Russia

Introductory remarks

The past few years have brought considerable turmoil to arbitration in Russia. In 2015–2016, arbitration laws and arbitral institutions went through a major reform that was intended to modernise the legal framework in Russia by bringing it in line with the UNCITRAL Model Law on International Commercial Arbitration of 1985 as amended in 2006 (the UNCITRAL Model Law of 2006) ^[1] as well as combat partial and corrupt ‘pocket’ institutions, thus making Russia a more arbitration-friendly jurisdiction. ^[2]

The new amendments, in particular, essentially overhauled the regulation of arbitral institutions and required almost all arbitral institutions to obtain a government licence to administer cases, as well as setting out lists of non-arbitrable disputes and establishing special rules for arbitration of corporate disputes. ^[3]

Although the reform efforts have proven successful in a number of areas, on other fronts, such as making arbitration more accessible to Russian users or increasing the prestige of Russia as a place of arbitration, they have gained little or no ground or resulted in only half measures. Overall, the reform has received a rather mixed reception in the Russian arbitration community, with some eminent practitioners calling it nothing short of failure. ^[4]

Background on arbitration in Russia

International legal framework

Russia succeeded the USSR as a member state of the New York Convention of 1958. Upon ratifying it in 1960, the USSR declared that it would apply the provisions of the Convention in respect of awards made in the territories of non-contracting states only to the extent to which they grant reciprocal treatment. This declaration remains in effect. Russia is also a party to the European Convention on International Commercial Arbitration of 1961 and the Moscow Convention on the Settlement by Arbitration of Civil Law Disputes Arising from Relations of Economic, Scientific, and Technical Cooperation of 1972.

As for international investment arbitration, Russia has signed but not ratified the Convention on the Settlement of Investment Disputes between States and Nationals of Other States of 1992. According to the UNCTAD database, Russia currently has 64 bilateral investment treaties (BITs) in force.

Domestic legal framework

The two primary laws are the Russian Federation Law ‘On International Commercial Arbitration’ (the International Arbitration Law), ^[5] which governs international arbitrations seated in Russia, and the Federal Law ‘On Arbitration (Arbitration Proceedings) in the Russian Federation’ (the Domestic Arbitration Law), ^[6] which governs domestic arbitrations. It is pertinent to note that some of the Domestic Arbitration Law’s provisions equally apply to international Russia-seated arbitrations (eg, those on the requirements for arbitrators, retention of case materials for a period of time, establishment of domestic and licensing of foreign arbitral institutions, mediation procedure and liability of arbitrators and arbitral institutions). ^[7]

Although the International Arbitration Law generally follows the UNCITRAL Model Law of 1986, the 2006 amendments thereto have largely been sidestepped during the arbitration reform process. In particular, unlike articles 7(2) and 17H of the Model Law, the International Arbitration Law neither allows for an arbitration agreement to be concluded orally nor provides for recognition and enforcement of interim measures by Russian courts.

On a more positive note, the International Arbitration Law and Domestic Arbitration Law allow the parties to an institutional arbitration, albeit only administered by a licensed institution, to opt out of their provisions on judicial assistance to and supervision of the arbitral proceedings and setting aside the award. ^[8]

Furthermore, the Code of Commercial Procedure ^[9] and the Code of Civil Procedure ^[10] govern set aside, ^[11] recognition and enforcement, ^[12] and ancillary proceedings, ^[13] as well as list non-arbitrable disputes. ^[14]

Arbitral institutions

In the aftermath of the 2015 arbitration reform, there are currently five domestic arbitral institutions in Russia (as opposed to more than a 1,000 in the pre-reform years):

• the International Commercial Arbitration Court (ICAC) and Maritime Arbitration Commission (MAC) at the Chamber of Commerce and Industry of the Russian Federation;
• the Arbitration Centre at the Russian Union of Industrialists and Entrepreneurs;
• the Russian Arbitration Centre at the Russian Institute of Modern Arbitration (RIMA); and
• the Sports Arbitration Chamber, which was licensed in April 2019.

