The new legislation on arbitration: an overview of key changes The new legislation on arbitration: an overview of key changes
The new legislation substantially reforming the organisation and operation of arbitration courts in Russia will come into force on 1 September 2016. The envisaged changes stem from the adoption of two laws on 29 December 2015: Federal Law No. 382-FZ “On Arbitration in the Russian Federation” (the “New Law on Arbitration”) and Federal Law No. 409-FZ (“Law No. 409”) which amends the legislation on the judicial system of the Russian Federation.
The main innovations include an attempt to ban the so-called “puppet” arbitration courts, the extension of the jurisdiction of the arbitration courts in certain categories of disputes (such as corporate disputes), the strengthening co-operation of the state courts with the arbitration courts in the conduct of arbitration, as well as clarifications of the enforcement of arbitral awards.
The new rules on organisation of arbitration courts
Under the new rules, a permanent arbitral institution (under the auspices of which an arbitration court operates) can only be created within a non-profit organisation with the consent of the Russian Government. Such consent is issued on the basis of an opinion of the Council for the Improvement of Arbitral Proceedings established under the Ministry of Justice of the Russian Federation.
To obtain such consent, a non-profit organisation creating an arbitral institution must meet certain requirements established by the New Law on Arbitration.
However, such highly reputable institutions as the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation and the Maritime Arbitration Commission at the Chamber of Commerce and Industry of the Russian Federation will continue to perform the functions of permanent arbitral institutions without obtaining the relevant permission of the Russian Government.
The New Law on Arbitration bans state bodies and local authorities, state corporations and companies, political parties, religious organisations, as well as notarial bodies or agencies of the Bar of the Russian Federation from establishing permanent arbitral institutions.
The New Law on Arbitration sets a number of rules to prevent conflicts of interest between the arbitral institution and the non-profit organisation under which it was created.
Foreign arbitral institutions can carry out the functions of a permanent arbitral institution in Russia provided they are of high international standing. Compliance with this criterion is also assessed by the Council for the Improvement of Arbitral Proceedings.
That said, if a decision was rendered in Russia by an arbitration court under the auspices of a foreign arbitral institution which is not deemed permanent under the new rules, such decision will be considered as having been rendered by an ad hoc tribunal (i.e. a tribunal created to settle a particular dispute).
The extension of competence of the arbitration courts
As part of the reform of the arbitration courts, Law No. 409 provides a number of important amendments to the Commercial Procedure Code of the Russian Federation (the “Commercial Procedure Code”) and the Civil Procedure Code of the Russian Federation:
- establishment of the rules under which parties can decide whether to refer disputes within the jurisdiction of state courts to an arbitration court;
- for the first time, an exhaustive list of disputes that are not arbitrable has been set at the legislative level. Bankruptcy cases and disputes over the ownership of participatory interests or shares in legal entities cannot, among others, be considered by an arbitration court;
- some types of corporate disputes can now be heard by an arbitration court established under a permanent arbitral institution provided there is an appropriate arbitration agreement and subject to a special procedure for the consideration of such disputes. In particular, it refers to disputes on creation of legal entities in Russia, participation in such companies and management issues.
Co-operation of state courts in arbitral proceedings
The New Law on Arbitration prohibits any judicial intervention in arbitral activities, except for cases expressly provided for by that law.
Under the new rules, state courts carry out the following co-operation and supervision functions in respect of arbitration:
- appointing arbitrators in case of improper performance by the parties, arbitrators or third parties of an arbitration agreement or in the absence of such an agreement;
- in connection with the procedure for challenging an arbitrator, taking a decision on terminating the powers of the arbitrator if there are legitimate grounds to do so;
- determining lack of jurisdiction of an arbitration court.
The New Law on Arbitration allows parties to agree to exclude these issues from those that can be resolved by a competent court provided the relevant arbitration court is administered by a permanent arbitral institution.
Also, the competent state court may, at the request of an arbitration court or the parties (with the consent of the arbitrators), assist in obtaining evidence for the arbitration.
The New Law on Arbitration draws a distinction between ad hoc arbitral tribunals and arbitration courts administered by a permanent arbitral institution.
For ad hoc arbitral tribunals, the new rules set out a number of additional restrictions on co-operation with the state courts:
- state courts will not help collect evidence for ad hoc arbitral tribunals;
- the parties to arbitral proceedings may not, in their arbitration agreement, exclude the right to challenge an arbitrator in the state court, as well as to cancel a decision of the ad hoc arbitral tribunal;
- ad hoc arbitral tribunals do not have the right to consider any corporate disputes in Russia.
The enforcement and challenge of arbitral awards in state courts
Under the new rules, the parties may agree that an arbitral award is final when the arbitration is administered by a permanent arbitral institution. Such a decision is irrevocable.
However, if an arbitration agreement does not contain any such condition, the arbitral award could be challenged and overturned on the grounds established by the procedural legislation of the Russian Federation.
That said, the new rules contain an important reservation: no arbitral award can be a basis for recording the emergence, change or termination of civil rights and obligations in a state register (e.g. the Unified State Register of Legal Entities, the Unified State Register of Rights to Immovable Property and Transactions Therewith), the register of holders of securities or any other registers in Russia in the absence of a writ of execution issued by a state court in respect of such an award.
Conclusion and recommendations
The new legislation on arbitration bans the so-called “puppet” arbitration courts set up under commercial structures which often did not provide impartial and independent arbitration since they often put parties in arbitration cases in obviously unequal positions.
The issue of arbitrability (i.e. the possibility for an arbitration court to consider a dispute) for certain categories of disputes has been clarified. The relevant amendments to the Commercial Procedure Code explain, in particular, the types of corporate disputes that can be resolved in an arbitration court established under a permanent arbitral institution and those that are within the exclusive jurisdiction of the state courts.
The changes introduced by the new legislation on arbitration should now be taken into account when drafting agreements and arbitration clauses. Special attention should be paid to the contractual provisions that regulate the possibility for state courts to intervene in arbitral proceedings, as well as those that allow for the cancellation of an arbitral award as a non-final.