Russia

In summary

International and domestic arbitration has never been a mainstream tool to resolve disputes in Russia. However, after major reforms that happened in 2015–2016 Russian arbitration was given a second life. Despite the fact that the Russian arbitration community embraced the reform with mixed receptions, one cannot deny the constant alterations.

This chapter describes the legal framework for arbitration in Russia and underlines the main changes of the past year. It underpins the core structure for arbitration in Russia and explains the key principles.

Upon reading this chapter, one might assume that it is premature to characterise Russia as a fully arbitration-friendly place. However, several domestic arbitration institutions are constantly reforming and improving their arbitration rules to attract international players.

Discussion points

• The statutory framework for arbitration in Russia
• Innovations and developments in Russian arbitration
• Correlation between sanctions and arbitration in Russia
• Professional athletes’ labour disputes can be submitted to arbitration
• Bribe penalty in arbitration

Referenced in this article

• Russian Federation Law ‘On International Commercial Arbitration’
• Federal Law ‘On Arbitration (Arbitration Proceedings) in the Russian Federation’
• Code of Commercial Procedure
• Code of Civil Procedure
• Instar Logistics v Nabors Drilling International Ltd (Case А40-149566/2019)
• VALF-RUS v Moretto SpA (Case A40-331510/19-143-2509)

Introductory remarks

In last year’s edition, we described the major reforms within the arbitration community in the Russian Federation. In continuation of the reform, the past year has brought some new amendments.

From a general standpoint, the provisions of international and domestic arbitration in Russia have not changed in a dramatic way. Upon ratifying the New York Convention of 1958, 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 that 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 Ministry of Economic Development database, a total of 82 agreements have been concluded, and the Russian (Soviet) party has followed domestic procedures with respect to 70 agreements. Russia currently has 65 bilateral investment treaties (BITs) in force.^[1]

With respect to the domestic legal framework, two major laws remain in force. The two primary laws are the Russian Federation Law ‘On International Commercial Arbitration’ (the International Arbitration Law),^[2] which governs international arbitrations seated in Russia, and the Federal Law ‘On Arbitration (Arbitration Proceedings) in the Russian Federation’ (the Domestic Arbitration Law),^[3] 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).^[4]

On the one hand, one can say that these laws are based on the provisions of the UNCITRAL Model Law on International Commercial Arbitration (1985), with amendments as adopted in 2006. On the other hand, it is clear that some crucial amendments were left behind. For instance, unlike articles 7(2) and 17H of the Model Law, the International Arbitration Law neither allows an arbitration agreement to be concluded orally nor provides for recognition and enforcement of interim measures by Russian courts.

Arbitral institutions

One of the main features of the new arbitration law (most of the eminent practitioners heavily criticise it) was the introduction of the system of licensing for permanent arbitration institution. Even though the reason behind it was to combat the corrupted ‘pocket’ arbitration, the result was dramatic. 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, 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. It should be noted that RIMA had addressed this problem and now has branches in Vladivostok, Yekaterinburg, Kaliningrad, Petropavlovsk-Kamchatskiy and Yuzhno-Sakhalinsk.^[5]

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,^[6] 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. Both of them do not have a permanent entity in the Russian territory.

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.^[7] 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.^[8] The decisive factor is that the agreement must be valid, meaning that nothing should defect the party’s authority or will. From a massive practice, the parties should make the arbitration agreement with a clear wording and operative. Both the International Arbitration Law and the Domestic Arbitration Law establish a general presumption in favour of survivability of an arbitration agreement^[9] and recognise the principle of separability.^[10]

Third parties

As a general rule, neither the International Arbitration Law nor the Domestic Arbitration Law establish any rules or provisions regarding third parties that are willing to join the arbitration proceedings. Some institutional arbitration rules may provide for the regulation of a joinder for a non-party to the arbitration. In this case, all parties shall be bound by the arbitration agreement.

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. Notably, there is no structured law for legal fees.

