On 29 March 2019 new amendments to the federal law “On arbitration in the Russian Federation” entered into force. This law regulates the order of establishment and activities of arbitration courts and permanently acting arbitration institutions (PAAI) in Russia and applies to resolution of both international and local disputes by arbitration in Russia.
The key amendments relate to granting of rights to foreign arbitration centers to perform functions of PAAIs in Russia. Earlier such rights were granted by the government, but as from 29 March 2019 such functions were transferred to the Ministry of Justice. Ministry of Justice grants the rights to perform functions of PAAIs in Russia to foreign arbitration centers based on recommendations received from the Council on improvement of arbitrations.
As of 31 March 2019, there are only 4 (four) PAAIs authorized to administer disputes by arbitration in Russia and all of them are Russian organizations. In accordance with the latest news the Hong Kong International Arbitration Center (HKIAC) is the first international arbitration center that has recently received a recommendation from the Council on improvement of arbitrations to establish PAAI in Russia and has been approved by the Ministry of Justice to establish PAAI in Russia. In accordance with the law an arbitration center is included in the list of PAAIs in Russia within 15 days from the date of approval by the Council, i.e. by the end of April 2019 HKIAC could become the first international arbitration center authorized to administer international disputes in Russia.
Another issue that should be carefully considered by choosing an arbitration center relate to resolution of disputes between companies established in Russia (local disputes) by international arbitration centers not included in the list of PAAIs in Russia and not authorized to consider local disputes in Russia.
Though there is no direct prohibition established by the Russian law to settle disputes between Russian companies by foreign arbitration centers with the seat of arbitration outside of Russia, the possibility of referral of local disputes to foreign arbitration centers is still questionable. In one of the court decisions that caused disputes in legal community (case# А40-219464/16-52-430) the Russian court of first instance ruled that resolution of local disputes by the foreign arbitration institutions violates public policy in Russia. Notwithstanding the fact that such ruling was dismissed by the higher court instance the risk that the Russian courts might deny recognition of awards of foreign arbitration institutions not included in the list of PAAIs in Russia and not authorized to consider local disputes in Russia cannot be excluded.
Therefore, in situations when the disputes arise between companies established in Russia it would be reasonable to choose arbitration institution included in the list of PAAIs in Russia and authorized to administer local disputes in Russia or, alternatively, agree on resolution of disputes by the Russian commercial courts.
Takeaways
- if you agree in international contracts that the seat of arbitration is in Russia, it would be reasonable to choose the arbitration center included in the list of PAAIs in Russia and authorized to resolve international disputes in Russia.
- If you agree in local contracts to resolve disputes by arbitration, it would be reasonable to choose the arbitration center included in the list of PAAIs in Russia and authorized to resolve local disputes in Russia.