Russian law now presumes the validity of the arbitration agreement

Russia is often blamed for being not sufficiently arbitration-friendly jurisdiction where the risk of non-enforcement of the arbitral award remains high. However, a recent empirical study shows that in various years during the period 2008 to 2017 Russian courts granted the overwhelming majority of all recognition & enforcement applications.

Since the start of the ongoing arbitration reform, there seems to be a shift in practice which gives more grounds to claim that Russia is gradually becoming an arbitration-friendly country. One of the cornerstone developments that allow claiming so is the validity presumption of the arbitration agreement under reformed Russian law which comes into the spotlight of this paper.

In 1981 Professor Van den Berg remarked in his work The New York Arbitration Convention of 1958: Towards a Uniform Judicial Interpretation that “the invalidity of the arbitration agreement under the law applicable to it has scarcely ever been invoked, and never successfully”. We know from practice, however, that this observation no longer remains correct: challenges to the validity of international arbitration agreements are reality nowadays. This is why the issue of presumption of arbitration agreement validity is vital for international arbitration.

Russian case law changed in favour of the validity presumption

Under Russian Law “On International Commercial Arbitration”, any doubts shall be interpreted in favour of the arbitration agreement’s validity and enforceability. This validity presumption of an arbitration clause forms part of the Russian legislative reform on arbitration of 2015 – 2016. At least, the validity presumption applies to arbitration agreements concluded after 1 September 2016.

It does not mean that all arbitration agreements entered into before that date necessarily run a risk of being invalidated. Under the 2013 precedent ruling of Presidium of Supreme Commercial Court of Russia, “an arbitration agreement is considered valid until the opposing party provides admissible evidence of its invalidity”. This approach conforms indeed to the principle pacta sunt servanda.

The case law elaborated by the Russian courts after the arbitration reform generally approves this position. Also, the practice of the International Commercial Arbitration Court at the Chamber of Commerce and Industry of Russia, e.g. the Award of 31 July 2011 in case no. 252/2010, also proclaims the interpretation of the arbitration agreement in a way that cures its defects, for instance, ambiguous wording, obvious misprints, etc.

Russian doctrine confirms the validity presumption

The progressive developments of the Russian case-law obtain support from the Russian arbitration doctrine. Most authors agree that the courts should seek the most suitable interpretation of an arbitration agreement that protects it from invalidation. In particular, Academic and Practical Commentary to the Russian Arbitration Legislation edited by Vladimir Khvalei and published in 2017 supports this position. Furthermore, the doctrine also sets forth that onus probandi for invalidation of arbitration agreement remains with the applicant. That is, the applicant needs to show that no reasonable interpretation of the arbitration agreement may save it from invalidation.

However, the validity presumption cannot cure all defects of the arbitration agreement. For example, significant defects of will and intention of parties do overcome the presumption.

Current Russian law strengthens the validity presumption of the arbitration agreement

The practitioners denying the existence of validity presumption of arbitration agreement refer to a notorious ruling of the Supreme Court of Russia adopted in 2018 where the court found ICC standard arbitration clause invalid and unenforceable. However, this ruling should not be considered these days as a precedent in Russian case law.

First, the argument of the court regarding the invalidity of the arbitration clause was obiter dictum as the court found more significant grounds not to enforce the arbitral award. The arbitral proceedings were initiated when the respondent was in bankruptcy. Therefore, enforcement of an arbitral award may have deprived lawful creditors of their rights.

Second, the arbitration clause in the said case was agreed by the parties before 2014 while the newly introduced validity presumption of arbitration clause extends only to arbitration agreements concluded after 1 September 2016. So, the judge had no legal ground to apply the validity presumption retroactively.

Third, the Russian Supreme Court has confirmed its official position on validity and enforceability of arbitration clause in the Case Law Review on Enforcement of Arbitral Awards of 26 December 2018 (after the said ruling). In this Review, the Russian Supreme Court explained that arbitration agreements shall be interpreted in a way that protects them from invalidation. The Russian Supreme Court stated in particular that reference to ICC Arbitration Rules proves parties’ will to conduct international arbitration under such rules.   

Validity presumption of the arbitration agreement may also be easily deduced from the general provisions of the Russian contract law. The arbitration clause is considered as a separate contract. Under the Resolution of the Russian Supreme Court on contract interpretation adopted in December 2018  which is obligatory for all Russian courts, all contracts are presumed to be valid until proved otherwise. Thus, Russian contract law supports the validity presumption of an arbitration agreement.

Conclusion

Russian law recognizes that arbitration agreements shall be presumed valid until proved otherwise in a due course. As stated in 1820 by 1^st Baron Wynford, judge of King’s Bench Division of High Court of England and Wales in Rex v. Sir Francis Burdett, presumption means nothing more than the weighing of probabilities and deciding, by the powers of common sense, on which side the truth is.

That phrase clearly shows the value of the validity presumption of an arbitration clause. It should not be considered as a universal magical pill. Nevertheless, it helps to protect the reasonable expectations of parties and improves the stability and consistency of dispute resolution.

Natalia Gulyaeva, FCIArb, Ph.D.

Partner at Hogan Lovells