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From November 1, 2017, the arbitral tribunals (treteyskiye sudy)1 that failed to obtainthe permission from the Government of the Russian Federation will no longer be allowed to heardisputes. Introduction of the authorization-based order of granting the right toestablish institutional arbitraltribunalsis aimed at achievingone of the main objectives of the non-governmental arbitration reform in Russia, namely, combatting “puppet” arbitral tribunals, enhancingtrust to arbitration and improving its quality.
As a result, this will affect arbitration of disputes under contracts, which already contain arbitration clauses, and trigger the need to amend drafts (templates) of thecontractsyet to be signed.
For more information on this and other changes of the arbitral tribunals’ systemin Russia see our new review below.
Since September 1, 2016, Federal Law datedDecember 29, 2015 No. 382-FZ “OnArbitration (ArbitralProceedings) in the Russian Federation” (here in after, the “Arbitration Act”) and Federal Law datedDecember 29, 2015 No. 409-FZ on amendingcertain legalacts in view of the adoption of the Arbitration Act,have entered into full force andeffect.
These acts have introduced substantial changes to the Russian legislation on arbitraltribunals, whoseoverall purpose is to bringRussian arbitral proceedings to the international standards.
Authorization-basedorder of creation of arbitral tribunals (see more details below)
The authorization-basedorder does notapply to the two best-known arbitral institutions in Russia – theInternational Commercial Arbitration Courtand the Maritime Arbitration Commissionat the Chamber of Commerce and Industry of the Russian Federation – they have acquired the right to arbitratedisputes as permanent arbitralinstitutionsby operation of law.
Direct legislative recognitionof the arbitrability of corporate disputes (see more details below)
Restriction of competence of ad hoc arbitral tribunals
· Ad hoc arbitraltribunals, i.e. the onesinstituted to arbitrate a particular dispute, cannot arbitrate corporate disputes.
· The parties to an ad hoc arbitration cannot agree to waive the right to address a state court for assistance.
· Ad hoc arbitraltribunalsare deprived of the right to ask state courts for assistance in discovery.
· The parties’ agreement on the finality of the awardof an ad hoc tribunal is invalid, i.e. a party does not forfeit the right to apply to astate court to vacate such anaward.
· The parties to an ad hoc arbitration can request a permanent arbitral institution to execute certain functionsrelated to dispute administration, without this entailingthe recognition of such an arbitration asbeing administeredbythepermanent arbitralinstitution.
Appeal to foreign arbitral institutions
Foreign arbitral institutions are also bound to obtain the Russian Government’s permission to exercise the functions of a permanent arbitral institution in Russia. However, the only requirement for foreign arbitral institutions is their well-regarded international reputation.
Furthermore, in order to arbitrate the majority of corporate disputes, a foreign arbitral institution shall also publish special rules on arbitrationof corporate disputes(most reputableinternational arbitral institutions do have such rules in place).
This creates a risk that Russian courts will not recognize foreign arbitral institutions’ awards on corporate disputes if such institutions failed to obtain a governmentalpermission.
Form of the arbitration agreement
· The new law provides that the arbitration agreement can be concluded,among other things,throughanexchange of letters, telegrams, telexes, telefaxes and other documents (including electronic ones), transmittedthrough communication channels allowing to reliably ascertain that the document comesfrom the other party,as well as by way ofanexchange of procedural documents.
· A possibility to include the arbitration agreement into the charter of a legal entity (except charters of joint-stock companies withover 1,000shareholders, and charters of public joint-stock companies). The charter shall be approved by all participants. At the same time, it is important to bear in mindthat the arbitration agreement included into the legal entity’s charter covers disputes with third parties if therespectivethird party has directly expressed itswill to be bound by the arbitration agreement.
Until September 1, 2016, there were no restrictions forestablishingarbitraltribunals, whichresulted inthe formation of numerous “puppet” arbitral tribunals, instituted forquestionable purposes.
