Arbitrability of Corporate Disputes in Russia: To Be or Not to Be

CIS Arbitration Forum is launching a Working Papers Series. The papers will feature research papers to encourage the exchange of ideas about arbitration and dispute resolution in the former Soviet Union countries. E-copies of the Working Papers will be available in the Social Sciences Research Network electronic library.

Sergey Strembelev and Yaraslau Kryvoi authored the first paper ‘Arbitrability of Corporate Disputes in Russia: To Be or Not to Be’. The paper discusses the possibility of adjudication by arbitration of corporate disputes, including disputes arising from shareholders’ agreements.
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The article analyzes the relevant Russian legislation and court practice and contrasts it to the approaches of common law jurisdictions to these issues.

Currently, the transfer of corporate disputes to arbitration in Russia involves substantial risks for the participants in these disputes. In many cases, the Russian state commercial courts take the position that corporate disputes are not ‘arbitrable’ since the state commercial courts have exclusive jurisdiction over such disputes.

In common law jurisdictions, by contrast, corporate disputes (particularly those disputes arising out of shareholders’ agreements) may be referred to arbitration and be adjudicated according to a foreign law as chosen by the parties. Only in a few cases will the jurisdiction of arbitral tribunals be denied and the dispute resolution clauses and the provision of the chosen applicable law be ignored: if such is contrary to public policy or the mandatory rules of corporate law, or if it violates the rights of third parties.

The paper concludes that the transfer of corporate disputes to arbitration in Russia involves substantial risks for the participants in these disputes. In many cases, the Russian state commercial courts take the position that corporate disputes are not ‘arbitrable’ since the state commercial courts have exclusive jurisdiction over such disputes.

Russian courts do not permit the application of foreign law to disputes arising out of shareholders’ agreements, including those involving foreign companies that are shareholders of Russian joint-stock companies, citing questions about whether the shareholders’ agreements shall be governed by the legal regime having personal jurisdiction over the legal entity.

In common law jurisdictions, by contrast, corporate disputes (particularly those disputes arising out of shareholders’ agreements) may be referred to arbitration and be adjudicated according to a foreign law as chosen by the parties. Only in a few cases will the jurisdiction of arbitral tribunals be denied and the dispute resolution clauses and the provision of the chosen applicable law be ignored: if such is contrary to public policy or the mandatory rules of corporate law, or it violates the rights of third parties.
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For English and American state courts the more contentious questions are those regarding the limitation of parties’ freedom to contract within the established terms of shareholders’ agreements, in particular, the extent to which shareholders may by agreement diverge from the rules provided for by the applicable law on private corporations.

In light of this, the authors argue that the approach to ‘arbitrability’ of corporate disputes should be appropriately adjusted in Russia. The parties to corporate relationships should be allowed to transfer relevant disputes to arbitration, unless doing so violates the rights of third parties or public policy.
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In our view, this can be achieved by forming a coherent jurisprudence without the need to amend legislation.

The full text of the paper is available at http://ssrn.com/abstract=2383736.