Russia has adopted new laws that significantly alter the country’s regulation of both domestic and international arbitration. The new legislation will force existing arbitral institutions operating in Russia to change in important ways and confirms the arbitrability of various types of disputes about which there had been significant confusion, in particular corporate disputes – subject to certain limitations.
Russian arbitration law reform
Russia has adopted new laws that significantly alter the country’s regulation of both domestic and international arbitration. The new legislation will force existing arbitral institutions operating in Russia to change in important ways and confirms the arbitrability of various types of disputes about which there had been significant confusion, in particular corporate disputes – subject to certain limitations. The new legislation should be considered when crafting dispute resolution mechanisms in M&A and other transactions related to Russia. Existing dispute resolution mechanisms may also need to be reviewed to ensure that they will continue to operate as expected.
On 29 December 2015, the Russian President signed into law the bills ‘On Arbitration’1 and ‘On Introduction of Changes to Legislative Acts … In Connection with Adoption of the Federal Law “On Arbitration”’2 (together Reform Legislation), overhauling Russia’s arbitration regime. The Reform Legislation comes into force on 1 September 2016, although a number of specific provisions will take effect later.
The Reform Legislation comprises two federal laws: one to entirely replace the current law on domestic arbitration and the other to amend the existing law on international commercial arbitration, as well as a number of other Russian laws (including the procedural laws codified in the Arbitrazh Procedural Code and the Civil Procedural Code). The modified arbitration statutes are predominantly based on the UNCITRAL Model Law on International Commercial Arbitration (1985) (Model Law). However, some parts of the reformed arbitration statutes differ from the Model Law.
Arbitrability – corporate disputes arbitration
The Reform Legislation determines the arbitrability of various categories of disputes. By default, civil-law disputes will be deemed arbitrable, with a few exceptions (eg insolvency and privatisation disputes are non-arbitrable under the new regime). Under the Reform Legislation, corporate disputes in respect of Russian companies are generally arbitrable, with a few exceptions (eg corporate disputes arising out of shareredemption and mandatory tender offer procedures in joint stock companies are deemed non-arbitrable). Further limitations apply:
- corporate disputes may not be referred to arbitration before 1 February 2017, and arbitration agreements in respect of corporate disputes made before that date will be deemed non-effective;
- corporate disputes may only be referred to institutional arbitration, ie may not be arbitrated on an ad hoc basis; and
- the seat of arbitration of corporate disputes must be in Russia.
The Reform Legislation also introduces complex rules for multi-party corporate arbitration, including information sharing, joinder/accession mechanisms etc.
Requirements for arbitral institutions
The Reform Legislation will bring a major shift in regulation of arbitral institutions administering disputes in Russia: it requires such institutions to change internal procedures and arbitral rules. Under the new regime, Russian arbitral institutions (except the International Commercial Arbitration Court (ICAC) and the Maritime Arbitration Commission (MAC)) will need to obtain a special permit from the Russian Government to administer arbitration. The government will grant such permits on the recommendation of a non-governmental advisory body, which is to be created for the purpose. The Reform Legislation introduces a number of administrative requirements for arbitral institutions; compliance will be tested in the process of permit issuance.
Administrative requirements are intended and designed to apply only to Russian institutions at first. Foreign arbitral institutions are not directly required to obtain a permit under the new regime, but arbitrations that they administer will only be recognised as ‘institutional’ for the purposes of the new law if they obtain the permit. This may be relevant to users of arbitration because the Reform Legislation provides a number of benefits to institutional arbitration over ad hoc arbitration, and only allows arbitration of Russian ‘corporate disputes’ by institutions.
The ambitious and far-reaching scope of the institutional reform leads to multiple potential complications for existing and future arbitrations. Accordingly, the Reform Legislation includes a complex set of novel transitional rules, relating in particular to the continuation of an arbitration proceeding under the reformed rules and/or before a reformed institution.
A number of important changes were adopted in respect of the arbitral procedure, including new and extensive provisions on arbitration agreements and clauses, and the forms in which they may exist. Importantly, and unprecedented in Russian law, the Reform Legislation allows the introduction of arbitration clauses in charters (articles of association) of Russian companies (except public joint stock companies and companies with 1,000 or more shareholders). The Reform Legislation also formalises the principle that all doubts as to the validity of an arbitration agreement must be resolved in favour of its validity.
Another major change is that under the Reform Legislation, Russian state courts will be the assistance and supervision authorities in the meaning of the Model Law for both domestic and international arbitrations. This includes courts acting as the assistance and supervision authority in matters of arbitrator challenges and appointments, following the example of a number of leading arbitration jurisdictions.
However, it remains to be seen how the system will operate in practice (eg how courts will perform the nomination functions). In institutional arbitration only, parties will be allowed to ‘opt out’ and waive their right to apply to the assistance and supervision authorities. Parties to an institutional arbitration are also allowed to agree on the finality of the award/waiver of the right to apply for the setting aside of an award.
In addition to the changes in arbitral procedures, the Reform Legislation introduces a number of changes to the Russian civil litigation rules dealing with various types of arbitration-related proceedings, such as recognition and enforcement and setting-aside cases. This includes new detailed provisions on courts’ support in evidence gathering in aid of arbitrations, as well as new rules on judicial assistance and supervision in respect of arbitrator nominations and challenges. In addition, the Reform Legislation introduces changes to the existing rules (eg in respect of territorial jurisdiction and timing of arbitration-related proceedings). Of note is the reduced one-month statutory time limit for hearing the set-aside requests and requests for recognition and enforcement, which applies from 1 January 2017.
You should consider the potential impact of the Reform Legislation when drafting dispute resolution provisions in Russian transactions, most importantly in M&A agreements. In particular, the effect of the new arbitrability rules and their limitations is to be assessed carefully. Your existing arbitration agreements in respect of Russian disputes may also require reassessment. Finally, if you are involved in ongoing Russian arbitral proceedings, the effect of the reform on such proceedings requires careful review. Specialist advice should be sought on these issues, to assess both the opportunities and exposures created by the ambitious and far-reaching reform.