The Russian Arbitration Association: what you need to know

The Russian Arbitration Association (RAA) was officially established in May 2013, with the principle aim of improving Russia’s standing as a forum for both domestic and international commercial arbitration. In this article, Mikhail Samoylov, Senior Associate at KIAP Attorneys at Law, discusses the newly formed association and predicts the likely future for the RAA.

The modern landscape of Russian arbitration

In general, any commercial dispute in Russia may be resolved either by a state court, called the ‘arbitrazh courts’, in accordance with the Commercial Procedural Code or by arbitration (either institutional or ad hoc).

In Russia, arbitration is governed by two distinct laws:

• Commercial Procedure Code of the Russian Federation (2002)

• Federal Law on International Commercial Arbitration (1993)

The International Commercial Arbitration Law is almost a direct Russian translation of the UNCITRAL Model Law on International Commercial Arbitration (1985). Russia is also a party to the United Nations Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention).

Although Russia has modern legislation regulating the process of commercial dispute resolution, the legal regime does not meet the needs of modern arbitration practice. For example, the state courts are overloaded with cases, which causes delay to the resolution of disputes. In addition, there is a high level of transparency in proceedings before the arbitrazh courts as any decision or judgment of the arbitrazh court is required to be published on the designated website for the decisions of the Supreme Arbitration Court of the Russian Federation within five days of the judgment being delivered. Consequently, all matters of the case become public knowledge, which is unlikely to be acceptable to parties who have agreed to resolve their disputes confidentially by arbitration.

There are also concerns regarding practices within Russian domestic arbitration. The RAA estimates that there could be as many as 2,000 domestic arbitration institutions in Russia. However, a recent survey has found that there is a general sense of a lack of independence in Russian domestic arbitrations (Russian Public Opinion Research Centre (VCIOM) (July 2013). In Russia, arbitration is sometimes called a ‘pocket court’ (ie arbitration created by one of the parties of the dispute) and of course, a lack of tribunal independence would be inimical to the fair and just resolution of the dispute.

In relation to international arbitration, while the International Commercial Arbitration Court of the Russian Federation Chamber of Commerce (the ICAC) is an international arbitral institution, it resolves mostly low value disputes. For example, in 2011, the ICAC resolved approximately 250 cases, around 40% of which had a value of less than US$ 50,000. These figures can be contrasted, for instance, with The International Court of Arbitration of the International Chamber of Commerce (the ICC) which in 2012 resolved approximately 20 cases involving at least one Russian party and 40% of those cases had a value of over US$ 10 million.

According to the VCIOM survey, neither Moscow nor St. Petersburg is currently recommended as a place for arbitration and a significant proportion of parties will only submit to arbitrating their disputes in Russia as a last resort (ie to get their contract signed).

Accordingly, Russian disputes that the parties have agreed to arbitrate are more likely to be resolved in other jurisdictions and often by established international arbitral institutions such as the ICC, SCC and LCIA.

The RAA was thus created out of a strong desire to resolve these issues and to enhance Russia’s reputation as an arbitration-friendly jurisdiction and ultimately, limiting the export of Russian disputes to other international arbitration centres.

The key principles of the RAA are:

• to promote arbitration (both domestic and international commercial arbitration) in the Russian Federation and the CIS countries
• to support Russian arbitrators at national and international levels within the context of arbitration, and
• to support foreign arbitrators with an interest in an arbitration that is related either directly or indirectly to Russia

Currently, the RAA has approximately 70 members, 90% of whom belong to either international law firms or Russian law firms focusing on arbitration at both national and international levels.

Any law firm, lawyer or legal researcher may join the RAA as a member providing they acknowledge the RAA’s purposes and objectives and pay an annual membership fee (US$ 500 for corporate or individual membership; US$ 50 for a legal researcher).

RAA Charter for the Promotion of Arbitration

The rights and obligations of an RAA member are stated in para 5 of the RAA Charter.

The governing bodies of the RAA consist of: :

• the RAA Secretary General who is the sole executive body of the RAA. The Secretary General carries out all daily activities of the RAA and performs all functions that are not within the remit of the Arbitrators’ Nominating Committee and the Board. The Secretary General is elected at the General Meeting of Members of the Association for a term of up to four years and may be re-elected for the same term an unlimited number of times
• the Arbitrators’ Nominating Committee (the Committee) which consists of seven members, each appointed for a term of three years. The Committee shall approve candidates to be included in the online arbitrators database and shall assist parties to appoint their tribunal, including the direct appointment of arbitrators. Note, however, that the Committee is not bound to select from the RAA arbitrators database when appointing arbitrators
• the RAA Board, which is the standing collegial body of the RAA. The Board is formed by the General Meeting of Members of the Association and made up of not more than 11 persons, each elected for a term of two years

The objectives of the RAA are:

• to administer disputes under the UNCITRAL arbitration rules, including online arbitration
• to draft proposals and amendments to current arbitration legislation
• to develop recommended standards for arbitration institutions
• to organise training and educational programmes for arbitrators and young professionals working within the arbitration field

Some of these goals have already been achieved. For instance, the RAA website is now active and the RAA40 programme for practitioners under the age of 40 has been created. The RAA has also formed two working groups (on the drafting of regulations for administering disputes and the development of education programmes) open for participation to all members.

One of the primary goals of the RAA, as stated in the Declaration on the Establishment of the RAA, is to create an efficient mechanism for the resolution of both domestic and international disputes through arbitration.

The administration of arbitrations will be regulated by the RAA Rules for Administration of Disputes under the UNCITRAL Arbitration Rules. As of 10 November 2013, first drafts of the Rules and clauses have been circulated openly for comment and/or submissions.

The RAA has also drafted a model arbitration clause:

‘Any dispute, controversy or claim arising out of or relating to this contract, or the breach, termination or invalidity thereof, shall be settled by arbitration in accordance with the UNCITRAL Arbitration Rules, subject to the amendments and additions necessary due to the application of the Regulations for Arbitration Proceedings Administered by the Association for the Promotion of Arbitration, Moscow, Russia (the “Russian Arbitration Association” or the “RAA”). ‘

Note that the model clause does not specify a governing law or the seat of the arbitration.

Subject to a valid arbitration agreement between the parties, the RAA will perform the functions of a competent authority as specified by art 6 of the UNCITRAL Arbitration Rules, including:

• assisting the parties in constituting an arbitral tribunal
• considering challenges of arbitrators, and
• administering the financial implications of arbitration (arbitrators’ fees and RAA administrative costs)

As the RAA wishes to become a leading institution for the administration of arbitration, it should consider the content of its arbitration rules as well as the possible use of multiple sets of rules to resolve particular kinds of disputes, including complex disputes, multi-agreement or multi-party disputes and low value disputes. Furthermore, it would be in the RAA’s best interests to develop Rules of Good Conduct for proceedings as a component of the RAA Rules on Administration of Disputes.

Today, Russia stands on the threshold of major legal change. On the one hand, the President of Russia has decided to merge both the Supreme Commercial Court of Arbitrazh of Russia and the Supreme Court of Russia (the highest court for civil and criminal cases) into one court and abolish the Supreme Commercial Court of Arbitrazh of Russia. The results of this change are currently unpredictable and there is real concern that the resolution of commercial disputes in the state courts could be paralysed in the future. However, on the other hand, the state has been discussing the reform of the Russian alternative dispute resolution system.

Modern corporations, including both Russian and foreign entities, need a fair, flexible, professional and independent system that is capable of resolving their disputes efficiently. If the RAA, sharing these expectations, provides such a mechanism, this will be highly advantageous to both Russian and international lawyers. The first steps have been made.