Contributed By Clifford Chance
The popularity of international arbitration as a means of resolving commercial disputes is growing slowly but steadily among Russian parties. Russian parties tend to choose international arbitration for resolving disputes arising out of high-value and complex cross-border contracts, which Russian courts may not always be well-equipped to resolve.
Following the Russian arbitration law reform of late 2015, arbitral institutions are now required to obtain the status of a 'permanent arbitral institution' (PAI) in order to be able, among other things, to administer arbitration of certain types of 'conditionally arbitrable' corporate disputes involving shares in Russian companies. This requirement applies to foreign arbitral institutions as well. Until recently there were only four arbitral institutions – all of them Russian – which had been conferred the status of PAI. In April 2019, the Hong Kong International Arbitration Centre (HKIAC) became the first foreign arbitral tribunal to obtain PAI status in Russia. In June 2019, the Vienna International Arbitration Centre also received a recommendation to be included on the list of PAIs. However, commercial parties may still feel restricted in their choice of arbitral institutions that can administer arbitration of corporate disputes.
Most disputes submitted to international commercial arbitration in Russia arise out of supply contracts. International arbitration is also often used in construction, oil and gas, banking and finance, leasing, etc. International arbitration is most prevalent in industries that involve high-value and complex cross-border contracts requiring knowledge and expertise on the part of the persons entrusted to resolve disputes arising out of them. In addition, given that parties tend to choose foreign law to govern such contracts, they naturally derogate from submitting disputes arising out of them to Russian state courts, which may not always be well-equipped to interpret and apply foreign law.
To date, only six arbitral institutions have obtained PAI status: the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation (the ICAC), the Maritime Arbitration Commission at the Chamber of Commerce and Industry of the Russian Federation (MAC), the Arbitration Centre at the Russian Union of Industrialists and Entrepreneurs, the Russian Arbitration Centre at the Russian Institute of Modern Arbitration, the National Centre for Sports Arbitration at the Sports Arbitration Chamber, and the HKIAC. Of these, the ICAC is the most popular choice for administering international arbitrations seated in Russia due to its long history and international repute.
On 18 June 2019, the Council for the Advancement of Arbitration at the Russian Ministry of Justice recommended that Vienna International Arbitral Centre be vested with the power to function as a PAI. It is expected to be conferred the status of a PAI soon.
The International Court of Arbitration of the International Chamber of Commerce, the London Court of International Arbitration, and the Arbitration Institute of the Stockholm Chamber of Commerce are occasionally chosen for administering international arbitrations seated in Russia, despite the fact that none of them has the status of a PAI. Arbitral awards rendered by tribunals constituted under the rules of these institutions can be recognised and enforced in Russia.
International arbitrations seated in Russia are primarily governed by Law No 5338-1 of 7 July 1993 On International Commercial Arbitration (the ICA Law). In addition, in certain respects not expressly regulated by the ICA Law – such as operation of PAIs in Russia, requirements applicable to arbitrators and their liability, etc – international arbitration is also governed by certain provisions of Federal Law No 382–FZ of 29 December 2015 On Arbitration in the Russian Federation (the RF Arbitration Law). The procedures for annulment and recognition and enforcement of arbitral awards in Russia are also governed by the Civil Procedure Code of the Russian Federation (Federal Law No 138-FZ of 14 November 2002) (the CPC) and the Arbitrazh Procedure Code of the Russian Federation (Federal Law No 95-FZ of 24 July 2002) (the APC).
Please note: the term 'arbitrazh' is used throughout to refer to Russian state commercial courts.
Divergence from the UNCITRAL Model Law
The ICA Law is based on the UNCITRAL Model Law (as amended in 2006), although it does diverge from it in some respects, including the following:
Russian arbitration legislation underwent significant changes in late 2015 as a result of comprehensive reform. Federal Law No 531-FZ of 27 December 2018 introduced further amendments to the updated regulatory framework for arbitration in Russia, which took effect on 29 March 2019. Among other things, there have been changes to:
Generally, in order to be enforceable in Russia an arbitration agreement must be made in writing and expressly stipulate:
The CPC and the APC specify certain categories of cases that cannot be referred to arbitration, including bankruptcy, administrative and certain corporate disputes as well as family, employment, probate and privatisation matters, etc.
