From November 1, 2017, the arbitral tribunals (treteyskiye sudy)¹ that failed to obtain the permission from the Government of the Russian Federation will no longer be allowed to hear disputes. Introduction of the authorization-based order of granting the right to establish institutional arbitral tribunalsis aimed at achievingone of the main objectives of the non-government arbitration reform in Russia, namely, combatting "puppet" arbitral tribunals, enhancing trust to arbitration and improving its quality.

As a result, this will affect arbitration of disputes under contracts, which already contain arbitration clauses, and trigger the need to amend drafts (templates) of the contracts yet to be signed.

For more information on this and other changes of the arbitral tribunals’ system in Russia see our new review below.

1.KEY CHANGES

Since September 1, 2016, Federal Law dated December 29, 2015 No. 382-FZ "On Arbitration (Arbitral Proceedings) in the Russian Federation” (here in after, the “Arbitration Act”) and Federal Law dated December 29, 2015 No. 409-FZ on amending certain legal acts in view of the adoption of the Arbitration Act, have entered into full force and effect.

These acts have introduced substantial changes to the Russian legislation on arbitral tribunals, whose overall purpose is to bring Russian arbitral proceedings to the international standards.

• Authorization-based order of creation of arbitral tribunals (see more details below)

  The authorization-based order does not apply to the two best-known arbitral institutions in Russia – the International Commercial Arbitration Court and the Maritime Arbitration Commission at the Chamber of Commerce and Industry of the Russian Federation – they have acquired the right to arbitrate disputes as permanent arbitral institutions by operation of law.

• Direct legislative recognition of the arbitrability of corporate disputes (see more details below)

• Restriction of competence of ad hoc arbitral tribunals

• Appeal to foreign arbitral institutions

  Foreign arbitral institutions are also bound to obtain the Russian Government’s permission to exercise the functions of a permanent arbitral institution in Russia. However, the only requirement for foreign arbitral institutions is their well-regarded international reputation.

If a foreign arbitral institution failed to obtain a permission to administrate arbitration in Russia, its award will be deemed an ad hoc arbitral award subject to the applicable restrictions (see above).

Furthermore, in order to arbitrate the majority of corporate disputes, a foreign arbitral institution shall also publish special rules on arbitration of corporate disputes (most reputable international arbitral institutions do have such rules in place).

This creates a risk that Russian courts will not recognize foreign arbitral institutions’ awards on corporate disputes if such institutions failed to obtain a governmental permission.

• Form of the arbitration agreement

Until September 1, 2016, there were no restrictions for establishing arbitral tribunals, which resulted in the formation of numerous "puppet" arbitral tribunals, instituted for questionable purposes.

To rule out abuses in this sphere, the legislator introduced the authorization-based order. The right to exercise the functions of a permanent arbitral institution is now granted by a Russian Government order upon the recommendation of the Council for the Improvement of Arbitration Proceedings at the Russian Ministry of Justice.

A permanent arbitral institution can be created at a nonprofit organization (NPO) subject to the following requirements:

• Compliance of the arbitration rules with the requirements of the Arbitration Act;

• Reliability of the information provided on the NPO and its founders (participants);

• NPO’s reputation, scale and nature of activity allowing to provide a high level of the institution’s activity, as well as the NPO’s being engaged in activity aimed at the development of arbitration in Russia;

• Managing and publication of a recommended list of arbitrators for information purposes, containing at least 30 people, provided that each candidate’s written consent is included on the list. One arbitrator cannot appear on the lists of more than 3 arbitral institutions. There are further requirements to the list of arbitrators from the standpoint of their qualifications and experience in the legal field (see the diagram below).

As of August 28, 2017, only 4 permanent arbitral institutions have been allowed to operate in Russia:

This means that arbitration clauses on submission of disputes to such an arbitral institution will become unenforceable.

After November 1, 2017, arbitration clauses on submission of disputes to permanent arbitral institutions that failed to obtain the permission from the Russian Government will become de facto unenforceable.

In that case, pending disputes will be administered as ad hoc arbitrations unless the parties agree on a different dispute resolution procedure or the arbitration agreement becomes unenforceable.

4. ARBITRABILITY OF CORPORATE DISPUTES

Although before the Arbitration Act became effective, the legislation did not contain an express prohibition of arbitration of corporate disputes, state courts largely adhered to the view denying the arbitrability of such disputes.

At present, the following corporate disputes are arbitrable: disputes related to the incorporation of a legal entity, its management, participation in a commercial legal entity, as well as in a number of NPOs.

All corporate disputes shall be arbitrated only by permanent arbitral institutions. These include, inter alia, corporate disputes related to the ownership of shares in the charter capital of Russian legal entities, including:

• disputes under share and participatory share purchase agreements;
  

• disputes connected with the levying of execution against shares and participatory shares;

• disputes resulting from the activity of keepers of registers of securities.

¹The new law uses a number of terms perceived as synonyms in the everyday speech: arbitration (arbitrazh), arbitral tribunal (treteysky sud), and arbitral institution (arbitrazhnoye uchrezhdeniye). However, the law distinguishes them. Thus, under the law, arbitration is synonymous with arbitral proceedings, that is, the process (not to be confused with the household word “arbitrazh”, frequently denoting a state commercial court). Arbitral tribunal, pursuant to the law, is precisely the person (arbitrator) or a group of persons (a panel of arbitrators) examining the dispute. The distinction between institutional arbitrations and ad hoc arbitrations, made by experts on arbitral proceedings, is found in two terms used in the law: “permanent arbitral institution” (a sub-division of an NPO, carrying out the function of administering arbitration on the permanent basis) and “arbitral tribunal formed by the parties to resolve a specific dispute”. All these details can be seen elaborated in Art. 2 of the Arbitration Act.

²Uniform State Register of Real Property (EGRN)

This newsletter shall not be viewed as legal advice. It is prepared for educational and informational purposes only. Mosgo & Partners is not responsible for any consequences of reliance on the information contained in this newsletter without specific professional advice.

© Mosgo & Partners. Moscow, 2017.