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Russian Arbitration Users in Europe: Growth and Misunderstandings

Nationality of LCIA Arbitration Users in 2008

Until very recently, the word “arbitration” was unfamiliar to many lawyers in Russia. The word still carries two meanings there: one referring to the system of Russian state commercial courts and the other, the more generally-recognized contract-based private dispute resolution procedure.

Although many in Russia understand the western concept of “international arbitration” in general terms, a number of misconceptions remain. For instance, it is not yet common knowledge in Russia that arbitration abroad need not necessarily involve large sums of money, need not be governed by foreign law, nor that the parties may easily change the seat of arbitral proceedings. Also, for many the issue of recovery of arbitration costs remains a mystery.

During the Soviet period and through the early 1990s, relatively few Russian-based businesses used international arbitration. But the situation has dramatically changed since then. Currently parties from the Russian Federation and other CIS countries represent a significant proportion of users of the London-based LCIA, the Arbitration Institute of the Stockholm Chamber of Commerce (SCC), and the Paris-based International Chamber of Commerce.

Advantages of international arbitration are obvious to many Russian users. Resolving a dispute outside of Russia helps avoid administrative pressure by local officials and allows the appointment of the most suitable arbitrators for a particular case. Important also is that enforcement of arbitration awards abroad may be easier than enforcing decisions of Russian courts. This is not so much because foreign courts do not trust Russian justice, but mainly because enforcement of arbitration awards is regulated by the New York Convention ratified by most countries of the world.

Recently, more and more Russian businesses have started to include arbitration clauses in their commercial contracts, even if all the parties to the contract are Russian or controlled by Russian businesses. As the number of disputes involving Russian companies grows, interest in international arbitration among scholars and practitioners grows.

Nationality of SCC Arbitration Users in 2009

Statistics from various European arbitration institutions demonstrate the increasing number of arbitration cases involving Russian companies. For example, Russian parties were second only to local Swedish companies before the SCC. In addition, the majority of investor-state disputes at the SCC concerned CIS countries.

A similar situation is found before the London-based LCIA. The number of applications submitted by Russian and CIS companies exceeds those submitted by businesses from the United Kingdom. But the actual number of disputes involving Russian business entities is even higher than this because many Russian entrepreneurs carry out international business activities through companies registered in Cyprus or in other jurisdictions with favorable tax laws.

Despite this growth, a number of myths about arbitration still persist in Russia. Many Russian lawyers think that arbitration proceedings need to involve very large sums of money. Perhaps this misconception has arisen because of the publicity generated by disputes involving Russian oligarchs in London.

Confusion also exists as to the ability of parties to chose an arbitration venue. Parties may decide freely on the seat of arbitration and the applicable law – independent of the choice of arbitral institution. If the arbitration clause provides for consideration of the dispute according to the LCIA Arbitration Rules, it does not mean that the venue for arbitration must be London. Parties may choose any city: Paris, Vilnius, or Moscow. It is only when the parties fail to identify any other city, that London will be the default rule.

Many in Russia believe that in disputes abroad foreign law must be applied. In reality, freedom of contract means that parties may choose any applicable law, including Russian law. In practice selection of Russian law is rare and according to the ICC, English law remains the most popular choice of law. English case law has evolved over centuries and is considered one of the most developed and predictable for business transactions.

Read more about the misconceptions which Russian lawyers have about international arbitration in a recent article coauthored by Yaraslau Kryvoi and Noah Rubins.

About the Author:

Prof Yarik Kryvoi, MCIArb is the founder and co-editor of the CIS Arbitration Forum. He is the Senior Research Fellow in International Economic Law and Director of the Investment Treaty Forum at the British Institute of International and Comparative Law (BIICL). He holds law degrees from Harvard, Moscow and St Petersburg. He has been teaching and practicing international arbitration in Russia, the United States and England for over ten years and is listed as arbitrator by several arbitration institutions. Prof Kryvoi also served as a Co-Chair of the International Courts Committee of the American Bar Association's Section of International Law. He also serves a tutor at the Chartered Institute of Arbitrators in London. See full profile at kryvoi.net.

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