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); ^[11]
• US$15,000 (for all disputes under the MAC Rules); ^[12]
• 30 million roubles (for domestic disputes under the RIMA Rules); or
• US$500,000 (for international disputes under the RIMA Rules).^[13]

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.^[14] 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.^[15] However, the court proceedings will continue if the arbitration agreement is found invalid, ineffective or unenforceable by the court. ^[16]

Interim measures

There is no exhaustive list of interim measures that Tribunal can apply. Under the International Arbitration Law and the Domestic Arbitration Law Tribunal will issue those interim measures that it considers necessary.^[17] One should note, however, that while Russian arbitration law does not prohibit such interim measures as security for costs and anti-suit injunction, the practice is meager 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 requests the court or – had the parties so agreed – the arbitral institution to grant interim relief.^[18]

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.^[19] 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.

A motion for the recognition and enforcement of an award must be considered within one month of the date of filing^[20] and the decision serves as a basis for issuing a writ of execution.^[21] 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.

Costs

Under the International Arbitration Law, the tribunal must state all the costs of the case and their allocation between the parties.^[22] 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.^[23] Sometimes the unreasonable delaying of the arbitration proceedings by one of the parties might be the ground for the additional payment.

Noteworthy recent developments (disputes involving persons subject to foreign sanctions are the exclusive competence of Russian courts)

On 19 June 2020, the Russian arbitration community was shaken up by new amendments to the Code of Commercial Procedure. These amendments are crucial, owing to the fact that from now on Russian commercial courts have exclusive jurisdiction with respect to disputes involving Russian entities and individuals that are under sanctions. Furthermore, the Code of Commercial Procedure provides the possibility for a Russian commercial court to prohibit the conduct of proceedings in a foreign court or international commercial arbitration outside of Russia (with respect to the above-mentioned disputes). It will inevitably provide the opportunity for the sanctioned party to disregard the dispute resolution clause in the case of possible unenforceability.^[24]

We also wish to highlight that relevant sanctions disputes include only economic disputes and other cases related to business. In this respect, a person under sanctions should assess all possible effects to the contract and enforceability. If there are grounds to believe that the decision would not be enforced, one can refer the dispute to the Russian commercial courts. It is only possible to refer a dispute to a Russian commercial court if there is no similar dispute in existence between the same parties in an arbitral tribunal or foreign court outside Russia.

The crucial point is that the Code of Commercial Procedure does not differentiate between the types of sanctions to be imposed. One can only assume that not only personal sanctions would be taken into account by Russian courts, but also sectoral ones.

The standout feature is the possibility to impose an anti-suit injunction to prevent any proceedings outside of Russia. If proceedings against a sanctioned person in a foreign court or international commercial arbitration have already been initiated, such person may apply to the Russian court for the anti-suit injunction. Furthermore, the amendments allow the sanctioned person to demand in Russian court the collection of funds from the person that disregarded the relevant anti-suit injunction. The amount of funds shall not exceed the amount from the original claim. In making such decision, the Russian court shall be guided by the principles of proportionality, fairness and inadmissibility of benefit from illegal conduct.

Bearing this in mind, the burden of proof will be on the sanctioned person. It leads to the existence of a high risk that a decision rendered by arbitral tribunal or foreign court will be in practice not enforceable in Russia. It would be premature to criticise or approve these amendments owing to the absence of established practice. We are still waiting to see how Russian courts will determine and rule on issues relating to the sanctioned persons.

One should not forget that there is still a possibility to recognise and enforce the arbitral award or foreign decision on the basis of general rules on recognition and enforcement. Such an opportunity is enshrined in the amendment itself.

It is our firm belief that businesses contributing and cooperating with Russian counterparties should keep an eye on any situations that might affect the introduction of sanctions, since several sanctions will influence the enforceability of the dispute resolution clause in the contract, covering such disputes whether in foreign courts or arbitration. As a result, their cases will be referred against their will to the Russian commercial courts, disregarding the fact that parties agreed for the international arbitration seated outside of Russia or are willing to refer their case to the jurisdiction of a foreign court.