The fact that all of the remaining institutions are based in Moscow has raised inevitable concerns as to insufficient access to arbitration for users in the Russian regions; although these concerns have been somewhat alleviated by some of the arbitral institutions creating local branches.

In 2018 and 2019, the Hong Kong International Arbitration Centre and the Vienna International Arbitration Centre, respectively, also obtained government permission to administer arbitrations seated in Russia, ^[15] which is generally considered in the Russian arbitration community as in important step towards making Russia a more attractive place of arbitration and an incentive for other reputable foreign arbitral institutions to obtain such permission

Arbitration agreement

As noted above, an arbitration agreement must be made in writing, whether as a separate agreement or an arbitration clause incorporated into the main contract, and must specify the types of existing or future disputes it covers. ^[16] It may also be concluded by exchange of letters, faxes, emails and other electronic means or by the exchange of claim and reply if the existence of an agreement is alleged by one party and not denied by the other. ^[17] A reference to a different instrument that contains an arbitration agreement would also suffice if such reference makes the arbitration agreement a part of the main contract. ^[18] In addition, Russian courts sometimes require that an arbitration agreement also clearly and accurately designate an arbitral institution. ^[19] Both the International Arbitration Law and the Domestic Arbitration Law establish a general presumption in favour of survivability of an arbitration agreement ^[20] and recognise the principle of separability. ^[21]

Non-arbitrable disputes

The Code of Commercial Procedure and the Code of Civil Procedure list non-arbitrable disputes, including, in particular, those relating to insolvency, registration of legal entities or sole proprietors, administrative and other public law issues, the establishment of legal facts, privatisation, government procurement, labour and employment, inheritance and consumer protection. ^[22]

After the reform, most corporate disputes became arbitrable, although they must be seated in Russia and administered only by a licensed arbitral institution. ^[23] However, a number of corporate disputes remain non-arbitrable (eg, disputes on convocation of the general annual meetings of shareholders or disputes arising out of buybacks). ^[24]

Furthermore, in recent years, Russian courts have recently taken an alarming stand that disputes with a ‘concentration of public elements’ – eg, concluded for public purposes or involving state budget funding – may be declared non-arbitrable even despite the legislation being silent in this respect. ^[25]

Arbitration proceedings

The claimant shall file either a request for arbitration or a statement of claim, depending on the rules of a particular institution, albeit filing a full statement of claim is more common.

As for expedited arbitration, the ICAC, MAC and RIMA Rules contain provisions on expedited proceedings, designed for disputes with the amount not exceeding:

• US$50,000 (for international disputes under the ICAC); ^[26]
• US$15,000 (for all disputes under the MAC Rules); ^[27]
• 30 million roubles (for domestic disputes under the RIMA Rules); or
• US$500,000 (for international disputes under the RIMA Rules). ^[28]

In an expedited arbitration, the sole arbitrator will decide the dispute on the basis of written submissions and documents. RIMA reported that the expedited procedure was or is being used in 12 out of the 105 cases that it has administered during the 2017–2018 period. ^[29]

The International Arbitration Law and the Domestic Arbitration Law both recognise the competence-competence principle in line with the wording of article 16 of the UNCITRAL Model Law of 2006. ^[30] Furthermore, the court will dismiss a case without prejudice if the respondent objects to the court’s jurisdiction on the basis of an arbitration agreement prior to its first submission on the merits of the court claim. ^[31] However, the court proceedings will continue if the arbitration agreement is found invalid, ineffective or unenforceable by the court. ^[32]

Interim measures

The tribunal may grant such interim relief it considers necessary unless otherwise agreed by the parties. ^[33] One should note, however, that while Russian arbitration law does not prohibit such interim measures as security for costs and anti-suit injunction, there is no publicly known relevant practice and, thus, much uncertainty as to whether they would be granted in principle.

