Arbitration in Russia: Recent Trends

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Clemence Hodges
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1 Arbitration in Russia: Recent Trends Ilya I. Putilin, MCIArb

2 I. Legal Framework

3 Laws Governing Arbitration in Russia The International Commercial Arbitration Act 1993 based on UNCITRAL Model Law: however, there are a number of differences; The Private Arbitral Tribunal Act 2002 regulates domestic arbitrations; contains a number of requirements not envisaged by the International Commercial Arbitration Act 1993; The Arbitrazh Procedure Code governs procedure in the arbitrazh (i.e. state commercial) courts; The Civil Procedure Code governs procedure in the courts of general jurisdiction. 3

4 Completed and Pending Reforms Judicial System Reform In August 2014 the Supreme Court (the SC ) and the Supreme Arbitrazh Court (the SAC ) merged, forming the new highest judicial authority; Arbitration Reform provides, inter alia, for adoption of a single law governing domestic and international arbitration; the reform is pending and the waters of international and domestic arbitration are yet to mingle. 4

5 II. Revisiting unilateral option clause: is it all about equality?

6 Defining option arbitration or split jurisdiction agreement Option arbitration agreement is an agreement that obliges or entitles only one of the parties to submit disputes to arbitration (R. Merkin, L. Flannery, Arbitration Act th ed. Informa Law p. 26); However, it is not uncommon that an option to choose the dispute resolution mechanism is granted to both parties of the agreement; Such agreements are known as a bilateral option arbitration agreement, R. Merkin and L. Flannery s definition best describes what is called a unilateral option arbitration agreement ; Over the past decades unilateral option arbitration agreements enabling both parties to refer their disputes to arbitration with an option to commence litigation available only to the lender have become very popular in the sphere of banking & finance. 6

7 Unilateral option arbitration agreements in Russia: to enforce or not to enforce In 2012 the SAC published a decree examining the validity of unilateral option arbitration clause under the Russian law (Rossijskaya Telephonnaya Kompaniya v Sony Ericsson Mobile Communications Rus, the Decree of the Presidium of the SAC No. 1831/2012 dated 19 June 2012) ; The SAC effectively converted the unilateral option arbitration clause into bilateral rather than declaring invalidity of entire clause; Based on the reasoning of the decree it may be concluded that in the SAC s view the unilateral option arbitration clause is not void per se under the Russian law, but rather is defective (pathological) and can be cured. 7

8 Post-Ericsson Jurisprudence: has the SAC s legacy been forgotten? Following the SAC s decree the inferior courts expressed four different views on validity of unilateral option arbitration clauses under the Russian law: Invalidity of entire clause (Piramida v Bot and Novokuznetsky Khladokombinat v YUMO; cases No. A /2014 and No. A62-949/2014); The clause giving the right to exercise an option to the claimant and not to the specific party to a contract is valid (Sega v Piramida and Oblastnoy centr podderzhki malogo i srednego predprinimatelstva v Sberbank; cases No. A /2013 and No. A35-150/2012); Invalidity of option only conversion into simple arbitration agreement (Deutsche Bank AG v Razdolie et al; ruling of the court of first instance in case No. A /2014); Validity of entire clause (Deutsche Bank AG v Razdolie et al; decree of the appellate court in case No. A /2014). 8

9 Is it all about equality? Enforceability of option arbitration agreements is largely depends on jurisdiction (e.g. upheld in UK, Italy, Greece and prohibited in Poland); status of the party enjoying the option (e.g. US), and whether such arbitration clause is compliant with equality of arms principle (Russia and France). But is it all about equality? Is there something inherently wrong and defective in the very nature of option arbitration agreement? 9

10 Pathological Nature of Option Arbitration Agreement "If the arbitration clause does not exclude recourse to the jurisdiction of the ordinary courts, one simply cannot rely on the agreement. < > The Parties may thus lose their ability to arbitrate by treating the mechanism as an option." (W. Laurence Craig, William W Park, Jan Paulsson, International Chamber of Commerce Arbitration, (3 rd. ed., Oceana, 2000). P. 128); Such agreements [i.e. providing for optional rather than mandatory submission of disputes to arbitration] are almost always ill-advised, because they serve virtually no meaningful purpose and give rise to procedural confusion. (Gary B. Born, International Commercial Arbitration, Commentary and Materials, 327 (2 nd. ed. Transnational Publishers & Kluwer Law International, 2001). 10

11 Practical Considerations Risk of parallel proceedings: conflicting decisions, anti-suit/ arbitration injunctions; Risk of annulment and unenforceability of arbitral award; Risk of double unenforceability of the clause. 11

12 II. The SAC s Crusade against pocket arbitration courts or Application of Article 6 of the European Convention on Human Rights to Arbitration

13 The notion of pocket arbitration courts The pocket arbitration court can be described as an arbitral institution that is established, funded by a party to a dispute or its affiliates or which functioning is anywise dependent on such party or its affiliates; The problem of party-affiliated arbitral institutions is not Russia-specific and is to a certain extent known in international practice (e.g. the judgement of the Supreme Court of the Republic of Poland III CSK 35/12). 13

14 The subjective and objective criteria defining impartiality Is subjective impartiality and independence of an arbitrator sufficient to enforce the award? Is the award made under the auspices of the arbitral institution that is affiliated with one of the parties unenforceable? Should administration of a dispute by a party-affiliated arbitral institution be considered a violation of Article 6 of the European Convention on Human Rights? 14

15 The SAC s position The award issued under the auspices of a party-affiliated arbitration institute is unenforceable ab initio. Lukoil Energoseti v MK - the decree of the SAC No /11 dated 22 May 2012 in case No. A /2011; Sberbank v SOFID et al the decree of the SAC No. 1567/13 dated 16 July 2013 in case No. A /

16 The Constitutional Court of the RF: impartiality should be proved The independence and impartiality of each member of the tribunal should be assessed on case by case basis, organisational ties with the disputing parties may be taken into account for this purpose (the Decree of the Constitutional Court of the Russian Federation No. 30-П dated 18 November 2014). 16

17 Recent Jurisprudence The Constitutional Court s approach towards interpretation of the provisions of the Private Arbitral Tribunal Act 2002 related to impartiality and independence was adopted by the SC in Geotrest v Gazprom Invest Vostok case (the ruling of the Commercial disputes bench of the Supreme Court dated 24 February 2015 in case No. A /2014); 17

18 Ilya I. Putilin Clifford Chance CIS Limited ilya.putilin@cliffordchance.com

Russia s Supreme Court Discusses Key Arbitration-Related Cases

Russia s Supreme Court Discusses Key Arbitration-Related Cases January 17, 2019 On 26 December 2018, the Presidium of the Russian Supreme Court (the Supreme Court ) has approved a review of jurisprudence