However, a monetary fine for a sanctioned person who is refusing to suspend foreign proceedings is highly likely to be enforced only in the territory of Russia. The reason for this is that such judicial act does not have the nature of a final court order in Russia. Moreover, there is little chance that a foreign court would take into account such injunction. From our point of view, it might be against the public policy and undermine access to justice.

On the one hand, new amendments raise a significant amount of doubts among prominent scholars. On the other hand, if the counterparty of the Russian entity is not willing to enforce the foreign judgment or arbitral award in Russia, seeking assets, the new amendments do not pose any risk.

Professional athletes’ labour disputes can be submitted to arbitration

Several curious amendments were introduced in the sports field. From now on, professional athletes can bring their labour disputes to sports arbitration. For example, if an athlete has a conflict with his or her club over a contract, or there is a doping-related dispute, the arbitration is now open for them. In the past, only labour dispute committees and courts handled such disputes.

The explanation to the document states that the lack of possibility of labour disputes being considered for arbitration in Russia forces athletes to apply for judicial protection in foreign arbitration. Particularly after the doping scandal of the Sochi Olympic Games, one might assume that Russian athletes have some bias towards them. In order to become an arbitrator, the person should have experience in professional sport as a coach, athlete or sports judge.

As of 31 July 2020, all amendments became final and are now in force.^[25]

Arbitrator’s liability for corruption

There was no criminal liability of arbitrators for receiving illegal remuneration, which resulted in a significant increase in the risk of corrupt practices. On 26 March 2020, the Parliament proposed to criminalise the bribery of an arbitrator and the unlawful receipt of money and other valuables by an arbitrator. As of today, the Bill has passed the first examination reading and is now under consideration in the second reading.^[26]

Recent case law

Instar Logistics v Nabors Drilling International Ltd: ICC arbitration clause unenforceable owing to US sanctions

In continuation of the controversial sanction amendments to the Code of Commercial Procedure, a peculiar approach was established by the Russian court.

In the case at hand, Instar Logistics brought a claim against Nabors Drilling International Ltd to amend the ICC arbitration clause in the contract to state that all disputes shall instead be referred to the Russian courts.^[27] The reason behind it was that the claimant was included by the Office of Foreign Assets Control on the infamous SDN list. The SDN list is a list of persons whose assets are blocked and whom US persons are prohibited to deal with.

The key issue was that the respondent was a US branch company and the claimant was no longer able to cover his debt. The appeal,^[28] as well as the cassation court, stated that the arbitration clause placed the respondent in a more favourable position and the future award would, in principle, be impossible to enforce due to the bank transfer restrictions.^[29] Because of this, the courts held that the dispute would need to be resolved in a Russian court. Even though the case may be referred to the Supreme Court, the reader should not expect the breakthrough decision.

VALF-RUS v Moretto SpA: the court can never be too thorough

The case concerned the enforcement of the arbitral award made by the Swiss Chambers’ Arbitration Institution with respect to the breach of contractual obligations. According to the arbitral award, the respondent had to reimburse for claimant’s losses. With respect to the enforcement proceedings in Russia, the respondent objected to such enforcement since in his view there was no proper notification and no assets to recover. Although the case was not a complicated one, the Commercial Court of Moscow decided to discuss some issues of international arbitration in Russia in a fairly extensive way. The Court upheld that facilitating the development of arbitration is a pivotal task for the Russian judicial system. It should be done with respect to permanent arbitration institutions as well as to ad hoc arbitration. It was further recalled that international commercial arbitration is an alternative way of resolving disputes, important features of which are the autonomy of the parties and the confidentiality of the procedure where the rules are determined by the parties.

Notably, it took the court only two relatively small paragraphs to describe the main conclusion and rationale necessary for the case. Despite that fact, we find this ruling to be a meaningful addition to the establishment of an arbitration-friendly atmosphere in Russia.

