Substantial amendments to Russian arbitration legislation
On 1 September 2016, substantial amendments to Russian legislation in the sphere of arbitration have entered into force, including the Federal Law “On Arbitration in the Russian Federation”, as well as amendments to the Russian Law “On International Commercial Arbitration”, the Federal Law “On Arbitral Tribunals in the Russian Federation”, the Arbitrazh Procedural Code and the Civil Procedure Code. We would like to note the following important changes.
1. Arbitrability of corporate disputes defined
Corporate disputes (including disputes arising out of share purchase agreements and shareholder agreements, disputes on challenging company management’s decisions), as a rule, may be heard by arbitral tribunals, save for certain exceptions provided by law.
The following disputes, among others, are excluded from the jurisdiction of arbitral tribunals:
- concerning convocation of general shareholders’ meetings;
- arising out of notary activities regarding certification of transactions with shares in the charter capital of LLCs;
- concerning exclusion of shareholders of legal entities;
- concerning mandatory buyout of shares;
- with regard to legal entities having strategic importance under the Federal Law “On the Order of Investing by Foreign Persons in Companies Having Strategic Importance for the Ensuring of the Defence of the Country and the Security of the State” (save for disputes concerning the rights to shares in transactions not connected with advance approvals).
Corporate disputes may be heard only by an arbitral tribunal administered by a permanent arbitration institution.
For all corporate disputes, save for disputes concerning the rights to shares and exercise of the relevant rights, as well as disputes arising out of activities of share registrars, the following additional conditions must be met:
- a legal entity, all its shareholders and other persons – claimants or defendants in a dispute – concluded an arbitration agreement envisaging transfer of the dispute to the arbitral tribunal; and
- the arbitral tribunal adopted special rules for hearing corporate disputes; and
- the seat of arbitration is located in Russia.
An agreement on the transfer of corporate disputes between the shareholders of a legal entity and/or the legal entity to the arbitral tribunal may be concluded by way of inclusion into the charter of the legal entity (excluding joint-stock companies where the number of voting shareholders is equal or exceeds one thousand, as well as public joint-stock companies).
It is established that arbitration agreements regarding corporate disputes may be entered into not earlier than 1 February 2017. Such agreements entered into before 1 February 2017 are deemed to be unenforceable. It is disputable whether such limitation shall apply to arbitration agreements entered into before 1 September 2016.
2. Interference of state courts with arbitral proceedings enhanced
The parties to arbitration may now appeal an arbitral tribunal’s decision on jurisdiction in a particular dispute to the state courts unless the possibility of such appeal is explicitly waived by the parties’ agreement.
An arbitral tribunal may seek assistance of a state court at the place of location of evidence for taking evidence.
Moreover, detailed rules are introduced regarding assistance by state courts to arbitral tribunals in issues of appointment, challenge and dismissal of arbitrators, unless the possibility of such assistance is explicitly excluded by the parties’ agreement.
3. Requirements for permanent arbitration institutions are introduced
Permanent arbitration institutions may now be created only at non-commercial organizations provided that a non-commercial organization has been granted a relevant right by the Russian Government upon a recommendation of the Council on Development of Arbitration Legislation. Such a permit is not required for the International Commercial Arbitration Court at the Russian Chamber of Commerce and Industry or the Maritime Arbitration Commission at the Russian Chamber of Commerce and Industry.
The duty to obtain a permit also applies to foreign arbitration institutions. If a foreign arbitration institution does not obtain the permit, but still conducts arbitral proceedings in Russia, the awards of such arbitral tribunal will be deemed to be awards of an ad hoc arbitral tribunal (created for a particular dispute).
4. Temporal scope of new provisions clarified
The validity of an arbitration agreement is determined in accordance with the laws in force on the date of its conclusion.
The disputes under arbitration agreements entered into before 1 September 2016 and envisaging hearings in permanent arbitration institutions may be heard ether by the arbitration institutions indicated in such agreements or successor institutions.
After 1 November 2017, only those arbitral tribunals may continue functioning as permanent arbitration institutions which are created at the non-commercial organizations granted with the relevant right by the Russian Government.
Disputes administered by a permanent arbitration institution which loses its power to conduct arbitrations will continue to be heard by that arbitral tribunal as if it was an arbitral tribunal created by the parties for hearing of this particular dispute (ad hoc arbitration), unless the arbitration agreement becomes unenforceable.
5. Practical recommendations
Taking into account the risk of controversial interpretations of the newly adopted legal provisions, it is advisable to consider making adjustments to existing arbitration agreements, in particular with regard to corporate disputes.
Any further questions? Please contact: Dr. Viktor Gerbutov
Practice Group: Litigation, Arbitration & ADR