Interim measures ordered by the tribunal do not bind third parties or become automatically enforceable. This is why it may be more efficient to apply to the court for provisional measures instead. Moreover, as mentioned above, given that the respective provisions of the UNCITRAL Model Law of 2006 have not been implemented in Russia, the court would not recognise or enforce a decision of a foreign-seated arbitral tribunal on provisional measures.

Neither the International Arbitration Law nor Domestic Arbitration Law offers any rules on emergency arbitration. This is somewhat remedied by the fact that pending the constitution of the tribunal a party request the court or – had the parties so agreed – the arbitral institution to grant interim relief. ^[34]

Costs

Under the International Arbitration Law, the tribunal must state all the costs of the case and their allocation between the parties. ^[35] In practice, arbitral tribunals generally adopt the ‘costs follow the event’ approach, albeit retaining broad discretion in the matter. On the other hand, the Domestic Arbitration Law clearly states that, save for the parties’ agreement to the contrary, the tribunal must allocate the costs in proportion to the claims upheld or dismissed. ^[36]

Recognition and enforcement

The grounds for refusal of the recognition or enforcement of foreign arbitral awards and enforcement of domestic arbitral awards are essentially identical and they mirror article V of the New York Convention. ^[37] Furthermore, article IX of the European Convention of 1961 limits the grounds for refusal of recognition or enforcement of international arbitral awards covered by it.

While debtors often invoke the public policy ground to oppose the enforcement of arbitral awards in Russia, in practice Russian courts generally do not refuse enforcement on this ground, although in some instances courts give an expansive reading to this exception. In fact, the Russian Arbitration Association conducted a study on application of the New York Convention of 1958 in Russia between 2008 and 2017 and found, out of 472 recognition and enforcement applications in total, 45 applications were rejected and 49 were not considered mostly for procedural reasons; overall each year 80 to 97 per cent of applications were granted. ^[38]

A motion for the recognition and enforcement of an award must be considered within one month of the date of filing ^[39] and the decision serves as a basis for issuing a writ of execution. ^[40] The decision on recognition and enforcement or refusal thereof may be appealed to higher courts, including the Supreme Court, but the procedure and timelines differ between the Code of Commercial Procedure and the Code of Civil Procedure.

Although the recognition and enforcement proceedings cannot be initiated on an ex parte basis, if the duly served respondent fails or refuses to participate, this does not prevent the enforcing court from proceeding with the case.

Set-aside proceedings

An award cannot be appealed but may be challenged before local courts with the grounds for the challenge being identical to those provided in article V of the New York Convention of 1958. ^[41] A set-aside application should be made within three months from the date on which the award was received. ^[42] The procedure is similar to that of the recognition and enforcement of awards outlined above. Upon request, the court may suspend the set-aside proceedings to allow the tribunal to resume the arbitration proceedings and remedy the grounds for the challenge. ^[43] As noted above, parties to an institutional arbitration may expressly agree in writing to waive the right to challenge an award. ^[44]

Noteworthy recent developments

The Supreme Court’s Review of Court Practice on Arbitration-Related Matters

On 26 December 2018, the Supreme Court published the Review of Court Practice on Arbitration-Related Matters (the Review of Arbitration-Related Court Practice), ^[45] aimed at providing guidance to lower courts on various matters relating to arbitration.

Some key takeaways from the Review of Arbitration-Related Court Practice are as follows:

• a standard arbitration clause recommended by an arbitral institution is valid and enforceable even if it directly specifies the arbitration rules but not the institution itself; ^[46]
• alternative dispute resolution clauses, which give the claimant a choice between arbitration and state courts, are valid under Russian law; ^[47]
• asymmetrical dispute resolution clauses that allow only one party to choose between arbitration and state courts are invalid to the extent they deny the other party recourse to state courts; ^[48]
• the lists of non-arbitrable disputes provided for in the Code of Commercial Procedure and the Code of Civil Procedure cannot be read expansively by the courts; ^[49]
• when deciding whether to set aside an award, the court must not carry out a review of the award on the merits; ^[50]
• enforcement of an arbitral award must not be denied merely for the reason that the debtor is undergoing a dissolution procedure; ^[51] and
• where a creditor seeks to join bankruptcy proceedings with a claim based on an award, the other creditors may object on the grounds provided under article V of the New York Convention of 1958. ^[52]