Generally, arbitrability depends on whether a dispute arises out of a civil/commercial legal relationship or a public legal relationship. Disputes arising out of civil/commercial legal relationships that also involve a public element are often in the 'grey zone'.
Please also see 5.1 Matters Excluded from Arbitration, below.
Generally, the ICA Law requires that, in case of any doubt, an arbitration agreement shall be construed in favour of its validity and enforceability.
However, the approach of Russian courts to the enforcement of arbitration agreements is not always predictable. In a recent case the Russian courts found the Standard ICC Arbitration Clause to be unenforceable because it did not refer to "the specific institution that would resolve the dispute". Later, the Presidium of the Russian Supreme Court issued a digest of case law disagreeing with this position and finding that "[a]n arbitration clause between the parties to a contract which conforms to an arbitration clause recommended by the arbitral institution chosen by the parties is enforceable".
An arbitration clause is severable from the rest of the contractual provisions, meaning that its validity does not depend on the validity of the remainder of the contract.
The ICA Law recognises the rule of separability. Where a contract is found invalid, this does not automatically render invalid the arbitration clause contained in it. However, occasionally, the grounds for the invalidity of the contract itself and of the arbitration clause may overlap (eg, if it is proved that the entire contract, including the arbitration clause, has been falsified).
Under the RF Arbitration Law, an arbitrator must:
A sole arbitrator must hold a degree in law, unless agreed otherwise by the parties.
The chairperson of a tribunal is also required also hold a degree in law; however, the parties can agree to waive this requirement, provided that at least one of the other members of the tribunal holds a degree in law.
The parties can agree on additional requirements that are applicable to arbitrators, including their qualifications.
It is not entirely clear whether these requirements limit the parties' autonomy to select arbitrators in international arbitrations.
Article 11 of the ICA Law establishes the default procedures applicable in case of:
A court can intervene in the selection of arbitrators in the cases referred to in the response to 4.2 Default Procedures, above.
As a rule, court intervention is limited to the instances specifically provided in the ICA Law.
When appointing an arbitrator, a court must take into account any requirements on arbitrators specified in the arbitration agreement, as well as considerations that will ensure the appointment of an independent and impartial arbitrator.
If an arbitration agreement provides for administration of arbitration by a PAI, the parties to that agreement can expressly exclude court intervention. In such cases failure of the parties' chosen method for selecting arbitrators terminates the arbitration process and the dispute may be referred to court.
The ICA Law contains particular provisions governing the challenge/removal of arbitrators.
Grounds for challenging an arbitrator include:
A party can challenge an arbitrator who has been appointed by or with the participation of that party only based on grounds that come to light after such appointment.
Grounds for removal of an arbitrator include:
The ICA Law requires arbitrators to be independent and impartial, without defining these requirements. Compliance with a standard of impartiality and independence assumes that:
The arbitration rules of PAIs must contain provisions on (ensuring) the impartiality and independence of arbitrators.
As mentioned in 3.2 Arbitrability, above, Russian law establishes certain categories of disputes that cannot be referred to arbitration.
Article 33(2) of the APC excludes the following matters from arbitration:
Article 22.1(2) of the CPC excludes the following matters from arbitration:
Additionally, there are corporate disputes which are arbitrable, provided the invoked arbitration clause satisfies certain conditions listed in law. Among these corporate disputes are, among others:
As follows from Russian case law, courts also have the authority to "uphold public policy" and the power to deny recognition and enforcement of arbitral awards upon finding "such an element of public policy [of the Russian Federation] as the non-arbitrability of the dispute" in relation to which the arbitral award has been rendered or "infringements of other elements of public policy". Such elements of public policy include: the holding of property by public law entities; relations in the sphere of bankruptcy, public procurement, fair competition, conservatorship and guardianship; and "expenditure of budgetary resources".
