The Federal Law No. 382-FZ “On the arbitration (arbitral proceedings) in the Russian Federation” will come in effect on 1 September 2016 (“the Law”, available in Russian at: http://www.rg.ru/2015/12/31/arbitrazh-dok.html), which entirely replaces the current law on domestic arbitration as well as amends the regulation related to international commercial arbitration. Among the innovations brought by the Law are the following: a) requirement for licensing of the arbitration institutions and rules regarding the status of arbitration institutions as opposed to the ad hoc arbitrations; b) provisions allowing for arbitrability of corporate disputes; and c) detailed regulation of instances for state courts’ assistance.

Licensing

For an arbitration institution to obtain the status of a permanent arbitral institution, it must be affiliated with a non-governmental organization (NGO), which in turn is obliged to obtain a licence (the “Licence“) from the Russian Government (the “Government”) (Article 44). The Licence is to be granted on the basis of a recommendation issued by the Council of Arbitration Development, which will consist of representatives of public authorities, the all-Russian associations of businessmen, chambers of commerce and representatives of legal, scientific and business communities.

To obtain a Licence, arbitral institutions shall comply with the following requirements: a) submit the rules and comply with the Law; b) submit a recommended list of arbitrators; and c) have a reputation which will ensure a high standard of arbitration. These requirements are not applicable to the International Commercial Arbitration Court and Maritime Arbitration Commission at the Chamber of Commerce of the Russian Federation (ICAC and MAC), due to their long-standing and reputable operation in Russia[1]. Both institutions are to bring their businesses in line with the Law by 1 February 2017.

In order to obtain the Licence, foreign arbitral institutions are only required to be internationally recognized; no other requirements are applicable to them. However, should a foreign institution not obtain a Licence, the proceedings and awards of such institution, rendered with a seat in Russia, will be considered as ad hoc which makes such awards unenforceable, for example where a corporate dispute was considered (discussed in detail below).

In respect of ad hoc arbitrations, under the Law arbitrators in ad hoc proceedings are deprived of the right to ask the State Courts to assist them in obtaining evidence, and the parties’ agreement on the final nature of ad hoc arbitration is to be regarded as invalid.

Arbitrability

The Law clarifies the notion of arbitrability of various categories of disputes. In general, all civil law cases are regarded to be arbitrable, with certain exceptions, such as insolvency and privatisation disputes.

Under the Law, corporate disputes are defined as “disputes associated with the creation of a legal entity in the Russian Federation, its management or participation in a legal entity including disputes based on claims of participants of the legal entity in connection with the legal relationship of a legal entity with a third party in the case, if the participants of the legal entity have the right to file such claims in accordance with federal legislation“.

Generally, corporate disputes are now regarded as arbitrable under the Law (as opposed to the case law developed in the past few years in Russia, such as notorious Novolipetsk Still Mill (NLMK) v. Nikolay Maksimov (Decrees of the RF Supreme Court of 09.04.2015 No. 305 ES15 1789 and of the Commercial Court of Moscow District of 17.12.2014 No. A40-26424/11-83-201) with a few exceptions such as corporate disputes arising out of share redemption and mandatory tender offer procedures in joint stock companies.

However, corporate disputes are only to be arbitrated in Russia if referred to institutional arbitration, as under the Law they cannot be submitted to ad hoc arbitration.

Thus, corporate disputes may be submitted to arbitration under the following conditions:

  1. there is a valid arbitration agreement;
  2. arbitration is administered by a permanent arbitral institution;
  3. the arbitral institution has the approved rules of arbitration on corporate disputes; and
  4. the place of arbitration is the Russian Federation.

Arbitral agreements

A number of innovations of the Law relate to provisions governing arbitral agreements.

According to Article 7 of the Law, the arbitral agreement remains valid in the case of rights transfer under the main agreement.

Arbitral agreement can now be included in the charter of the legal entity. As such, it will be applicable to disputes between the participants of the legal entity or the legal entity itself with a third party only in the event that such a third party expressed its will to be a part of the arbitration agreement. An arbitral agreement may not be signed by its inclusion in the charter of a legal entity with the number of shareholders – owners of voting shares in the amount of one thousand or more, as well as the charter of the public joint-stock company.

Assistance of State Courts

The Law introduces a relatively new concept of court assistance to the arbitration, based on which competent State Courts have the powers to assist parties in appointing and challenging arbitrators.

The ruling issued by the State Court on the matters of appointing and challenging of arbitrators is final and binding and cannot be subject to appeal. We see it as a potential instrument of dilatory tactics of a party acting in bad faith, as the process involving the Court’s assistance can increase the length of arbitration by up to three months.

Under the Law, parties are free to waive the right to apply to the State Courts seeking such assistance, unless the proceedings are ad hoc. However, in the event that parties waive this right, it might result in a deadlock situation, as the parties will fail to appoint arbitrators; thus a dispute will be moved to State Courts based on the inoperability of the arbitration agreement.

Enforcement of arbitral awards relating to the property rights reflected in public registers

Article 43 of the Law specifically deals with the use of arbitral awards as a basis for altering the records in the public registers. The article provides that any alteration can only be made on the basis of a writ of enforcement rendered after an arbitral award was enforced by a State Court.

It remains to be seen how the Law will operate in practice starting from 1 September 2016. The reform is already considered to be a significant step towards the improvement of arbitration legislation in Russia, although it has also been subject to serious criticism due to the introduction of a more ‘straight jacket’ regulation and limiting competition in the arbitration market in favour of the already established arbitration centres.

[1] The only requirement that ICAC and MAC shall meet is to bring their rules in compliance with the new Law including requirement to have the rules on corporate disputes and publish them online by 1 February 2017.