To rule outabuses in this sphere, the legislator introduced theauthorization-basedorder. The right to exercisethe functions of a permanentarbitralinstitution is now granted by aRussian Governmentorderuponthe recommendation of the Council for the Improvement of Arbitration Proceedings at theRussian Ministry of Justice.
A permanent arbitral institution can be created at a nonprofit organization (NPO) subject to the following requirements:
Reliability of the information provided on the NPO and its founders (participants);
NPO’s reputation, scale and nature of activity allowing to provide a high level of the institution’s activity,as well asthe NPO’s being engaged inactivity aimed at the development of arbitration in Russia;
Managingand publication of arecommended list of arbitrators for information purposes, containing at least 30 people, provided thateach candidate’s written consentis included on the list. One arbitrator cannot appear on the lists of more than 3arbitral institutions. There are further requirements to the list ofarbitrators from the standpoint of their qualificationsandexperience in the legal field (see the diagram below).
International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation (by operation of law, no permission of theRussian Government is required);
Maritime Arbitration Commission at the Chamber of Commerce and Industry of the Russian Federation (by operation of law, nopermission of the Russian Government is required)
Arbitration Center atthe Russian Union of Industrialists and Entrepreneurs (on the basis of Order of the Government of the Russian Federation datedApril 27, 2017 No. 798-р);
Arbitration Center at the Institute of Modern Arbitration (on the basis of Order of the Government of the Russian Federation datedApril27, 2017 No. 799-р)
At present, there is no unified register of permanent arbitral institutionsthat have obtained permissions from the Government of the Russian Federation.
An arbitral institution that does not meet the new rules by November 1, 2017, will not be able to continue administrating arbitral proceedings.
This means that arbitration clauses on submissionof disputes to such an arbitral institution will become unenforceable.
In that case, pending disputes will be administered as ad hoc arbitration sunless the parties agree on a different dispute resolution procedure or the arbitration agreement becomes unenforceable.
Although before the Arbitration Actbecame effective,the legislation did not contain an express prohibitionof arbitration of corporate disputes, statecourts largelyadhered to the view denying the arbitrability of such disputes.
At present, the following corporate disputes are arbitrable: disputes related to theincorporation of alegal entity, its management, participation in a commercial legal entity, as well as in a number of NPOs.
All corporate disputes shall be arbitrated only by permanent arbitral institutions. These include, inter alia, corporate disputes related to the ownership of shares in the charter capital of Russian legal entities, including:
disputes under shareand participatory sharepurchase agreements;
disputes connected with the levyingof execution against shares and participatory shares;
disputes resulting from the activity of keepers of registers of securities.
Many corporate disputes are subject to additional rules; thus, they can be submitted to arbitration only if they meet the following conditions:
1) The legal entity, allofits participants and other persons,being claimants and defendants, have concluded an arbitration agreement;
2) Thearbitralinstitution has adoptedrules on arbitration of corporate disputes;
3) The Russian Federation is the seat of arbitration.
The following corporate disputes with an express public interest (from the legislator’s point of view) cannot be arbitrated:
Disputes on the convocation ofthe general shareholders’meeting of the legal entity;
Disputes resulting from the notaries’certification of transactions with shares in the charter capital of LLCs;
Disputes onchallengingnon-regulatory legal acts, decisions and actions/inaction of public authorities, municipal self-government authorities, etc.;
Disputes concerning strategic companies(except for disputes arising from transactions with shares in the charter capital of such companies,which do not require prior approval);
Disputesrelated to the acquisition and redemption of placed shares by joint-stock companies, and the acquisition of more than 30% of stock ina public company;
Disputes connected withtheexpulsion of participants of a legal entity.
Arbitration agreements on the submissionof corporate disputes to arbitration can be concluded on February 1, 2017 the earliest. The agreements made before that date are deemed unenforceable.
The key recommendation is to check the arbitral institution specified in the arbitration clause when making the contract – otherwise,itmay turn out to be unenforceable.
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