Expanded arbitrability of corporate disputes

As previously noted, the 2015 arbitration reform has made most corporate disputes arbitrable, provided that:

• the arbitration is administered by a licensed institution;
• the arbitration is seated in Russia;
• all shareholders of the company and the company itself are parties to the arbitration agreement; and
• the arbitration is administered under special rules for arbitration of corporate disputes (in particular, such rules require the administering institution to publish information about the dispute on its website).

In December 2018, a set of amendments was introduced into Russian arbitration laws that generally abolished the last two requirements as of 29 March 2019. ^[53]

Recent cases

Dredging and Maritime Management SA v Inzhtransstroy JSC: ICC Model Clause declared ‘defective and unenforceable’

Dredging and Maritime Management filed for recognition and enforcement of an International Chamber of Commerce (ICC) award on damages issued in a Geneva-seated arbitration against Inzhtransstroy, which had bankruptcy proceedings brought against it. ^[54]

The court of first instance refused enforcement, holding that it would endanger the rights and interests of Inzhtransstroy’s bankruptcy creditors. ^[55] What is most peculiar, however, is that the court held that the arbitral tribunal lacked the competence to resolve the dispute. The relevant arbitration clause, which is rather similar to the standard ICC arbitration clause, ^[56] reads as follows:

Any dispute that failed to be settled amicably shall be finally resolved in international arbitration. Unless otherwise agreed by the parties:
a) the dispute shall be finally resolved in accordance with the Rules of the International Chamber of Commerce;
b) the dispute shall be resolved by three arbitrators appointed in accordance with the said Rules;

...

The seat of arbitration shall be Geneva, Switzerland.

In a truly blind-siding decision, the first instance court found this arbitration clause incapable of being performed as it failed to specify the relevant arbitral institution – the International Arbitration Court of the ICC – and the place of arbitration. In arriving at this remarkable conclusion, the first instance court was not deterred by article 2(1) of the ICC Arbitration Rules, which unequivocally refers to the ICC Court as ‘the only body authorised to administer arbitrations under the Rules’. ^[57] What followed, however, quickly dispelled all doubts that this was but a singular lapse in judgment: the decision was upheld by the cassation court ^[58] and the Supreme Court, ^[59] and an extraordinary appeal to the chairman of the Supreme Court was refused. ^[60]

This surprising turn of events understandably caused light panic in the arbitration community in Russia and beyond. ^[61] On 12 November 2018, the president of the ICC Court, Alexis Mourre, sent a letter to the chairman of the Supreme Court, in which he expressed ‘serious concern’ over the Supreme Court decision. ^[62] In December 2018, the Supreme Court addressed the matter in the Review of Arbitration-Related Court Practice, explicitly stating that a standard ICC arbitration clause is enforceable. ^[63]

Banwell International Limited v Roshelf LLC: enforcement against an entity owned by Russia refused on public policy grounds

Banwell sought to recognise and enforce a London Court of International Arbitration award in a dispute with Roshelf arising out of an agreement for the pledge of shares in Lotos Shipbuilding Plant JSC, securing the obligations under a sales and purchase agreement. ^[64] Although the first instance court granted enforcement, ^[65] the cassation court reversed and remitted the case for retrial ^[66] and the cassation appeal to the Supreme Court also proved of no avail. ^[67]

The first instance court, having reheard the case, held that the award violated Russian public policy and, thus, refused enforcement. ^[68] It found Russia to be the ultimate beneficial owners of, first, Roshelf, and, second, of the shares in Lotos, which were the subject of the pledge. Therefore, enforcement of an award could be detrimental to the Russian state budget as the monies would be transferred to a foreign company. This time the decision was upheld by the cassation court ^[69] and the Supreme Court. ^[70]