centre has 20 cases under way, and three completed cases. Over half related to construction work. That’s on top of three completed cases (each resolved in under six months). Construction has since been overtaken by sales agreements as the top subject matter.

How international is the work?

According to figures from 2018, 53 per cent of its work is international – meaning one non-Turkish side.

Why’s it doing so well?

In part because of government patronage. Turkey remains a country where the backing of the right people matters and it was no accident that just before its launch, the team behind ISTAC sought an audience with the Turkish prime minister so he could give it his blessing. More recently, Recep Tayyip Erdoğan, no less, has also said in public, “I support ISTAC.”

As a result, state-owned entities have felt able to put ISTAC arbitration clauses in their contracts. With major projects such as the construction of Istanbul’s third airport under way, and as home to so many construction and infrastructure businesses that are pivotal to the region (Turkey is sometimes called “the Germany of the Middle East” because of its ability to sell heavy industry), there’s unlikely to be a shortage of work.

If the government is such a supporter, is ISTAC independent?

This has become a concern in some quarters. Foreign parties are inevitably wary of a centre that is heavily promoted by the government, especially if the government makes its use mandatory (as recently happened with ISTAC and public procurement contracts).

Ziya Akıncı, when this point was raised at GAR Live Istanbul 2018, was at pains to emphasise that ISTAC is financially fully independent (it is funded through fees and the Turkish Bar Association). He also reminded people of the calibre of individuals on its board.

Nevertheless, the current political climate in Turkey isn’t doing ISTAC any favours. It’s harder to appear independent when based in an authoritarian state.

What are the rules like?

Recognisably modern, with all the latest innovations, including fast-track arbitration and emergency arbitrators, and a couple of regionally specific twists. They’re particularly flexible on how to begin proceedings; as well as allowing 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?

There’s probably an enforcement advantage, if enforcing locally. Turkish judges have been described as “psychologically more comfortable” with enforcing an ISTAC award rather than one from a foreign institution.

Russian Arbitration Center at the Russian Institute of Modern Arbitration (RIMA)

Why is it worth a closer look?

Previously this guide has listed the Russian Arbitration Association (RAA) in this section. However, to date, the RAA has not been granted a licence (now needed to be an arbitral institution) in Russia and administer cases.

The Russian Institute of Modern Arbitration (“RIMA”), however, has. It is therefore listed as an option – subject to caveats.

What are those caveats?

RIMA’s funding is an occasional topic of conversation in Russian arbitration circles, with the central question being: who really funds it? This talk is “very Russian” and focuses on the existence of shell companies in the ownership chains of some of RIMA’s five founders (the name for shareholders of non-profit organisations in Russia). It is accompanied by the observation that no founder is obviously wealthy, and fees from RIMA’s current – small – caseload don’t appear in any adequate to cover its – larger – operating budget ($1.1 million or so according to accounts). These are both reasonable observations.

RIMA in reply notes that its founders are “foundations” under Russian corporate law and this means they are insulated from any external control – and so by extension is RIMA.

It is worth flagging this debate.

When was it founded?

RIMA was founded in 2016 as a team effort by the Federal Bar of Attorneys of Russia and the Saint Petersburg International Legal Forum.

It’s led by Andrey Gorlenko, a former practitioner at Debevoise & Plimpton, and it has a board that includes arbitration specialist Anna Grishchenkova from Russian firm KIAP.

What are its rules like?

It unveiled its first set of rules in 2017, available in Russian and English. The rules contain various cost and time-saving provisions, including the consolidation of multiple claims and proceedings, the option for multiparty arbitration, as well as emergency arbitration and expedited arbitration procedures, and online arbitration. Parties are also free to choose either ad valorem or hourly rates when calculating arbitration costs.

The rules also feature a special procedure for corporate disputes.

Is it busy?

On first glance – yes. In August 2018, it released its first official statistics, which indicated that it had 100 cases underway, worth a collective US$117 million. These remain the most recent figures available.

It has also already expanded domestically. In 2017, it opened two regional offices and hearing centres – one in the eastern port city of Vladivostok and one in the western city of Kaliningrad between Poland and Lithuania.

The Vladivostok office is aimed at disputes from Japan, China and Korea (RIMA has signed cooperation agreements with the HKIAC, SIAC and the Japan Association of Arbitrators).

The figures are not quite what they appear, however. A majority of the are legacy items from the nuclear industry. These are on RIMA’s books because on its formation, it absorbed the arbitration court of Rosatom, an umbrella body in charge of Russia’s nuclear industry. These matters are fee capped and not particularly remunerative.

How international is it?

The centre has some impressive names on its roster including Brigitte Stern, Stanimir Alexandrov, Klaus Reichert SC and Juan Fernández-Armesto.

On the other hand, as mentioned earlier, there is nothing equivalent to an international oversight boards or court of the kind one finds at most aspiring regional centres (there is an oversight board, which hears performs key functions under the rules, but it consists entirely of locals).