An arbitral tribunal may rule on a party's challenge to its own jurisdiction, including any objections to the existence and validity of the arbitration agreement. A plea that the arbitral tribunal does not have jurisdiction must be raised not later than the first submission on the merits. The arbitral tribunal can rule on a plea of lack of jurisdiction either as a preliminary question or in the award on the merits.
Where an arbitral tribunal dismisses a party's challenge to its own jurisdiction in a separate preliminary ruling, either party can file an application with a competent court challenging the jurisdiction of the tribunal. Should an arbitral tribunal allow a party's challenge, the tribunal's decision is final and not subject to appeal.
Referring the question of an arbitral tribunal's jurisdiction to court does not prevent the tribunal from continuing arbitration and rendering an award.
If an arbitration agreement provides for administration of arbitration by a PAI, the parties to the agreement can expressly exclude the involvement of a competent court.
If the arbitral tribunal rules on its jurisdiction as a preliminary question, a party may go to court to challenge the jurisdiction of the tribunal up to one month after having been notified of the ruling.
The standard of judicial review for challenging an arbitral tribunal's jurisdiction is not clear-cut. However, in any event courts cannot reassess the facts of a case established by a tribunal, to the extent such facts are relevant for determining whether the tribunal has jurisdiction or not.
A court, when seized of an action in a matter in respect of which the parties have made an arbitration agreement, must upon application of one of the parties leave the claim without consideration (ie, terminate the proceedings without prejudice), unless it finds that the arbitration agreement is null and void, inoperative or incapable of being performed.
Under the CPC and the APC, Russian courts must decline to consider claims submitted in breach of an arbitration agreement if either of the parties raises an objection on this ground not later than in the first submission on the merits, unless, as noted above, the court finds that the arbitration agreement is null and void, inoperative or incapable of being performed.
In principle, an arbitration agreement extends only to the entities that are parties to it and does not extend to third parties.
Unless the parties agree otherwise, an arbitral tribunal upon request of either party may grant interim relief which it deems necessary. Russian law does not specify the types of relief that are available. Article 17 of the ICA Law states that any rulings and procedural acts of an arbitral tribunal regarding interim measures are binding upon the parties. Any such interim relief will not be enforceable in the Russian courts. However, the President of the MAC has the power to issue a ruling seizing a party's vessel or cargo located at a Russian sea port to secure a maritime claim, and such rulings are subject to execution.
Under Article 9 of the ICA Law, a party may request interim measures from a competent court in advance of or during the course of arbitral proceedings. The general mechanism for obtaining interim relief in advance of arbitral proceedings is set out only in the APC.
The court having effective jurisdiction (eg, at the place of the debtor's residence or location or at the place where the debtor's property is located) can grant interim relief in aid of foreign-seated arbitrations.
Russian law defines interim relief as urgent temporary measures granted to secure the claimant's claim or proprietary interests. Arbitrazh courts may grant such interim relief as (i) attachment of the respondent's accounts or seizure of other assets, (ii) injunctions barring the respondent or other persons from taking certain actions in respect of the subject matter of the dispute, (iii) orders to perform certain actions to prevent damage to disputed property, etc (this list is not exhaustive).
Under Russian law, the parties may agree (including by referring to the applicable arbitration rules) that a PAI may order interim measures it deems necessary in advance of constitution of the tribunal.
Article 17 of the ICA Law contains broad language on the powers of the arbitral tribunal to order interim measures and does not exclude the possibility of ordering security for costs.
The parties are free to agree on the arbitral procedure, subject to the requirements of the ICA Law and the RF Arbitration Law. In the absence of such an agreement, the arbitral tribunal may conduct arbitration as it deems appropriate.