Notes

^[1] https://economy.gov.ru/material/departments/d11/investicionnye_soglasheniya/perechen_soglasheniy_mezhdu_pravitelstvom_rf_i_pravitelstvami_inostrannyh_gosudarstv_o_pooshchrenii_i_vzaimnoy_zashchite_kapitalovlozheniy/ (last accessed on 21 August 2020).

^[2] RF Law No. 5338-I dated 7 July 1993 ‘On International Commercial Arbitration’ (as amended on 25 December 2018).

^[3] Federal Law No 382-FZ dated 29 December 2015 ‘On Arbitration (Arbitration Proceedings) in the Russian Federation’ (as amended on 27 December 2018).

^[4] Domestic Arbitration Law (supra note 3), article 1(2); International Arbitration Law (supra note 2), article 1(2).

^[5] https://centerarbitr.ru/en/contacts-2/ (last accessed on 21 August 2020).

^[6] J Ballantyne, ‘VIAC becomes second institution licensed in Russia’, Global Arbitration Review, 15 July 2019, available at: https://globalarbitrationreview.com/article/1195175/viac-becomes-second-institution-licensed-in-russia (last accessed on 21 August 2020).

^[7] International Arbitration Law , article 7(1),(2); Domestic Arbitration Law , article 7(1),(2).

^[8] Ibid, article 7(3); ibid, article 7(3).

^[9] International Arbitration Law, article 16(1); Domestic Arbitration Law, article 16(1).

^[10] Ibid, article 7(3); ibid, article 7(3).

^[11] ICAC, The Rules of Arbitration of International Commercial Disputes, § 33, available at: http://mkas.tpprf.ru/en/documents/ (last accessed on 21 August 2020).

^[12] MAC, The Rules of Maritime Arbitration Commission at the Chamber of Commerce and Industry of the Russian Federation, § 30, available at: http://mac.tpprf.ru/en/rules/ (last accessed on 21 August 2020).

^[13] RIMA, Arbitration Rules, article 64, available at: https://centerarbitr.ru/en/arbitration-rules/ (last accessed on 21 August 2020).

^[14] International Arbitration Law , article 7(3); Domestic Arbitration Law , article 7(3).

^[15] Code of Commercial Procedure, article 148(1)(1),(5); Code of Civil Procedure , article 222.

^[16] Ibid.

^[17] International Arbitration Law, article 17(1); Domestic Arbitration Law , article 17(1).

^[18] Ibid, article 17(2); ibid, article 17(2).

^[19] Code of Commercial Procedure, articles 239 and 244; Code of Civil Procedure, articles 417 and 427.

^[20] Code of Commercial Procedure, article 243(1).

^[21] Ibid, article 246(1); Code of Civil Procedure, articles 411(9) and 416(1).

^[22] International Arbitration Law, article 31(2).

^[23] Domestic Arbitration Law, article 22(5).

^[24] O Kokoz, ‘New Exclusive Competence of Russian Courts in International Sanctions-Related Disputes: Is It as Bad as It Sounds?’ available at: http://arbitrationblog.kluwerarbitration.com/2020/07/29/new-exclusive-competence-of-russian-courts-in-international-sanctions-related-disputes-is-it-as-bad-as-it-sounds/?doing_wp_cron=1598261090.1487810611724853515625 (last accessed on 21 August 2020).

^[25] See https://sozd.duma.gov.ru/bill/918105-7 (last accessed on 21 August 2020); see https://sozd.duma.gov.ru/bill/918227-7 (last accessed on 21 August 2020).

^[26] See https://sozd.duma.gov.ru/bill/931211-7 (last accessed on 21 August 2020).

^[27] Decision of the Commercial Court of Moscow dated 14 November 2019 in Case No. А40-149566/19-29-1334.

^[28] Judgment of the Ninth Commercial Appeal Court dated 10 February 2020 in Case No. А40-149566/2019.

^[29] Resolution of the Commercial Court of the Moscow District dated 6 July 2020 in Case No. А40-149566/2019.