Challenging the Impartiality of Arbitrators in Russia: Reznik v ICAC

One of the most influential members of the Russian legal community – Henry Reznik, president of the Moscow Chamber of Advocates – recently vigorously criticised the International Commercial Arbitration Court at the Russian Chamber of Commerce (the “ICAC”), a respected Russian arbitral institution.

Mr Reznik expressed his surprise that the Presidium of ICAC, without giving reasons, satisfied the challenge of two arbitrators appointed to arbitrate a dispute between Maxi Group (the “claimants”) and NLMK (the “defendants”). This is one of the ICAC’s highest profile cases, with more than US $500 mln at stake.

Previously Dilyara Nigmatullina wrote that the claimants had succeeded in gaining an award from the ICAC but the Moscow City Commercial Court had annulled the award on the ground of failure by the arbitrators to disclose a potential conflict of interests.

Now, the claimants again resorted to a dispute before the ICAC. When the defendant nominated its arbitrators, Peter Barenboim and Konstantin Sklovsky, the claimants challenged them on the ground that they were connected to Gagarin Reznik & Partners Advocate’s Bureau, the law firm which represented the defendants.

The claimants argued that Mr Reznik, the managing partner at Gagarin, Reznik & Partners, co-authored an article with Mr Sklovsky. Moreover, Mr Reznik has been a friend of Mr Asnis, managing partner at Asnis & Partners, where both arbitrators are employed as advocates.

The ICAC Presidium did not disclose its reasons for upholding the challenge of the arbitrators.

Then Mr Reznik announced that he was going to propose to his fellow advocates to exclude references to the ICAC from future arbitration clauses or agreements in contracts. He called such a measure “adequate” arguing that the ICAC discriminates against advocates.

The challenge of arbitrators is one of the most important elements in arbitration proceedings. Its rationale is established in the rules of the respective institution. A party who suspects partiality on the part of an arbitrator can challenge him or her.

Paragraph 18(1) of the ICAC Rules states: “Either of the parties may challenge an arbitrator if circumstances exist that give rise to justifiable doubts as to the arbitrator’s impartiality or independence, in particular, if it may be assumed that he personally, directly or indirectly, is interested in the outcome of the proceedings. A challenge also may be made if an arbitrator lacks the qualifications stipulated by an agreement between the parties”.

It is this indirect interest of arbitrators in the outcome of arbitral proceedings which became a sticking point between the parties. The claimants stressed this point and argued that an indirect link between the arbitrators and a defendant is a justifiable ground for doubting the arbitrators’ impartiality.

Eugeny Suhanov, a prominent legal scholar and deputy chair at the ICAC, argued that the claimants had challenged the arbitrators, not the ICAC. Mr Suhanov referred to the Rules on Impartiality and Independence of Arbitrators adopted by the ICAC in 2010. The rules provide, in particular, that if an arbitrator works for the same firm as a legal representative of a party involved in the case, such arbitrator may be challenged by the other party.

It is clear therefore that Mr Reznik’s claims are based on insufficient understanding of the basics of international commercial arbitration. Mr Reznik believes that the challenge of arbitrators should be granted only where there is a direct link between arbitrators and the party. However, such an approach would contradict the freedom of a party to challenge arbitrators once there are serious suspicions over their impartiality.

Given the above, it would be unreasonable for Mr Reznik to advocate a boycott of the ICAC. Such a boycott would hinder the development of international commercial arbitration, which is, by and large, still emerging in Russia. Mr Reznik is held in the highest esteem by the majority of Russian advocates. So strong is his reputation that nearly all his words are accepted as true by them, even though he is not a specialist in matters of international arbitration. Therefore advocates ignorant of the situation might unfoundedly regard the ICAC as unworthy of their trust. Meanwhile, it is the future of the main international arbitral institution in Russia which is at stake here; advocates should not therefore go about shaking its credibility.

The right of a party to challenge an arbitrator is its autonomous right. Also, disclosure by the arbitral institution of its rationale for such a challenge is actually a double-edged sword as its application can be harmful for the whole arbitral procedure.

Alexander Muranov, member of the Council at the Federal Chamber of Advocates and an ICAC arbitrator, believes that Mr Reznik’s intervention was probably due to a miscomprehension on his part. In Mr Muranov’s opinion, Mr Reznik possibly reacted to what he considered to be a provocation and acted with good intentions.

One hopes that this was indeed the case. The credibility of such a prestigious and respected institution as the ICAC cannot and should not be allowed to be damaged even if the statement was uttered by a person of such high standing as Henry Reznik. Hopefully the tempest will pass soon and Mr Reznik will realise that he overeacted somewhat.

Dmitry Davydenko, senior associate at Muranov, Chernyakov & Partners