Russian law does not require the parties to take any particular steps in arbitration proceedings. However, Article 21 of the ICA Law provides that unless agreed otherwise by the parties, arbitration is deemed commenced on the day the respondent receives the claim. In addition, unless the parties agree on the content of their written submissions to a different effect, Article 23 of the ICA Law requires (i) the claimant to prove the facts supporting its claim and the disputed issues, and set out the relief it is seeking, and (ii) the respondent to submit its defence.
The ICA Law provides arbitrators with the power to:
The ICA Law imposes the duty upon arbitrators to:
The RF Arbitration Law provides that where a statement of claim is signed by a legal representative, a power of attorney or other document confirming his/her authority must be enclosed together with the statement of claim. There is no such explicit requirement in the ICA Law.
As a matter of Russian law, a person duly empowered under a power of attorney can act as a party's legal representative in an arbitration seated in Russia without being admitted to the Russian Bar. The same applies to party representation in Russian court proceedings related to arbitration.
Under Federal Law No 63-FZ of 31 May 2002 On Advocate's Activities and Advocacy in the Russian Federation, advocates who have qualified abroad may provide legal aid in the territory of the Russian Federation, including with respect to international arbitration, only on matters of foreign law. Moreover, advocates qualified abroad must be registered with the Ministry of Justice to act as advocates in Russia. In practice, appearing at the arbitral hearings in Russia does not pose problems to foreign-qualified legal representatives.
Pursuant to Article 19(2) of the ICA Law, unless agreed otherwise by the parties, an arbitral tribunal is empowered to determine the admissibility, relevance and weight of any evidence. The general approach is that each party shall prove all factual circumstances it invokes in support of its claim or defence. However, Russian law does not prescribe any specific rules applicable to discovery, disclosure, privilege, use of witness statements or cross-examination in international arbitration.
The rules applicable to the collection and submission of evidence are agreed by the parties to arbitration either explicitly or by incorporation of the relevant arbitration rules into the parties' arbitration agreement.
Overall, the rules of evidence are agreed by the parties to arbitration either explicitly or by incorporation of the relevant arbitration rules and soft-law instruments in the parties' arbitration agreement. The ICA Law contains few rules of evidence. For example, the ICA Law allows the parties to submit documents they consider relevant to their cases together with their submissions or to rely on documents and other evidence to be submitted later in the proceedings. Additionally, the tribunal may rule that any written evidence must be accompanied by a translation into the language or languages agreed by the parties or determined by the tribunal.
The rules of evidence set out in the RF Arbitration Law are somewhat more detailed. For instance, under the RF Arbitration Law, unless agreed otherwise by the parties, they are entitled to submit additional evidence in the course of arbitration, unless the tribunal declines to admit such evidence in light of a delay in submitting it. The RF Arbitration Law also envisages that the tribunal can prompt the parties to submit additional evidence.
Under Article 27 of the ICA Law, an arbitral tribunal may request assistance from a competent Russian court in collecting evidence if arbitration is administered by a PAI. A competent court shall address such requests in accordance with the requirements of the APC and CPC.
In particular, under Article 74.1 of the APC, an arbitral tribunal in an arbitration seated in Russia and administered by a PAI may request assistance from arbitrazh courts situated within the territorial jurisdiction of the requesting court in collecting evidence. Arbitrazh courts can assist with collection of written and physical evidence or other documents and materials; they cannot provide assistance in ensuring that witnesses attend hearings.
Article 21 of the RF Arbitration Law stipulates that, unless agreed otherwise by the parties, arbitration is confidential and the hearings shall not be conducted publicly. Absent the consent of the parties, arbitrators and employees of PAIs cannot disclose information of which they have become aware in the course of arbitration. In addition, arbitrators cannot be called as witnesses to testify on such information.
At the same time, there are no direct requirements as to confidentiality under the ICA Law. Confidentiality requirements are agreed by the parties to international arbitration either explicitly or by incorporation of the relevant arbitration rules containing such requirements in the parties' arbitration agreement.
