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ABA Conference – Is Russia Becoming More Arbitration-Friendly?

Moscow 2013

The ABA’s Fifth Annual Conference on the Resolution of the CIS-Related Business Dispute took place on 27 September 2013 in Moscow. More than 140 delegates from around the globe attended the conference, which featured six panels and a set of mock hearings in a complex cross-border dispute.

The conference’s panels covered a broad spectrum of topical issues ranging from debt collection and private antitrust claims to investment treaty arbitration and ways of making Russia an attractive seat for international arbitrations. The courts’ role in promoting Russia as an arbitration venue was a hot topic. In another panel the speakers looked at the enforcement of investment arbitration awards. Still another panel discussed various remedies available to Russian and CIS clients of Cypriot banks.

Promoting Russian Seat of Arbitration

Mr Peter Pettibone (Hogan Lovells, New York) gave a general overview on the topic.  He told the audience that to his knowledge, Moscow has never been included in the lists of popular arbitral centres. He challenged the panelists to identify the reasons for such a situation and how they should be addressed.

Mr Alexey Kostin (Chairman of the ICAC at the RF CCI) said that Russia’s failure to implement the 2006 amendments to the UNCITRAL Model Law creates some issues. However, he was quite optimistic. In fact, the ICAC handles more disputes than the SCC and the LCIA. According to Mr Kostin, this year already more than 200 requests for arbitration have been filed. He concluded with a hope that the newly created arbitral institutions will engage in “fair” competition with the ICAC.

Ms Natalia Pavlova (Judge of the Russian Supreme Commercial Court) agreed that Russia should implement the 2006 amendments to the Model Law, except those dealing with provisional measures. She mentioned the lack of voluntary compliance with arbitral awards as a potential concern. According to her more than 189 requests for enforcement of awards were filed in 2013. Finally, Ms Pavlova addressed the issue of professional legal representation in courts. She mentioned a number of cases (Sony Ericsson and Bosсh) where counsel could have assisted the court better.

Mr Vladimir Khvalei (Baker&McKenzie (Moscow)) started with a presentation of the survey conducted by ICC Russia. He praised the Supreme Commercial Court for doing a great job on transparency, but said the court’s silence on or too laconic treatment of urgent topics remains a concern (he mentioned cases dealing with unilateral arbitration clauses and arbitrability of corporate disputes as examples). Mr Khvalei concluded by introducing the Russian Arbitration Association (RAA), which was established in June 2013 and currently has more than 50 law firms as members. The main goals of the RAA are the development of standards for arbitral institutions, training programmes for arbitrators and improvement of Russian arbitration laws.

The new trends in Investor-State Arbitration: third party funding and transparency

The panel’s moderator Ms Marney Cheek (Covington & Burling LLP (Washington DC)) introduced the questions the speakers intended to discuss: enforcement of awards, concerns arising from third-party funding and the possible impact of the new UNCITRAL rules on transparency on investor-state arbitration.

Mr Dmitri Evseev (Arnold & Porter LLP (London)) dealt with enforcement of awards and stressed that a lot depends on the applicable regime (ICSID or not). Mr Evseev recognised that many people are convinced that states do not comply with investor-state awards, but argued that this is not actually true.

Ms Noradèle Radjai (Lalive (Geneva)) agreed that most states voluntarily comply with investor-state awards. In fact of over 300 ICSID cases in only 4 cases did the state chose not to comply. Ms Radjai mentioned immunity as a major obstacle to enforcement of awards against states, but reminded the audience of the concept of limited immunity, which gives some hopes to investors.

Mr Paulo Fohlin (Advokatfirman Odebjer Fohlin (Hong Kong)) noted that the Hong Kong Court of Final Appeal recently held that absolute immunity (with no commercial exception) continues to apply in Democratic Republic of the Congo v FG Hemisphere Associates LLC (FACV Nos, 5, 6 & 7 of 2010). Therefore an investor seeking to enforce an award against a state will face significant difficulties. Indeed, even if the national law recognises the commercial exception to the immunity the definition of commercial assets (or assets used exclusively for commercial purposes) remains unclear.

