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Impartiality and independence of party-affiliated arbitral institutions in Russia

It is accepted that the impartiality and independence of arbitrators are cornerstones of arbitration. Pursuant to art 12(1) of the UNCITRAL Model Law on International Commercial Arbitration (the Model Law), any arbitrator may be challenged if there are circumstances that give rise to justifiable doubts as to the arbitrator’s impartiality or independence.

Many jurisdictions, including Russia, have adopted provisions based on art 12(1) in their domestic arbitration law. Unfortunately, the Model Law and Russian law are silent on the independence of arbitral institutions in general and, as a result, many Russian domestic disputes are resolved by arbitral institutions affiliated with only one of the parties to the dispute, which tends to be party with the greatest commercial power.

The background case law

This issue arose in two recent cases, Sberbank v “Business-Lada” LLC & Ors and Lukoil – Energy lines company LLC v MK LLC. The cases share a similar factual background as the defendant in each case was in breach of contract and the plaintiff referred the dispute to arbitration pursuant to an arbitration clause contained in the contract between them. In each case, the arbitration clause provided for domestic (ie Russian) arbitration. And, in each case, the tribunal rendered an award in favour of the plaintiff and then a court issued the writ of execution for the enforcement of the arbitral award.

In both cases, the arbitral institution charged with resolving the dispute was established by company affiliated with the plaintiff and the plaintiff company approved the list of arbitrators that the parties could select from. In neither case was the defendant given an opportunity to nominate arbitrators from which it could choose.

Both defendants argued that the arbitral institution charged with administering the disputes could not guarantee adherence to the principles of impartiality and independence in the course of the arbitral proceedings. The Federal Law No 102-FZ dated 24 July 2002 (On arbitral tribunals in the Russian Federation) which regulates domestic arbitration, provides that arbitrators hearing a case are required to be impartial and independent, but it does not explicitly lay down any such standards for domestic arbitral institutions administering disputes.

The Supreme Commercial Court of Russia applied test of ‘apparent bias’

The two cases were revised by the Supreme Commercial Court of Russia in 24 May 2011 and 22 May 2012. The court resolved the issue in accordance with the approach of the European Court of Human Rights (ECtHR). The ECtHR in Hauschildt v Denmark stated:

The existence of impartiality for the purposes of Article 6 para. 1 (art. 6-1) must be determined according to a subjective test, that is on the basis of the personal conviction of a particular judge in a given case, and also according to an objective test, that is ascertaining whether the judge offered guarantees sufficient to exclude any legitimate doubt in this respect. Under the objective test, it must be determined whether, quite apart from the judge’s personal conduct, there are ascertainable facts which may raise doubts as to his impartiality.’ [para 46]

These statements of the ECtHR were applied by the Supreme Commercial Court of Russia, which decided that the creation and funding of an arbitral court by one of the counterparties to a civil law contract and settlement of disputes arising out of such contract by the arbitral tribunal composed by that arbitral court, where the other party is deprived of such opportunities, is evidence of a violation of the guarantees of objective impartiality and, therefore, fair and equitable consideration of a case. The court decided that such a violation is in itself a sufficient ground for dismissal of an application for a writ of execution to be issued for the enforcement of an arbitral award.

Accordingly, in both cases the Supreme Commercial Court of Russia rejected the applications for enforcement of the arbitral awards (the decisions are dated 24 May 2011 and 22 May 2012).

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