Article 31 of the ICA Law requires an arbitral award to:
The ICA Law does not establish any default time limits on the delivery of awards.
There are no express limits on the types of remedies that an arbitral tribunal can award, to the extent that such remedies are civil law remedies. For instance, in principle, an arbitral tribunal can award not only damages, be they pecuniary or moral, but also injunctions, specific performance, certain declaratory relief, etc. Remedies that do not meet the requirements on arbitrability (eg, remedies in disputes of a public law nature) cannot be awarded.
However, in terms of civil law remedies, some types of remedies are alien to Russian law, and Russian courts may find arbitral awards granting such remedies to be contrary to Russian public policy and hence annullable or unenforceable (eg, arbitral awards granting punitive damages).
Under Russian law, interest is normally considered a substantive law issue. The availability, rate and categories of interest are therefore a matter of the law applicable to the merits of the dispute. Under Russian law, the parties are entitled to recover interest under Article 395 of the Civil Code of the Russian Federation at the key rate of the Central Bank of the Russian Federation up to the day on which the amounts awarded are paid by the respondent.
The RF Arbitration Law stipulates that, unless agreed otherwise by the parties, the tribunal shall allocate the costs of arbitration, including legal fees, based on the 'costs follow the event' principle. However, the ICA Law does not contain default rules governing the allocation of legal costs.
The grounds for appealing an arbitral award are set out in Article 34 of the ICA Law and detailed below.
An arbitral award can be set aside if the party seeking this furnishes the court with proof that:
An arbitral award can also be set aside if the court finds that:
The procedure for annulment of an arbitral award is governed by the APC and the CPC. An award debtor may apply for annulment of an award of a tribunal seated in Russia by filing an application with a competent court that has jurisdiction over the territory where the award was rendered. Such application must be filed within three months of the date on which the award debtor received the award and must satisfy the requirements as to the form and content of the application. The applicant must enclose with the application, among other things, an original or duly certified copy of the award and an original or duly certified copy of the arbitration agreement together with their duly certified translations into Russian (if necessary).
The court is required to consider the annulment application within one month from the date of its receipt, in accordance with the procedural rules governing consideration of claims by courts of first instance, albeit with certain particularities (eg, there will be a hearing, but the court cannot review the award on the merits).
After considering the annulment application, the court issues a ruling upholding the award or setting it aside. The ruling enters into force immediately and can be further appealed.
Pursuant to Article 34(1) of the ICA Law, if the parties agree to submit their disputes to a PAI, they may agree, by including an express provision in the arbitration agreement between them, that the arbitral award shall be final, thereby excluding the possibility of its review and annulment by the courts. However, the grounds for setting an arbitral award aside and for denying enforcement of an arbitral award are essentially the same. Therefore, if the successful party tries to enforce the award in a Russian court, the losing party will be able to oppose its enforcement on the same grounds as are available in seeking to have it set aside.
The courts cannot review an award on the merits. However, the concept of public policy is often interpreted by the courts so broadly that, when reviewing an arbitral award to ascertain whether it contravenes public policy, often the merits of the decision are in fact reviewed.
The USSR (to which Russia is a legal successor) ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards on 24 August 1960, with the following reservation: the Union of Soviet Socialist Republics will apply the provisions of the Convention in respect to arbitral awards made in the territories of non-contracting states only to the extent to which they grant reciprocal treatment.
The procedure for enforcing awards is set out in the APC and the CPC. The procedure is largely similar for, on the one hand, recognition and enforcement of foreign awards and, on the other hand, obtaining writs of execution in respect of arbitral awards rendered in international arbitration seated in Russia. However, where the award is foreign and its nature is such that it requires only recognition and does not require enforcement, the award is recognised in Russia without any further proceedings (ie, automatically, provided that the debtor does not file objections to this within the prescribed time limit).
