Proposed reform of arbitration system and legislation in Russia

30.01.2014

THE PRACTICAL LAW

The Ministry of Justice of the Russian Federation has published draft Bills aimed at reforming arbitration legislation and the system of arbitral institutions in Russia.

Speedread
The Ministry of Justice of the Russian Federation has published draft Bills aimed at reforming the arbitration procedure and legislation in Russia. The draft Bills are now subject to discussions and consideration by legal and business society. Following that consultation, which will end on 3 March 2014, the Ministry of Justice will consider any proposed amendments to the draft Bills and then submit them to the Russian Parliament, supposedly by the end of spring 2014.

The draft Bills propose considerable reform of the arbitration process in Russia, including new provisions on arbitrability, the status of arbitral institutions and state court involvement in the arbitral process.

The Ministry of Justice of the Russian Federation has published draft Bills that will amend the existing Code of Commercial procedure, the Code of Civil Procedure and the Law on International Arbitration in Russia, and includes a Bill "On arbitration institutions and arbitration".

The draft Bills are now subject to discussion and consideration by legal and business society in Russia. The Ministry will then consider any proposed amendments to the draft Bills and submit them to the Russian Parliament by the end of spring 2014.

The reform of arbitration in Russia has been under discussion for the last couple of years and several working groups have been gathering proposals, while the Ministry of Justice and the Ministry of Economic Development worked in parallel on their drafts Bills.

The major amendments to the arbitration system in Russia that have been proposed in these draft Bills of the Ministry of Justice are summarised below.

Arbitrability

The Bills propose a list of non-arbitrable disputes. To date, the applicable Russian legislation has not dealt directly with arbitrability issues, which has resulted in inconsistent approaches by the Russian courts, especially with regard to disputes involving real estate and corporate relations. While a ruling of the Constitutional Court in May 2011 appeared to resolve the issue with regard to real estate disputes, when it stipulated that such disputes are arbitrable (see Legal update, Russian Constitutional Court confirms arbitrability of real estate disputes (www.practicallaw.com/7-506-3220)), there is still no certainty with regard to corporate disputes, especially after the approach of the Supreme Commercial Court in the infamous NMLK v Maximov dispute (see Legal update, Russian courts consider corporate disputes to be non-arbitrable (www.practicallaw.com/2-518-2616)). The proposed Bills provide that corporate disputes are generally arbitrable. However, some disputes will be "conditionally arbitrable", that is, they can only be submitted to particular arbitral institutions that have a special set of rules for arbitration of corporate disputes, providing that all parties agree to such arbitration.

The Bills also includes a list of proposed non-arbitrable corporate disputes, which is very limited (for example, disputes relating to the obligation to call a shareholders' meeting and disputes involving companies that are "essential for state's defence capacity and security").

Status of arbitral institutions

Major changes are proposed to the system of arbitral institutions, including the procedure for the creation and liquidation of them. According to the draft Bills, only non-commercial entities will be able to establish arbitral institutions, and then only with the Ministry of Justice's permission. The latter will also have a right to apply to the court for the liquidation of any arbitral institution if the Ministry thinks that it is violating the law. The arbitral institutions will also have to comply with certain statutory requirements (with regard to the functioning of the nomination committee, existence of a list of recommended arbitrators and the content of the arbitration rules).

Courts for challenge and enforcement

The Bills propose to change the level of courts that may consider applications for the challenge and enforcement of the arbitral awards. Under the draft Bills, courts of the third (cessation) level will deal with such applications (as opposed to the courts of first level which deal with them now).

Assistance of the state courts

The Bills suggest that a special procedure of "court assistance" is set up, whereby any arbitral institution can apply to that state court for assistance with evidence and the state court is obliged to consider that application. The procedure for these applications will be set out in the procedural codes.

Involvement of state courts in the procedure of arbitration

The proposed amendments introduce a closer involvement of the state courts in the arbitration procedure. Under the draft Bills, the state courts will act as an:

  • Appointing authority when a party fails to appoint the arbitrator.
  • Authority hearing a challenge of an arbitrator.
  • Authority making a final decision on the competence of the arbitrators to hear a case.

To prevent the involvement of a state court in the arbitration proceedings, the parties should specifically exclude such involvement in an arbitration clause or in a separate agreement.

Arbitrators' liability

The proposed amendments exempt arbitrators from any civil liability resulting from their acts as an arbitrator, with the exception of civil claims in criminal procedures when it is proven that an arbitrator has committed a crime.

Other amendments

Other noteworthy amendments include:

  • The presumption of the validity of the arbitration agreement in cases of unclear wording.
  • Wide formulation of the scope of cases that can be submitted to arbitration.
  • Other minor changes that demonstrate the arbitration-friendly approach in the Russian Federation.

The proposed amendments do reflect some very useful notions, in particular the presumption of the validity of the arbitration agreement and the provisions bringing clarity to arbitrability of disputes. That said, the amendments have a noticeable flavour of a tighter state control. While the prohibition of commercial companies from establishing arbitral institutions is generally a good idea, which will put an end to the abuse by the so-called "pocket arbitral institutions" (that is, an arbitral institution created by a company (or group of companies) and used to handle disputes involving that company (or group of companies) mainly to its advantage), the general trend of providing more involvement of the courts and state bodies in the arbitration procedure is alarming. Hopefully the final draft, which is supposed to take into account the opinions of arbitration practitioners, will take a more balanced approach.

Resource information
Resource ID:2-555-8025 Published: 29-Jan-2014
Products: PLC Arbitration - International, PLC Arbitration Email, PLC US Law Department

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