In general, any commercial dispute in Russia may be resolved either by a state court, called the ‘arbitrazh courts’, in accordance with the Commercial Procedural Code or by arbitration (either institutional or ad hoc).
In Russia, arbitration is governed by two distinct laws:
the Federal Law No 102-FZ dated 24 July 2002
“On arbitral tribunals in the Russian Federation” which regulates domestic arbitration, ie internal commercial disputes without any foreign elements; and
the Federal Law No 5338-1 dated 7 July 1993
“On international commercial arbitration” (known as the International Commercial Arbitration Law) which regulates international commercial arbitration, ie disputes with a foreign element such as when parties are located in different countries or when foreign substantive law is to be applied
The International Commercial Arbitration Law is almost a direct Russian translation of the UNCITRAL Model Law on International Commercial Arbitration (1985). Russia is also a party to the United Nations Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention).
Although Russia has modern legislation regulating the process of commercial dispute resolution, the legal regime does not meet the needs of modern arbitration practice. For example, the state courts are overloaded with cases, which causes delay to the resolution of disputes. In addition, there is a high level of transparency in proceedings before the arbitrazh courts as any decision or judgment of the arbitrazh court is required to be published on the designated website for the decisions of the Supreme Arbitration Court of the Russian Federation within five days of the judgment being delivered. Consequently, all matters of the case become public knowledge, which is unlikely to be acceptable to parties who have agreed to resolve their disputes confidentially by arbitration.
There are also concerns regarding practices within Russian domestic arbitration. The Arbitration Association estimates that there could be as many as 2,000 domestic arbitration institutions in Russia. However, a recent survey has found that there is a general sense of a lack of independence in Russian domestic arbitrations (Russian Public Opinion Research Centre (VCIOM) (July 2013). In Russia, arbitration is sometimes called a ‘pocket court’ (ie arbitration created by one of the parties of the dispute) and of course, a lack of tribunal independence would be inimical to the fair and just resolution of the dispute.
In relation to international arbitration, while the International Commercial Arbitration Court of the Russian Federation Chamber of Commerce (the ICAC) is an international arbitral institution, it resolves mostly low value disputes. For example, in 2011, the ICAC resolved approximately 250 cases, around 40% of which had a value of less than US$ 50,000. These figures can be contrasted, for instance, with The International Court of Arbitration of the International Chamber of Commerce (the ICC) which in 2012 resolved approximately 20 cases involving at least one Russian party and 40% of those cases had a value of over US$ 10 million.
According to the VCIOM survey, neither Moscow nor St. Petersburg is currently recommended as a place for arbitration and a significant proportion of parties will only submit to arbitrating their disputes in Russia as a last resort (ie to get their contract signed).
Accordingly, Russian disputes that the parties have agreed to arbitrate are more likely to be resolved in other jurisdictions and often by established international arbitral institutions such as the ICC, SCC and LCIA.
The Arbitration Association was thus created out of a strong desire to resolve these issues and to enhance Russia’s reputation as an arbitration-friendly jurisdiction and ultimately, limiting the export of Russian disputes to other international arbitration centres.
The key principles of the Arbitration Association are:
Currently, the Arbitration Association has approximately 70 members, 90% of whom belong to either international law firms or Russian law firms focusing on arbitration at both national and international levels.
Any law firm, lawyer or legal researcher may join the Arbitration Association as a member providing they acknowledge the Arbitration Association’s purposes and objectives and pay an annual membership fee (US$ 500 for corporate or individual membership; US$ 50 for a legal researcher).
Arbitration Association Charter for the Promotion of Arbitration
The rights and obligations of an Arbitration Association member are stated in para 5 of the Arbitration Association Charter.
The governing bodies of the Arbitration Association consist of: :
The objectives of the Arbitration Association are:
Some of these goals have already been achieved. For instance, the Arbitration Association website is now active and the Arbitration Association 40 programme for practitioners under the age of 40 has been created. The Arbitration Association has also formed two working groups (on the drafting of regulations for administering disputes and the development of education programmes) open for participation to all members.
One of the primary goals of the Arbitration Association, as stated in the Declaration on the Establishment of the Arbitration Association, is to create an efficient mechanism for the resolution of both domestic and international disputes through arbitration.
The administration of arbitrations will be regulated by the Arbitration Association Rules for Administration of Disputes under the UNCITRAL Arbitration Rules. As of 10 November 2013, first drafts of the Rules and clauses have been circulated openly for comment and/or submissions.
The RAA has also drafted a model arbitration clause:
‘Any dispute, controversy or claim arising out of or relating to this contract, or the breach, termination or invalidity thereof, shall be settled by arbitration in accordance with the UNCITRAL Arbitration Rules, subject to the amendments and additions necessary due to the application of the Regulations for Arbitration Proceedings Administered by the Association for the Promotion of Arbitration, Moscow, Russia (the “Arbitration Association”). ‘
Note that the model clause does not specify a governing law or the seat of the arbitration.
Subject to a valid arbitration agreement between the parties, the Arbitration Association will perform the functions of a competent authority as specified by art 6 of the UNCITRAL Arbitration Rules, including:
As the Arbitration Association wishes to become a leading institution for the administration of arbitration, it should consider the content of its arbitration rules as well as the possible use of multiple sets of rules to resolve particular kinds of disputes, including complex disputes, multi-agreement or multi-party disputes and low value disputes. Furthermore, it would be in the Arbitration Association’s best interests to develop Rules of Good Conduct for proceedings as a component of the Arbitration Association Rules on Administration of Disputes.
Today, Russia stands on the threshold of major legal change. On the one hand, the President of Russia has decided to merge both the Supreme Commercial Court of Arbitrazh of Russia and the Supreme Court of Russia (the highest court for civil and criminal cases) into one court and abolish the Supreme Commercial Court of Arbitrazh of Russia. The results of this change are currently unpredictable and there is real concern that the resolution of commercial disputes in the state courts could be paralysed in the future. However, on the other hand, the state has been discussing the reform of the Russian alternative dispute resolution system.
Modern corporations, including both Russian and foreign entities, need a fair, flexible, professional and independent system that is capable of resolving their disputes efficiently. If the Arbitration Association, sharing these expectations, provides such a mechanism, this will be highly advantageous to both Russian and international lawyers. The first steps have been made.
Mikhail Samoylov is a Senior Associate at KIAP, Attorneys at Law
Source: Lexis Nexis