As a general rule, a creditor may enforce an award by filing an application with a competent court at the debtor's place of residence or location or, if its place of residence or location is unknown, at the place where the debtor's assets are located.
The creditor shall enclose with its application, among other things, an original or duly certified copy of the award and an original or duly certified copy of the arbitration agreement, together with their duly certified translations into Russian (if necessary).
The court is required to consider the enforcement application within one month from the date of its receipt, in accordance with the procedural rules governing consideration of claims by courts of first instance, albeit with certain particularities (eg, there will be a hearing, but the court cannot review the award on the merits).
After considering the enforcement application, the court issues a ruling recognising and enforcing the arbitral award or denying its recognition and enforcement. The ruling enters into force immediately and can be further appealed.
As provided for by Article V(1)(e) of the New York Convention, Russian courts may refuse to recognise and enforce an award at the request of the party against whom it is invoked, if that party furnishes the courts with proof that the award has been set aside by a competent authority of the country in which, or under the law of which, the award was made. Accordingly, where an arbitral award has been set aside by a competent authority, the Russian courts have discretion to enforce the award in Russia.
Russia is also party to the 1961 European Convention on International Commercial Arbitration. Article IX(1) and (2) of the European Convention limit the application of Article V(1)(e) of the New York Convention solely to cases of setting aside specified under Article IX(1) of the European Convention. Therefore, an award annulled in a state that is party to the European Convention on the basis of non-arbitrability of the dispute that was referred to arbitration or due to the award's contravention of the public policy of the state of origin may nevertheless be enforceable in Russia.
Issues of sovereign immunity, which may be raised at the enforcement stage, are regulated by Federal Law No 297-FZ of 3 November 2015 On Jurisdictional Immunities of Foreign States and the Property of Foreign States in the Russian Federation (the Immunities Law). Article 2 of the Immunities Law differentiates several types of state immunity, including immunity from jurisdiction and immunity from execution.
Pursuant to Article 6(2) of the Immunities Law, a foreign state shall be deemed to have waived its immunity from jurisdiction with respect to disputes related to an arbitration agreement if the state is a party to that arbitration agreement for resolving the disputes which have arisen or which may arise in the future with respect to performance of obligations. Russian courts have held that, where a state enters an arbitration clause referring to arbitration rules pursuant to which the award shall be final and binding on the parties, and the parties undertake to implement the award without delay, the state thereby waives immunity from jurisdiction for the purposes of recognition and enforcement proceedings. However, by entering an arbitration clause the state does not waive immunity from execution.
It is common practice among Russian courts to rely on public policy as grounds to dismiss an application for recognition and enforcement of arbitral awards. There is no statutory definition of public policy, but generally Russian courts treat it as domestic (not international) standards that are violated if an award
For instance, Russian courts refuse to recognise and enforce arbitral awards that may adversely affect the interests of creditors in bankruptcy proceedings, the state budget, antitrust regulations, etc.
Some Russian courts tend to interpret the concept of public policy very broadly and sometimes unreasonably rely on public policy grounds.
Russian law does not provide for class-action or group arbitration. These types of claims are not arbitrable (Article 33(3) of the APC).
In Russia, there are no ethical codes that apply specifically to arbitration counsel and arbitrators. Where arbitration counsel are admitted to the Russian Bar, their conduct is governed by the Code of Professional Ethics for Advocates. The parties to arbitration may agree on the applicability of the 2013 IBA Guidelines on Party Representation in International Arbitration.
There are no rules or restrictions on third-party funders. Generally, the concept of third-party funding is alien to Russian law and there is no regulation in this regard. To date only a few cases have been funded by third parties in Russia. Considering that Russian courts mainly take a negative view of success fees, third-party funding arrangements may not necessarily be enforceable in Russia.
The ICA Law does not address the issue of consolidation of separate arbitral proceedings. Generally, this issue is governed by the arbitration rules agreed by the parties.
In principle, an arbitration agreement extends only to the entities that are parties to it and does not extend to third parties.