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Foreign Arbitral Institutions enter the Russian arbitration market
Foreign Arbitral Institutions enter the Russian arbitration market
12 August 2019
Series
Blogs
12 August 2019
As reported in an earlier blog post, significant amendments to the Law on Arbitration came into force in Russia back in September 2016.
One of the key changes brought about by the arbitration reform includes the introduction of a new regime for recognition of arbitral institutions established by various industry associations (those being non-commercial organisations) as “permanent arbitral institutions” (“PAIs”). This process is subject to the forum meeting statutory conditions and receiving an approval from the Russian Government to perform these functions.
A foreign arbitral institution may be approved to act as a PAI in Russia if it has a “widely recognised international reputation”, which would allow it to receive a licence from the Russian Government under the recommendation of the Council for the Improvement of Arbitration at the Ministry of Justice (the “Council”).
At the time of publishing our previous post on Russian arbitration laws (October 2018), no leading arbitral institutions had indicated that they intended to apply for a licence, but there have been some recent developments:
PAI status would allow HKIAC and VIAC to consider international commercial disputes, including some types of corporate disputes (disputes related to incorporation of a Russian legal entity, its management or participation in its share capital (“Corporate Disputes”)).
From media reports we understand that neither HKIAC nor VIAC are expected to open branch offices in Russia in the near future. A lack of branch offices in Russia means that they will not be able to administer local disputes (i.e. those between Russian companies).
Given that PAI status is one of the requirements for an arbitral institution to administer Corporate Disputes, technically HKIAC and VIAC may be allowed to do so. This is, however, subject to the reservations described below.
Types of Corporate Disputes
The Arbitrazh Procedure Code (the “APC”) and the Law on Arbitration distinguishes three types of Corporate Disputes on the basis of their arbitrability:
1. the arbitration clause should be entered into by all shareholders and the company;
2. such disputes should be considered under special arbitration rules; and
3. the seat of arbitration should be in Russia.
SPA disputes
Disputes concerning agreements for the purchase of shares in Russian companies (“SPA disputes”) fall into “Category 1” disputes (i.e. arbitrable disputes) - so the law does not directly stipulate any requirements for their arbitrability other than the PAI status of the arbitral institution. This means that both HKIAC and VIAC may technically administer Russian SPA disputes. However, it is still not entirely clear how this will work in practice and, in particular, how this may be interpreted by Russian courts (as there is currently no relevant court guidance).
SHA disputes
Previously, disputes concerning shareholders agreements in Russian companies (“SHA disputes”) e.g. concerning Russian joint ventures, used to fall into “Category 2” (quasi-arbitrable) disputes. Recent amendments to the Law on Arbitration have expressly removed two arbitrability requirements for SHA disputes regarding: (1) parties to the arbitration clause and (2) special arbitration rules. However, the APC has not been amended and still applies to the SHA disputes all of the three additional requirements for quasi-arbitrable disputes (see above). Whilst the Law of Arbitration should in theory prevail over the APC on this, it is unclear as yet how this conflict will be interpreted by Russian courts in practice (and so, for now, it would be prudent to continue to assume that, to be arbitrable, SHA dispute could need to meet all of the additional requirements imposed on Category 2 disputes).
HKIAC and VIAC status for Category 2 disputes (including SHA disputes)
HKIAC and VIAC may have issues with the following requirements for administering Category 2 disputes (including SHA disputes) set out in the APC:
All things considered, it is currently unclear if HKIAC and VIAC would in practice be able to administer Category 2 disputes (including SHA disputes), at least in the near future.
Based on the above, the current list of PAIs is as follows:
The principal Russian PAIs, meeting the requirements of the Russian law and allowed to consider both Category 1 disputes (including SPA disputes) and Category 2 disputes (including SHA disputes) disputes:
Foreign PAIs, meeting the requirements of the Russian laws and expected to be able to administer Category 1 disputes (including SPA disputes):