Turning to the issue of third party funding, Ms Cheek observed that the risk of losing everything if the claimant loses its case constitutes the major concern for the funder. On the other hand, according to Mr Fohlin, availability of third party funding may put additional pressure on the respondent, since it reflects a third party’s belief in the strength of the claimant’s case. But Ms Kate Brown de Vejar (Curtis Mallet-Prevost Colt & Mosle (Mexico City)) cautioned that third party funding raises confidentiality issues, since the funder, who is not a party to the arbitral proceedings, gets access to some of the documents.

The impact of Cyprus Crisis on the CIS countries

The first panelist Mr George Georgiou (George Z. Georgiou & Associates (Cyprus)) gave a general overview of Cypriot banking policy during the crisis and commented on the laws that were passed to address it and the decision of the Supreme Court of June 7, 2013. The latter gave the depositors of the mentioned Laiki Bank and the Bank of Cyprus an opportunity to file claims before the district courts of Cyprus against the government in order to seek partial compensation of the losses incurred due to the haircut.

Mr Maksym Kodunov (Integrites (Kyiv)) told the audience about the two recent Ukrainian cases arising out of the Cypriot banking crisis and losses suffered by the Ukrainian clients. In Luxori Smart v. Bank of Cyprus (Case No. 910/8874/13), the court dismissed the respondent’s jurisdictional objections and ordered the Bank of Cyprus to pay EUR 11.1 mln to the claimant. In PVT Trans v. Cyprus Popular Bank (Laiki Bank) the Commercial Court of Kyiv ordered Laiki Bank to pay EUR 507,681.54, USD 29,302,461.07 and GBP 3,406,650.91 to the claimant.

Mr Robert Campbell (Faegre Baker Daniels (London)) discussed possible English-law defences available to the banks, including force majeure and frustration. Frustration events may include impossibility of performance, its illegality and prevention by the government. As for force majeure Mr Campbell reminded that the essence of force majeure clauses is that they express contractual terms agreed by the parties and a typical force majeure clause encompasses “any law or any action taken by a Government or public authority”. Such clauses clearly extend to the haircut tax and capital controls introduced by the Cypriot government.

Finally, Ms Knutova (Pepeliaev Group (Moscow)) spoke on the possible claims that can be brought in other jurisdictions and treaty-based claims. While the Russia-Cyprus BIT was never ratified by either state, Ms Knutova suggested to structure claims under the EU-Russia Partnership & Cooperation Agreement of 1994.

A summary of the speakers’ presentations is available in a presentation outline edited by the session’s moderator Rupert D’Cruz (Littleton Chambers (London)).

Competition between the Judicial Systems: where to pursue a claim?

The final session was divided into two parts. During the first the panel discussed the famous examples of “unfair competition” of legal systems given by Mr Anton Ivanov (Chairman of the Russian Supreme Commercial Court). The second part took the form of a mock court.

Mr Nick Marsh (DLA Piper, (London)) gave a short overview of recent Russian disputes in English courts. Mr Vladislav Starzhenetsky (Russian Supreme Commercial Court) described the recent trends in the Russian legal system, including the Supreme Commercial Court’s support of lower courts following precedents and the newly-adopted Review of the Practice on Public Policy.

The second part of the panel session consisted of three small mock hearings featuring Swedish, American and Russian lawyers. The mock case was a cross-border dispute between a Russian producer of “kvass” (Russian national drink) and an American retailer. Due to the new Russian customs regulations, the Russian producer claimed that its obligation had become impossible to perform due to the “government’s actions”.

A tribunal sitting under the SCC Rules ruled in favour of the American party. The respondent tried to set the award aside before the Svea Court of Appeal. The Swedish court dismissed the application. Then the American company tried to enforce the award in the United States District Court (New York). The latter decided to enforce the award and seized the Russian company’s assets in the US. After that, the companies met in the Moscow Commercial Court, where the Russian company pursued a tort claim against the American company and the experts who had given evidence on Russian law before the arbitral tribunal, alleging that they had misrepresented the Russian law position before the tribunal. The Russian court dismissed the claim for procedural reasons.

In summary, the ABA conference provided the participants with an opportunity to receive an update on the recent developments in key areas and to hear from key policy-makers. In addition it served as an excellent forum for academics, state officials, private practitioners and judges interested in dispute resolution in Russia and the CIS to meet.

Maxim Usynin

Russian School of Private Law

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