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Arbitration of corporate disputes: novelties and new tools for legal practitioners

1Russia has made significant steps toward developing and harmonizing its arbitration institutions and processes with international practice.

Experts at the section of Saint-Petersburg Legal Forum (SPLF) 2017 devoted to arbitration of corporate disputes on 19 May 2017 formed an impressive board of legal practitioners dealing with arbitrations in Russian and foreign arbitral institutions.

Speakers from Russia discussed and debated recent amendments to the Russian Commercial Procedural Code (Code) and a new law “On Arbitration in the Russian Federation” (Law on Arbitration) and the application thereof to the corporate disputes.

Foreign practitioners shared their experience of dealing with corporate disputes at the arbitration centers in Germany, UK, Hong Kong, and Singapore. The SPLF section allowed to examine specific issues of corporate arbitration in Russia and to have a glance at the arbitration practices in other foreign institutions.

Arbitrability of corporate disputes under Russian law

Source - http://spblegalforum.tassphoto.com/album/355Alyona Kucher, partner at Debevoise & Plimpton LLP Moscow office, gave a breakdown of the corporate disputes based on such criterion as arbitrability. She spoke about disputes that, according to Article 225.1 of the Code, might be categorized in several groups: non arbitrable, unconditionally arbitrable, and conditionally arbitrable.

Non-arbitrable disputes should be considered only in state commercial courts: disputes involving strategic companies; disputes regarding calling of the shareholders’ meeting and other disputes specified in the Code. The legislator chose to oust disputes that might affect rights of all shareholders from the competence of the arbitral tribunals.

The second group includes unconditionally arbitrable disputes. The Code provides for claims for ownership rights or levying of execution on shares in the company that can be arbitrated by the parties if they have an arbitration agreement.

Alyona Kucher reported on the third group of disputes – conditionally arbitrable – as the most controversial group of disputes. This group involves derivative claims, complaints against the actions of the management board, disputes involving general directors; arising out of the SPA; and emission/distribution of the securities. The Code gives a list of disputes that can be arbitrated subject to certain requirements stated in the Code:

  • only permanent arbitration institutions that obtained a license from the Russian Government may consider these disputes;
  • these arbitral institutions have to elaborate and to use the rules for arbitration of corporate disputes;
  • a company itself, members of the company and third parties that can be prospective plaintiffs/respondents in court have to make an arbitration agreement to submit the dispute to arbitration;
  • arbitration should take place in Russia.

Alyona Kucher raised certain questions relating to the scope of the arbitration agreement incorporated with the charter of a company. She recommended having a reference to the charter within the agreement with a third party in order to make the arbitration agreement mandatory for anyone involved to the dispute.

Another important issue discussed involves the rules on notification and joinder of parties in the arbitration process. The Code and the Law on Arbitration require parties to arbitration to follow these rules for a wide range of corporate disputes, which makes the whole arbitration procedure complicated if the dispute concerns interests of only one shareholder.

Indeed, if a shareholder had no access to the company information or just two shareholders concluded a shareholder agreement, would it make sense to notify all shareholders and follow other relevant arbitration rules for corporate disputes? All these inquiries result from the legislator’s definition of the conditionally arbitrable disputes, which has to be tested yet through the court and arbitration practice.

Source - http://spblegalforum.tassphoto.com/album/355Anton Asoskov, professor at the Moscow State University and one of the main authors of the ICAC Rules of arbitration of corporate disputes, mentioned that the challenge intrinsic to the corporate disputes associates with the place of arbitration, which­­ according to the Code and the Law on Arbitration should be in Russia. Additionally, he noted that foreign tribunals might take into account mandatory requirements of the Russian law if Russia appears the sole place of enforcement for the arbitration award.

Derivative claims in corporate disputes

Dmitriy Stepanov, partner at Egorov, Puginsky, Afanasiev and Partners, named the main challenges of the derivative claims that exacerbate the arbitration process in the light of the rules of arbitration of corporate disputes. First off, some of the main challenges arise from the ambiguity of the plaintiff’s/respondent’s procedural status in arbitration.

