New Draft Law Aims to Bring Arbitration in Russia to Order

Since 2013 the Russian legislator is reforming arbitration laws of Russia. The reason for the reform was a the lack of consistency in Russian arbitration regulations, existence of so-called “pocket arbitration tribunals” and sham arbitration tribunals. The reform aims to facilitate the stability and transparency of the system.

The first draft law on arbitration was introduced by Russian Ministry of Justice in January 2014, but due to harsh critic it was returned by the Government for revision. In May 2015 the Russian Government  introduced the revised draft law in the federalparliament. This post covers main distinctive features of the draft law.

Permissive system of creating arbitral institutions

The current law on arbitration adopted in 2002 allows for different types of arbitral tribunals: permanent and created for resolution of the specific case (ad hoc). Neither permanent nor ad hoc arbitral institution need any permission to act. Currently the organizations which established an arbitral institution need only to file the copies of the documents on such creation to the competent state court.

However, under the new draft law organisations wishing to create an arbitration institution will have to apply for the permission of the Russian Ministry of Justice. Interestingly, under Article 44 of the draft law foreign permanent arbitration tribunals (such as LCIA, e.g.) will have to obtain the permission for execution of their functions in accordance with the Russian law. Otherwise they will not be recognized as permanent arbitration institutions in Russia which threatens the enforceability of their arbitral awards in the country.

In order to obtain such permission the organization has to comply with several criteria. Firstly, the rules of such future arbitral tribunal should comply with the law. Secondly, it should have a list of at least 30 recommended arbitrators. Thirdly, the information provided to the state authority has to be authentic and true. Fourthly, the work of such arbitration institution should promote arbitration and the rule of law.

Arbitration tribunal as a subdivision of non-commercial legal entities

Under the draft law only non-commercial legal entities would be able to create permanent arbitral institutions. Such arbitral institutions will constitute their structural subdivisions. The draft law does not expressly provide for the status of already existing arbitral bodies created by commercial entities.

Several types of non-commercial organisations will not be able to create arbitration tribunals (e.g., municipal and state authorities, state corporations, notarial chambers etc.). As for the existing arbitral bodies created by non-commercial organizations, they will remain only provided they obtain the permission (see below).

The only exception to this rule is provided for the International Commercial Arbitration Court (ICAC) and the Maritime Arbitration Commission (MAC) at the Russian Chamber of Commerce and Industry that will not need to obtain such permission.

Arbitration agreements and responsibility

Another interesting feature of the draft law is that an arbitration agreement may be included in the bye-laws of a company. This means that any corporate dispute between members of such a company shall be resolved in a particular arbitration tribunal. However, such option is not possible for public joint-stock companies and for joint-stock companies that include more than 1,000 shareholders.

Furthermore, the organisation that created an arbitral institution will bear financial responsibility for activities of such a court. For example, the draft law envisages responsibility for non-execution or undue execution by the arbitral institution of its responsibilities. Though under the general rule the responsibility is limited to damages the rules of such arbitral institution may provide for wider responsibility.

The rules may also provide for the reduction of the arbitrator’s fee in case he (or she) fails to perform or performs improperly his (or her) obligations. The arbitrators are released from responsibility for the adoption of unjust or false decisions except for the responsibility in a civil lawsuit in a criminal case.

The draft law provides that the Ministry of Justice can liquidate permanent arbitral institution if such court grossly and repeatedly violates Russian legislation.

Corporate disputes will be arbitrable in Russia

The draft law provides a possibility of arbitration of the corporate disputes i.e. disputes related to creation or governance of a legal entity in the Russian Federation. Founders and members of the entity and the entity itself will have the opportunity to arbitrate their disputes. The arbitration institutions wishing to provide arbitration services for corporate disputes will need to adopt a special set of rules of to ensure due process and the participation of all interested parties.

Conclusion

The draft law remains one of the most discussed issues in Russian arbitration community. Some arbitration practitioners, such as Alexander Muranov, ICAC arbitrator and MAC vice-chairman, support the legislative reform in question and argue that it will create more law and order in arbitral proceedings.

There are also those, such as Gleb Sevastianov, general editor of a leading Russian arbitration journal “Treteyskiy sud”, who strongly oppose it saying that undue interference by state into arbitration will damage the basics of this alternative dispute resolution technique in Russia.

The draft law, if adopted by the parliament in its current form, will likely make arbitration in Russia subject to stricter legal standards. This will likely make the parties arbitrate more responsibly which means that in general the arbitration reform promises to have a positive effect on arbitration in Russia.

Natalia Ivanova, Dmitry Davydenko

Muranov, Chernyakov & Partners law firm