Draft law on domestic arbitration
On 7 May 2015 the Russian Government proposed a draft new law, the law on domestic arbitration in Russian Federation (the draft law), to the State Duma (the lower house of the Federal Assembly of Russia (legislature)). Domestic Arbitration is defined as an arbitration relating to a dispute arising out of legal relationship whether contractual or not, where none of the parties is:
- an in individual who is a nationality of, or habitually resident in, any country other than Russia; or
- a body corporate which is incorporated in, or whose central control and management is exercised in, a state other than Russia, and
- the seat of the arbitration is in the Russian Federation.
This is a second attempt to regulate domestic arbitration in Russia. Recently, in 2014, the attempt to introduce new legislation on domestic arbitration failed as the draft had been criticised by the Presidential Administration.
There is no doubt the main goal of the new legislation is to cure domestic arbitration from well-known problems, i.e. 'pocket arbitration tribunals' (for more information, see: The future for arbitration in Russia on the LexisDR Blog) as well as to move the resolution of commercial disputes from state courts to arbitration.
The draft law
The draft law has 12 charters:
Chapter 1 - General provisions (Articles 1-6);
Chapter 2 - Arbitration agreement (Articles 7-9);
Chapter 3 - Composition of arbitral tribunal (Articles 10-15);
Chapter 4 - Jurisdiction of arbitral tribunal (Articles 16-17);
Chapter 5 - Conduct of arbitral proceedings (Articles 18-30);
Chapter 6 - Making of award and termination of proceedings (Articles 31-39);
Chapter 7 - Recourse against award (Article 40);
Chapter 8 - Enforcement of award (Articles 41-43);
Chapter 9 - Forming and activity of institutional arbitrations in Russia (Articles 44-48);
Chapter 10 - Mediation versus arbitration (Article 49);
Chapter 11 - Responsibility of institutional arbitrations and arbitrators (Articles 50-51);
Chapter 12 - Final and transitional provisions (Article 52).
Although it might seem the draft law is based on the 1985 UNCITRAL Model Law and 2006 Revisions, the draft law has some specific features:
Key points to note:
- the draft law's definition of the arbitration agreement almost complies with the provisions of Option I the 1985 UNCITRAL Model Law and 2006 Revisions, save that it does not enable an arbitration agreement to be concluded orally
- the draft requirement that an arbitration agreement must be in writing can be met by being recorded electronically, for example by e-mail if the information contained therein is accessible so as to be useable for subsequent reference. The draft does not define electronic communication
- the draft supports both the presumption of separability of an arbitration agreement and the rule favouring a broad interpretation of an arbitration agreement - any doubts regarding the validity of an arbitration agreement should be interpreted in favour of validity and enforcement of the arbitration agreement.
Although parties enjoy broad autonomy to select arbitrators in their arbitrations, the draft law states criteria which the arbitrator(s) must meet (age, education etc) but the parties may agree on arbitrators who do not comply with these criteria. The draft also provides for categories of people who may not be appointed as arbitrators. For instance, a judge dismissed for misconduct could not act as an arbitrator. In contrast, a retired judge could act as an arbitrator.
Arbitrability of corporate disputes
The arbitrability of corporate disputes, i.e. disputes relating to share ownership, shareholdings in the authorised capital of business entities, arising out of shareholders' agreements, etc, remains an issue in many arbitrations. The draft law states that corporate disputes may be referred to arbitration. An arbitration agreement could be included into company's bylaws. However, it is prohibited for public corporations and corporations with more than 1000 shareholders may not enter into arbitration agreements. In considering arbitrability, one should take into account the following:
- an institutional arbitration concerning a corporate dispute should adopt special rules to ensure due procedure as well as the participation of all interested parties (like DIS Rules for Corporate Law Disputes). It is not clear what would happen where, for example, a dispute was referred to the International Chamber of Commerce (ICC) but there was a requirement to adopt 'special rules' as well
- any arbitral award would have effect on a special state register, for instance the state list of company registers, should be enforced by a state court. Any changes into special state registers, e.g. the Unified State Register of Legal Entities, would not be done without enforcement an arbitral award by a state court.
Interim and emergency measures
The draft law provides, unless otherwise agreed by the parties, that both the arbitral tribunal or an institution, if an arbitral tribunal is not constituted, may at the request of a party, grant interim (emergency) measures. In contrast with the 1985 UNCITRAL Model Law and 2006 Revisions (Articles 17- 17 (A)) the draft has no conditions for granting interim or emergency measures. The arbitral tribunal would have a wide authority on granting such measures.
A state court would have authority to assist parties to arbitration to deal with the following issues:
appointment of an arbitrator
challenge of an arbitrator
termination of mandate of an arbitrator
competence of arbitral tribunal over dispute and
recourse against the award
Moreover, a state court would have authority to take evidence in support of in favour of arbitration. The arbitral tribunal or a party with the approval of the arbitral tribunal, may request from a competent court of this State assistance in taking evidence but this rule would apply only where the arbitration was being administered under institutional rules. Ad hoc arbitration i.e. that constituted under national arbitral laws or UNCITRAL rules without the input of an administering body would be outside of this provision.
The draft law prescribes that it only applies to domestic arbitration. Meanwhile, institutional arbitrations would be made under this regulation for domestic arbitration can deal with international arbitration. The draft mandates only non-profit companies could establish an arbitral institution. There is a strong prohibition against state (municipal) authorities, state corporations, advocates (notarial) chambers and so on to establish an arbitral institution.
Moreover, a non-commercial organisation (institution) wishing to administer a domestic arbitration in Russia will have to apply for the special permission for execution of the functions issued by the Russian Government.
In order to obtain the permission a non-commercial organisation (institution) must comply with the following criteria:
- have a list of at least 30 recommended arbitrators
- those arbitrators should have significant experience in arbitration
- the institutional rules applicable to the domestic arbitration must comply with the law on domestic arbitration in Russia once enacted
- prove that the activity of the proposed institution would promote arbitration, the rule of law and formation business ethics
There are only two exceptions, the ICC and the Maritime Arbitration Commission at the Russian Chamber of Commerce and Industry that will not need to obtain such permission.
A foreign arbitral institution would have to obtain the permission (if one wishes to administer arbitrations in Russia). The permission would be issued if a foreign arbitral institution has a world wide-recognised reputation on arbitration (for example, in my view, the London Court of International Arbitration and Stockholm Chamber of Commerce).
If the institution is not granted permission, it would be prohibited from conducting arbitrations in Russia.
Progress of the draft law
The Government believes that the law will take enter force on 1 September 2015 but taking into account that the State Duma is going on the summer vacation soon, one can presume that the State Duma would discuss the draft only in autumn. Nevertheless, despite some criticisms, one may conclude that the new law on domestic arbitration will play a significant role in the reform of domestic arbitration in Russia and that arbitration will take its rightful place in the system of dispute resolution in Russia.