For example, when shareholders file a claim on behalf of the company, which, itself, appears to be a claimant in the case. Arbitral tribunals conservatively interpret the arbitration clause and prefer to listen to the party which is bound by the arbitration clause/agreement. Therefore, this leads to the question whether it is a company or shareholders on its behalf should argue in court.

Another issue in arbitration relates to the binding effect of the arbitration clause with respect to the new shareholders that have acquired shares in the company and were not aware of the ongoing arbitration.

Importantly, the Law on Arbitration elicits new questions about the place of arbitration in disputes involving companies that have Russian beneficiaries and feature a complicated business structure in foreign jurisdictions. Dmitriy Stepanov addressed a situation where these companies have their dispute arbitrated and whether they should choose Russia as the place of arbitration and apply rules for the resolving of corporate disputes. He concluded that if the dispute involves foreign companies, these rules should not be applicable.

Another question presented was the binding effect of the arbitration clause for the future shareholders and directors in a company. A solution to this issue was presented by Stepanov when he suggested that a corporate charter should explicitly dictate that the arbitration clause would be mandatory for all shareholders.

However, the effectiveness of his recommendation should be tested in courts and arbitration tribunals. The speaker also highlighted a question relating to the ambiguous position of the plaintiff in derivative lawsuits. Stepanov referred to the situation where a company and its representative­ – shareholders that filed a claim on behalf of the company – have opposing views as to the arbitration process. This question should be addressed in practice and the legal doctrine.

Source - http://spblegalforum.tassphoto.com/album/355Foreign experts on arbitration and transnational litigation in foreign jurisdictions

Stefan Kroell, Honorary Professor, Bucerius Law School, presented on the corporate arbitration in Germany and the German Institute of Arbitration (DIS). Currently, the German Supreme Court (Bundesgerichtshof) developed criteria for the arbitration agreement to be valid for all shareholders. As a part of this criteria, shareholders must vote to make an agreement binding on all shareholders and must do so by making it explicit in the arbitration agreement.

Mr. Kroell referred to the DIS rules for the resolving of corporate disputes applicable to the shareholders if they have expressed their consent to be bound. Third parties may join the arbitration proceedings and stay informed about them.

Michael Swainston, QC, Brick Court Chambers, spoke about the importance of a consistent support of arbitration by the state courts. For example, in the UK, a party to the arbitration may obtain the assistance of the receiver at the court, whose function is to find and to guard the assets of a company. Apart from that, he suggested reviewing confidentiality rules of arbitral institutions by making a substance of the arbitration dispute (names and specific data should be deleted) publicly available in order to make the arbitration practice sustainable and predictable.

Laurence Wong, Singapore International Commercial Court (SICC), introduced the SICC, which consists of 12 judges of different nationalities and represents civil and common law countries. The SICC is a division of the Singapore High Court and part of the Supreme Court of Singapore designed to deal with transnational commercial disputes.

Wesley SC Wong, Solicitor General of Hong Kong, presented Hong Kong as a high-ranked dispute resolution location among the common law jurisdictions. Courts uphold parties’ intentions to arbitrate a case if they have made an arbitration agreement. Hong Kong is one of the first jurisdictions that has allowed enforceable interim and emergent measures in the arbitration process.

Conclusion

Russia has taken great strides and has reformed its arbitration legislation, striving to make its rules more transparent, time- and cost-efficient for the parties involved.

However, although Russia has seen much progress in this arena, foreign jurisdictions also continue to offer new, more efficient, tools and mechanisms that, if taken into account, can enrich the legislation and practice of Russian arbitration centers.

As progress in corporate arbitration continues to develop, hopefully ­arbitration for corporate disputes will further achieve an enhanced position and continue to receive acknowledgment in Russia and internationally.

Olga Putushkina

Attorney-at-law (Russia), Tsukanov Ponomaryova & Partners

Joseph Overstreet

J.D., Moritz College of Law (Ohio State University)

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