Introduction
Council opinion
Directorate statement
Comment


Introduction

Until recently, it was believed that nothing would prevent the Ministry of Justice from pushing forward its highly criticised bills to reform Russian arbitration legislation.(1) The bills were expected to have been enacted this year; however, it seems that their progress has stalled and the arbitration community may celebrate at least an interim victory. A recently published statement of the Legal Directorate of the Administration of the Russian President criticised the bills on a number of counts.(2) The comments of the directorate generally follow those made by the Presidential Council for Codification of Civil Law in its statement of May 2014.

Council opinion

Overall, the idea of reforming arbitration legislation – particularly regarding domestic arbitration – was generally welcome. It was acknowledged that the need for domestic arbitration reform was primarily dictated by abuses that have been highlighted by various publications and case law. For this reason, both the council and the directorate supported the reform of domestic arbitration legislation in principle. The council nevertheless made some criticisms of the draft laws.

First, it noted that various bills are already pending before Parliament that are intended to amend certain areas of arbitration legislation. One notable example is the bill to introduce to Russian international arbitration law amendments from the 2006 version of the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration. This bill updates Article 7 to relax written form requirements (largely in accordance with Option I of the UNCITRAL Model Law), and introduces new provisions on interim measures (largely in accordance with Chapter IV A of the Model Law). The bill was approved at first reading in 2013, but has progressed no further. There was significant resistance on the part of the Supreme Arbitrazh Court to the provisions on interim measures, as the highest commercial judicial authority was concerned about possible abuses on the part of arbitrators.

Having acknowledged that the scope of the current reform is much broader, the council noted that the work already performed on the previous bills should have been taken into account. Indeed, neither the relaxation of the written form requirement nor the provisions on interim measures found their way into the Ministry of Justice proposals. The council expressed its regret that the hard work and lengthy discussions regarding earlier bills, which resulted in certain legislative compromises to enable their adoption, have not been taken into account by the drafters of the latest legislative proposals.

The council further noted that the abuses that may be encountered in domestic arbitration proceedings are fairly rare in the context of international arbitration. This was attributed to the fact that domestic arbitration in Russia goes back only about 20 years, whereas international arbitration has taken place for over 80 years and has always accorded with international trends. Further, the knowledge and experience of those taking part in international business relationships, as well as the quality of legal representation, mean that any abuses seen in international arbitrations are on a much lower scale.

Imposing stricter rules – in particular, the restrictions on arbitrability of certain categories of dispute and the requirement that foreign arbitral institutions obtain Ministry of Justice authorisation to administer cases in Russia – would result in competitive disadvantages for both Russian arbitral institutions and Russia itself as a seat for international arbitration. Moreover, further limiting the disputes that are capable of being resolved by arbitration may push even more Russia-related cases outside jurisdiction.

The council insisted that to comply with international standards the law on international commercial arbitration should follow the text of the UNCITRAL Model Law as closely as possible. From this perspective, blanket rules relating to international arbitration in various pieces of legislation would likely create unnecessary conflicts and complicate regulation in the field.

Directorate statement

The directorate agreed with the criticism offered by the council and stated that this should be taken into account by the Ministry of Justice. Overall, the directorate stated that it cannot support the bills in their current form and suggested that the bills be amended accordingly. There are two key messages in the directorate's statement.

First, the directorate noted that domestic and international arbitration, while sharing certain common features and origin, are essentially different procedures. As such, they can and should be governed by separate legislative regimes. Further, the directorate stated that in order to promote Russia as a seat for international arbitration, regulation in this field should be clear and comprehensible. In particular, the directorate criticised the bills for making certain provisions of procedural codes (particularly in relation to the arbitrability of disputes) and the law on domestic arbitration applicable to international arbitration. The directorate suggested that the need for legal certainty and predictability means that international arbitration should be governed exclusively or almost exclusively by the Law on International Commercial Arbitration.

The above statements may mean that the Ministry of Justice proposals to combat abuses in domestic arbitration (eg, requirements for registration and obtaining authorisation and qualification requirements for arbitrators), may not extend to international arbitration. In addition, it shows that promoting Russia as a seat for arbitration is still on the agenda.

Second, the directorate stated that arbitration, being a private method of dispute resolution, should not be subject to excessive state control. This refers primarily to the proposal requiring that arbitral institutions obtain authorisation from the Ministry of Justice to administer proceedings in Russia. The directorate pointed out that after having granted authorisation, a state body would naturally have a duty to monitor and control the performance of an arbitral institution; this would be unacceptable. Surprisingly, by the same token the directorate criticised the bills for giving the courts responsibility for appointing arbitrators if they cannot be appointed in accordance with the agreement of the parties. At the same time, the directorate did not criticise in the same manner the idea of introducing qualification criteria for arbitrators.

Comment

In practical terms, directorate's statement means that the bills as they now stand will not be introduced into Parliament. The implications are yet to be seen, but it is likely that the Ministry of Justice will introduce the requested amendments. The end result, no doubt, will attract a similar level of attention. Equally importantly, the directorate has sent a message that the state is still interested in improving Russia's position as a seat for international arbitration, and that excessive state control over a private method of dispute resolution is undesirable. Whether this message is properly understood will become clear when the amended versions of the draft bills are released.

One thing is clear now – arbitration reform is not happening at the pace intended by Ministry of Justice.

For further information on this topic please contact Andrey Panov at Norton Rose Fulbright (Central Europe) LLP by telephone (+7 499 924 5101), fax (+7 499 924 5102) or email (andrey.panov@nortonrosefulbright.com). The Norton Rose Fulbright website can be accessed atwww.nortonrosefulbright.com.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.

Endnotes

(1) For more details on the proposed reform and its criticism, please see "Impact of proposed reform on international arbitration".

(2) Available in Russian at http://arbitrage.spb.ru/pdf/Zakluchenie-GPU.pdf.