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The future for arbitration in Russia

On 24 April 2014, the Russian Arbitration Association (RAA) held a conference entitled, ’Future for arbitration in Russia’. The speakers, and those attending, attempted to answer the question whether or not there is a future for arbitration in Russia or whether that time has been lost forever.

The conference hosted more than 100 delegates amongst whom were representatives of the Ministry of Justice of Russia (the Russian MoJ), the Supreme Commercial (Arbitrazh) Court of Russia, the business community, the leading international arbitral institutions (LCIA, SCC, VIAC, ICDR, PCA, DIS, ICAC, etc.) and the legal community. Mikhail Samoylov, Senior Associate at KIAP Attorneys at Law and Lexis®PSL Arbitration contributor, discusses the events of the conference.

The new Arbitration Act—a cure for all diseases or an obstacle to the leading arbitral institutions?

It is well known that the Russian MoJ is developing a new arbitration act for Russia. According to the Russian MoJ, the new act has the potential to resolve all current problems facing arbitration in Russia. For example, the Russian MoJ`s speaker noted there are approximately 2-3,000 arbitration courts in Russia, but that approximately 80-90% of them are involved in illegal activity. Such courts are called ’pocket courts’ in Russia, ie they are affiliated with one of the party of arbitration (see here for more details). According to the Russian MoJ, the new arbitration act will require the registration of arbitration courts on a Russian MoJ register as well as requiring such courts to obtain a special permit to operate.

However, this proposal was criticised by some attendees of the conference. For instance, the speakers from both Ukraine and Latvia said that similar regulation exists in those jurisdictions, but it had not achieved the goal of removing partisan decision-making because a ‘pocket court’ may comply with registration and other requirements and still be biased in favour of one party.

Russian business community is afraid of arbitration courts in Russia

Unfortunately, such negative factors have had a marked influence on members of the Russian business community, many of whom favour foreign arbitration and foreign jurisdictions for resolving their disputes. This trend is supported, firstly, by a formal survey conducted amongst the community (results yet to be published), whereby a significant majority of respondents referred to the bias of arbitration courts as well as abuse of rights by tribunals as reasons in favour of arbitrating outside of Russia. Secondly, Roman Zykov, General Secretary of the RAA, discussed the results of a survey entitled ’Best legal practice in international commercial arbitration in the CIS’, which found (amongst other things) that:

  • the number of CIS-related arbitrations and total value of claims are growing from year to year (30% in the past 10 years)
  • three international centres the ICC, SCC and LCIA, and two regional – ICAC (Russia) and ICAC (Ukraine) remain the preferred institutions for Russian and CIS disputes. However, it will be several years before Asian regional arbitration centres, such as those in Hong Kong and Singapore, will start to receive the CIS-related cases
  • selection of an arbitral institution by the CIS parties is often determined by the nationality of the counterparties, value of the contract and the applicable law. The latter is often a decisive factor when it comes to choosing arbitration centres in London (English law) or Moscow (Russian law)
  • Russian (51%) and Ukrainian (29%) companies are the most frequent parties to arbitrations amongst the CIS states
  • the specialization of the CIS-focused arbitration centres will continue: some centres will predominantly hear construction disputes, whereas others will focus on financial, supply or energy disputes
  • despite lack of integration within the CIS arbitration market, the situation is gradually developing towards creation of a common arbitration services market. This is dictated by common economic, legal, cultural and political causes and certainly by the use of Russian as the most common regional language

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